President-elect Trump will have the opportunity to reshape the leadership of the Securities and Exchange Commission (SEC) upon being sworn into office on January 20, 2025. This is something the President-elect has promised the crypto industry he would do "on Day One."1 The specific options available to him will depend on the actions of current SEC Chair Gary Gensler, whose term expires in June 2026.
SEC Commissioners are nominated by the President and subject to confirmation by the Senate. If Gensler follows precedent and resigns before Inauguration Day, President-elect Trump will nominate a new SEC Chair, subject to Senate confirmation. Alternatively, if Gensler decides to stay, the situation may become more complex in the short-term, but with little to no long-term impact.
Below, we break-down the different scenarios and consider the implications for the crypto industry over the next few months. Specifically, we address the following questions:
- What happens if Gensler resigns?
- What happens if Gensler does not resign?
- Can President Trump fire Gensler?
What happens if Gensler resigns?
Gensler's resignation would result in a four-member Commission. President Trump would nominate a new commissioner, likely to serve as the Chair, to be confirmed by the Senate. While the nomination process is underway, President Trump would designate a Chair from among the existing commissioners, which would not require a Senate vote.2 In this scenario, President Trump would likely designate either Commissioner Hester Peirce or Commissioner Mark Uyeda as Acting Chair.
A 2-2 deadlocked Commission would mean that no controversial rulemakings or enforcement actions would be voted on until the fifth commissioner joins, a process we expect could take up to five months. However, the Acting Chair would control the day-to-day functioning of the SEC staff. Regarding crypto, the Acting Chair could direct staff to:
- Rescind Staff Accounting Bulletin 121
- Entertain requests for no-action relief
- Pause or terminate enforcement investigations
- Request postponement of litigation and appeals (subject to each relevant court's discretion)
- Solicit public feedback through either formal or informal mechanisms as the first step for future crypto rulemakings
Political Process for Nominating a New SEC Chair
Chair Gensler's resignation would give President Trump the opportunity to fill two SEC commissioner seats: Gensler's and Commissioner Caroline Crenshaw's. Commissioner Crenshaw's term expired in June 2024, but she is permitted to serve through October 2025 unless the Senate confirms her replacement. While Commissioner Crenshaw, a Democrat, was re-nominated for a second term under President Biden, her nomination has not been voted on by the current Senate and is unlikely to move in the lame duck session.
As an independent agency, no more than three members of the Commission can belong to the same political party. If Gensler resigns, President Trump will likely nominate a Republican (or Independent who shares President Trump's economic vision) to fill the seat currently occupied by Commissioner Crenshaw, and that term would expire in 2029. President Trump will likely use the opportunity to appoint an individual he wishes to serve as Chair of the agency. However, he also has the option of designating either Commissioner Peirce or Commissioner Uyeda as Chair and simply appointing a third GOP commissioner for the Senate's confirmation. Gensler's current seat, which expires in 2026, would likely be filled by either Commissioner Crenshaw or another Democrat.
Gensler will have strong incentives to simply resign before Inauguration Day. Notably, Gensler is used to running the agency as Chair and controlling the agenda. If he remains as a commissioner, his role would be a symbolic act of defiance designed to temporarily slow down the Trump Administration's plans. This new role will undoubtedly be less satisfying and fulfilling, especially when he likely has opportunities for the next stage of his career.
If Gensler resigns, he'll follow in the footsteps of his recent predecessors at the SEC when the White House changes hands. Trump-appointee Jay Clayton resigned on December 23, 2020, in advance of President Biden's inauguration.3 Obama-appointee Mary Jo White resigned on January 20, 2017, in advance of President Trump's inauguration.<4Bush-appointee Christopher Cox resigned on January 20, 2009 in advance of President Obama's inauguration.5
What happens if Gensler does not resign?
Even if Gensler decides to retain his commissioner seat, President Trump has the clear authority to designate a new Chair of the SEC among existing commissioners. As previously noted, President Trump can designate either Commissioner Hester Peirce or Commissioner Mark Uyeda as Acting Chair. However, the Acting Chair would be only one of two GOP votes on the Commission. While this arrangement – a majority Democrat Commission led by a GOP Acting Chair - would be peculiar, in practice the end result would not be much different from the 2-2 deadlocked Commission previously discussed. Under either scenario, the Acting Chair would not have a majority of votes to pass meaningful rulemakings or enforcement actions. Additionally, under both scenarios, the Acting Chair would have authority to direct the SEC staff. The same potential actions discussed in the prior section could still be achieved if Gensler remains.
The imbalance would likely not last for long. As previously mentioned, Commissioner Crenshaw's term expired in June 2024. Accordingly, President Trump could use this seat to nominate a new SEC Chair in the next Congress, who upon receiving Senate confirmation would join Commissioners Peirce and Uyeda to form a new majority. It is worth noting that Commissioner Peirce's term expires in June 2025. While traditionally the Senate has sought to pair votes on Democrat and Republican SEC commissioners, recent experience has moved away from such a practice and the timing here suggests that Commissioner Peirce's seat will likely be dealt with later in 2025 or before the 2026 election, at the latest.
Can President Trump fire Gensler?
As mentioned previously, President Trump does not need to fire Gary Gensler to strip him of his title and authority as Chair. However, if President Trump is presented with the opportunity and chooses to fire Commissioner Gensler, such an "at will" firing of an SEC commissioner would likely raise a legal challenge as to whether the President has authority to take such an action.
In 2010, the Supreme Court held in Free Enterprise Fund v. PCAOB that providing dual "for cause" limitations on the removal of Public Company Accounting Oversight Board (PCAOB) members violated Article II of the Constitution's vesting of the executive power in the President.6In other words, the Court struck down the structure whereby SEC commissioners, protected by for-cause limitations on their removal by the President, in turn had for-cause limitations on their ability to remove PCAOB members. Underpinning the ruling was an assumption that the SEC commissioners have for cause protections.7However, scholar Andy Vollmer of the Mercatus Center raised a compelling argument in a 2023 amicus brief that Free Enterprise Fund was based on a misimpression: there is nothing in the Securities Exchange Act of 1934 that provides "for cause" protection for SEC commissioners.8 If litigation were to emerge on the subject, Vollmer's arguments are likely to be at the center of the dispute.
Conclusion
Big changes are coming to the SEC, which should positively impact its approach to crypto. Industry participants are looking forward to opportunities to advance new products and transactions. We are available to assist you in developing plans for engagement with the new SEC leadership in the coming months.
Stay tuned for further posts with our insights during this transition period, including how crypto policy at the SEC and CFTC will be shaped by the current lame-duck session and the incoming 119thCongress.
Footnotes
1 See Jason Ma, Donald Trump vows to make the U.S. a 'Bitcoin superpower' and create national stockpile of tokens, Fortune (July 27, 2024), https://fortune.com/crypto/2024/07/27/donald-trump-bitcoin-2024-conference-kamala-harris-national-stockpile-gary-gensler-cbdc/ (quoting Trump promising to fire Gary Gensler on day one).
2 See Reorganization Plan No. 10 of 1950, § 1, https://uscode.house.gov/view.xhtml?req=granuleid:USC-1999-title5a-node78-leaf108&num=0&edition=1999.
3 See SEC Historical Summary of Chairman and Commissioners (July 22, 2022), https://www.sec.gov/about/sec-commissioners/sec-historical-summary-chairmen-commissioners.
4 Id.
5 Id.
6 561 U.S. 477 (2010).
7 See id. at 487 ("The parties agree that the Commissioners cannot themselves be removed by the President, except under the Humphrey's Executor standard of 'inefficiency, neglect of duty, or malfeasance in office.'").
8 Brief of Amicus Curiae Andrew N. Vollmer in Support of Neither Party, SEC v. Jarkesy (July 20, 2023), https://www.supremecourt.gov/DocketPDF/22/22-859/272456/20230720123401738_Jarkesy%2022-859%20amicus%20final.pdf.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
