[ad_1]
SEC Chairman Gary Gensler mocks putting a gun to his head in response to a reference to “Blazing Saddles” by Rep. Emanuel Cleaver, D-Mo., during the House Financial Services Committee hearing entitled “Oversight of the Securities and Exchange Commission,” at the Rayburn Building on Tuesday, April 18, 2023.
Tom Williams | CQ Roll Call, Inc. | Getty Images
WASHINGTON – A revived FTX could work if new leadership does so with a clear understanding of the law, SEC Chairman Gary Gensler told CNBC on the sidelines of DC Fintech Week.
Gensler was referring to reports that Tom Farley, a former president of the New York Stock Exchange, is part of a shortlist of three bidders vying to buy what remains of the bankrupt cryptocurrency exchange. Farley launched his own digital asset exchange called Bullish in May, which is reportedly one of the last contenders at the bankruptcy auction.
“If Tom or anyone else wanted to work in this field, I would say, ‘Do it within the law,’” Gensler said Wednesday. “Build investor confidence in what you do and make sure you make the right disclosures – and also that you don’t confuse all these functions, trade against your clients, or use their crypto assets for your own purposes. ”
FTX founder Sam Bankman-Fried was found guilty last week of all seven charges against him, including fraud and money laundering charges. His stock exchange, which went bankrupt a year ago, allegedly funneled client money to sister hedge fund Alameda Research.
Alameda was a market maker for the FTX exchange and was given privileges such as a $65 billion line of credit that required no collateral. Unlike other clients on the platform, Alameda was also given the unique opportunity to go negative in his trading bets without having his positions liquidated.
“We would never let the New York Stock Exchange also operate a hedge fund and trade against their members or against clients in the market,” Gensler said.
FTX and Alameda would be separated by a firewall. But the evidence presented during the month-long trial made clear just how cozy they were in practice.
“FTX and Alameda had an extremely problematic relationship,” Nic Carter of Castle Island Venture told CNBC. “Bankman-Fried operated both an exchange and a prop shop, which is super unorthodox and just not really allowed in actually regulated capital markets.”
Sam Bankman-Fried stands up as the forewoman reads the verdict to the court.
Artist: Elizabeth Williams
In addition to the criminal charges, the SEC and the Commodity Futures Trading Commission have filed civil lawsuits against FTX. The SEC accused Bankman-Fried in December of committing nothing less than “shameful,” “years of fraud” from the start.
Gensler said that when it comes to considering new rules regulating the industry, existing securities laws are “very robust and strong.” They just have to be enforced.
“There is nothing about crypto that is incompatible with securities law,” he said. “You just have a lot of actors around the world who are currently not adhering to these time-tested laws.”
FTX was based in the Bahamas and served primarily by customers outside the US, although it had a small US branch. Crypto exchange Binance is under fire from US regulators even though it operates an international business. The SEC and CFTC have both filed charges against Binance, alleging that the company and founder Changpeng Zhao worked to undermine “their own control” to allow wealthy US investors and customers to continue trading on the unregulated international exchange .
“Think of how many actors in this space are currently flouting international sanctions and money laundering laws and using crypto for nefarious or evil actions,” Gensler said, without naming any companies or individuals.
The SEC has recently taken a few interim losses in court, including to Ripple over the $1.3 billion the company raised in what the SEC called an unregistered securities offering, as well as to Grayscale, related to the company’s filing to to convert its bitcoin trust into a spot bitcoin exchange-traded fund.
Gensler said the SEC has filed or settled 150 cases in crypto over the past six years. One of the legal arguments is with Coin basea listed crypto exchange in the US that is in danger of leaving the country due to regulatory restrictions.
Gensler said companies must obey the law here, although he avoided references to specific cases.
“If it’s a fraudster who doesn’t play by the rules, why would we want them in our markets?” he said.
WATCH: Former SEC chairman Jay Clayton in lawsuit against Bankman-Fried
