SEC, Gensler face bipartisan backlash over X account hack

Securities and Exchange Commission (SEC) Chairman Gary Gensler said after the agency's social media accounts were hacked last week and falsely claimed to have approved several much-anticipated Bitcoin investment funds. It faces bipartisan political backlash.

The SEC ultimately approved an exchange-traded fund (ETF) to hold Bitcoin about 24 hours later, but the agency's high-profile blunder has already made it unpopular with the crypto world and among Republican lawmakers. Mr. Gensler is in a difficult position.

And some Democrats who are generally satisfied with Mr. Gensler are joining in the call for an investigation.

“It's primarily an embarrassment to the SEC,” Ian Katz, managing director at research consultancy Capital Alpha Partners, told The Hill.

“It's giving ammunition to Mr. Gensler's enemies and opponents and people in Congress who don't like him in the first place,” he added.

The SEC revealed last Tuesday afternoon that the X (formerly Twitter) account that appeared to approve the Spot Bitcoin ETF was hacked. The agency deleted the post about 30 minutes later and replaced it with a denial.

“The @SECGov

The incident immediately prompted calls from Republican lawmakers to demand that the SEC explain the violations.

“Just as the SEC demands accountability when public companies make huge, market-moving mistakes,” said Sen. Bill Hagerty (R-Tenn.), a member of the Senate Banking Committee. “Congress also needs answers about what happened.” “This is unacceptable,” he said in a post to X.

Sen. J.D. Vance (R-Ohio) and Sen. Thom Tillis (R-North Carolina) sent a letter to Gensler after the incident, pointing out the impact of the false announcement on Bitcoin prices and providing information about the incident. I asked for

Bitcoin's price briefly rose on the news, reaching nearly $48,000, but has since fallen to less than $46,000.

“These developments raise serious concerns about the Commission's internal cybersecurity procedures and the Commission's three objectives of protecting investors, maintaining fair, orderly and efficient markets, and promoting capital formation. “This is contrary to the mission of the organization,” Vance and Tillis wrote.

X said a “preliminary investigation” revealed that the hack was not due to a breach of the social media company's systems, but rather “an unidentified individual gaining control of the phone number” associated with the account. In response to this, authorities conducted further investigation.

The social media company also said that two-factor authentication was not enabled on the SEC account at the time of the hack.

Several Republicans on the House Financial Services Committee criticized the agency's apparent lack of safeguards in a letter to Gensler on Wednesday.

“This failure is unacceptable. It is alarming that your agency has failed to even meet the standards required of private industry,” they wrote.

Criticism of the SEC's cybersecurity practices comes after the SEC recently enacted a rule requiring publicly traded companies to disclose within four business days any significant cyber incident that could affect investor decisions. This is in response to this.

The rule has drawn fierce opposition from Republicans in Congress, who are trying to use the Congressional Review Act to overturn the requirement.

But the cyber disclosure rule is just one of many recent rulemaking and enforcement efforts by Mr. Gensler's agency that have drawn the ire of Republicans.

Republican lawmakers have also denounced the overreach of the SEC's proposed climate change disclosure rules and have repeatedly criticized Gensler's heavy-handed approach to crypto regulation.

Mr. Gensler has often faced criticism from Republicans, but when Sens. Ron Wyden (D-Ore.) and Cynthia Lummis (R-Wyo.) called on the SEC's inspector general to investigate the accounting fraud. , concerns about SEC accounting violations took on a bipartisan tone. Incident.

“Given the clear potential for market manipulation, if X's statements are correct, the SEC's social media accounts should have been protected using industry best practices,” Wyden and Lummis wrote. .

“At this time, there is no evidence that any unauthorized party has accessed SEC systems, data, devices or other social media accounts,” Gensler said in a statement, while also addressing the security concerns raised by the hack. Admitted.

“The SEC takes its cybersecurity obligations seriously,” Gensler said.

Ron Hammond, director of government relations at the blockchain association, a cryptocurrency industry group, said the spotlight on recent ETF decisions has brought “more people from the traditional side” of finance together. “It was my first taste of what finance is like.” On the crypto side. ”

“This has been like another week, given the craziness that's been going on in the crypto industry and the intersection of politics in Washington, D.C., for at least the last couple of years, if not more,” Hammond said. told The Hill.

Amid confusion and criticism over the breach, the SEC ultimately approved 11 Spot Bitcoin ETFs that were the subject of hacked posts. The decision, touted by crypto advocates as a “historic achievement”, marks the first time authorities have allowed trading of funds invested directly in crypto assets.

The SEC previously rejected all applications for such funds. The agency's change in direction on the issue comes after the U.S. Court of Appeals for the District of Columbia ruled in August that it had unfairly denied Grayscale Investments' application for a spot Bitcoin ETF. be.

Gensler seemed less enthusiastic in a statement about the approval, saying it was the “most sustainable path forward” given the court's decision. He also emphasized that the SEC's approval is limited to ETFs that hold Bitcoin.

“This is in no way an indication of the Commission's willingness to approve listing criteria for crypto-asset securities,” Gensler said.

Katz suggested that the hack was even more embarrassing for the agency because the SEC chairman “didn't really want to make these approvals anyway.”

Hammond added that Gensler and the agency are “obviously not in a good place” at this point following the hack.

“We'll see what happens through the letters and the hearings and the FBI investigation, but the FBI is not in a good position within the SEC right now,” he said.