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SEC Chair Gary Gensler Slams Crypto Industry Ahead Of Senate Hearing Today, Says Most Crypto Tokens Are Securities

Gary Gensler
Gary Gensler

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US Securities and Exchange Commission (SEC) Chair Gary Gensler shows no signs of softening his stance toward the crypto industry, saying in written testimony ahead of a Senate Banking Committee hearing today that the industry has “wide-raging non-compliance” issues and that most tokens are securities.

“Given this industry’s wide-ranging noncompliance with the securities laws, it’s not surprising that we’ve seen many problems in these markets,” his written testimony said. “We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place.”

He added that the vast majority of crypto tokens are subject to U.S. securities laws and that almost all cryptocurrencies are securities because they fufill the Howey test, a legal standard that determines whether an asset or transaction qualifies as an “investment contract” subject to U.S. securities laws.

“As I’ve previously said, without prejudging any one token, the vast majority of crypto tokens likely meet the investment contract test,” he said in his remarks, released on Monday evening US time. “Given that most crypto tokens are subject to the securities laws, it follows that most crypto intermediaries have to comply with securities laws as well.”

The remarks suggest Gensler is unbowed by legal setbacks over the past two months that triggered market criticism of his regulation-by-enforcement strategy. 

The regulator suffered a partial loss to Ripple Labs in July, when it was ruled that the XRP is not a token when sold to to the public. It received a more chastening defeat to Grayscale in August, when a judge called its decision not to allow the conversion of Grayscale Bitcoin Trust into a spot Bitcoin ETF ”arbitrary and capricious.”

Still, the Ripple ruling was subsequently disputed by a judge hearing another case, and the SEC has indicated it believes an appeal is needed.

Gensler: Crypto ‘Rife With Fraud’ And ‘Hucksters’

The securities watchdog chair, who calls crypto an industry ”rife with fraud” and ”hucksters,” says his aim is out to protect both crypto issuers and investors. 

At today’s hearing, Gensler is expected to provide further insights into the legal cases and also on two of the regulator’s rules that affect the firms in the crypto industry: a proposal on custody, and another one on redefining exchange definitions to formally incorporate crypto platforms.

As the crypto community eagerly awaits the SEC’s high-profile cases against Coinbase and Binance, which are cases that the Chair may not talk about, the agency is being accused of a witch hunt and an overreach of its mandate.  Congressman Tom Emmer aim to limit the SEC’s oversight of the crypto industry.

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