SEC Chair Gensler Faces Increasing Criticism and Litigation from Financial Industry
Securities and Exchange Commission (SEC) Chair Gary Gensler is facing mounting criticism and legal action from the financial services industry. Republicans have been particularly vocal in their opposition to Gensler’s rulemaking proposals, accusing him of overreach. However, what sets this situation apart is that industry players are now abandoning attempts to negotiate with Gensler and instead adopting a confrontational stance.
The industry’s grievances include the lack of industry input, roundtable discussions, and data sharing in policy decisions. The tone of their commentary towards Gensler has become increasingly hostile, with claims that their concerns are dismissed without proper study or explanation.
Litigation on the Rise
As Gensler starts adopting rules that were previously in the proposal stage, the financial industry is resorting to litigation. For example, Grayscale Bitcoin Trust successfully sued the SEC, arguing that its actions were arbitrary and capricious since it had already approved a similar product. Similarly, six financial trade associations have sued the SEC over its new Private Funds Adviser Rule, claiming it exceeded its authority.
Virtu Financial, one of the world’s largest market makers, is also engaged in open warfare with Gensler. The SEC recently sued Virtu for alleged failures to protect customer data and misleading statements. Virtu claims this suit is an “escalation” due to its CEO’s criticisms of the SEC’s market structure rule proposals.
Gensler Faces Scrutiny Over Proposed and Adopted Rules
Republicans will focus on several key issues during Gensler’s testimony. They will question his proposed Climate-Related Disclosures rule, arguing it exceeds the SEC’s mandate. Gensler emphasizes that the SEC’s role is to ensure companies disclose material risks they face.
Gensler will also face criticism for his enforcement actions against crypto intermediaries and the ongoing bitcoin ETF lawsuit. However, he has made it clear he cannot comment on active litigation.
What Lies Ahead?
Gensler shows no signs of backing down as he continues to pass new rules with a 3-2 majority at the commission. He maintains that he is open to industry feedback but critics remain unsatisfied. Some hope that bipartisan pressure may lead Gensler to slow down, as seen in previous letters from Senate Democrats and a recent letter from members of Congress expressing concerns about equity market structure proposals.
With the financial services industry increasingly resorting to litigation, it seems that courtroom battles will be the next battleground for Gensler and his rulemaking agenda.
Hot Take: Financial Industry Turns to Litigation Against SEC Chair Gensler
The financial services industry is escalating its confrontation with SEC Chair Gary Gensler through legal action. Frustrated by what they perceive as overreach and lack of industry input, players in hedge funds, mutual funds, market makers, trading firms, and exchanges are abandoning negotiations and resorting to lawsuits. This shift marks a turning point in their relationship with the SEC under the Biden administration.
Gensler’s adoption of proposed rules has triggered a wave of litigation, including Grayscale Bitcoin Trust’s successful case against the SEC and trade associations suing over the Private Funds Adviser Rule. Virtu Financial is also embroiled in a contentious legal battle with the SEC. As Gensler faces scrutiny over his proposed and adopted rules during congressional testimony, it remains to be seen whether bipartisan pressure or legal challenges will impact his regulatory agenda.
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