Table of contents
- Bankruptcy and Legal Conviction
- Guidance from Gensler
- Criminal Charges and Fund Misappropriation
- Alameda Research’s Privileges
- Traditional Market Standards
- Legal Action by Regulatory Authorities
- Enforcement of Existing Laws
- Global Crypto Industry Compliance Concerns
- SEC’s Commitment to Crypto Regulation
- Top Recommended Articles
Washington, D.C. – In an interview at DC Fintech Week, SEC Chair Gary Gensler weighed in on the potential revival of the crypto exchange FTX under new leadership. Gensler stressed the importance of adhering to legal regulations and building trust with investors in any revival attempt.
Bankruptcy and Legal Conviction
The discussion comes in the wake of FTX founder Sam Bankman-Fried’s recent conviction on fraud charges, which led to the company’s bankruptcy proceedings over the past year.
Gensler highlighted the reports of Tom Farley, a former President of the New York Stock Exchange, being among the potential bidders to acquire the remaining assets of the bankrupt FTX. Farley had launched his digital asset exchange called Bullish earlier this year and is considered a finalist in the bankruptcy auction.
Guidance from Gensler
Gensler advised that anyone, including Farley, looking to enter the cryptocurrency field should do so within the bounds of the law. He stressed the importance of gaining the trust of investors, ensuring proper disclosures, and avoiding practices like trading against customers or using their crypto assets for personal gain.
Criminal Charges and Fund Misappropriation
The FTX case came to the forefront after Sam Bankman-Fried was found guilty of all seven criminal charges against him, which included fraud and money laundering. The charges included allegations that the exchange funneled customer funds to the sister hedge fund, Alameda Research.
Alameda Research’s Privileges
Alameda Research, which served as a market maker for FTX, received special privileges, including a $65 billion line of credit with no collateral requirement. Unlike other customers on the platform, Alameda had the unique ability to engage in trading bets without having their positions liquidated.
Traditional Market Standards
Gensler pointed out that such practices wouldn’t be tolerated in traditional financial markets, stating,
“We would never let the New York Stock Exchange also operate a hedge fund and trade against their members or trade against customers in the market.“
Legal Action by Regulatory Authorities
FTX and Alameda were supposed to maintain a firewall between them, but the trial revealed their close relationship. Separate from the criminal charges, the SEC and the Commodity Futures Trading Commission (CFTC) brought civil suits against FTX. In December, the SEC accused Bankman-Fried of conducting a “brazen” and long-standing fraud.
Enforcement of Existing Laws
Gensler emphasized the importance of enforcing existing securities laws rather than creating new regulations, stating that current securities laws are robust and strong and should be applied to the crypto industry.
Global Crypto Industry Compliance Concerns
Regarding FTX, which was primarily used by customers outside the U.S. and had a small American affiliate, Gensler compared it to the situation with crypto exchange Binance, which has faced scrutiny from U.S. regulators for serving high-net-worth U.S. investors on its unregulated international platform.
Gensler expressed concerns about crypto actors not complying with international sanctions and money laundering laws, without specifying particular companies or individuals.
SEC’s Commitment to Crypto Regulation
The SEC has recently faced legal challenges, including losses to Ripple and Grayscale, but Gensler underlined the SEC’s commitment to regulating the crypto space. He mentioned ongoing legal disputes, such as the one with Coinbase, a U.S.-based crypto exchange, which has considered relocating due to regulatory constraints.
Gensler concluded by emphasizing that companies operating in the U.S. crypto market must adhere to the law, even if it means taking action against non-compliant actors.
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