American oversight committees are interesting expressions of state power. The committee room is filled with rows of seats cascading upwards with the representatives seated at the highest point and the subject, in this case, the Director of the SEC’s Division of Enforcement, Gurbir Grewal, placed far beneath them so that he must constantly look upwards at the seat of power.
The members were expositional, almost comically so, reading pre-prepared questions from tablets and punctuating the ends of their sentences as they gesticulated dramatically. On the question of the enforcement action against Ripple, Chair of the House Financial Services Subcommittee, Representative Sherman, emphatically agreed that XRP was a security but wondered why the SEC hadn’t also gone after the exchanges that were selling these unregistered securities to the unsuspecting public. Director Grewal dodged the question by clarifying that he could not comment on active litigation.
Representative Sherman touched on a curious aspect of SEC regulatory actions, particularly against Ripple. Why is the investing public bearing the brunt of the SEC’s enforcement actions? Why do the exchanges and the billionaires who run them not suffer their due share of the pain? After all, they were selling and profiting from something both the SEC and Chairman Sherman argue were unregistered securities. The SEC has even argued in court that market participants should have known XRP was always a security. If this is the case, then why aren’t the exchanges and other stakeholders being punished?
The answer to this question may have come earlier in the committee meeting, where members expressed that SEC enforcement actions were meant to discourage bad behavior before it happened. So the agency operates on a similar principle to rulers like Vlad the Impaler — with victims hoisted high above parapet walls with spikes driven through their bodies to dissuade foreign invaders. Except, in the case of XRP, the victims are the myriad domestic and foreign holders of the decentralized cryptocurrency.
The peddlers of this security are left to skip along, happy with their profits, as the rest of us twist in the wind. All the while, the committee pontificates and hurls prefabricated speeches at a director they’ve hauled into their coliseum so they can keep up the appearance of “oversight.”
Hinman’s ETHGate speeches were also tangentially mentioned by representative Davidson:
“Let me run a hypothetical scenario by you. Say an SEC official gives a speech at a conference. And the official begins by stating that “their views are their own and not necessarily those of the commission.” Anyone who’s ever heard an SEC official speak would know that this is standard, and they would not interpret the speech as legal guidance. However, let’s say that the SEC official consulted SEC staff and perhaps even ethics directly to assist them in writing the speech or giving guidance. Under this scenario, would the written speech still be considered personal views of the individual and not views of the commission?”
Director Grewal refused to answer because “that hypothetical is a real scenario that’s playing out in litigation.”
For XRP holders wondering if the committee would provide any substantive criticism for the SEC’s attitudes on crypto and their enforcement actions, the statements lobbed at the Director were surprisingly soft, except for those from Representative Emmer, who stated:
“But time and time again, you place the blame for this erosion in trust almost squarely on the shoulders of industry participants and companies. Mr. Grewal, the SEC is in no way blameless here. Chair Gensler’s political regime at the SEC, carried out by its division of enforcement, has been characterized by a focus on using enforcement to expand SEC jurisdiction at the expense of public resources, public investment in our country, and public trust in our markets. It seems clear to everyone, except maybe those at the commission, that the SEC is not regulating in good faith. Although many sectors of the industry have grappled with the SEC’s politicization of regulation over the last 14 months, it can be seen most clearly when it comes to the digital asset industry.”