SEC failed to follow the Congressional Review Act, may have broken the law

The SEC needed to submit its controversial crypto accounting rule for Congressional review prior to publishing the bulletin, GAO says

article-image

SEC Chair Gary Gensler | Source: Third Way Think Tank "Gary Gensler" (CC license)

share

The US Government Accountability Office found that the Securities and Exchange Commission did not follow the Congressional Review Act in issuing Staff Accounting Bulletin 121. 

SAB 121 was first issued back in March 2022. It said that the crypto assets of bank customers should be held on the balance sheet of the banks. But, GAO argues, it never should have been issued without Congressional review first due to it falling under the criteria of rule.

Before a rule can take effect under the CRA, the regulatory agency needs to file a report with the House of Representatives, the Senate and the Comptroller General.

The SEC initially issued it to provide “interpretive guidance.” However, GAO argues, the bulletin is not an “agency action.”

“We conclude the Bulletin is a rule for purposes of CRA because it meets the APA definition of a rule, and no exceptions apply,’ GAO wrote Tuesday.

“In its response to us, SEC maintained that the Bulletin is not subject to CRA because it does not meet the APA definition of a rule as it is not an ‘agency statement’ of ‘future effect,’” GAO continued. It added it disagreed with the SEC’s findings.

Additionally, GAO found that none of the exceptions applied to the bulletin.

The findings led legal and policy commentators on X to weigh in. 

Blockchain Association’s Jake Chervinsky posted, “This is a clear statement from a federal agency that the SEC broke the law.”

Ripple’s chief legal officer said, “Seems the SEC has become the lawless Wild West Gensler loves to talk about so much.”

And Digital Chamber of Commerce’s Cody Carbone posted, “The GAO reviewed this proposal at the request of a member of Congress. This will be brought up for a vote of disapproval. Each chamber of Congress now has until Dec. 31 to pass a resolution of disapproval to invalidate the rule.”

He echoed Chervinsky by saying that the SEC “failed to comply with the law.” 

SEC Commissioner — and frequent critic — Hester Pierce pushed back against the bulletin at the time, arguing that it was a “scattershot and inefficient approach to crypto.” She also labeled it “unusual.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research Report Cover Vertex.jpg

Research

The proliferation of new perp DEXs has led to fragmented liquidity across various DEXs and chains. Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration with the launch of new Edge instances. Vertex's integrated offerings and cross-margined account structure amplify the benefits of new instances: native cross-chain spot trading, optimized cross-chain basis trading, consistent interest rates, reduced bridging friction, and more.

article-image

Partnering with EtherFi and Angle, the fully on-chain perp DEX features bespoke collateral

article-image

Sponsored

Gavin Wood introduced the next evolutionary step for the Polkadot network: the Join-Accumulate Machine, or JAM

article-image

The side events were the places to be at Consensus 2024, according to attendees

article-image

Also, who’s come out swinging in the spot ether ETF fee war — and who could undercut them

article-image

I know it is not in their nature, but US regulators could learn a lot by researching the digital asset frameworks that overseas regulators have already gotten right

article-image

Also, the ETF hype train can count out at least one member