Gary Gensler Doesn’t Hold Any Crypto — But Can He, Legally?

“It would be a conflict of interest if Chairman Gensler held any position in digital assets,” former SEC counsel Howard Fischer told Blockworks

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Source: Third Way Think Tank (CC BY-NC-ND 2.0), modified by Blockworks

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The Securities and Exchange Commission chief Gary Gensler declared at an April 18 hearing that he doesn’t hold any crypto assets, but are lawmakers aware that he might not be able to?

“I don’t own any crypto assets… [but] all of my securities holdings are actually digital because they’re held by a broker-dealer,” he said in response to questions from Wisconsin Rep. Bryan Steil.

Gensler added that he doesn’t think other members of his team or subject-matter experts who advise him hold any either.

“I don’t believe under our ethics rules they do,” he said.

Republican Rep. Bryan Steil of Wisconsin drew a comparison between SEC senior staff owning stock and regulating equity markets, while not owning crypto and attempting to do the same, implying a contradiction.

Richard Hong, partner at law firm Morrison Cohen, said Gensler could not own crypto even if he wanted to.

“The SEC has strict ethics policy on securities trading, and while I’ve never tested this, I seriously doubt that the ethics folks would allow the chair of the agency to own any — maybe except for [ether], which the SEC says is not a security,” Hong, a former federal prosecutor and senior SEC trial lawyer who has litigated several securities violations, told Blockworks.

The presumed status of ether is based on comments by William Hinman, when he was director of the agency’s division of corporation finance and said at a 2018 conference that ether is not a security. 

However, Gensler avoided a question from Congressman Patrick McHenry at the hearing on whether, in his view, ether is a security.

“Ummm, I… I… it’s… actually all securities are commodities under the Commodity and Exchange Act, it’s that we’re excluded commodities, but I would agree that a security cannot also be an excluded commodity and an included commodity, I’m sorry chair, just to talk about the Commodity Exchange Act, more precisely,” he said.

Gensler has previously singled out bitcoin as the only crypto asset that can be deemed as a commodity, saying “everything else other than bitcoin is a security.” This could suggest he believes ether is a security, but he has been careful not to say so explicitly.

Howard Fischer, partner at New York-based law firm Moses Singer, said the SEC strictly limits the kinds of investments allowed to staff.

“Generally speaking, while fewer restrictions apply to index mutual funds or government bonds, there are limits on the amounts of sector holdings and on individual equities, and owning securities of financial services firms is forbidden,” Fischer, an ex-SEC counsel, told Blockworks.

If an SEC official were involved in a case regarding a specific issuer, they could not hold securities of that issuer, according to the former prosecutor.

“The general rule is that if you are regulating or enforcing with respect to an issuer, then it would be a conflict of interest for you to have a position in that security (long or short). I would imagine it would be a conflict of interest if Chairman Gensler held any position in digital assets,” he said.


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