Following years of lawsuits and efforts to rein in the crypto industry, the U.S. Securities and Exchange Commission will likely be different following Chair Gary Gensler's departure.
Over the past few years, the agency has brought hefty cases against big industry players, including against crypto exchange Coinbase, for not registering lawfully with the agency. The SEC could take a variety of routes in deciding how to handle cases like Coinbase, said Ladan Stewart, partner at White & Case LLP and a former SEC enforcement lawyer, in an email to The Block.
"The new Commission could vote to move to dismiss these cases, but any such motion would be subject to court approval," Stewart said. "Alternatively, the new SEC Chair could direct the staff to try to resolve these cases. But it’s not clear whether any resolution that concedes jurisdiction to the SEC over secondary market token sales (as are at issue in the SEC’s cases against crypto platforms) would be palatable to the industry."
Stewart added that the agency could also go for a less aggressive approach and come to some compromises in ongoing cases. The agency could also decide to forge on with its ongoing cases, but that isn't likely, she said.
"And a final possibility is that the SEC will proceed with these litigations as it had been under the Gensler SEC," Stewart said. "This last scenario is the least likely, in my view."
Gensler announced on Thursday that he would be stepping down as chair on January 20, 2025. During his time at the agency, Gensler became a designated villain for some in the crypto industry following those enforcement actions and previous statements. He maintained that most cryptocurrencies qualify as securities and urged crypto firms to register with the SEC.
Many major web3 players celebrated Gensler's departure and said his "regulation by enforcement regime" was over.
"I welcome the news of Chair Gensler’s retirement," Rep. Wiley Nickel, D-N.C., said in a statement on Friday afternoon. "His tenure has been marked by overreach, excessive and misguided rulemaking, regulation by enforcement, and an adversarial approach to blockchain innovation."
Ashley Ebersole, general counsel at 0x Labs and former SEC lawyer, said Gensler's leave does not directly affect SEC litigation, adding that the SEC chair "sets the agency's direction at a high level."
"Simply because they depart it doesn’t mean all work stops on that day," Ebersole said in an emailed statement to The Block.
An incoming chair could have different priorities, Ebersole said. The Trump administration has not announced who will be leading the agency but is considering Willkie Farr & Gallagher Robert Stebbins, former SEC Commissioner Paul Atkins and partner at BakerHostetler law firm and former litigation counsel for the SEC Teresa Goody Guillén.
"If a new chair comes in and believes certain litigation (or rule making) is no longer desirable or a priority, they will deprioritize it," Ebersole said. "Though they could announce a change in priorities, actual wind down would have to be done through internal processes and takes time."
As for the SEC's lawsuits against crypto exchanges Coinbase, Kraken and Binance, those will continue in the meantime, said Lee Bratcher, president of the Texas Blockchain Council, in an emailed statement to The Block. The SEC sued Coinbase in June 2023 for failing to register as an exchange, broker and clearinghouse. The agency lodged a similar complaint against Kraken in Nov. 2023. Binance also faces charges for failing to register with the SEC and allegedly repeatedly misleading customers.
"While those cases will continue in the interim, it is highly likely that the SEC will seek to reach a settlement or the new leadership could decide to drop the cases altogether," Bratcher said. "The latter outcome is more likely for Coinbase and Kraken."
The SEC has a few rulemakings on the books, including one that could potentially loop in the crypto industry called Regulation ATS. The SEC proposed the rule in 2022 and was reopened for comments in April. It would broaden the definition of an exchange and could ultimately require decentralized projects to register with the agency as alternative trading systems.
A separate controversial rule that broadly redefined the term "dealer" was tossed by a judge in Texas this week after crypto industry groups sued the SEC over it. The SEC voted in February to adopt rules that require market participants who have significant liquidity-providing roles to comply with federal securities laws, looping in cryptocurrency to the mix.
Chair Gensler could try to cement a rule before leaving, said former SEC lawyer Ebersole.
"The SEC just suffered a loss in Texas federal court, which said the agency’s new 'dealer rule' exceeded the statutory authority," Ebersole said. "So courts are attuned to this SEC’s overreach, and it’s possible this could affect how aggressive they are with pushing to finalize rulemakings through end of the year."
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