SEC facing rising scrutiny after FTX’s epic implosion

SEC facing rising scrutiny after FTX’s epic implosion

The collapse of the cryptocurrency exchange FTX has drawn the attention of Securities and Exchange Commission Chairman Gary Gensler. Members of Congress want to ask the SEC chairman what his agency could have done better to protect consumers from the implosion.

Defense attorneys and even some recent critics of Gensler say there wasn’t much the SEC could have done.

Following FTX’s high-profile implosion, crypto skeptics and digital currency advocates have asked: Could the Securities and Exchange Commission have done more? Expect to hear this question more from Congress. When asked whether the SEC could have been more aggressive in investigating FTX ahead of bankruptcy proceedings that could affect hundreds of thousands of consumers, New Jersey Senator Bob Menendez, a senior Democrat on the Senate Bank Committee, replied: 

 “Yes. When asked if he planned to question SEC Chairman Gary Gensler about this, Menendez replied, “I am.” Across the Capitol, Rep. Tom Emmer, R-Minn., the future Republican No. 3 in the House of Representatives, has addressed criticism from members of the decentralized finance community about Sam’s lobbying from Bankman-Fried for a cease motion, which was not granted.

SEC and Digital Assets Relationship Status: It’s Complicated 

Gensler has become a lightning rod for criticism from digital asset advocates, making him an easy target for them regarding mass embezzlement allegations against the FTX build. Industry lawyers were quick to blame the SEC. would have ended in such disaster if the uncertainty and lack of engagement hadn’t led to so much market activity outside the US.” “I want to know why our ‘cop on duty’ was caught off guard by this,” wrote crypto attorney Jake Chervinsky -Trade Group of the Blockchain Association.

Coy Garrison, an attorney for Steptoe and Johnson, said the case called into question the agency’s priorities.

“The SEC is not to fault for what transpired, but some reasonable issues have been raised about where the SEC has been investing its resources,” said Garrison, who formerly worked as a counsel to pro-crypto SEC Commissioner Hester Peirce.

However, some of Gensler’s harshest opponents in Congress remained silent in this case.

“I don’t think there’s an SEC issue here.” “Let’s not forget that most of the problems arose from an offshore exchange, and I’m not certain the SEC’s jurisdiction extends there,” said retiring Pennsylvania Senator Pat Toomey, the senior Republican on the Senate Banking Committee.

“There are a lot of facts and situations that I would need to know before I could answer that question,” he says of whether the SEC should have been more active with FTX.

Senator Cynthia Lummis, a Wyoming Republican, noting the 130 legal entities associated with FTX in various countries, was also reluctant to blame the SEC for failing to act. “Knowing that it takes one to three years to prosecute a compliance action or fraud litigation against a corporation as complex as FTX, it would have been impossible to do so during FTX’s existence,” he said. 

‘Building evidence, building facts’ 

Gensler recently defended his agency’s priorities when asked why the agency took coercive action against celebrities like Kim Kardashian but not FTX. “Evidence gathering, fact gathering, often takes time,” Gensler told CNBC. According to some agency defenders, the perception of the SEC’s powers against the reality of its limits partly explains why the agency has yet to take legal action, like exchanges, which may partially explain why he and senior SEC officials met with FTX earlier this year. The SEC office in Chicago.

“I would add that the SEC has long stated that they believe digital currencies are securities.” This is the first. So, if they had their way, they would have hosted FTX in the United States and run it like a conventional security exchange.”

Ty Gellasch, a former SEC Commissioner Kara Stein’s counsel and currently president and CEO of the Healthy Markets Association, said that the industry’s lack of cooperation with SEC inquiries and political problems slowed the SEC’s work.

“The SEC has the jurisdiction to supervise the securities business,” Gellasch said, “but they and their congressional partners have argued that these aren’t securities.” “This puts regulators in a high-stakes chicken game.”

Only some people were convinced that the SEC had gone far enough in the FTX case. “The average SEC inquiry lasts roughly two years, but under normal circumstances in which client assets are secure, the potential defendant is not a flight risk.” When consumer funds are at stake, the calculus changes.

“When customer assets are at stake, the math completely changes,” said Phil Moustakis, a former senior counsel in the SEC’s enforcement section and current attorney at Seward & Kissel. “The SEC was already looking at crypto market middlemen, so with FTX, they should have had a head start.”

Feds are now on the case

The point could be debatable. The Justice Department is investigating, and FTX’s attorneys told a federal bankruptcy judge Tuesday that they are working with federal law enforcement and regulators. That could lead to other executions, noted John Reed Stark, Director of the SEC’s Office of Internet Enforcement from its inception. Stark continued that the SEC and FINRA are likely to conduct investigations into any company exposed to the aftermath of the FTX collapse.

He also predicted that the collaboration of FTX experts could lead to further investigations by law enforcement and the SEC. A company’s scrutiny could lead to transaction tips from others as those familiar with the situation would become more willing to talk. Stark noted that “garden informants and witnesses seeking immunity undoubtedly abound.”

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