Lawmakers Investigate Crypto Nemesis Gary Gensler For Suspected Hiring Favoritism

Three GOP House lawmakers are investigating U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler over the regulator's hiring practices under the "anti-crypto" chief's leadership.

Rep. Patrick McHenry of North Carolina, who has advocated for a crypto regulatory framework, Rep. Jim Jordan of Ohio, and Rep. James Comer of Kentucky wrote in a letter to Gensler that House committees are pursuing conduct oversight of the SEC.

The letter on conduct oversight came after allegations that "the SEC may be hiring civil service employees based on their political affiliation, which is a violation of the Civil Service Reform Act of 1978."

Email Evidence to Back Investigation

The Republican lawmakers cited email correspondence made public in a comment to an SEC rulemaking that revealed the SEC's hiring of Dr. Haoxiang Zhu, the regulatory agency's Director of Trading and Markets.

They are requesting relevant documents and information on allegations that Zhu was hired based on his political affiliation. Zhu sent an email to Gensler in May 2021 after a call between the two to discuss the former's potential employment at the SEC.

"I believe I'm in the right place on the political spectrum, and I'm happy [to] provide as many details as needed so you feel comfortable," Zhu wrote in the email as presented by the lawmakers.

Six months later, Zhu got the job. "As this correspondence suggests, the SEC appears to be unlawfully considering an applicant's political ideology when hiring bureaucrats, a conclusion only reinforced by the SEC's hiring of individuals from left-leaning organizations to fill senior roles at the SEC," the letter stated. Such practices undermine the agency's supposed "impartiality," it added.

Gensler Has to Produce Lots of Paperwork

In light of the allegations, the lawmakers are demanding that Gensler provide documents from way back April 17, 2021 that relate to the SEC's hiring, employment, termination, or transfer of directors, associate directors of an SEC office, and staff members within Gensler's office.

They also want Gensler to produce communications related to the agency's evaluation or consideration of an applicant's political affiliations or political ideology.

Gensler has until Sept. 24 to provide the documents, with the lawmakers reiterating that the House Committees on the Judiciary, Financial Services, and Oversight and Accountability, are mandated to conduct oversight of the SEC's practices.

Tables Have Flipped: Crypto Community

The cryptocurrency community, which has labeled Gensler an "anti-crypto" leader, reacted wildly to the news.

Wayne Vaughan, the founder and CEO of blockchain cloud datastore Tierion, said it's now Gensler's "turn to be investigated." Under his leadership, the SEC has launched an intense crackdown on the digital assets sector, starting multiple investigations across different segments, including crypto exchanges and protocols.

Good Morning Crypto host Abs said Gensler's days as the leader of the Wall Street regulator are "numbered," while one XRP user said it would be much better to "actually see consequences come out of this."

Others believe the development is "just another strong worded letter," and nothing will happen. One user noted that in the United States, an investigation only means "it has been swept under the carpet."

Gensler Under Fire in Recent Months

This isn't the first time Gensler has caught the attention of lawmakers. In April, after Consensys revealed that the SEC had already deemed Ethereum (ETH) a security before Gensler refused to clarify the crypto token's status before Congress, Republican majority whip Tom Emmer criticized the SEC's "regulatory dishonesty."

McHenry called the revelation an example of the financial regulator's "arbitrary and capricious" enforcement approach toward the emerging sector.