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by Leo Schwartz, FORTUNE
February 8, 2024
A group of Republican senators have sent a letter to Securities and Exchange Commission Chair Gary Gensler expressing concern over a lawsuit against the crypto firm DEBT Box in which a federal judge threatened to sanction the agency over misleading statements.
“The public must have well-placed confidence in the Commission’s enforcement actions, its motives for undertaking them, and its professionalism when carrying them out,” read the letter, sent Wednesday and signed by J.D. Vance (R-Ohio), Thom Tillis (R-N.C.), Bill Hagerty (R-Tenn.), Cynthia Lummis (R-Wyo.), and Katie Boyd Britt (R-Ala.) “This trust is undermined, and your mission compromised, by episodes like the DEBT Box.”
Since taking over as SEC chair in 2021, Gensler has drawn criticism from members of Congress on both sides of the aisle for his approach to the crypto industry, which he argues operates outside of compliance with U.S. securities laws. After the collapse of the crypto exchange FTX in November 2022, Gensler stepped up enforcement actions against leading firms, including Coinbase and Binance.
A lawsuit against the obscure Utah firm DEBT Box has proven the most difficult for the regulatory agency, however, after Judge Robert Shelby accused SEC lawyers of making misleading statements and possible deception in a December filing. According to Shelby and the defendants from DEBT Box, agency lawyers misrepresented key facts while seeking a temporary restraining order and an asset freeze of the crypto company.
After Shelby ordered the agency to explain its missteps, the SEC filed a mea culpa later in December. Enforcement chief Gurbir Grewal admitted that the division “fell short,” apologized for its actions, and pledged to conduct mandatory training for staff involved in the case.
In another filing in late January, the SEC asked Shelby to dismiss the case without prejudice—meaning it could later retry the charges—and argued that further sanctions were unnecessary.
While Shelby has not yet filed his response, the DEBT Box defendants are asking for stronger action, including a request for the SEC to pay for legal damages and for Shelby to dismiss the case with prejudice.
Wednesday’s letter from the Republican senators, led by Vance, reflects the heightened stakes of the otherwise inconsequential lawsuit. The lawmakers are using the episode to advance their complaints of Gensler’s administration, which critics argue is politically motivated, especially with crypto. Gensler has waded into other politically fraught arenas during his tenure, including rulemaking related to Environmental, social, and corporate governance, or ESG.
“It is unconscionable that any federal agency…could operate in such an unethical and unprofessional manner,” the senators wrote. They added that the misstep by the agency suggests that other enforcement cases “may be deserving of scrutiny” and that the SEC’s proposed remedy of staff training wouldn’t be sufficient.
Other industry groups have also responded to the case. In a statement shared with Fortune, American Securities Association President and CEO Chris Iacovella echoed the critique of the senators: “[Grewal’s] division intentionally misled a federal court in pursuit of a political agenda against an industry the SEC doesn’t like.”
This article originally appeared in FORTUNE.
ASA was also featured in an article published by The Block which can be found here. “The American Securities Association, a trade group representing regional financial services firms, also criticized the SEC's handling of the case. The SEC Director of Enforcement holds a position of trust and confidence, and the American people expect him to act with the highest ethical and moral conduct," said Chris Iacovella, CEO of ASA in a statement. "Instead of upholding that standard, his division intentionally misled a federal court in pursuit of a political agenda against an industry the SEC doesn’t like.”
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About the American Securities Association
American Securities Association, based in Washington, DC, represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.