Lawmakers Grill Gary Gensler Over SEC’s Missteps in High-Profile Crypto Case

During yesterday's hearing, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler faced strong criticism from lawmakers, particularly GOP Majority Whip Tom Emmer, regarding the SEC’s handling of Digital Licensing Inc., also known as DebtBox.

The case involved freezing the company’s assets based on SEC accusations, but it was dismissed after a federal judge ruled that the SEC had acted in “bad faith.” Judge Robert Shelby ordered the agency to pay around $1.8 million in attorney and receiver fees due to procedural errors.

Tom Emmer challenged Gensler over the SEC’s approach, accusing the commission of regulatory overreach in the DebtBox case. He described the agency’s actions as harmful, citing that the asset freeze was based on incorrect information, leading the court to impose penalties on the SEC. Gensler admitted the case was “handled badly” as Emmer continued to press him on the SEC’s approach to regulating digital assets.

Judge Shelby’s ruling not only dismissed the case but also required the SEC to pay approximately $1 million in attorney fees and $750,000 in receiver fees. The court found the SEC’s move to obtain a restraining order to freeze DebtBox’s assets unjustified, resulting in the case being dismissed without prejudice.

SEC Commissioner Hester Peirce also criticized the agency’s handling of cryptocurrency regulation, specifically under Gensler’s leadership. She argued that the SEC’s vague legal approach has created confusion in the industry, stressing that the agency has failed in its duty to provide precise regulatory guidance. Peirce also criticized the SEC’s reliance on enforcement actions rather than establishing clear rules, suggesting more fact-finding efforts like roundtable discussions before significant decisions are made.

Congressmen Brad Sherman and Patrick McHenry also raised concerns about the SEC’s handling of cryptocurrency during the hearing. Sherman emphasized the need for clearer guidance on digital assets, while McHenry questioned Gensler about the inconsistent terminology used by the SEC to describe various digital assets, such as crypto tokens and digital asset securities. Gensler insisted the laws are clear, but McHenry disagreed, pointing to the lack of consistency as a sign of regulatory confusion.

Despite defending the SEC’s actions, Gensler’s explanations did little to ease the concerns of lawmakers and SEC commissioners, who continued to push for clearer and more consistent guidelines on digital asset regulation.