Gensler says DEBT Box case ‘not well handled’ by SEC

All five commissioners of the Securities and Exchange Commission appeared on Capitol Hill Tuesday.

While politicians had questions for each and every commissioner, it was clear that some lawmakers were eager to face off directly with SEC Chair Gary Gensler. 

Congressman Tom Emmer, R-MN., used his questioning to ask Gensler about the DEBT Box case. ICYMI, the SEC was sanctioned in the Utah-based case. 

The judge overseeing the case said that the sanctions were due to “bad faith conduct” and a “gross abuse of power.”

Read more: DEBT Box loss shows SEC ‘overreach and failure,’ Hill says

Emmer, on Tuesday, brought up the case and asked Gensler if the handling of the case “embarrassed” him. 

“The matters in that case were not well handled and we’ve said that to the court,” Gensler answered. 

Reports later circled that two of the SEC lawyers left the agency after the sanctions, and the SEC later announced that it was shuttering its Salt Lake Regional Office. Emmer sought to clarify the reports, asking Gensler if the lawyers were dismissed from the SEC. 

Gensler, however, said that both “went to take another job.”

But Emmer wasn’t deterred. He rebuked Gensler for a footnote in a filing in the SEC’s case against Binance earlier this month, which claimed that it was going to discontinue the use of “crypto asset securities” because the commission wasn’t “referring to the crypto asset itself as the security.”

“You never provided any interpretive guidance on how ‘crypto asset security’ might be defined within the walls of your SEC. Yet, you made the broad proclamation that you believe a majority of tokens are ‘crypto asset securities.’ You did this and you deliberately used this made-up term as the basis for your entire enforcement crusade over the past three years,” Emmer told Gensler.

Read more: Rep. Torres: SEC invented ‘crypto asset security’ out of thin air

“Your inconsistencies on [crypto], sir, have set this country back. We could not have had a more historically destructive, or lawless, chairman of the SEC,” he continued. 

But it wasn’t just the Republicans taking issue with the SEC’s crypto approach. Another notable exchange happened between Congressman Ritchie Torres, D-NY, and Gensler. 

Torres asked Gensler if he believed that Yankees tickets were securities. 

Gensler noted that he “didn’t know all the facts” but he didn’t “think so.”

Torres said that the Yankees ticket could, theoretically, gain value and become more valuable on the secondary market. He noted the ticket allows the holder to gain access to the Yankees game, drawing a tie to the Stoner Cats NFT case from last year. The SEC charged the Ashton Kutcher and Mila Kunis-linked NFT project with an “unregistered offering of crypto asset securities.”

The Stoner Cats NFT collection allowed users to access the web series, Torres added. 

“From the standpoint of federal securities laws, is there a legal difference between buying a Yankees ticket — which offers you the experience of a Yankees game — and buying an NFT that offers you the experience of an animated web series?” Torres asked. 

When Gensler didn’t answer, Torres said he was “avoiding the question.” He took issue with the “open-ended” nature of Gensler’s investment contract definition. 

Before the hearing ended, Congresswoman Erin Houchin, R-IN., asked Commissioner Hester Peirce about the regulatory approach her agency has taken towards crypto. Peirce has, notably, been a pro-crypto commissioner. 

“We leave people to read the tea leaves of our enforcement actions,” Peirce said. 

“It’s not even serving ourselves, because we’re spending so much on [crypto enforcement actions],” she continued, adding that the SEC may be better served to create rules rather than rely on the courts.

---

Get the news in your inbox. Explore Blockworks newsletters:

• The Breakdown: Decoding crypto and the markets. Daily.
• 0xResearch: Alpha in your inbox. Think like an analyst.