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Gary Gensler appears resigned to having to resign as America’s securities regulator, while Tether’s (alleged) treasury custodian seems to have overplayed his hand to become the new Treasury secretary.
On November 14, Securities and Exchange Commission (SEC) Chair Gensler gave a speech to New York’s Practising Law Institute (PLI) in which he appeared to hint that his time as the SEC’s top dog was coming to a close. While avoiding the ‘R’ word, he spoke primarily in the past tense regarding his tenure at the SEC.
President-elect Donald Trump has publicly vowed to fire Gensler “on day one” of his second term in office, and while legal scholars might debate a president’s ability to sack an SEC chair prior to the expiration of his/her term, few doubt that Trump won’t give it a shot.
Gensler previously stated that he’d resist any effort to push him out the door before his term expires in 2026, but he now appears resigned to the inevitable. That said, Gensler couldn’t resist getting in a few final shots at the ‘crypto’ sector, against which Gensler has directed numerous SEC enforcement actions.
Gensler noted that crypto’s spread has resulted in “significant investor harm. Further, aside from speculative investing and possible use for illicit activities, the vast majority of crypto assets have yet to prove out sustainable use cases.”
Leaving aside BTC and ETH, Gensler said the SEC’s crypto focus has been on “some of the 10,000 or so other digital assets, many of which courts have ruled were offered or sold as securities.” He added that “court after court has agreed with our actions to protect investors and rejected all arguments that the SEC cannot enforce the law when securities are being offered—whatever their form.”
Everyone, including many state-level officials, doesn’t share Gensler’s views. While Gensler was giving his speech, 18 state Attorneys General (all Republicans) filed a civil complaint in federal court accusing Gensler, his fellow SEC commissioners, and the SEC itself of defying the “basic principles of federalism and separation of powers” regarding the SEC’s digital asset regulatory enforcement strategy.
The complaint accuses Gensler et al. of seeking to “unilaterally wrest regulatory authority away from the States through an ongoing series of enforcement actions targeting the digital asset industry, premised on the theory that practically all purchases and sales of digital assets are ‘investment contracts’—and so qualify as securities transactions under the Securities Act of 1933 and the Exchange Act of 1934.”
The suit accuses the SEC of having “scrupulously avoided promulgating its position in a written rule through notice-and-comment rulemaking,” while the oft-cited ‘regulation by enforcement’ strategy “has the advantage of limitless enforcement discretion.” The suit seeks to bar the SEC from continuing its “unlawful campaign of regulatory overreach and interference with state sovereignty.”
There are multiple SEC v crypto suits currently before the courts, including one accusing Ethereum-based blockchain software firm Consensys of failing to register as a securities broker and offering unregistered securities to the public.
In a post-election interview, Consensys founder Joe Lubin said he expects the newly Trumpified SEC to “get the cases dismissed or settled, or something like that.” Not all cases might be resolved swiftly, but Lubin has “a feeling that our industry is going to save hundreds of millions of dollars going forward.”
Jay Clayton starts spreading the news
There will definitely be fewer crypto prosecutions filed in the nation’s financial heartland following word that Trump had nominated Jay Clayton as the new U.S. Attorney for the Southern District of New York (SDNY).
A former partner at the crypto-friendly law firm Sullivan & Cromwell, Clayton was Gensler’s predecessor as SEC chair. Clayton’s tenure included the SEC’s controversial take that Ethereum’s ETH token was once a security but became ‘decentralized over time’ to the point that it was no longer a security.
During his nearly four-year SEC stint, Clayton was sharply critical of tokens issued via initial coin offerings (ICO), telling Congress that “every ICO I’ve seen is a security.” (For the record, ETH was issued via an ICO.) In one of Clayton’s final acts as SEC chair before resigning in December 2020, Clayton okayed the SEC’s controversial lawsuit against Ripple Labs, whose XRP token apparently never made that ‘decentralized’ journey.
Just one day before Trump’s announcement, Clayton was quoted predicting “we will see crypto legislation” in Trump’s second term. “I think it becomes much easier to have crypto legislation if you’re tackling some of these problems that can be addressed at the executive and administrative level.”
SDNY sees the writing on the wall
The day after Trump nominated Clayton, Reuters reported that the SDNY’s office plans to scale back its crypto investigations to prioritize actions closer to Trump’s heart, including enforcing immigration laws.
Scott Hartman, co-chief of the SDNY’s securities and commodities division, told the PLI audience that SDNY had “brought a lot of big [crypto] cases … a lot of important fraud cases … but we know our regulatory partners are very active in this space, and we don’t have a lot of people.”
The problem is that those federal partners are signaling similar enforcement slowdowns. Commodity Futures Trading Commission (CFTC) enforcement director Ian McGinley reminded the PLI that, almost exactly one year ago, the CFTC’s annual enforcement report for fiscal 2023 showed nearly half of all cases involved “conduct related to digital asset commodities.” McGinley said he wasn’t sure “if that trend will necessarily continue,” promising only to stay alert for “fraud and manipulation in those markets.”
While the SDNY will undoubtedly follow through on its prosecutions of notorious crypto crooks like Alexander Mashinsky, it’s unclear what the new approach might mean for existing probes that haven’t yet resulted in charges, including one involving Jack Dorsey’s BTC-friendly payment processor Block (NASDAQ: SQ).
CFTC musical chairs
Given that most of the pro-crypto legislation currently making the rounds in Congress explicitly shifts regulatory oversight from the SEC to the CFTC, Trump’s pick to head up that agency may prove more important in the long run.
Reuters’ short list of candidates includes current CFTC Commissioner Caroline Pham, who has a history of crypto advocacy and is reportedly keen to replace current Chair Rostin Behnam. Another current CFTC commissioner in this hunt is Summer Mersinger, also a crypto advocate as well as a former aide to Sen. John Thune (R-SD), the newly elected Senate majority leader.
Former commissioner Jill Sommers and Josh Sterling, the CFTC’s former market participants division director, are also said to be in the running.
Lutnick getting on Trump’s nerves?
Meanwhile, one of the names being bandied about as Gensler’s potential replacement at the SEC now says he doesn’t want the job.
While Gensler was giving his PLI speech, former CFTC Chair Chris Giancarlo tweeted that he’d “already cleaned up earlier Gary Gensler mess @CFTC and don’t want to have to do it again.” Giancarlo also denied rumors that he was “interested in some #crypto role @USTreasury.”
Speaking of, the ‘knife fight’ to become Trump’s new Treasury chief made headlines over the weekend. The New York Times reported that Howard Lutnick, CEO of Wall Street financial services firm Cantor Fitzgerald (NASDAQ: ZCFITX) and co-chair of Trump’s transition team, “has gotten on Mr. Trump’s nerves lately.” Trump is said to be frustrated by Lutnick, who is “hanging around him too much” and “manipulating the transition process for his own ends.”
Reports surfaced last week that Lutnick was “campaigning hard” to be considered for the Treasury role and rubbishing rival candidates like Scott Bessent, founder/CEO of the Key Square Group hedge fund. Lutnick’s campaign got a boost from Trump-whisperer Elon Musk, who tweeted on November 16 that “Bessent is a business-as-usual choice, whereas @howardlutnick will actually enact change.”
Robert F. Kennedy Jr., who last week was named Trump’s choice to head up Health & Human Services (HHS), tweeted his own support for Lutnick on November 13, claiming that the BTC token “will have no stronger advocate than Howard Lutnik [sic].”
But other insiders claim Lutnick has a growing reputation inside Trump’s Mar-a-Lago resort as “too competitive, too aggressive, and too thirsty.” While Lutnick could still pull off the nomination, it will reportedly hinge on whether he can “learn to keep his head down and shut the f*ck up.”
Lutnick’s other negatives include claiming to act as custodian for the roughly $100 billion in Treasury bills allegedly owned by Tether, the scandal-plagued issuer of the USDT stablecoin. The past few weeks have brought credible reports that both Treasury and the Department of Justice (DoJ) are preparing charges against Tether for a variety of crimes, including facilitating money transfers by sanctions evaders, Mexican drug cartels, and terrorist groups.
Lutnick’s influence with Trump appeared to take a hit last week after Trump dropped his RFK/HHS bombshell. That news came two weeks after Lutnick insisted to CNN that Trump wouldn’t nominate RFK for the role.
Also not helping Lutnick’s case are suspicions that he leaked word that Trump would nominate Sen. Marco Rubio (R-FL) for Secretary of State, a breach that reportedly left Trump fuming (and Musk trying to redirect blame by accusing Trump advisor Boris Epshteyn of leaking). Suspicions of Lutnick being the leaker reportedly meant he was not in the loop regarding Trump’s subsequent pick of Matt Gaetz for U.S. Attorney General.
Lutnick was said to be in line for a consolation prize of heading up the Commerce department or serving as director of the National Economic Council, but it’s not clear whether he’d accept the public demotion. Other reports have Linda McMahon—the other transition team co-chair—getting the Commerce nod, seemingly leaving Lutnick with scraps or nothing.
So, if not Lutnick…?
On November 18, Reuters reported that Trump was widening his search for Treasury candidates, with former Federal Reserve Governor Kevin Warsh and Apollo Global Management CEO Marc Rowan added to the shortlist. Each man will reportedly meet separately with Trump this week.
Warsh has one major strike against him, namely, his prior support for central bank digital currencies (CBDC), something Trump despises but which Warsh believes is necessary to keep pace with China. Rowan, meanwhile, has offered tepid support for stablecoins but primarily as “an alternative currency” for developing countries.
Politico reported that other potential Treasury noms include Trump’s trade policy adviser Robert Lighthizer and Sen. Bill Hagerty (R-TN). The latter is a known BTC booster who recently introduced a ‘discussion draft’ of yet another bill to regulate stablecoin issuers.
Trump’s Treasury preference is said to be for someone who will back him 100% on his plan to impose stiff tariffs on imported goods, an area in which Lighthizer would seem to have a distinct edge over the rest.
I’m your private chancer
On November 18, the Wall Street Journal reported that Brian Armstrong, CEO of the Coinbase (NASDAQ: COIN) exchange, would meet privately with Trump at some unspecified date to discuss crypto regulation and ‘personnel appointments.’
It’s unclear whether ‘personnel’ refers to cabinet-level staff or to members of the “[BTC] and crypto presidential advisory council” that Trump referenced in his speech to attendees of the annual BTC confab in Nashville this summer.
Regardless, Armstrong is on record with his belief that current SEC commissioner Hester’ Crypto Mom’ Peirce would be “the best choice” to replace Gensler, so any discussion with Trump will likely include that recommendation.
Coinbase was among the biggest campaign finance contributors in the 2024 election cycle. While the company and its various political action committees didn’t aid Trump directly, they claim to have helped elect many ‘crypto-friendly’ Republican candidates. And with Armstrong/Coinbase recently pledging to spend another $25 million (minimum) in the 2026 midterms, Trump may be keen to keep the crypto-cash on his side.
The New York Times reported last week that Coinbase was working with Trump’s transition team to connect Armstrong with Lutnick, but the scope of that meeting is unclear. Given Lutnick’s Tether ties and Coinbase’s partnership with Tether rival Circle on the USDC stablecoin—and Circle’s public suggestion that federal lawmakers could target Tether by targeting their T-bill custodian Cantor Fitzgerald—that could be one awkward hangout.
Armstrong isn’t the only crypto CEO reportedly getting some Trump facetime. Over the weekend, Fox Business reported that Ripple CEO Brad Garlinghouse met with Trump last week, a claim that Garlinghouse neither confirmed nor denied. The news upset some in the BTC maximalist community, who believe this moment is theirs and theirs alone.
Here’s hoping that in between all these conversations between billionaires, the new administration doesn’t forget the millions of ordinary citizens who voted them into power.
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