Crypto insiders lauded Gary Gensler’s nomination to chair the Securities and Exchange Commission (SEC) last February. The MIT professor who had taught blockchain classes would bring an enlightened approach to crypto compared to the scattershot, perplexed style of his predecessor Jay Clayton. But a year in the professor gets an F in crypto guidance and leadership. He has encouraged the worst bureaucratic instincts of the federal government, deepened regulatory confusion, and thwarted any hope of progress during his tenure—all whilst claiming the mantle of little-guy defender and public-interest protector.
Not everyone agrees with this assessment. The powerful cabal of Washington and global interests that oppose everything crypto are likely pleased with Gensler’s performance. These include Democratic senators, well-placed financial regulators, and global central banking authorities.
Professor Gensler turns into Bureaucrat Gensler
Cynics contend this cabal comprise his real audience; those that can help the uber ambitious Gensler climb the bureaucratic ladder to Treasury Secretary or beyond. But even without questioning his motives, his tenure related to crypto has been a farce.
Gensler analogizes his role to that of football referees. “Imagine a football game without referees. Without fear of penalties, teams start to break rules. The game isn’t fair and maybe after a few minutes, it isn’t fun to watch.” Yet the dystopian present he has fomented invites a different analogy: The referees are the only ones who know the rules, won’t tell the teams what they are, but still call a penalty on every play—the players discovering ex post facto the play was verboten.
Former acting Comptroller of the Currency, Brian Brooks, described the scene recently in Congressional testimony: “What happens in the United States is you have a new crypto project and you walk into the SEC and you describe it in great detail and you ask for guidance and they say we can’t tell you and you list it at your own peril.”
Crypto doesn’t want Professor Gensler’s protection
This is particularly disheartening when the teams have plays the fans want to see. Although Gensler couches crypto edicts in protecting the populace against scams, many high-profile cases the SEC has prosecuted during his (and his predecessor’s) tenure had active, happy user bases. Kik, Telegram, and ongoing cases against LBRY and XRP/Ripple focused on selling “unregistered” securities via a security type (investment contract) absent in the federal code and defined through a three-part test by the Supreme Court a year after WWII ended.
Lawyer James Burnham opines the current Supreme Court zeitgeist would likely preclude such broad administrative diktat on crypto absent new Congressional mandate. But such agency reprimand would require a company spend gargantuan legal fees and endure years of litigation for even the chance to argue the case. The Commission understands its ability to bleed belligerents dry and force settlements before they obtain meaningful judicial review. As it stated in its 2018 budget request: “[T]he SEC’s litigation efforts also help the SEC obtain strong settlements in other cases by providing a credible trial threat and making it clear that the SEC will go deep into litigation and to trial, if necessary, in order to obtain appropriate relief.”
For his part, Gensler has directed the Enforcement Division to discourage meetings with investigatory targets and eliminate “unnecessary process.”
Thus, the status quo is worst of all worlds: rules that leave seasoned securities lawyers guessing, an agency that refuses any guidance besides lawsuits, or threats thereof, and an agency chair requesting scores more enforcement attorneys and “plenary” authority to protect people who in many cases do not want it.
Professor Gensler is not serving the public interest
Commissioner Hester Peirce described a previous era of “broken windows” theory compliance at the SEC as the “Sanctions” and Exchange Commission. Now it may better be labeled the “Sanctions and Enforcement” Commission.
Under Gensler, the SEC has declared a permanent crypto war. It has refused to approve any Bitcoin spot Exchange Traded Products despite myriad applications, new projects are refused guidance and told to take their chances, and the Chair recently gave a speech one commentator called the “the most aggressive and hostile stance re U.S. crypto regulation to date from the SEC.” An SEC this stroppy to crypto innovation may serve entrenched interests in Washington and other global financial destinations. It does nothing, however, for the American public. Those that think otherwise should go back to school.
By Jossey PLLC
A version of this piece originally ran in CoinDesk, https://www.coindesk.com/layer2/2022/01/23/professor-gensler-gets-an-f-on-crypto/