Gary Gensler is looking for friends in all the wrong places

Many honest participants in the digital assets industry have had to endure gray skies over their prospects in recent years, seeking to find their rightful place within the broader legal landscape. 

Since the inauguration of the current Congress following the most recent midterm elections, there has been a remarkable coordinated attempt at the federal level to stymie the crypto industry in any and all manner possible. Between actions by the Treasury, DOJ, FDIC, SEC and others, many in and adjacent to the industry have every right to be fearful and confused as to whether they operate within the boundaries of the law.

And perhaps more than any other body, the Gary Gensler-led Securities and Exchange Commission has brought a barrage of enforcement actions and sought to cloud this area with arguments that, at times, stretch legal reasoning under existing securities laws beyond its natural limits. And throughout it all, it appeared inevitable that the will of Gary’s SEC would prevail in its mission based purely on its unrelenting, dogged determination. 

And why would the SEC not move with such confidence? Coming into the year, it had an impressive track record of notching victories both within and outside the industry. 

But for too long, the SEC mainly relied on seeking small wins from even smaller fish. The ocean ended up being too vast and the effects too dwindling. Now, the SEC is focusing its sights on the whales of the industry — but they bring with them formidable legal budgets with elite counsel to match.

And at the same time, this veneer of inevitability is now giving way to the realities of justice. In some of the most important jurisdictions, US courts are swatting away at the worst overreaches. 

We are quickly heading toward a crescendo in the courts, where much of the clarity the industry seeks will be provided, and the outlook appears far from many’s worst fears.

Glimmers first appeared early this year, when Judge Torres, presiding over the Ripple case, sided with arguments of the industry. She found in July that XRP on its own is not a security and that secondary market trading under review were not securities transactions, despite years of effort by the SEC to convince her otherwise.

And just this week, we saw a one-two punch from the highly influential courts of the DC Circuit and the Southern District of New York. In the former, the primary circuit court, with jurisdiction over the SEC, gave a strong rebuke of the agency over its treatment of Grayscale’s application to convert its GBTC trust product to an exchange-traded fund, describing its actions as having no “coherent explanation.”

And in New York — where the SEC brings so many of its actions — Judge Failla, who also oversees the case over Coinbase, gave a nuanced and thoughtful order dismissing a class action suit against Uniswap and Paradigm, echoing industry views about the technology in the context of the securities laws.

Paul Grewal, chief legal officer of Coinbase, illustrated the point best when he noted that this SEC administration has a rather dismal 25% win record when cases are brought against it on appeal for arbitrary and capricious actions.

Read more from our opinion section: Ripple has cracked the SEC’s exterior — sit back and watch it crumble

Traditional securities issuers are further finding recent success applying for ETH futures exchange-traded products, where only a few months ago the SEC had staked out a position requesting their voluntary withdrawal.

Everywhere you look, among the gray cloudy overhang are streaks of light. What’s becoming more apparent now is that this SEC administration is not only fallible — but its most spurious arguments are eminently able to be defeated. 

The lesson to take away from all this is that — while the arc of history is long and the judiciary will not always get it right — it does indeed bend toward justice. 

There is much left undecided in the current moment, but honest industry participants should not fear bringing their case before this country’s jurists, and they certainly shouldn’t be surprised to find an open ear.

Scott Johnsson is a General Partner and General Counsel at Van Buren Capital, where he specializes in digital asset legal issues and trading. Prior to founding Van Buren Capital, Scott was a finance attorney at Davis Polk & Wardwell, LLP where he specialized in structured financial products, syndicated lending facilities and distressed debt solutions. He is the author of the Chambers Global Practice Guide – Banking & Finance (US) (2019 & 2020). Scott developed an early interest in Bitcoin in 2011 and founded the early blockchain analytics firm Coinometrics while earning his JD and MBA from Cornell University.

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