At the hearing, Emmer questioned SEC Director of Enforcement Gurbir S. Grewal on the SEC’s politicization of enforcement and extra-jurisdictional reach. Through his line of questioning, Emmer got Mr. Grewal on the record admitting that if companies outside SEC jurisdiction do not respond to SEC voluntary document requests, then the SEC Division of Enforcement will follow up with enforcement actions.
Director Grewal was appointed in June 2021 and is responsible for prosecuting wrongdoing in public securities markets.
Background:
Congressman Emmer serves as the lead Republican on the Financial Services Committee’s subcommittee on Oversight and Investigations.
Under SEC Chair Gary Gensler, the SEC weaponized voluntary document requests to crypto industry participants as a means of unconstitutionally broadening the SEC’s jurisdiction. Voluntary document requests are letters the SEC sends to various industry participants with the hope of collecting information that will inform SEC rulemaking. In the exchange between Mr. Emmer and Mr. Grewal, Mr. Grewal exposes to the public the SEC’s nefarious, extra-jurisdictional enforcement work.
The Commission, under Chair Gensler, has baited companies to “come in and talk” to the SEC and then discouraged good-faith cooperation by hitting companies outside its jurisdiction with enforcement actions.
You can watch the hearing in full here.
A transcript of Emmer’s remarks and questioning is available below:
Emmer: Thank you, Mr. Chairman and Ranking Member Huizenga, for hosting this hearing today.
Mr. Grewal, you frequently acknowledged that public trust and confidence in our capital markets has eroded. In fact, on October 13, 2021, you stated, quote, “The decline in trust undermines the investor confidence needed for the fair, efficient and orderly operation of our capital markets. Put simply, if the public doesn’t think the system is fair, they are not going to invest their hard-earned money."
I agree. But time and time again you place the cause of blame for this erosion of trust almost squarely on the shoulders of industry participants and companies. Mr. Grewal, the SEC is in no way blameless here. Chair Gensler's political regime at the SEC, carried out by its Division of Enforcement, has been characterized by a focus on using enforcement to expand SEC jurisdiction at the expense of public resources, public investment in our country and public trust in our markets.
It seems clear to everyone, except maybe those at the Commission, that the SEC is not regulating in good faith. Although many sectors of the industry have grappled with the SEC's politicization of regulation over the last 14 months, it can be seen most clearly when it comes to the digital asset industry.
Take, for example, “industry sweeps.” As you know, “industry sweeps” are not novel to the digital asset industry. They are a series of voluntary document production request letters a regulator sends to everyone in a given industry who is similarly situated or is involved in the same type of activity.
Emmer: Mr. Grewal, does the SEC Division of Enforcement do industry sweeps?
Grewal: We do industry sweeps from time to time when we have additional -
Emmer: Thank you. The answer is yes. I reclaim my time. Are there currently any industry sweeps underway?
Grewal: I can't talk about investigations that aren’t public -
Emmer: You can't talk about it legally or you won't talk about it?
Grewal: It's our policy not to confirm or deny investigations.
Emmer: So you won't talk about it. All right. What do you do if a company, sir, cannot respond to a sweep letter because they're not in your jurisdiction?
Grewal: If we issue a voluntary request for information, there's not much we can do. We can proceed with the subpoena and then the subpoena enforcement action.
Emmer: So, you do extra jurisdictional requests then?
Grewal: Voluntary requests are just that, they're voluntary. They're an important part
Emmer: Again, sir, I'm not asking about the request now I'm asking about the people you direct those to. There are some that would be within the SEC's jurisdiction, there are some that are not. My question is and I think you've confirmed it, that you do industry sweeps to extra-jurisdictional market participants - people you do not have enforcement authority over?
Grewal: We subpoena individuals and witnesses who may be in the market, market participants -
Emmer: Are they within your jurisdiction and outside of your jurisdiction?
Grewal: We're not limited by our jurisdiction when we're collecting evidence. We follow the evidence wherever it leads into, whomever it leads. There may be someone who doesn't work in the industry who might have information… we’d go after them for that information.
Emmer: So, you do extra jurisdictional work. Some would argue that that's not appropriate. But, Mr. Grewal, has Chair Gensler ever directed you or to your knowledge asked any of your colleagues to make it a “bloodbath” for companies who don't respond to a sweep letter, which are voluntary?
Grewal: No, that's not happened.
Emmer: Interesting. We become aware that Chair Gensler has, in the past, directed the Division of Enforcement to send a sweep letter to a particular sector of the crypto community, designed to jam them into a violation that is allegedly unconstitutional. And if any company does not respond to said sweep letter, which I'll reiterate, as you've said several times, are supposed to be voluntary, then the SEC would make it a quote, " bloodbath" for them. If true, I imagine such a tactic would significantly erode trust between the public and the SEC.
Here's the problem, the SEC isn't interested in clarifying what areas of the crypto industry fall under SEC jurisdiction. We know that because FinHub, that you've referred to as the SEC division focused on crafting crypto regulations, has essentially dissolved under Gensler.
Nonetheless, while abandoning good faith attempts clarify how the commission's existing authority applies to digital assets, the SEC is hell-bent on expanding the size of its crypto enforcement division and using enforcement to unconstitutionally expand its jurisdiction.
Under Chair Gensler, the SEC has become a power-hungry regulator politicizing enforcement, baiting companies to quote, "come in and talk" to the Commission, then hitting them with enforcement actions and discouraging good faith cooperation.
Understand, sir, there is a new day coming. Thank you, I yield back.
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