Pro-Crypto Lawmaker Blames Gary Gensler for FTX Collapse

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Demo­c­rat Rep­re­sen­ta­tive Ritchie Tor­res has asked the U.S. Gov­ern­ment Account­abil­i­ty Office (GAO) to inves­ti­gate whether the Secu­ri­ties and Exchange Com­mis­sion and chair Gary Gensler should be held respon­si­ble for the FTX collapse.

Tor­res points out that the SEC can­not claim to be the sole agency respon­si­ble for reg­u­lat­ing the cryp­to indus­try while simul­ta­ne­ous­ly avoid­ing account­abil­i­ty for indus­try blowups like the one that recent­ly unfold­ed at the Bahami­an exchange FTX.

Gary Gensler ‘Failed as a Regulator’

Tor­res didn’t mince his words in a direct let­ter to GAO head Gene Dodaro. 

“When it comes to FTX, Chair Gensler fun­da­men­tal­ly failed as a reg­u­la­tor, and he has no one but him­self to blame,” he stat­ed emphatically.

He also asked Dodaro and the GAO to inves­ti­gate whether Gensler’s mis­man­age­ment of human resources has weak­ened the SEC’s abil­i­ty to pro­tect investors.

The Con­gress­man added that he couldn’t square the agency’s com­mit­ment to pro­tect­ing investors with its deci­sion to invest resources into celebri­ty Kim Kardashian’s pro­mo­tion of a scam cryp­tocur­ren­cy. Resources would have been bet­ter deployed in con­duct­ing due dili­gence on FTX’s financials. 

Tor­res argued that if the SEC had com­mit­ted suf­fi­cient resources to the lat­ter, they could have exposed FTX sooner.

“Giv­en the mag­ni­tude of the reg­u­la­to­ry fail­ure sur­round­ing the FTX saga, an inde­pen­dent review is both need­ed and war­rant­ed,” he con­clud­ed.

Tor­res recent­ly pro­posed a bill that would com­pel cryp­tocur­ren­cy exchanges to pro­vide reg­u­lar proof-of-reserve disclosures. 

Methods Missed Major Crypto Meltdowns

Fel­low Demo­c­rat Tom Emmer has also been crit­i­cal of Gensler’s “indis­crim­i­nate and incon­sis­tent” meth­ods of reg­u­lat­ing the cryp­to indus­try. Ear­li­er this year, sev­er­al cryp­to com­pa­nies com­plained to Emmer that Gensler’s dis­clo­sure requests were bur­den­some and sti­fled innovation. 

Emmer also point­ed out on Nov. 26, 2022, that Gensler’s reg­u­la­to­ry meth­ods had failed to detect the fail­ures of sev­er­al cryp­to com­pa­nies in 2022, includ­ing Ter­ra/LUNA, Cel­sius, and, most recent­ly, FTX.

SEC Chair Gary Gensler has drawn crit­i­cism for a reg­u­la­tion-by-enforce­ment approach that has done lit­tle to clar­i­fy com­pli­ance. He has insist­ed that exist­ing secu­ri­ties laws already pro­vide cryp­to com­pa­nies with the nec­es­sary com­pli­ance guid­ance. They also grant the SEC the author­i­ty to address non-com­pli­ance through civ­il enforce­ment actions.

In an inter­view with Yahoo Finance on Dec. 6, 2022, Gary Gensler said that the “Run­way is get­ting short­er” between cryp­to com­pa­nies’ com­pli­ance and civ­il enforce­ment actions and con­firmed that the SEC had suf­fi­cient author­i­ty to adju­di­cate the space.

Gensler’s Stance at Odds With Calls for Legislation After FTX

Gensler’s asser­tion that the SEC has suf­fi­cient author­i­ty over the indus­try flies does not agree with the views of fel­low politi­cians. Cryp­to-skep­tic Sen­a­tor Eliz­a­beth War­ren is draft­ing a new bill to give the agency a wider juris­dic­tion­al ambit.

Days after the FTX col­lapse, War­ren said that a new dig­i­tal cur­ren­cy bill must focus on con­sumer protection.

Ripple XRP Securities Elizabeth Warren

Crit­i­cal­ly, she added that while the SEC could exer­cise its exist­ing author­i­ty more broad­ly, the indus­try needs Con­gress to pass addi­tion­al laws. 

So far, the Senator’s new bill has includ­ed reg­u­la­tions that com­pel cryp­to com­pa­nies to dis­close audit­ed finan­cial state­ments. They would also need to main­tain a min­i­mum lev­el of cap­i­tal need­ed to hon­or cus­tomer withdrawals. 

Gary Gensler and Sherrod Brown Reading From the Same Playbook?

Still, Sen­ate Bank­ing Com­mit­tee Chair Sher­rod Brown has cau­tioned against rush­ing to pass new leg­is­la­tion for fear that the cryp­to indus­try would heav­i­ly influ­ence new bills.

The reluc­tance of Gensler and Brown reflects the chal­lenges a high­ly polar­ized Con­gress faces in pass­ing new leg­is­la­tion. Regret­tably, this may dri­ve cryp­to com­pa­nies off­shore, expos­ing more Amer­i­can investors to light­ly-reg­u­lat­ed companies.

Despite engag­ing in talks with U.S. reg­u­la­tors, cryp­to lender and exchange Nexo announced on Dec. 5, 2022, that it would exit the U.S. mar­ket because of a lack of reg­u­la­to­ry direction.

For Be[In]Crypto’s lat­est Bit­coin (BTC) analy­sis, click here.

Disclaimer

The infor­ma­tion pro­vid­ed in inde­pen­dent research rep­re­sents the author’s view and does not con­sti­tute invest­ment, trad­ing, or finan­cial advice. Bein­Cryp­to doesn’t rec­om­mend buy­ing, sell­ing, trad­ing, hold­ing, or invest­ing in any cryptocurrencies



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