After 21 years with the Securities and Exchange Commission (SEC), enforcement director Gurbir Grewal, has resigned. Why? The same day that Gary Gensler’s head of enforcement announced his resignation, the SEC appealed its most famous crypto enforcement action against Ripple, challenging the recent civil penalties ruling, prolonging the case even further. Ripple’s Chief Legal Officer Stu Alderoty took notice of the parallel moves, as Grewal’s resignation was announced a mere hour before the filing.
Is it a coincidence that the SEC’s chief enforcement officer jumped ship as the political and legal blowback become too much for Gensler to handle?
For the first time since 2019, all five commissioners of the SEC sat down to testify in front of the House Financial Services Committee on September 24. The SEC has overseen a regulatory war against multiple industries that clearly goes outside the agency’s authority, and the hearing began with a scathing rebuke from Chairman Rep. Patrick McHenry (R-NC), who said Gensler’s legacy “will be defined by turning the once proud institution of the SEC into a rogue agency.”
Gensler is undoubtedly aware of his political fall from grace, if he were ever held in high regard. Indeed, Commissioner Hester Pierce dared to openly challenge his policies during the House hearing and Gensler’s hands began to visibly tremble throughout. Rep. Warren Davidson (R-OH) asked Peirce if the SEC’s enforcement agenda “reflects the priorities of the commissioners as a whole,” or if it is “an extension of Chairman Gensler’s agenda?” Peirce was blunt: “The agenda is the chairman’s agenda,” and that there are “other things we should be spending our time on.”
There is no clearer example of Gensler’s muddled agenda than the prolonged litigation battle between the SEC and the U.S. crypto payments company Ripple. The SEC made over-the-top legal allegations as a proxy fight against the entire crypto industry and has dragged the case out for almost four years (and counting) in a naked attempt to bulldoze the company’s business. The case centered on Ripple’s sales of the XRP token to a variety of buyers, including anonymous trades on public exchanges.
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In July 2023, a U.S. District Court ruled that the XRP token is not a security except for when Ripple sold it under investment contracts with institutional investors, none of whom lost any money in the transactions. The ruling was a massive win for an industry that has been gaslit by Gensler’s SEC for his entire term.
The appeal reeks of desperation, and Grewal’s resignation hours before it was announced spoke volumes. The enemy that the SEC has chosen is only emboldened, and Gensler knows that the agency’s inability to prove harm to investors has massive repercussions—not only for other crypto litigation—but for his agency’s credibility.
While the appeal plays out in court, Gensler’s tenure will likely end before a resolution to the case is found. While Gensler’s political goose is cooked, there are other self-dealing appointees and bureaucrats who should face the music. The recent appeal and resignation of Grewal has distinct parallels to President Trump’s SEC Chair Jay Clayton’s decision to sue Ripple on the day he left office. A conservative government watchdog group, Empower Oversight, called out apparent conflicts of interest by Clayton and his pro-Clinton deputy, William Hinman, and launched a fruitful investigation through Freedom of Information Act (FOIA) requests and lawsuits.
Hinman, the stereotypical revolving-door Wall Street hack, may have benefited massively from his favoring XRP’s top rival token, Ethereum in a high profile 2018 speech. It sent Ethereum’s token to the moon on exchanges. The SEC Inspector General confirmed it was investigating how Hinman received millions in payments while in office from his previous employer, Simpson Thatcher & Bartlett, that just so happened to also be engaged in promoting Ethereum. The IG has not yet issued its report, and one can only wonder if Gensler is preventing it going public. So much for protecting the public interest through disclosure and transparency.
It would be naïve not to see how these actions are all connected. The SEC has become so undermined by rogue chairmen like Gensler that a culture of rot has settled in. Waging war on disfavored companies and industries, picking winners and losers and sowing chaos in the markets are all more important than the essential mission of protecting investors from fraud and deception.
No matter who wins the presidential election in November, one thing is clear. Gary Gensler has to go, and the SEC needs to be led by people without conflicts of interest or ideological biases who put retail investors first.
Jared Whitley has worked in the US Senate and White House, and has an MBA from Hult business school in Dubai. Recently the Top of the Rockies competition named him the best columnist in the Intermountain West.
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