A Question for Congress: Why Didn’t the SEC Stop FTX?

By Hal Scott and John Gulliver. January 18, 2023. (Wall Street Journal).

The Securities and Exchange Commission brought an enforcement action last week against the cryptocurrency brokerages Genesis Global Capital and Gemini Trust. As with the failure of crypto exchange FTX, the SEC is late to the game—likely too late for the 340,000 U.S. customers affected by Genesis’ decision to halt all withdrawals.

Genesis’ financial problems stem from large holdings with FTX, and it is unlikely to be the last crypto firm caught in FTX’s wake. Who is to blame and what can be done to protect U.S. retail investors in crypto?

Rep. Patrick McHenry, the new chairman of the House Financial Services Committee, can answer that question by investigating the SEC’s failure to prevent the FTX disaster. The harm to U.S. investors from the alleged theft of FTX customer assets by Sam Bankman-Fried is likely to be enormous. FTX’s global operations held more than $8 billion in customer assets, and there were 2.7 million U.S. customers of FTX’s U.S. operations alone. FTX customers have had their assets frozen in bankruptcy and now face large losses. They deserve to know why the SEC failed to be the “cop on the beat.”

In 2008, after Bernie Madoff’s Ponzi scheme was revealed, SEC Chairman Christopher Cox promptly initiated an internal investigation into the commission’s failures to uncover the fraud. Gary Gensler, the current chairman, has so far failed to do the same. Madoff’s evasion of applicable SEC regulations was a surprise. FTX’s state of nonregulation was the reddest of flags. Madoff was largely cheating rich sophisticated investors. FTX’s retail investors were left helpless.

Read the full article here.

Gensler Says Crypto Treated Just Like The Market; 200 SEC Lawsuits Say Otherwise.

By Roslyn Layton. August 28, 2022. (Forbes)

By law, regulatory agencies should only regulate that which they have authority to regulate. Deference is allowed to some degree, should the agency’s justification be reasonable and ideally evidenced. Notably Congress promulgated the Administrative Procedure Act (APA) in 1946 to guide agency process to publish notice of rulemaking in the Federal Register and provide opportunity for public comment. This standard process seems to have never have happened for crypto assets at the Security and Exchange Commission (SEC). The SEC website does not include an entry for regulation for crypto, either completed or proposed.

In May 2022, the SEC beefed up its Cyber Unit to the Crypto Assets and Cyber Unit, budgeted for 50 dedicated officers and more than doubling the department’s headcount. The unit counts some 200 lawsuits since its founding in 2017, with fraud being the subject in at least 80 investigations. The agency also reports restoration of $2 billion in monetary relief.

No one denies that crypto assets, like any asset or technology, can be used fraudulently. The very features that make crypto assets desirable can also be exploited, including but not limited to ease of startup and use, anonymization, and lack of intermediaries. Plus, some users can undoubtedly be greedy and gullible. It does not help that some have disguised crypto scams as legitimate services.

Read the full article here.

She’s not your ‘Crypto Mom’: Hester Peirce’s fight with the SEC

By Benjamin Pimentel. May 9, 2022. (Protocol)

SEC Commissioner Hester Peirce is celebrated in memes as “Crypto Mom.” She’s considered crypto’s staunchest ally on a regulatory body that’s become the industry’s nemesis.

It’s an off-target moniker and a flawed portrait, Peirce said.

“It’s kind of funny because I don’t have children,” she told Protocol in a wide-ranging interview. She denies being an advocate for the crypto industry and thinks it’s a bad idea for people to think of the government “in parental terms.”

But Peirce is sympathetic to the crypto industry’s key complaint about the SEC: that under Chair Gary Gensler the agency has failed to offer adequate guidance to the industry on the regulations that apply to cryptocurrencies and digital assets.

Read the full article here.

Since Chairman Patrick McHenry threatened to SUBPOENA Gary Gensler for NON-COMPLIANCE with Congressional oversight.

ACT NOW!