It has been an extremely busy week for the SEC.
Gary Gensler announced his resignation as chair of the commission. He said yesterday he would be resigning, effective 12 pm ET on Jan. 20, 2025 — the exact time President-elect Donald Trump is scheduled to be inaugurated. We weren’t surprised but were amused by the fact that he named the exact moment he was leaving the position.
And then today, fellow Democrat Commissioner Jaime Lizárraga announced he would also depart early on Inauguration Day, saying he wants to spend more time with his family as his wife battles breast cancer. We wish her and the Lizárraga family all the best.
In two different cases, a federal judge reached the same conclusion this week. Judge Reed O’Connor of Northern District of Texas ruled that the SEC has overstepped their authority and must rescind the Dealer Rule. The rule was adopted by the commissioners in February with a vote of 3-2. Hester Peirce, a Republican commissioner, and Mark Uyeda, a Republican commissioner who dissented from the Dealer Rule.
The rulings are seen as a major victory for both the crypto and hedge funds industries. It protects companies and managers of both groups from what was described as “severe and adverse” Changes in policy. The rule would have included certain crypto traders, hedge funds, and hedge funds. “dealers,” Both groups considered the classification prohibitively strict.
Even before Trump returns to Washington, it appears that changes are on the way at the agency.
We discussed earlier in the week the possibility that the voting breakdown of the commissioners could remain the same, even after Trump assumes office. Now that two commissioner spots are up for grabs we know that won’t be true.
Gensler being out means we can almost guarantee that a Republican is the next chair. That means Lizárraga’s vacant spot will go to a Democrat or Independent. In this situation, it is normal for the Democrats to submit names that Trump can consider. We know that the Trump Administration is not afraid to stray from conventional practices.
But I am still sceptical that any litigation will be dismissed. The SEC staff will still need to ask the commissioners for a dismissal of pending litigation, even if it now has a Republican majority (and is potentially more crypto-friendly). Many of these staffers were involved with the cases from the start.
As we enter this new era of the SEC, it’s important to remember that Gensler’s predecessor — Chair Jay Clayton, a Trump nominee — was the one who brought the Ripple case over XRP’s security status in 2020. During his tenure he also brought 79 additional crypto-related enforcement cases, as well as a separate case against Trump ally Elon Mots. Clayton, if Trump wants it, will now be leading prosecution in the Southern District New York.
Clayton is largely praised for being pro-crypto despite his track record. Trump hasn’t always been a crypto enthusiast, but maybe he won’t be the only person to change their mind.
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