Jake Chervinsky, Chief Policy Officer at Blockchain Association, has shared a series of insights expressing concerns about the impartiality of US Securities and Exchange Commission (SEC) Chairman Gary Gensler regarding digital asset enforcement decisions . Chervinsky says these concerns stem from Chairman Gensler’s position that all digital assets, except Bitcoin, are securities. According to Chervinsky, this stance requires Gensler to back off from all enforcement decisions related to digital assets.
The Blockchain Association is a prominent non-profit organization that advocates for creating a policy environment that fosters innovation in the digital asset economy. In collaboration with its members, the association strives to educate policymakers about the transformative potential of blockchain technology and its ability to usher in a more secure, competitive and consumer-focused digital marketplace. Their goal is to propel the future of cryptocurrency in the United States, endorsing the promise of blockchain technology and influencing policy to ensure its triumph.
On June 29, 2023, Chervinsky posted a series of tweets which summarized the main ideas expressed in a paper titled “Chair Gensler Must Recuse Himself from Digital Asset Enforcement Decisions” that he co-authored with a colleague (Marisa Tashman Coppel, Senior Counsel at Blockchain Association).
The Wells Trial and Impartiality
Chervinsky explains that any SEC enforcement action follows a procedure known as the “Wells Process.” This process is designed to ensure fairness and impartiality in the enforcement of securities laws. SEC Commissioners, including Chairman Gensler, are expected to act as neutral arbitrators, impartially weighing the evidence and arguments presented by SEC staff (the prosecutors) and the enforcement target (the defendant).
Gensler’s stance on digital assets
However, Chervinsky argues that Gensler is far from a neutral arbiter regarding digital assets. Chervinsky says that since Gensler’s appointment, he has repeatedly expressed his view that all digital assets, except Bitcoin, are securities. According to Chervinsky, this position demonstrates a bias that necessitates Gensler’s revocation of all enforcement decisions related to digital assets.
The importance of careful analysis
Chervinsky claims that Gensler’s position is incorrect. He explains that determining whether a particular transaction falls within the scope of securities laws requires a careful analysis of the “facts and circumstances” surrounding that transaction. This is a nuanced process that takes into account the specifics of each case. Chervinsky argues that Gensler refuses to participate in this necessary analysis, instead making blanket statements about all digital assets.
The legal requirement for challenge
According to Chervinsky’s Twitter thread, when an SEC commissioner anticipates the facts and law of a particular case before hearing it, the law demands a recusal. Chervinsky believes that Gensler is clearly ahead of the facts and the law in any case involving digital assets, which is why he should back down.
The impact of bias on enforcement actions
Without reply, Chervinsky warns that Gensler’s bias is affecting the entire enforcement action. He cites the law, which states that litigants are entitled to an impartial tribunal, and there is no way to quantitatively measure the influence of one over the other. This means Gensler’s bias could potentially affect the outcome of enforcement action, undermining the fairness of the trial.
The need for immediate action
Chervinsky points out that Gensler has already voted on many enforcement actions related to digital assets. He believes Gensler should have backed down then, and since he didn’t, those enforcement actions should now be voided. In addition, he would no longer be allowed to vote in the future.
Not legal advice, but a call to action
While Chervinsky clarifies that their paper is not legal advice and should not be considered, he suggests that anyone facing an SEC investigation or enforcement action should discuss it with their legal counsel. He outlines several ways to raise the issue of Gensler’s denial with the SEC or a federal court.
Maintain fairness and impartiality
Finally, Chervinsky stresses the importance of maintaining the fairness and impartiality of the SEC’s enforcement function. He hopes their paper will contribute to the just and equitable administration of securities laws.
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