McHenry slams Gensler for misleading Congress about Ethereum’s classification

House Financial Services Committee Chairman Patrick McHenry has accused SEC Chair Gary Gensler of misleading Congress concerning the classification of Ethereum during his testimony in April 2023.

The accusation comes amid escalating tensions over the regulatory approach to digital assets in recent months, with some industry participants filing lawsuits against the watchdog for overstepping its authority.

‘Arbitrary and capricious’

In a statement released on April 30, McHenry highlighted that recent court documents suggest Gensler intentionally evaded questions from the committee about whether the SEC views ETH as a security.

The allegations raise concerns about transparency and consistency at the SEC, particularly as they contradict the agency’s and Gensler’s earlier statements.

McHenry said:

“Chair Gensler refused to answer direct inquiries about Ether’s status, and now we see it was part of an intentional strategy to misrepresent the SEC’s position. The controversy stems from Gensler’s handling of questions during a committee session in April, where he was pressed for clarity on the SEC’s stance on digital currencies, specifically Ether.

The Financial Services Committee believes that this episode is indicative of a broader pattern of “arbitrary and capricious” regulatory enforcement by the SEC under Gensler’s leadership.

According to McHenry, the watchdog’s enforcement approach stifles innovation and leaves American consumers unprotected. It also poses risks to national security.

The classification of digital assets like Ethereum has significant implications for the crypto industry, affecting everything from investor protections to the regulatory responsibilities of different government bodies.

Historically, the SEC has not classified Ethereum as a security, which aligns with the broader industry’s expectations for less stringent regulations. However, recent documents have revealed that the regulator has viewed ETH as a security internally from as early as 2018.

Clear framework

The committee is advocating for the passage of the bipartisan “FIT for the 21st Century Act,” which aims to establish a clear regulatory framework for digital asset markets, offering robust consumer protections.

The SEC has not yet responded to the allegations made in McHenry’s statement. However, these developments are likely to fuel ongoing debates over digital asset regulation and the role of government oversight in fostering innovation while ensuring market stability and consumer protection.

The controversy comes on the heels of a recent federal court decision that sanctioned SEC enforcement lawyers for misleading the court, which casts additional shadows over the agency’s credibility and operational integrity under current leadership.

Chairman McHenry and other committee Republicans have vowed to continue their oversight efforts to hold the SEC and Gensler accountable for what they describe as regulatory overreach.