Former SEC Advisor Predicts Legal Doctrine Could Challenge Gensler’s Crypto Crackdown

Jimmy Aki
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Former U.S. Securities and Exchange Commission (SEC) advisor J.W. Verret has brought attention to a legal concept that raises doubts about the authority of regulatory agencies.

This includes the potential to foil Gary Gensler’s efforts to regulate cryptocurrencies.

The Legal Doctrine That Could Limit SEC’s Power

The cryptocurrency market has been under scrutiny by regulatory bodies worldwide, with the U.S. SEC leading the cause under the leadership of Chairman Gary Gensler.

However, J.W Verret, an associate professor of law at George Mason University and former advisory committee member to SEC commissioners, has recently proposed an intriguing argument that suggests a potential challenge to Gensler’s crypto crackdown.

In the latest episode of The Scoop podcast, Verret delved into the significance of the major questions doctrine.

The discussion primarily focused on the lawsuits filed by the SEC against Binance and Coinbase, alleging violations of securities laws.

In the first part of the interview, Verret explained how the major questions doctrine, a principle of administrative law in the United States, could potentially challenge the SEC’s utilization of the Howey Test in determining the classification of assets as securities under federal law.

If successfully applied, this legal doctrine could have far-reaching implications for regulating cryptocurrencies in the country.

Verret explained that the major questions doctrine relates to how courts assess the actions of executive agencies within independent agencies and determine the extent of deference to be granted to their activities.

For instance, agencies like the SEC are entrusted by the U.S. Congress with extensive responsibilities for regulating specific domains.

Nonetheless, the lack of precise instructions has led to the proliferation of regulations through agency rulemaking over time.

According to Verret, the major questions doctrine serves as a means for the court to limit the authority of independent agencies like the SEC.

The Effect of the Doctrine on Crypto Regulation

Verret continued in the second part of the interview, noting that the SEC lawsuit against Binance and Coinbase has caused more harm than Bernie Madoff’s Ponzi scheme.

Bernard Lawrence Madoff, an American financier, orchestrated the most significant Ponzi scheme ever recorded, amassing a staggering sum of approximately $64.8 billion.

He emphasized this by stating the massive drop in Coinbase’s market cap after the SEC filed the lawsuit.

Verret observed the Chevron doctrine, which he viewed as a traditional approach that grants agencies significant leeway, as they served as a basis for courts to give agencies wide-ranging discretion.

Nevertheless, Verret proposed that the major questions doctrine that should be considered is an alternative doctrine, as it has gained popularity among judges that are conservative or libertarian.

This doctrine asserts that if an agency intends to regulate an issue without precise authorization from Congress, particularly when it pertains to national, economic, or political significance, it must obtain explicit approval from Congress beforehand.

The former SEC advisor suggests that the major questions doctrine could limit Gensler’s ability to impose strict regulations on the cryptocurrency market.

However, this argument revolves around the ambiguity of the existing securities laws and their application to cryptocurrencies.

Since Congress has not specifically addressed cryptocurrencies in the statutes, it can be argued that the SEC’s interpretation of these laws should be subject to the major questions doctrine.

Verret stated that the major questions doctrine is unlikely to be addressed until the SEC’s lawsuits against Coinbase and Binance.US reach the appellate courts, which could take longer.

However, he emphasized that this doctrine is a significant factor in these cases. Verret concluded the interview by expressing his intention to continue trading on Coinbase despite the SEC’s actions against the platform.

If the major questions doctrine is successfully invoked to challenge Gensler’s crypto crackdown, it could have strong implications for the future of cryptocurrency regulation.

The courts may be inclined to require a clearer statutory basis for the SEC’s authority over the crypto market, forcing the agency to work closely with Congress to develop new legislation.

This development could slow down the regulatory process and introduce uncertainty for market participants.

However, it could also provide an opportunity for the legislators to create a more comprehensive regulatory framework that strikes the right balance between investor protection and innovation.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.