Changes at the SEC start well ahead of Inauguration Day

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This has been a busy week at the SEC. 

The headline news from the commission, if you will, was Chair Gary Gensler’s departure announcement. He said yesterday he would be resigning, effective 12 pm ET on Jan. 20, 2025 — the exact time President-elect Donald Trump is scheduled to be inaugurated. We’re not surprised, but we got a chuckle out of him unprecedentedly naming the exact time he would leave the post. 

And then today, fellow Democrat Commissioner Jaime Lizárraga announced he would also depart early on Inauguration Day, saying he wants to spend more time with his family as his wife battles breast cancer. We wish her and the Lizárraga family all the best.

On the legal front, one federal judge this week came to the same decision in two separate cases. Judge Reed O’Connor of the Northern District of Texas found the SEC had overstepped its authority and must vacate the Dealer Rule, adopted in February by a 3-2 commissioner vote. Republican Commissioners Hester Peirce and Mark Uyeda dissented against the Dealer Rule. 

The rulings were seen as a win for both the hedge fund and crypto industries, protecting companies and managers in both groups from what has been described as “severe and adverse” changes in policy. Under the rule, certain hedge funds and crypto traders and validators would have been considered “dealers,” a classification both groups found prohibitively strict. 

It looks like changes at the agency are coming even before Trump moves back to Washington. 

We wrote earlier in the week about how there was a chance the commissioner voting breakdown would remain the same even after Trump takes office. With two spots now up for grabs, we know this won’t be the case. 

No more than three commissioners can be from the same party, and with Gensler out we can all but guarantee a Republican will be in as the next chair. That means Lizárraga’s vacant spot will go to a Democrat or Independent. Typically in this case, the Democrats would submit names for Trump to consider. But we know the Trump Administration often veers from the conventional.  

I’m still skeptical, though, that we will see any pending litigation dismissed. Even if the SEC now swings Republican (and potentially more pro-crypto), its staff would have to ask the commissioners to dismiss a lawsuit. These are staffers that have worked on these cases, in many instances, from the beginning. 

As we enter this new era of the SEC, it’s important to remember that Gensler’s predecessor — Chair Jay Clayton, a Trump nominee — was the one who brought the Ripple case over XRP’s security status in 2020. He also brought an additional 79 crypto-related enforcement actions during his tenure, plus a separate action against Trump ally Elon Musk. Clayton is now headed to lead prosecution at the Southern District of New York, if Trump has his way. 

Despite Clayton’s track record, he’s largely praised by the industry as being pro-crypto. We know Trump wasn’t always a fan of the industry, so maybe he’s not the only one who can have a change of heart.

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