Is the SEC tightening its anti-crypto stance after the FTX crash?
After the FTX collapse, pressure on the SEC is rising and crypto firms are being blamed.
With the FTX collapse, pressure on the SEC is mounting and crypto firms are being blamed. But critics view the government as complicit in the meltdown.
Gary Gensler, head of the U.S. Securities and Exchange Commission (SEC), fired off another warning shot at the crypto industry after the multi-billion-dollar FTX affair. "The runway is getting shorter," the 65-year-old said to Bloomberg. Most players in the space are "Wild West casinos." The message is clear: the era of unregulated exchanges is over.
The SEC chief also criticized the emerging practice of the so-called "Proof of Reserves." It gained traction after the FTX crash. Sam Bankman-Fried's crypto empire collapsed in November 2022 within a week after balance-sheet gaps and evidence of customer funds embezzlement were made public. The U.S. Attorney's Office already views FTX as one of the biggest financial scandals in history. An estimated $30 to $50 billion is missing.
Critics call for tougher action from the SEC
In response to the disaster, major crypto exchanges like Binance disclosed their assets to prove solvency. This form of proof is neither a full accounting of a company’s assets and liabilities, nor does it meet the client funds segregation requirements under securities laws," said Gensler. The practice has also been criticized within the crypto industry on these grounds, for example by Jesse Powell, former CEO of Kraken,
Shortly after the FTX crash, fears grew in the sector that the SEC would tighten its stance on crypto. For example, American Democrat and crypto critic Elizabeth Warren urged "stronger action" against the industry. "The SEC has not written laws, did not anticipate disasters in the industry, and failed to protect consumers."
No clear crypto regulation
The SEC has lawsuits against big players like Ripple and Binance. The charge: their tokens are illegal securities. The regulator says this covers almost all so-called altcoins. If that view wins, most firms could face hefty fines and possibly prison time. Clear crypto regulation in the U.S. is still lacking. In early 2022, President Joe Biden called for a statutory framework for the industry by executive order.
Is the SEC complicit?
The SEC is now under pressure from the FTX scandal. The agency’s top prosecutor has already resigned after revelations of a feud with FTX founder Sam Bankman-Fried became public.
Some U.S. politicians see the SEC as complicit in the disaster, such as Republican Senator Tom Emmer. Gensler is blamed for "failing regulation" and should be hauled before Congress.
Brian Armstrong, CEO of the largest U.S. crypto exchange, also points to SEC responsibility. Their inaction in crafting sensible regulation led 95% of crypto exchanges to flock to unregulated overseas locales. FTX was registered in the Bahamas. It makes no sense to punish U.S. companies for that failure.
