Gensler’s maintained view that all cryptocurrencies except Bitcoin are securities continues to spark reactions.
Ripple General Counsel Stuart Alderoty has asserted that United States Securities and Exchange Commission Chair Gary Gensler should recuse himself from votes on enforcement actions declaring cryptocurrencies as securities.
It comes as Gensler, in a recent interview with New York Magazine, expressed that all cryptocurrency transactions aside from Bitcoin spot trading and the use of crypto to purchase actual goods fall under SEC’s purview.
“Everything other than bitcoin,” is a security Gensler reiterated. Unsurprisingly, his statements have attracted significant pushback from crypto lawyers.
Alderoty, in a tweet today, citing Antoniu v. SEC (8th Cir. 1989), asserted that the SEC chair must recuse himself from enforcement action votes regarding cryptocurrencies alleged to be securities as he has prejudged the outcome.
Crypto lawyer PSA: Chair Gensler has again proclaimed that every cryptocurrency, except BTC, is an unregistered security. He now must recuse himself from voting on any enforcement case that raises that issue since he has prejudged the outcome. Antoniu v. SEC (8th Cir. 1989)
— Stuart Alderoty (@s_alderoty) February 27, 2023
Characteristically, Attorney James K. Filan, a pro-XRP attorney who has closely followed the SEC case against Ripple, was on hand to provide a document summarizing the case details. In the cited case, the SEC had prevented the petitioner from gaining securities-related employment due to previous violations, instituting a litigated administrative proceeding to make this restriction permanent. Notably, while the process was pending, an SEC commissioner, in a speech, asserted that the limitation was permanent.
The court ruled in favor of the petitioner, who argued that the involvement of this commissioner biased the case. Consequently, the court lifted the restriction and instructed the agency to review the evidence afresh without the participation of the biased commissioner. The court ruled on the idea that all trials should have “the appearance of complete fairness.”
Notably, Alderoty’s statements received support from Attorney John Deaton, who represents thousands of XRP holders as a friend of the court in the SEC case against Ripple. Deaton described the Ripple attorney’s take as a “Brilliant move,” adding that it was worth raising before the House Financial Services Committee.
Bill Morgan, another pro-XRP attorney, asserted that Alderoty was correct, adding that Gensler has continued to make these claims despite a lack of investigations on most cryptocurrencies.
So Gensler cannot be saying all cryptos except Bitcoin are securities based on legal advice /2 @MoonLamboio @JohnEDeaton1 @freddyriz @attorneyjeremy1
— bill morgan (@Belisarius2020) February 28, 2023
However, Marc Fagel, a Stanford lecturer, and former SEC regional director discounted these claims pointing out the difference between an administrative proceeding and voting on enforcement actions. According to Fagel, in a litigated administrative proceeding, which the SEC no longer brings, the SEC commissioners and Chair act as judges. However, when approving actions from the enforcement division, they leave the decision to the courts. Consequently, Fagel argues that the precedent does not apply.
/2 Commissioners opine on legal/policy matters all the time; they make public statements; they are political appointees with known biases. None of this prevents them from voting to authorize (or not) enforcement actions. It's only different in their limited role as judges in APs.
— Marc Fagel (@Marc_Fagel) February 28, 2023
Amid these contentions, the SEC continues to launch crypto enforcement actions asserting jurisdiction over the nascent market as Congress has failed to create a regulatory framework.