The U.S. Securities and Exchange Commission (SEC) chair Gary Gensler has come under fire for allegedly hiring civil servants based on political affiliations—a violation of federal law.
The allegations come from a joint letter sent by the House Judiciary, Financial Services, and Oversight Committees. While the allegations don’t appear to overlap with crypto enforcement actions from the regulator, they do arrive at a time when firing Gensler has become one of Republican nominee Donald Trump’s campaign promises as he runs for re-election.
The letter , signed by Judiciary Committee Chairman Jim Jordan (R-OH), Financial Services Committee Chairman Patrick McHenry (R-NC), and Oversight and Accountability Committee Chairman James Comer (R-KY), calls into question the appointment of Dr. Haoxiang Zhu as SEC Director of Trading and Markets.
The lawmakers allege that Dr. Zhu reassured Gensler of his political alignment following a call about his potential employment. They cited emails made public during an SEC rulemaking comment.
Zhu wrote, “I believe I’m in the right place on the political spectrum, and I’m happy [to] provide as many details as needed so you feel comfortable.” On November 19, 2021, Zhu was hired by the SEC.
"As this correspondence suggests, the SEC appears to be unlawfully considering an applicant’s political ideology when hiring bureaucrats, a conclusion only reinforced by the SEC’s hiring of individuals from left-leaning organizations to fill senior roles at the SEC," the lawmakers wrote.
The Committees argue that this exchange suggests a potential violation of the Civil Service Reform Act of 1978, which prohibits discrimination in federal hiring based on political affiliation.
This political climate places Gensler at the center of two high-profile issues: Ongoing regulatory disputes with the crypto industry and internal controversies over the SEC’s hiring practices.
In light of these allegations, the Committees are conducting oversight to determine whether the SEC has complied with federal law in other personnel decisions.
They are specifically investigating whether political ideology has been a factor in hiring decisions under Gensler’s leadership.
The letter requests that Gensler provide documents and communications related to the hiring of directors, associate directors, and staff in the Chair’s office since April 2021, as well as any materials related to the consideration of political affiliations during the hiring process. The SEC has until September 24, 2024, to comply with the request.
The Judiciary Committee, Financial Services Committee, and Oversight and Accountability Committee each have jurisdiction over different aspects of this investigation, including civil liberties, SEC oversight, and federal civil service accountability.
This probe comes at a time when as recent reports suggest Gensler’s tenure could be in jeopardy after the upcoming election.
Ripple CEO Brad Garlinghouse recently predicted that Gensler may exit the SEC, regardless of the election's outcome, hinting at the potential for a leadership change at the agency.