U.S. Representative Ritchie Torres raised questions for SEC Chair Gary Gensler during a House Financial Services Committee meeting, employing Pokémon cards as an illustrative example. Gensler acknowledged that, in his interpretation of U.S. law, a Pokémon card doesn’t qualify as a security. However, when probed about whether a tokenized version of the card could be considered a security, Gensler’s response lacked certainty.
Pokémon Cards and Securities: Gensler’s Response
Torres inquired, “Suppose I were to purchase a Pokémon card. Would doing so constitute a security transaction?” Gensler initially replied, “You can purchase a Pokémon card—I don’t know what the context is, but if you’re just purchasing a Pokémon card,” prompting further questioning from Torres.
Pressed on whether the card itself is a security, Gensler clarified, “At a retail store, that’s not a security.” Torres then delved into the scenario of acquiring a blockchain token representing the physical card, akin to a Pokémon card NFT from an online exchange. Gensler’s response was vague, stating, “I’d have to know more.”
Torres highlighted the role of tokenization, questioning if it transforms a non-security transaction into a security transaction. Gensler cited the core of the Howey Test, emphasizing the anticipation of profits based on the efforts of others and the exchange of funds.
Torres Challenges Gensler’s Approach to Crypto Regulation
In response to the inquiry, Gensler did not immediately comment. Torres, expressing dissatisfaction, deemed Gensler’s answers “incoherent” and criticized his regulatory approach to crypto as susceptible to arbitrary enforcement.
Torres argued against Pokémon cards being classified as securities, asserting that tokenization doesn’t alter their nature. He accused Gensler of bias against blockchain technology, despite claiming to be “technology-neutral.”
The discussion also touched on the tokenization of Pokémon cards as NFTs. Platforms like Courtyard enable collectors to retain digital versions on Polygon NFT while physically storing the cards with Brinks. Tokenized Pokémon cards offer collectors passive royalties and digital proofs of ownership.
Broader SEC Meeting: AI, Meetings, and Concerns
The broader SEC meeting covered diverse topics, including the impact of artificial intelligence on the U.S. economy. Gensler has faced repeated calls for regulatory clarity on blockchain assets, with his previous accusations of noncompliance within the crypto industry in June. The SEC, however, has yet to provide clear regulatory guidelines beyond referencing the Howey Test.
Conclusion: Complexities in Defining Securities in the Crypto Landscape
Torres emphasized that, according to the Howey Test, a digital asset isn’t inherently a security but could be part of an investment contract. He criticized Gensler for not citing a Supreme Court case where an investment contract was found in the absence of an actual contract, highlighting the complexity of the regulatory landscape.