Gensler's crypto onslaught will eventually be halted by the courts

Regulating crypto
It is Congress that has the authority to establish a regulatory regime for the emerging crypto ecosystem — not the SEC, writes securities lawyer James Murphy.

The key sentence in the recent U.S. Supreme Court decision striking down the student loan forgiveness plan is this:

"The question here is not whether something should be done; it is who has authority to do it."


The Supreme Court struck down the $500 billion student loan forgiveness plan constructed by the U.S. Department of Education because it is Congress, and not the executive branch, which has authority to fashion a comprehensive student loan forgiveness policy — if there is to be one.

This should come as no surprise to anyone.

In 2021, the speaker of the House of Representatives, Nancy Pelosi, addressed this very question and explained:

"People think that the president has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress."

This same separation of powers issue is now winding its way through the courts, presenting the question of who gets to decide how the trillion-dollar cryptocurrency industry will be regulated.

Nearly everyone involved in crypto now agrees that a regulatory regime is sorely needed in the U.S.

Nobody wants another FTX — most especially those who actually invest in crypto.

So, as the Supreme Court succinctly put it, it's "not whether something should be done; it is who has the authority to do it."

In our constitutional system, it is Congress that has the authority to establish a regulatory regime for the emerging crypto ecosystem — not the SEC.

As Supreme Court jurisprudence shows, only Congress can decide major policy questions affecting a significant segment of our economy. 

Not so long ago, Securities and Exchange Commission Chairman Gary Gensler agreed with this obvious premise.

On May 6, 2021, Chairman Gensler testified before Congress that the SEC had no authority to regulate crypto exchanges and he urged Congress to pass legislation to establish a regulatory framework for crypto exchanges.

Just as Speaker Pelosi was right about student loan forgiveness, so too was Chairman Gensler right about who has the authority to establish a regulatory framework for crypto exchanges — it's Congress. 

There are many pieces of legislation under active consideration that would establish a regulatory framework for crypto, including crypto exchanges. None has yet passed into law.

Chairman Gensler's testimony was not controversial in 2021 because everyone understood that it would have to be Congress to fashion a regulatory regime for crypto exchanges. 

But then something went horribly wrong at the SEC.

Chairman Gensler suddenly turned 180 degrees and began to proclaim in speeches that: (a) the SEC actually does have authority to regulate crypto exchanges; and (b) there is an existing regulatory framework for crypto exchanges to register with the SEC.

Both of these claims are obviously false.

Nevertheless, without any congressional authorization, Chairman Gensler went on the attack using a "regulation-by-enforcement" strategy to drive crypto exchanges and ancillary businesses out of the U.S. through ruinously expensive investigations and lawsuits.

He has proven remarkably successful in this endeavor as crypto related businesses have exited the U.S. in droves to relocate in any of dozens of other countries that have established comprehensive regulatory frameworks for crypto. 

But how can this runaway head of an executive agency be stopped? 

Unfortunately, options are limited, slow and enormously expensive.

The affected parties have to resort to the courts.

I have been a lawyer for over 30 years, focusing my practice on securities law and regulation.

I am confident that our court system will eventually stop the SEC's unlawful power grab, just as it has done with the EPA on carbon emissions and the Department of Education on student loan forgiveness.

But it may be a long and rocky road ahead. 

It's worth noting that the state of West Virginia initially lost its court challenge to the massive carbon emissions policy unilaterally adopted by the EPA before eventually prevailing in the Supreme Court.

Likewise, Missouri lost its challenge to the enormous student loan forgiveness program conceived by the Secretary of Education before it ultimately prevailed on appeal. 

The question then is: How much damage will Chairman Gensler leave in his wake before the courts once again affirm that our elected representatives in Congress, not unelected political appointees, have the authority and the responsibility to make the important policy decisions in this country?

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