Patrick McHenry Claims Gary Gensler Misled Congress on Ethereum

United States House Financial Services Committee Chair Patrick McHenry has publicly accused Securities and Exchange Commission (SEC) Chair Gary Gensler of misleading Congress regarding the regulatory status of Ethereum.

In a recent post on X (formerly Twitter), Representative McHenry claimed that Chair Gensler "knowingly misled Congress" during his testimony before the Committee. 

McHenry's allegations stem from a lawsuit filed by software development firm Consensys against the SEC, which includes new evidence suggesting that Gensler avoided direct answers about Ether’s classification during his testimony in April 2023. This avoidance, according to McHenry, was an intentional misrepresentation of the SEC's stance on whether Ether should be classified as a security.

Background of the Controversy

The controversy gained momentum following a lawsuit by Consensys, which challenged the SEC's approach to digital assets. The lawsuit highlighted inconsistencies in the SEC's actions, especially concerning Ether's classification. 

Notably, a court document revealed that the SEC had initiated an investigation into whether Ether qualifies as a security as early as March 2023. This timeline is critical as it suggests that Gensler might have had information about the SEC’s view on Ether during his Congressional testimony but chose to withhold it.

SEC’s Historical Stance and Current Actions

The question of whether Ether is considered a security by the SEC has significant implications for the cryptocurrency and broader digital asset markets. 

Previously, the SEC under Chairman Jay Clayton, along with then-Director of Corporation Finance Bill Hinman, had indicated that Ether, like Bitcoin, was not considered a security. However, recent actions by the SEC, including the investigation and subpoena related to Ethereum transactions, suggest a shift in this stance, potentially contradicting earlier SEC statements.

Legal Implications and Industry Impact

If the SEC officially classifies Ether as a security, it would represent a major shift in the regulatory landscape, affecting millions of investors and possibly contradicting earlier SEC guidance. This potential reclassification would require Ether transactions to comply with strict securities laws, significantly impacting the cryptocurrency's trading and utilization.

In his statement, McHenry underscored the urgency for Congress to pass the bipartisan FIT for the 21st Century Act. He believes this legislation is crucial for providing a clear regulatory framework and robust consumer protections for the digital asset markets. 

According to McHenry, this step is essential to curb what he views as regulatory overreach by the SEC that threatens innovation and national security.