McHenry clashes with SEC’s Gensler over crypto crackdown

Gensler has long argued that much of the lightly regulated $1 trillion market violates U.S. securities rules because many of the products consist of unregistered securities.

Gensler, an ally of top progressives as Senate Banking Chair Sherrod Brown (D-Ohio) and Sen. Elizabeth Warren (D-Mass.), has been on a collision course with McHenry since the GOP took control of the House in January. The veteran regulator’s turbocharged regulatory agenda includes planned overhauls of the private equity industry and stock market trading, along with a sweeping climate disclosure proposal that Republicans have battered with allegations of government overreach.

But much of the fireworks during Tuesday’s five-and-a-half-hour marathon were over crypto.

McHenry – along with other Republicans as representatives. French Hill of Arkansas and Bill Huizenga of Michigan – attacked Gensler over his approach to regulation. They said he was too focused on enforcement and not enough on providing clarity for the industry. They also blasted the SEC chairman for shutting down their efforts to investigate his response to the FTX bug, with McHenry calling the agency’s response “unacceptable.”

“If you continue to obstruct this institution by ignoring our requests and providing incomplete answers, we will have no choice but to pursue all avenues to obtain the information or documents we need,” McHenry said.

In a contentious exchange, McHenry challenged Gensler to explain whether Ether — the second-largest crypto token after Bitcoin — is a security, while hinting at a potential turf war between the SEC and another regulator, the Commodity Futures Trading Commission. CFTC Chairman Rostin Behnam, whose agency oversees derivatives products, has said that Ether falls under the CFTC’s jurisdiction.

“Do you think it serves the market for an object to be seen by the commodity regulators as a commodity and the securities regulator to be seen as a security? Do you think it provides safety and solidity for the products?” McHenry asked Gensler, who chaired the CFTC under the Obama administration, “I think ‘no’ should be a very easy answer for you here.”

But Gensler declined, citing a longstanding precedent for SEC officials not to comment on specific matters. Instead, he offered a high-level answer explaining the SEC’s test for determining whether an asset is a security.

The SEC chairman urged exchanges, brokers and issuers to adhere to the same rules that Wall Street follows.

“It’s not a question of lack of clarity,” he said. “This is a field that is essentially built around non-compliance.”

Democrats, led by ranking member Maxine Waters (D-Calif.), defended Gensler’s crypto strategy — as well as most of the SEC’s agenda. Waters said his approach to crypto marked a “big difference” from previous SEC officials. And Rep. Jim Himes from Connecticut criticized Republicans for taking issue with the SEC for doing “too much, too fast” just weeks after blasting bank regulators for doing “too little” and moving “too slowly” after the collapse of Silicon Valley Bank.

The hearing gave Republicans a rare opportunity to speak to Gensler to his face rather than through public letters and official statements.

Gensler was often quick to defend the SEC’s work, but the frustration was palpable. Several lawmakers, including the House Whip Tom Emmer (R-Minn.) and Rep. Warren Davidson of Ohio, expressed displeasure with Gensler’s refusal to answer yes or no questions about his agenda.

Rep. Alex Mooney (RW.V.) dismissed as “radical” Gensler’s high-profile bid to require public companies to disclose climate risks.

Rep. Andy Barr (R-Ky.) said the SEC’s attempt to force private equity firms to provide new disclosures to their investors would remove competition from the private equity market and hurt investors. And Rep. Ann Wagner (R-Mo.), who chairs the committee’s capital markets panel, said the planned overhaul of U.S. stock trading risks making “stock markets more expensive, less efficient and overall worse” for individual investors.

Even some Democrats had questions.

Rep. Ritchie Torres of New York wondered aloud whether the SEC’s plans to update stock trading rules “fix what ain’t broken.”