In a recent move, US lawmaker has criticised the approach of the Securities and Exchange Commission (SEC) on the topic of crypto regulation. The regulator has been highly antagonistic to crypto entities, filing lawsuits on them and hampering their services.
On Tuesday, New York Democrat Ritchie Torres, escalated his criticism of the SEC for failing to issue “any clear guidance” to the crypto industry. Notably, Torres’s comment came after the agency lost its legal battle to Ripple Labs on multiple fronts.
In an open letter to Gary Gensler, SEC chairman, Torres wrote that “regulation by enforcement had a dreadful day in court.” This framing echoes a longtime criticism of the SEC’s approach to crypto from both industry leaders and fellow congress members.
Last week, the judge overseeing the case of the SEC versus Ripple Labs issued a summary judgment stating that the firm’s cryptocurrency, XRP, is not a security. Hence, the sales of the token on secondary markets like crypto exchanges also don’t comprise for a security.
Referring to the judgement, Torres said Judge Annalisa Torres’ reasoning reflected a “rigorous application” of the Howey Test, a legal standard for identifying securities which, in his view, the SEC has applied “sloppily.” As stated in the letter:
Judge Torres has made it crystal clear to the SEC that digital assets are not securities in the abstract and that it lacks the legal authority to regulate digital assets untethered from an actual security offering.
Following the court’s judgement, Gensler said he was “disappointed” in the judge’s ruling, and that the commission is “looking at it and assessing that option.” However, Torres said that the SEC’s odds of scoring an immediate appeal on the ruling are “vanishingly small,” since some issues in the case will require fact-finding, which takes time.
In the meantime, the precedent set by the judge—which the congressman calls the “Torres Doctrine”—will reign supreme. Torres claimed that:
The tenuous legal foundation for the litigation against Coinbase has come crashing down, and rightfully so.
In its lawsuit against Coinbase in June, the SEC claimed several other top crypto assets as securities, including Cardano (ADA), Solana (SOL) and Polygon (MATIC). Concluding the letter, Torres stated:
I look forward to finding out how the SEC will reassess its regulatory assault on crypto assets in light of the Torres doctrine.
The recent letter from Rep. Torres follows another equally critical take by Inspector General Deborah Jeffrey and Comptroller General Gene Dodaro from Thursday. The letters called for an investigation into the SEC’s “unusual” approval of the crypto broker-dealer “Prometheum.”
The politician insisted that the approval was a mere case of propaganda theatre, creating the illusion of regulatory clarity while the path to registration was, in reality, a “bridge to nowhere” for other firms. Notably, the SEC and its chief Gary Gensler have often cracked down on the industry and have filed charges against major crypto exchanges including Binance and Coinbase.
Additionally, with the recent move Coinbase’s lawsuit which have been under SEC’s radar over similar allegations has also found hope. Simultaneously, in the pre-motion hearing, US judge seemed to have aligned more with Coinbase than SEC.
In the political context, Democrats have largely been supportive of Gensler and SEC while Republicans do the contrary and criticise it. To this extent, Republicans also introduced a bill to remove Gensler from his current position.