News & Insights

Sec Chair Lambasts Non Compliant Crypto Industry After Ftx Bankruptcy

In a November 10, 2022, interview with CNBC’s “Squawk Box”, SEC Chair Gary Gensler called for greater protections for investors in the cryptocurrency space following the stunning collapse of crypto exchange FTX.  According to FTX’s now-former CEO Sam Bankman-Fried, the crypto exchange is facing a shortfall of up to $8 billion.

On November 2, 2022, reports surfaced that a large percentage of FTX’s assets were its own centrally controlled token, FTT.  On November 6, 2022, Binance—the world’s largest crypto exchange—announced that it would be liquidating its FTT holdings, causing the price of FTT to plunge.  After a public spat on social media with Mr. Bankman-Fried, Binance CEO Changpeng “CZ” Zhao announced that Binance had signed a nonbinding letter of intent to purchase FTX.  However, Binance backed out of the deal on November 9, 2022, stating that FTX’s issues “are beyond our control or ability to help.”  Two days later, FTX filed for Chapter 11 bankruptcy protection and Mr. Bankman-Fried resigned as the company’s CEO.

“Investors need better protection in this space. But I would say this: This is a field that’s significantly non-compliant, but it’s got regulation and those regulations are often very clear and we have multiple paths.” Gensler told CNBC.  Gensler laid out two potential regulatory approaches:  one involves “working with those crypto exchanges, crypto lending platforms … to get them properly registered”; the other path involves utilizing the SEC’s enforcement mechanisms.  Gensler noted that between himself and his predecessor, the SEC has already brought at least 100 enforcement actions in the cryptocurrency space.  Gensler warned investors not to “assume that these firms are complying with the rules and the laws that the New York Stock Exchange or the biggest brokerage apps are complying with.”