- 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 can be a good thing.
David Hirsch finally had a chance to relax.
Until June, he headed up the Securities and Exchange Commission’s cyber and crypto enforcement unit. This week Hirsch announced that he’s joined a law firm in Washington, DC.
In between, Hirsch took a vacation in Italy with his family, and didn’t look at his email for two weeks.
“It was the longest span I’ve gone without reading a work email in living memory,” he told DL News. “Very relaxing.”
Hirsch’s need for rest was understandable. During his two-year tenure as the SEC’s chief of cyber and crypto enforcement, the watchdog brought 50 lawsuits against crypto businesses, including major players like Binance, Coinbase, and Kraken.
In his new role as a partner in law firm McGuireWoods’ financial services and securities enforcement division, Hirsch will now advise clients how to avoid the very kinds of enforcement actions he used to bring.
Slew of lawsuits
Hirsch began his career as a litigator, and went on to found a private investigation business.
He joined the SEC in its Fort Worth, Texas, office as an enforcement attorney in 2015, and by 2020 had made it to Washington as an adviser to SEC Commissioner Caroline Crenshaw.
In May 2022, the US regulator overhauled the five-year-old cyber unit within its enforcement division, renaming it the Crypto Assets and Cyber Unit.
Twenty new positions were added, bringing the unit’s total staff to 50. Hirsch left Crenshaw’s office to spearhead the unit in October 2022.
Just six weeks later, Sam Bankman-Fried’s FTX went belly up. At its peak, the exchange had been worth $32 billion and its founder had been championed as a wunderkind of sorts, able to woo politicians and regulators alike.
To say that the scandal sent shock waves through the industry and the corridors of power would be an understatement.
The SEC responded by stepping up its litigation against the industry, announcing a slew of lawsuits.
In one fell swoop, Hirsch’s workload piled up. With the collapse of FTX, “it became much more challenging and high paced,” Hirsch said.
“We responded appropriately. It was reasonable for a lot of questions to be asked following the series of blow-ups” in crypto, including FTX and the May collapse of the so-called stablecoin TerraUSD, he said.
“When regulators see things breaking, they are right to ask questions… to make sure they understand what’s happening, both as to individual market participants and as a way of trying to assess the likelihood of contagion” to other markets, Hirsch said.
The SEC certainly asked a lot of questions, and sued top crypto companies Coinbase and Binance within a day of one another in June 2023.
When other agencies settled with Binance in November, the SEC was absent — suggesting the regulator intends to see these cases through.
After all, in both the Coinbase and Binance cases, the regulator is litigating based on Chair Gary Gensler’s claim that almost all cryptocurrencies are securities and fall under his agency’s aegis.
Never one to pull punches, Gensler told Congress and national media audiences in February and May that the industry “was a field rife with fraud and manipulation,” and contributed an “outsized piece” to scams and frauds in US markets.
Hirsch said, however, SEC leaders and staff don’t believe crypto to be an inherently violative industry.
“Crypto is inherently a technology, so the question is: How are folks applying that technology?” he said, adding that Gensler and SEC enforcement enforcement director Gurbir Grewal talk about being technologically neutral.
“There are opportunities there to find ways to align the interests of developers and innovators with obligations under the law,” Hirsch said.
For example, Hirsch said blockchain has developed enough during his time at the SEC that it could one day lower costs associated with payments and reduce settlement times.
“The infrastructure of crypto has developed dramatically during that time frame, and continues to mature,” he said.
Regulation brings adoption
To be sure, crypto businesses resist regulation by the SEC.
Coinbase CEO Brian Armstrong, for instance, has been vocal that blockchain is a novel technology that deserves its own tailored rules.
The industry has ploughed money into lobbying lawmakers for policy that would confer primary responsibility to the SEC’s sister agency, the US Commodity Futures Trading Commission.
Hirsch said many businesses realise, however, that strict regulation does soothe investor worries, and paves the way for mass adoption.
“Having frequent, large scale, very public collapses that are often accompanied by fraud is antithetical to the goal of general adoption,” he said.
“You’re less likely to get cops and teachers and moms and uncles wanting to directly interact with crypto if they believe they’re likely to get scammed in the process,” Hirsch added.
Gensler’s critics say that lawyers have abandoned the agency in droves, burned out from the frenetic pace of the chair’s enforcement agenda.
Hirsch, however, said that was not the case with him. After he got back from his email-free vacation from Italy, he said he wasn’t burned out. Rather, he said he was ready for his next challenge.
“Litigation is going to proceed over 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 DL News’ Dubai correspondent. Got a tip? Email them at joanna@dlnews.com or bweiss@dlnews.com.
