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 like 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 rulemaking 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 claims of government overreach.

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

McHenry — along with other Republicans like Reps. 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 chair for stonewalling their efforts to investigate his response to the FTX failure, with McHenry calling the agency’s responses “unacceptable.”

“If you continue to thwart this institution by ignoring our requests and providing incomplete responses, we will be left with no choice but to pursue all avenues to compel the information or documents we need,” McHenry said.

In one 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 Chair 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 viewed by the commodities regulators as a commodity and the securities regulator to be viewed as a security? Do you think that provides safety and soundness for the products?” McHenry asked Gensler, who led the CFTC during the Obama administration. “I think ‘no’ should be a very simple answer for you here.”

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

The SEC chair called on exchanges, brokers and issuers to comply with the same rules that Wall Street follows.

“It’s not a matter of a lack of clarity,” he said. “This is a field that in the main is built up 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 “stark difference” from that of previous SEC officials. And Rep. Jim Himes of Connecticut criticized Republicans for taking issue with the SEC for doing “too much, too quickly” just weeks after blasting bank regulators for doing “too little” and moving “too slowly” following the collapse of Silicon Valley Bank.

The hearing offered Republicans a rare opportunity to harangue 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 House Whip Tom Emmer (R-Minn.) and Rep. Warren Davidson of Ohio, voiced displeasure with Gensler’s refusal to answer yes or no questions about his agenda.

Rep. Alex Mooney (R-W.V.) bashed 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 make new disclosures to their investors would strip competition from the private funds market and harm investors. And Rep. Ann Wagner (R-Mo.), who chairs the committee’s panel on capital markets, said the planned overhaul of U.S. stock trading risks making “equity markets more costly, 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 are “fixing what ain’t broken.”