US Congressman Patrick McHenry accused Securities and Exchange Commission (SEC) Chair Gary Gensler of misleading Congress about Ethereum’s regulatory status.

The accusation follows a federal judge’s recent sanctions against SEC lawyers for dishonest court dealings, hinting at a troubling pattern within the agency.

Did Gary Gensler Mislead Congress on Ethereum?

During a session with the House Financial Services Committee, Gensler evaded direct questions about Ethereum’s classification as a security. Newly surfaced court documents suggest this was an intentional move to obfuscate the Commission’s stance. 

This deliberate ambiguity marks a sharp departure from earlier SEC communications, which had consistently separated Ethereum from typical security classifications.

This incident intensifies scrutiny over the SEC’s regulatory tactics under Gensler’s leadership, particularly its approach to digital assets. 

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Congressman McHenry criticized the SEC for its “arbitrary and capricious” enforcement methods and emphasized the need for legislative action. He advocated for the “FIT for the 21st Century Act,” aiming to establish a comprehensive regulatory framework for cryptocurrencies to enhance consumer protections.

“Classifying Ether as a security contradicts previous statements of the SEC and Chair Gensler – yet another example of the arbitrary and capricious nature of the agency’s regulation by enforcement approach to digital assets,” McHenry said.

The controversy escalated when Consensys filed a lawsuit against the SEC. The litigation arose after the SEC issued a Wells notice to Consensys as part of its “Ethereum 2.0” investigation. 

The agency focuses on Ethereum’s transition to a Proof-of-Stake consensus mechanism, which it argues could meet the Howey Test criteria for security.

Consensys contends that the SEC’s current stance conflicts with its own prior declarations. In 2018, former SEC Director Bill Hinman publicly stated that Ethereum was not a security. Yet, the SEC now seems to pivot from this position, contributing to a climate of uncertainty that jeopardizes the stability of the multi-trillion-dollar cryptocurrency market.

The Proof-of-Stake, or the Merge upgrade, really is kind of the SEC’s hook for trying to say Ethereum is a security. But I think that’s just a surface level point. Nothing about Proof-of-Stake itself versus Proof-of-Work would make Ethereum a security. I think really that’s just grabbing at some explanation for the SEC,” a Consensys spokesperson told BeInCrypto.

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The outcome of this legal battle could significantly influence the regulatory environment for cryptocurrencies in the United States, impacting innovators and investors alike.