Lawmakers clash early on in first full SEC commissioner hearing since 2019

US House Financial Services Committee members grilled leaders of the Securities and Exchange Commission Tuesday, demanding explanations about the agency’s agenda and rulemaking practices, particularly when it comes to digital assets. 

The hearing , entitled “Oversight of the Securities and Exchange Commission,” marked the first time all five SEC commissioners have appeared together before the Committee since 2019. SEC Chair Gary Gensler appeared alongside Commissioners Caroline Crenshaw, Jaime Lizárraga, Hester Peirce and Mark Uyeda. 

Read more: Coinbase, SEC present case to appeals court in petition for rulemaking case

“Chair Gensler’s legacy will be defined by turning the once proud institution of the SEC into a rogue agency,” Committee Chair Patrick McHenry, R-N.C., said during his prepared remarks. 

The commissioners, although appearing in person together, do not represent the opinions of the agency as a whole, Gensler clarified ahead of the hearing. 

When asked specifically about crypto tokens and their status as securities , Gensler repeated a stance he has taken in the past, stating that the agency relies on the Howey test to determine “whether an asset class is being offered to the public.” 

Read more from our opinion section: Dear Mr. Gensler: Can you count to five?

Other Committee members were less concerned with the agency’s dealings with crypto, suggesting that the common notion that commissioners need to “create” digital asset regulations is unfounded. 

“We can provide clarity, although I don’t think it’s necessary, we could pass an additional statute to clarify that crypto is a security,” Rep. Brad Sherman, D-Cali., said. 

Peirce and Uyeda have emerged as the pro-crypto minority on the Commission, frequently issuing dissenting opinions on blockchain-related enforcement actions. 

“It’s a very bad approach to trying to regulate an industry if you’re trying to protect investors,” Peirce said Tuesday, responding to a question about the effectiveness of the SEC’s so-called “regulation by enforcement” strategy . 

“It’s very inefficient, and at the end of the day, it leaves everyone wondering where the lines of our authority are,” Peirce added. 

Most recently, Peirce and Uyeda co-authored an opinion disagreeing with the SEC’s action against Flyfish Club , a private social club in Manhattan that launched an NFT project to sell memberships in 2021 and 2022. The SEC claimed Flyfish violated securities laws by leading NFT investors to expect profits and returns. 

“For curmudgeonly commissioners like us, crypto enforcement feels a bit like a trip to a restaurant for a meal, Omakase style,” Peirce and Uyeda wrote, referencing the Japanese dining experience Flyfish Club offers. 

“Omakase translates to, ‘I’ll leave it up to you.’ This directive is wonderful in the hands of a renowned chef, but disastrous in the hands of a crypto-obsessed commission,” they added.

A modified version of this article first appeared in yesterday’s On the Margin newsletter. Subscribe  here  so you don’t miss tomorrow’s edition.

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