Dear Gary Gensler: Are you a Partial Fraud or a Total Fraud?

The following is an excerpt taken from the Messari Crypto Theses for 2022, looking at Gensler's positions on a variety of topics- https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf

Crypto ETFs: I’ll expound upon my feelings about the toxic bitcoin ETFs in Chapter 5. For now, know that the SEC’s eight year delay on approval caused investors to miss 800x worth of appreciation in the underlying asset, a catastrophic failure of the SEC’s capital formation mandate.

That’s not on Gensler. But here’s what is: prioritization of futures-based ETFs that will incur 5-10% in hidden annual costs in “contract roll” (that benefit Wall Street) vs. the spot-based ETFs that are modeled after the world’s largest commodities fund (the SPDR Gold ETF). Why approve an exotic structure vs. a superior option with 80% lower fees and 40x the liquidity? Well, Gensler wants to kick liability over to the CFTC (who regulate the bitcoin futures), and hold out until Congress grants him oversight authority on the crypto spot markets and their exchanges. It’s hostage taking, and it’s also designed to slow institutional inflow to crypto as few mutual fund managers will choose to hold such a toxic, expensive futures-based asset within their funds. Gensler is operating in bad faith when he denies this plain fact.

The Safe Harbor: It's one thing to oppose Hester Peirce's Safe Barbor. It's another to feign ignorance and lie to Congress. Which is what Gensler did in October when asked directly about the Safe Harbor from Rep Patrick McHenry. He evaded an answer with a sly bit of misdirection and McHenry nailed him on the follow-up!

PM: “Have you reviewed the Safe Harbor?”
GG: “I haven’t reviewed your bill.”
PM: “Have you reviewed Commissioner Peirce’s Safe Harbor?”
GG: “We talk actively about a number of matters.”
PM: “Specifically, have you reviewed the Safe Harbor itself?”
GG: “We’ve talked about her thoughts on the Safe Harbor.”
PM: “Senator Selkis, the floor is yours.”
SS: “Chair Gensler, I don’t care about water cooler run-ins with Commissioner Peirce. Answer the f*cking question: have you read the document itself? It’s eight pages, and addresses many of your concerns about information asymmetry and investor protections within the crypto market. Have you read it? Yes or no?"

ATS Stonewalling: Gensler’s most dishonest position may relate to that now infamous, “come in, talk to us” line to exchanges. Coinbase CEO Brian Armstrong even called the SEC’s behavior “sketchy” and claimed the Commission refused to meet with his company’s leadership or provide any written clarity on its reasoning for blocking one of Coinbase’s new lending products.

The behavior is sketchy. Coinbase and the other exchanges have been trying to comply for years, and several have even acquired broker dealers. It’s *the SEC* that has kept their broker applications caught in limbo. For years.

This shouldn’t be surprising! Gensler himself has stated that it might be impossible to bring crypto exchanges into regulatory compliance, and that the path forward might need to flow through the exchange incumbents! (“Should they even be allowed to register? The world will go on without these 200 exchanges. Somebody else will fill this space. I know that might be a dramatic thing to day, but it would be maybe ok.”)

We also know from Ripple’s court proceedings that invitations to engage with the SEC are being used as evidence against the proactive party. Gensler recently told the Securities Enforcement Forum: “I’ve asked staff to cut back on meetings with entities that want to discuss arguments in their Wells submissions.” Come in and talk with us. We’ll use it against you, and then resist clarifying discussions. OK, Gary.

Protecting Who, Exactly? Crypto is starting to highlight just how damaging the 80 year old “40 Act” and its outdated accredited investor rules are. These rules block users from receiving earned token rewards. They prevent companies from going public until most of their growth has been captured privately. Things like investment company ownership rules don’t prevent fraud, they enable them. (I’ve seen it myself.) The income and wealth thresholds for accreditation are themselves exclusionary and racist. Surely someone woke enough to insist on avoiding the title “Chairman” while awkwardly insisting on referring to Satoshi Nakamoto as “she” would take interest in crypto’s popularity with underserved communities, and note their vote of no confidence in TradFi. Right?

Conclusion: That’s a lot of evidence against Gensler. But “liar and fraud” are loaded terms that imply malice. Could it be that naivete is to blame vs. bad faith?

No. This is not a case of ineptitude or technical naivete. What makes Gensler so dangerous and grimy is his competence and his ambition. He’s an elite performer who amassed a $120mm fortune from a successful career at Goldman Sachs. As a former CFTC Chairman, he knows how DC’s political machine works, and how to burnish his resume, play hardball, and keep his name in the news. As a former MIT professor on crypto, he’s more familiar with the tech than most others in DC policy circles. He’s cunning and calculating.

To hell with the SEC’s mission. He’s holding an entire emerging industry hostage - partially at the behest of Senator Warren - as he curries favor in his ascent towards Treasury Secretary.

Look, I’ve dealt with a number of smart, talented, earnest, and well-intentioned professionals at the SEC. I won’t name drop them here (for reasons that are likely obvious now...I don’t want to get them into trouble), but I do respect them and in a perfect world would love to collaborate more closely on our shared missions.

Gensler holds them back. He’s a fraud. American investors, and SEC staff, deserve better.