Democrats, Republicans split over the SEC's handling of DEBT Box and accounting guidance

Democrats and Republicans were split on the Securities and Exchange Commission's handling of crypto enforcement actions during a hearing on Tuesday, sparring over recent court cases and agency guidance.

"The crypto industry, which publicly claims to want regulation, is suing the SEC for trying to regulate it, despite the fact that the courts agree that the laws on the books are applicable," Waters said. "Crypto can't have it both ways. We need strong protections, not deregulation. My message to the crypto industry and everyone else — Democrats will always press for compliance, investor protection and market integrity." 

SEC Chair Gary Gensler has said that he believes most cryptocurrencies are securities and has urged crypto firms to register with the agency. The SEC has brought major cases against large platforms, including Coinbase and Binance, and has over the past few weeks sent out a trio of Wells Notices to crypto-related entities such as Robinhood Crypto, Consensys and Uniswap. Meanwhile, some in the crypto industry have called for clearer rules and have pushed back, filing lawsuits against the agency.

SAB 121 divide

Waters criticized a measure to rescind the SEC's Staff Accounting Bulletin No. 121. The bulletin has drawn controversy over the past year over concerns in the crypto industry that it could prevent banks from custodying digital assets. It requires firms that custody crypto to record customer crypto holdings as liabilities on their balance sheets. 

Waters called the bill on Tuesday  "another attempt to kill off the SEC." 

Rep. Mike Flood, R-Neb., who introduced the resolution alongside Rep. Wiley Nickel, D-N.C., posted on X on Monday that the House will vote on the resolution this week.  

Trust and DEBT Box

Lawmakers also shed a spotlight on the SEC's case against crypto startup DEBT Box during Tuesday's hearing. 

Public trust in the SEC will decline if issues aren't addressed, said Rep. Ann Wagner, R-Mo., citing that lawsuit. 

A federal judge in Utah criticized the SEC's handling of the case and said the agency acted in bad faith. The agency was ultimately ordered in March to pay sanctions, including attorney's fees and costs. The same judge also criticized what he characterized as the SEC's misleading statements, with the agency admitting that it had fallen short of expectations. 

A month later, two of the SEC's lawyers heading the DEBT Box case resigned. The SEC was planning to fire the two if they didn't step down, according to Bloomberg. 

“These actions are extremely concerning to Members of this Committee, who recognize that cases should never be handled in such an unethical and unprofessional manner," Wagner said.  

Rep. Brad Sherman, D-Calif, who has been critical of crypto, said the lawyers' departures sets an example and later added that it was "entirely appropriate" for the SEC to bring charges against the firm.

Mixer bill 

Rep. Sean Casten, D-Ill., announced during Tuesday's hearing that he plans to introduce a bill this week to "clamp down on mixers."

"Until we've studied and have a good audit trail, the presumption should be that these are money laundering channels," Casten said. 

Mixers have caught the attention of the Justice Department, more recently with the arrest of two Samourai Wallet co-founders last month. The DOJ said the crypto mixing service was an unlicensed money-transmitting business and was involved in over "$2 billion in unlawful transactions and facilitated more than $100 million in money laundering transactions from illegal dark web markets," including Silk Road.

U.S. prosecutors have brought other charges against crypto-mixing services, including Tornado Cash. Its founders, Roman Storm and Roman Semenov, were charged with money laundering last year.