The SEC's top crypto cop has left the agency to join a law firm. Now he reveals his thoughts on Gary Gensler's attacks on the industry and why regulation is a good thing.
David Hirsch finally got a chance to rest.
Until June, he headed the Cyber and Crypto Enforcement Division of the Securities and Exchange Commission. Hirsch announced this week that he has joined a law firm in Washington, DC.
In between, Hirsch took a vacation in Italy with his family and didn't see his email for two weeks.
“This is the longest period I've gone without reading a work email in living memory,” he said News. “Very relaxing.”
Hirsch understood the need for rest. During his two-year tenure as the SEC's cyber and crypto enforcement chief, the watchdog brought 50 lawsuits Against crypto businesses including major players such as Binance, Coinbase and Kraken.
In his new role as a partner in the financial services and securities enforcement division of law firm McGuireWoods, Hirsch now advises clients on how to avoid many of the types of enforcement actions he used to bring.
Aggregation of lawsuits
Hirsch began his career as a lawyer and founded a private investigation business.
He joined the SEC in 2015 as an enforcement attorney in the Fort Worth, Texas office and moved to Washington in 2020 as an advisor to SEC Commissioner Carolyn Crenshaw.
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In May 2022, the US regulator renamed its enforcement department's five-year-old cyber unit as the Crypto Assets and Cyber Unit.
Twenty new positions are includedThe total personnel strength of the unit has reached 50. Hirsch left Crenshaw's office to lead the unit in October 2022.
After just six weeks, Sam Bankman-Fried's FTX belly grew. At its peak, the exchange was worth $32 billion and its founder was the kind of novelty that could fascinate politicians and regulators alike.
It would be an understatement to say that the scandal sent shock waves through the industry and the corridors of power.
The SEC responded by ramping up its litigation against the industry, announcing several lawsuits.
In one fell swoop, Hirsch's workload piled up. With the fall of FTX, “it's become more challenging and more fast-paced,” Hirsch said.
“We responded appropriately. It's reasonable to ask a lot of questions following a series of blow-ups in crypto, including the May collapse of FTX and the so-called stablecoin TerraUSD, he said.
“When regulators see things breaking down, they're right to ask questions…to make sure they understand what's going on with individual market participants and as a way to try to assess the potential for contagion,” Hirsch said.
The SEC certainly raised a lot of questions and sued top crypto companies Coinbase and Binance against each other in June 2023.
While other agencies settled with Binance in November, the SEC was absent — the regulator expects to see the cases.
After all, in the Coinbase and Binance cases, the regulator is litigating based on Chair Gary Gensler's assertion that almost all cryptocurrencies are securities and fall under his agency's purview.
Never one to pull punches, Gensler told congressional and national media audiences in February and May that the industry was “rife with fraud and manipulation” and provided an “exposed part” of scams and fraud in US markets.
However, Hirsch said SEC leaders and staff do not view crypto as an inherently infringing industry.
“Crypto is inherently a technology, so the question is: How do people use that technology?” He said Gensler and SEC Enforcement Director Gurbir Grewal were talking about being technology neutral.
“There are opportunities there to find ways to align the interests of developers and inventors with responsibilities under the law,” Hirsch said.
For example, Hirsch said that blockchain has advanced enough during his time at the SEC that it could one day lower the costs of payments and shorten settlement times.
“Crypto's infrastructure has evolved dramatically over that time and continues to mature,” he said.
Regulation brings adoption
To be sure, crypto businesses resist regulation by the SEC.
Coinbase CEO Brian Armstrong, for example, says blockchain is a novel technology that deserves its own set of rules.
The industry plowed money into lobbying lawmakers for a policy that would give primary responsibility to the SEC's sister agency, the US Commodity Futures Trading Commission.
Still, Hirsch said, many businesses realize that tighter regulation can ease investor concerns and pave the way for mass adoption.
“Frequent, large-scale, very public crashes often accompanied by fraud are counterproductive to the general adoption goal,” he said.
“You have policemen and teachers and mothers and aunts who are less likely to want to interact directly with crypto if they believe they're likely to be scammed in the process,” Hirsch added.
Gensler's critics Advocates say they have left the agency in droves, burned out from the frantic pace of the chair's enforcement agenda.
But Hirsch said that was not the case for him. After he returned from his email-free vacation from Italy, he said he wasn't burned out. However, he says he is ready for his next challenge.
“The litigation will continue in the coming months and years, and I [asked myself]'What's the next great thing I can do?'” he said.
Joanna Wright is a regulatory correspondent for DL News. Ben Weiss is News' Dubai correspondent. Got a tip? Email them [email protected] Or [email protected].
Related Topics Securities and Exchange Commission (SEC) Gary Gensler
