Open Letter to Mr. Gary Gensler, Chairman of the U.S. Securities and Exchange Commission
Dear Chairman Gensler
Nearly five months have passed since you were sworn in as the new chairman of the U.S. Securities and Exchange Commission (SEC). President Joe Biden had nominated you in recognition of your vast experience and long public service.
President Biden also chose you to chair the SEC because of your experience in fintech. The financial landscape is changing drastically and radically because of new technologies that are challenging the way business has been done in the past. And you were a senior lecturer at the MIT Sloan School of Management. You’re considered an authority in your field of knowledge.
But almost half a year has passed since you became chair of the SEC, and the commission has yet to give a single sign that it recognizes the importance of the fundamental changes that are at stake. Especially in the area of digital currencies, there is still a complete lack of regulatory guidance in the United States.
You, dear Mr. Gensler, insist that there is clear guidance – even though your own SEC commissioners emphasize the lack of such guidance. You must be familiar with the relevant comments of your fellow commissioners Hester Peirce and Elad Roisman. Admittedly, there are clear offenders who should be prosecuted. But there is also a huge gray area which sets traps to snatch victims. Your official SEC policy, Mr. Gensler, looks like deliberate deceit.
Countries such as the UK, Japan, Switzerland and other major financial players have long issued clear guidance. The U.S., however, continues to point to an old set of rules, referencing the so-called 1946 Howey test to determine whether a digital currency is an asset or a security that must be regulated accordingly. A 75-year-old test should determine the future of the U.S. financial landscape. Good luck with that.
Moreover, it has meanwhile been documented beyond a shadow of a doubt that SEC commissioners and friends with vested interests pick winners and losers. I’m sure you’ve seen the videos currently circulating on social media proving that key decision makers have used their position and influence to pick winners and losers. The main characters in question are William Hinman, former SEC Director of the Division of Corporation Finance, and Joseph Lubin, co-founder of Ethereum.
Take this event, in which Lubin, whose Ethereum benefits massively from the SEC free pass issued by Hinman, sounds like an SEC representative or spokesperson.
The tragedy of it all is that Hinman has since denied in a court deposition that he ever declared Ethereum’s Ether token a non-security under SEC guidelines. That famous speech of his, which was picked up by Wall Street and major U.S. media, this speech was his personal opinion, Hinman now claims. This despite the fact that the SEC itself on multiple occasions has declared this Hinman speech to be an official policy.
You must also be aware of the fact, Mr. Gensler, that Hinman and Lubin met just prior to this speech on June 14, 2018. And you’re certainly also aware of the fact that upon his appointment to the SEC, Hinman had left his post at law firm Simpson Thacher – which sits on the Enterprise Ethereum Alliance and represents cryptocurrency-related financial interests. While at the SEC, Hinman continued to receive millions in financial payments from the law firm.
And Mr. Gensler you certainly know that the law firm of your predecessor, former SEC chairman Jay Clayton, represented Lubin and his firm ConsenSys. You must also know that Clayton and Hinman were already working together before their work at the SEC. Clayton brought Hinman on board to join him at the SEC. And there they picked winners and losers. As you know, literally on the day of leaving office Clayton’s SEC sued U.S. start-up Ripple. On the last day of work. Let that sink in.
Shall we talk about One River Asset Management? In October 2020, One River makes a one billion dollar bet on Bitcoin and Ether – the two digital currencies Hinman gave clarity by declaring them commodities. Less than three months later, Clayton buries Ripple and XRP in litigation and leaves the SEC to join One River.
And as you are well aware, Mr. Gensler, neither then nor today there is official written policy guidance on these regulatory matters. None. No one even knows whether the SEC has jurisdiction over cryptocurrencies. The current SEC credo is that nothing an SEC official says is the SEC’s official position, only his or her personal opinion. This is despite the fact that the SEC cannot show a single document to guide digital currency issuers as to whether their tokens are an asset or a security. No one in the U.S. knows for sure, Mr. Gensler, what the rules are. Not even the SEC. Of course, you refer to the Howey Test… Mr. Chairman, this is a power grab attempt under the pretext of obsolete guidance. There is neither clarity nor guidance, just intended ambiguity, while your SEC, Mr. Gensler, is now trying to cover its tracks. The Ripple case does not go as planned, does it. And your SEC is holding up resolution.
Look, even Coinbase’s Brian Armstrong is upset about the SEC’s refusal to provide regulatory clarity.
This refusal to do your job, Mr. Gensler, also tarnishes your reputation as a professional who should have these fundamental and honorable goals in mind: protecting investors and maintaining fair, orderly, and efficient markets. Currently, however, the SEC has become synonymous with the opposite: vested interests and corruption in broad daylight. Your SEC is trying to protect legacy systems and their business models on the guise of “investor protection.”
This is not just an embarrassment to the SEC. It is an embarrassment to the U.S. and a mockery of countless innovators and investors who are at risk of being ruined because they are accused of offenses they can’t possibly be aware of due to the lack of rules. People look elsewhere to invest and innovate.
As for digital currencies, the U.S. is drifting into a legal vacuum that is being exploited by those who can. Not an enviable position for you to be in, Mr. Gensler. But there is a simple way forward. Surely you’ve studied the legal frameworks of other financial markets that provide clarity. This is not magic. It’s simple realism and economic foresight – a foresight the U.S. had demonstrated with the rise of capitalism and the rise of the Internet: global leadership.
The choice is yours, Mr. Gensler. History is being written right now. No one is calling for a revolution, but for realism, foresight and the laws to be applied fairly. Will you be on the wrong side of history, Mr. Gensler?
By the way, you remember your speech in 2018 when you referred to the digital token XRP as a currency? XRP is at the core of the Ripple enforcement case. The SEC claims the digital currency is a security, contrary to what you said. Either you were wrong. Or the SEC is. Who, you think, is right?
Ripple tried for years in vain to get clarity from the SEC. The SEC refused to. Last so even in 2020, shortly before suing Ripple, Clayton refused to give an answer. Not Ripple has to adjust its ways. The SEC has to. The SEC is on trial here. Not Ripple. Providing clarity is a core mission of the SEC. Yet in the new digital economy the SEC is mudding the waters to interpret laws at whim. It’s in your hand, Mr. Gensler, to right the wrongs.
Sincerely yours,
one of many