SEC Under Fire: US House Rips Ethereum Probe, Accuses Gensler Of Misleading Congress

May 2, 2024

Amid escalating tensions, the U.S. Securities and Exchange Commission (SEC) finds itself under intense scrutiny as the House Financial Services Committee lambasts the regulator’s Ethereum investigation and its purported move to label the cryptocurrency as a security.

In a damning accusation, Financial Committee Chairman Patrick McHenry levelled charges of intentional deception against SEC Chairman Gary Gensler, alleging a deliberate attempt to mislead Congress on the matter.

Legal Challenges and Legislative Criticism

Merely days after the Ethereum blockchain company Consensys initiated a 34-page lawsuit against the SEC and its commissioners, alleging what it termed an “unlawful seizure of authority over Ethereum (ETH),” the Wall Street watchdog finds itself under siege once again. This time, the barrage of criticism did not come from market participants but from several U.S. lawmakers and the House Financial Services Committee, marking another turbulent chapter for the SEC, as it navigates the complex and often contentious arena of digital currency regulation.

The House Financial Services Committee expressed significant concerns over the alleged plan of the SEC to classify Ethereum as a security. This position, according to the committee, starkly contradicts earlier assurances given by the SEC and Gensler regarding the regulatory status of ETH. 

The committee emphasized, “Classifying ETH as a security contradicts previous statements of the SEC and Chair Gensler.” Amid these regulatory shifts, Republicans have voiced their intention to rigorously scrutinize the SEC’s actions, which they view as regulatory overreach. This overreach, they argue, not only stifles innovation but also leaves consumers vulnerable and potentially jeopardizes national security.

The committee firmly stated, “Republicans will continue to hold the SEC accountable for its regulatory overreach that is stifling innovation, leaving consumers unprotected, and risking our national security.”

A Pattern of Misconduct Alleged Against SEC Leadership

In a pointed critique from McHenry, recent developments cast a shadow over the leadership of the SEC. This criticism followed a mere few months after a federal judge reprimanded SEC enforcement lawyers for dishonest practices within the courtroom. 

Adding to the controversy, new evidence suggested that Chair Gensler himself may have provided misleading information to Congress. During his testimony before the Financial Services Committee last April, Gensler evaded questions about the SEC’s stance on Ether’s classification. Recent court documents, however, indicate that this evasion was part of a deliberate attempt to obscure the commission’s position.

Call for Legislative Reform and Oversight

McHenry highlighted that this behavior is part of a broader pattern of inconsistency, noting, “Classifying Ether as a security contradicts previous statements of the SEC and Chair Gensler—yet another example of the arbitrary and capricious nature of the agency’s regulation by enforcement approach to digital assets.” He emphasized the critical need for legislative action, advocating for the passage of the bipartisan FIT for the 21st Century Act. This legislation aims to establish a clear and comprehensive regulatory framework that enhances consumer protections within the digital asset markets.

McHenry stated, “Committee Republicans will continue to hold Gary Gensler’s SEC accountable for its regulatory overreach that is stifling innovation, leaving American consumers unprotected, and risking our national security.” 

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