The U.S. Government Accountability Office (GAO) recently issued a report that has stirred significant debate within the crypto community. The report specifically scrutinized the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 121 (SAB 121), stating that it must undergo Congressional review before taking effect. This development comes at a pivotal time, coinciding with pending court dates in the SEC’s lawsuits against Ripple and Coinbase.
Jake Chervinsky, Chief Policy Officer at the Blockchain Association, was among the first to comment on the GAO’s findings. He stated that the GAO’s analysis makes a “slam dunk” out of a lawsuit against the SEC for violating the Administrative Procedures Act’s (APA) notice-and-comment requirement. Chervinsky also pointed out that SAB 121 has done “extraordinary damage to the crypto industry” by requiring crypto custodians to double-count digital asset liabilities on their balance sheets.
This is huge.
— Jake Chervinsky (@jchervinsky) October 31, 2023
The GAO reviewed SAB 121, an illogical anti-crypto accounting bulletin issued by the SEC last March, and found that it's a "rule" under the CRA and APA.
The SEC didn't comply with either.
This is a clear statement from a federal agency that the SEC broke the law. https://t.co/brglK3sm8S
In direct response to Chervinsky’s tweet, John E. Deaton, founder of CryptoLaw US and an Amicus Curiae attorney, offered strong words. Deaton emphasized that a federal judge had previously stated that the SEC’s enforcement lawyers and their leadership “lack a faithful allegiance to the law.”
“This is a clear statement from a federal agency that the SEC broke the law.”
— John E Deaton (@JohnEDeaton1) October 31, 2023
Ever since the @Ripple lawsuit, the @SECGov has consistently NOT followed the law. A federal judge literally stated that the SEC’s enforcement lawyers, and the leadership they report to, are not only… https://t.co/gOHO1r560v
Deaton also noted the lack of media attention given to such a significant judicial statement, underscoring the gravity of the situation. He further argued that the SEC has become “both an inept and corrupt organization,” doing “more to hurt investors” than to protect them.
Deaton’s comments center around the SEC’s handling of the Ripple lawsuit and its issuance of SAB 121. The bulletin, issued in March 2022, mandated that crypto custodians double-count digital asset liabilities on their balance sheets.
The GAO’s report confirmed that SAB 121 falls under the Congressional Review Act (CRA) and the APA, thereby indicating that the SEC broke the law by not complying with these acts when issuing the bulletin. Per the report, this point is particularly noteworthy as it directly contradicts the SEC’s previous claims that the bulletin didn’t meet the rule definition under the CRA and APA.
The GAO’s report sets the stage for a high-stakes showdown involving regulators, lawmakers, and the crypto industry. Lawmakers now have a 60-day window to review and potentially disapprove SAB 121. While the SEC has yet to issue a formal response, key figures in the crypto space, particularly Deaton, are closely monitoring the situation.
