SEC Chair Gensler's D.C. Hearing Was 'Frustrating,' Lacked Transparency: Former SEC Enforcement Lawyer

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. Welcome back to first mover sec chair, Gary Gensler testified during a House Financial services committee hearing focused on sec oversight and had a fiery exchange with New York Congressman Richie Torres yesterday. Let's take a look. Suppose I would have purchased a Pokemon card would doing so constitute a security transaction. Uh You could purchase a Pokemon card. It's I I don't know what the context is, but if you're just purchasing a Pokemon card, if I purchase a Pokemon card, is that a security transaction that's not a secure. If I were to purchase a tokenized Pokemon card on a digital exchange via a Blockchain, is that a security transaction? I I'd have to know more. Ok. So, so for you, the process of tokenization is what transforms a nonsecurity transaction into a security transaction. Look it, if, if the invest, I thought you were technology neutral, if the investing public is anticipating profits based upon the efforts of others and they're exchanging funds, that's the core. See, my time has expired. So, all right, joining us now to discuss is Perkins coy partner and former sec enforcement lawyer, Keith Miller. Keith. Welcome to the show. Good morning, Jen Emily and Lawrence. Great to have. Thanks for having me. Of course, it's great to have you here. Now, that exchange we just listened to the exchange we just witnessed is a reaction I would say to the recent NFT enforcement actions by the SEC. We're hearing a lot about Pokemon cards and Star Wars collectibles. Um What it, what did you think of what we saw there is this discourse, something that you expect to hear more of as we move forward in the lack I guess of crypto regulation in the US. You know, your previous segment talked about how the crypto market is boring. Yesterday's hearing was anything but boring. Um There I think the word I would use to describe the Congressional Committee on Financial Services was frustrating. Um A lot of the questions that were asked of Chair Gansler. Um He frankly just failed to answer. So let's just start with what is the S ECs mission? I want to talk about this, right? The S ECs mission is three fold. One is protecting investing investors. Look at, if you go right through their main website, you'll see this is our mission. One, protect investors, two maintain fair and orderly markets and three facilitate capital formation underlying that mission is transparency. Transparency means the ability to listen, understand and move forward. That's what we're seeing in my opinion. That's what we're seeing is a lack of leadership on the part of the sc to listen, understand and move forward. There's no rule making that's been occurring, occurring in the crypto space. There's a lack of understanding about how the crypto market can function in a regulated market. Let's let's make it sure everyone's agreed that digital assets should be regulated. We want to prevent fraud, but it's trying to understand how to do that. And that's what the frustration was being vented against. Chair Gems. One congressman asked him, is Bitcoin a secure and unfortunately he fumbled. He didn't want to say it's not a security. Then finally, when the, when the congress congressman asked him, well, you said it's not a security, is it a commodity? Now again, chair of the SEC was a chair of the CFTC. Regulates commodities. And he said, well, I, I guess it really depends on what context. So the problem here, in my opinion is that there's a lack of transparency and that's the underlying mission for the SEC. Full disclosure disclose. And that's the basis of our securities laws. Do you think we're going to get any regulatory clarity under Ter Gansler? There were a few Congress, uh, people who were saying that he should step down. Uh, no, I don't, I don't think we're going to get anything. Look, this is politics, right. You know, I think the only way that there's going to be more clarity is through court decisions and legislation, I think on those two axis, I think you're more likely to see uh more of uh clarification in the courts. So, based on, based on chair Gusler uh testimony yesterday, uh AAA and of course his actions over the past couple of years here and, and, and, you know, he knows crypto. It's not like he's a, this is something he's never heard of. It's, it's something he actually taught at MIT. So I'm gonna guess that he probably knows crypto a lot more than even a lot of guys on youtube who scream and shout about buy this or sell that. Um He also, as you said, was head of the CFTC. What do you think is going on exactly. Do you think that it's a power grab in the sense of he doesn't want to answer these questions? Uh He doesn't want to have this kind of, of, of clarity on purpose or is it because he is waiting for Congress? In other words, what's his motivation? Obviously, we can't get into his head but seeing it from somebody who's been on the inside who's seen the day to day works of the SSEC and, and now deals with them in another, in another way. What do you think is the motivation behind Chair Guns approach to crypto at this moment? Yeah, I think it goes back to a void of regulation regarding digital assets and as a result, he believes that someone needs to regulate those. And as a result, he has, in my opinion, he has SPT crypto assets into this definition 1940 definition of investment contract and is trying to be the regulator for digital assets. Now, during a hearing, one of the congressmen asked them about and this is an argument that is being advanced in court, the major questions doctrine and that is, does the sec have authority over important economic issues that impact the United States? Like ESG for example, that I think was the area that was explored as well as crypto that's being advanced. So right now, since there's this void, sc has stepped in, in a lot of these cases look rightly. So there's fraud going on, right? And they're using these coins, right as investment opportunities, ok? Not just as investment opportunities, but investment opportunities where you're relying on management's abilities to increase the price of the token or package it with a number of other tokens and sell that. So rightly. So in a lot of these cases, they need regulation and they are securities, but in a lot of other situations, it is ambiguous whether they are securities. And the SEC has said I'm going to try to grab this area digital assets in general and regulate them. So like I said, until the, until the courts step in and say no, you don't have authority in this area under these facts and circumstances or legislation comes through. I think you're going to see a continuation of this. I mean, he seems to think that there is regulatory clarity though, to be sure in everything that he said before, it's that, hey, the, yeah, these 19 forties law, the 1940 how we test and everything is perfectly fine by us. This is exactly what we need. We don't need any extra legislation. We're, we're the regulator here. So do you think that this is a, this is essentially a power grab? I mean, is this, is this sort of like, has nothing to do necessarily with, with uh Gusler dislike uh of crypto though there are some characters to be sure. And I can, I, can I have a list somewhere of people I think are distasteful in crypto. But uh nonetheless that it's uh it, it's a, it's basically a power grab because he's like, well, you know what I know this space, I know it better than anybody else. Almost an arrogance. If you will. I should be in charge of it. Yeah. Iii I think part of that is, is increasing the sec's ability to regulate digital assets. I think that's the ultimate goal here. Whether that occurs, I think belongs to Congress to make that determination not to the SEC. And I think that's what you're seeing in court, which is, you know, a number of the court cases are questioning, does the SEC have the ability to regulate this area? I mean, part of the problem also is back to transparency, right? Um The lack of transparency when people go and meet with the sec, they ask them, ok, how do I do this? You want me to register, register these tokens as crypto assets, securities assets. How do I go and do that? Show me on form 10, how I can answer these questions because it can't be answered. And if it can't be answered, how can I comply with your regulations? And there's, oh Emily, we hear, we hear Emily there, there's that, that, that lack of communication, listening and trying to solve the problem here. You know, something else we didn't get any clarity on during yesterday's testimony was the spot Bitcoin ETF. Everyone is waiting for the spot Bitcoin ETF as a catalyst for the crypto markets. Sure Gansler refused to say if they would approve this. Um Do you think that we're going to get a spot Bitcoin ETF? Just give even some of the discourse we've, we've seen around that. Of course, Black Rock, the biggest asset manager in the world has applied. What do you think is gonna happen there? Yeah. You know, it's interesting. Congress sent a letter on the 26th to chairs identifying this is a major issue for them, right? Um And, and citing uh the gray scale uh circuit court case that came out where the court held that the sec was acting arbitrary and capricious. OK. And so there is pressure being put on to your, to do something in this space. Um, I guess it's a wait and see. I don't, I have no predictions on what's going to happen, but there is a lot of pressure, I can tell you from Congress to have the SEC treat everyone fairly. Nonetheless. Does it, does the fact that you have a Blackrock, the largest asset manager in the world uh, involved in this, does it change what the, look, the reality is, laws aren't just, uh you know, it's not everybody's treated equally. We know this, I mean, this is, you know, anybody who's been to court knows that. Uh but it's, uh you know, the myth aside, do you think that having, um having Blackrock involved changes how things are done? Is it change? Chair guns view? Yeah, I don't know if it's going to change this view, but as more traditional financial institutions get into the market, there's going to be more pressure on the SEC to authorize one of these Bitcoin ETF s again, the Circuit court said, how can you authorize a Bitcoin futures? ETF but not a Bitcoin spot. ETF. It makes no sense, articulate why that's occurring here. Otherwise, it's arbitrary capricious conduct. Keith, thanks so much for joining us this morning and shining some light on Chair Gusler testimony yesterday.