(Bloomberg) — The crypto industry poured millions of dollars into the presidential and congressional races, but its most notable election victory may have been the ouster of U.S. Securities and Exchange Commission Chairman Gary Gensler.
The former Goldman Sachs banker has led the strongest regulatory crackdown on the digital asset industry, bringing dozens of cases against crypto companies and traders large and small, including financial giants Coinbase Global Inc. and property trading. strong DRW Holdings LLC.
President Donald Trump's decisive victory only ensures a withdrawal of cryptography-related enforcement once he takes office. In July, Trump committed to fire Gensler on the first day of his second administration while chairing a Bitcoin conference in Nashville.
The SEC has often touted its success in court in making decisions consistent with its view that decades-old securities laws apply to the fledgling digital asset class. It has also scored some huge fines against some of the biggest names in the industry. The agency won a massive $4.5 billion fine and waiver from Terraform Labs, a stablecoin issuer and founder Do Kwan in April. According to REPORT from consulting firm Cornerstone Research.
“Some crypto cases have been legitimate fraud cases and I hope they continue and I hope we get more of them,” said JW Verret, a professor at George Mason University's Antonin Scalia School of Law in Arlington, Virginia. “A lot of crypto cases have been just registrations, cases where registration is impossible.”
The incoming SEC chairman is expected to push through new regulations that would modify existing securities laws or enable digital asset companies to comply with rules that Gensler has long warned about breaking. This will also serve to inhibit enforcement.
Bipartisan crypto legislation supporting this goal is now a stronger prospect with the Senate now under strong Republican control.
“We expect the Trump administration's and the new Congress's approach to crypto regulation to be much more constructive,” said Jack Inglis, chief executive of the Alternative Investment Management Association, a London-based trade group representing hedge funds and private equity firms. .
That means policies that “recognize the need to bring crypto into the broader framework of financial services while taking into account technological differences with traditional finance that lead to a more personalized approach in many areas,” he said.
SEC enforcement cases against crypto companies have focused on whether their products fit within the decades-old definition of a security, as laid out in the US Supreme Court opinion. SEC v. WJ Howey Co. That hasn't been a good approach, according to William McLucas, a former SEC enforcement director now a partner at WilmerHale. McLucas spoke during a securities enforcement conference in Washington on Wednesday.
“That can't be the solution because if you like crypto or you don't like crypto, it's not going away,” McLucas said. “The enforcement cases that have been brought are what they are, but they keep bringing them and we keep seeing crypto products,” he said.
The change in political power favors a stronger victory for Coinbase in court, according to Elliot Stein, a senior litigation analyst for Bloomberg Intelligence. If the case reaches the US Supreme Court, it could result in a narrowing of the Howey test.
“We gave Coinbase a 60% chance of winning, but now believe it has an 80% chance of prevailing, as we expect a more crypto-friendly SEC in Trump's second term,” Stein wrote in a note Thursday .
Digital assets were the focus of 18% of all tips, complaints and enforcement recommendations at the agency in fiscal year 2024, the regulator's inspector general said in a recent. REPORT. The agency's Office of Investor Education and Advocacy received about 6,000 such complaints during the same period, more than double any other type of complaint, the IG said.
The departure of the executioner
Despite Trump's pledge to remove Gensler from office immediately, he could be reduced to that if the SEC chairman resigns by Inauguration Day. Some of Gensler's fiercest critics in financial services are already calling for his immediate resignation.
“Last night the people voted to take this country in a new direction, and Chairman Gensler must honor that vote by leaving office immediately,” said Chris Iacovella, president and chief executive officer of the American Securities Association. which represents regional brokers. and other financial services firms.
If Gensler follows Washington tradition and leaves, it would leave the agency split 2-2 along party lines until a new chairman can be confirmed. This would prevent further aggressive enforcement, especially with Hester Peirce, the so-called “Crypto Mom” still a commissioner.
One crypto industry executive, who asked to speak on background to speak candidly, said they anticipate Gensler may still want to bring cases against companies like Uniswap and OpenSea that have already received “Wells notices” — an enforcement process that officially notifies a company that they are under investigation by the SEC.
But other enforcement cases can be completed slowly. Agency staff, aware that a future SEC chairman, especially one who supports Trump's pledge to shrink the size of the federal government, could look unfavorably at employees taking aggressive action in the months before a change in leadership and policy. , said the industry executive. .
The SEC declines to comment.