Pro-crypto lawmaker blames Gary Gensler for FTX collapse

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Democratic Representative Ritchie Torres has asked the US Government Accountability Office (GAO) to investigate whether the Securities and Exchange Commission and Chairman Gary Gensler should be held responsible for FTX’s collapse.

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

Gary Gensler ‘failed as a regulator’

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

“When it comes to FTX, Chairman Gensler has fundamentally failed as a regulator, and he has only himself to blame,” he insisted.

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

The congressman added that he could not reconcile the agency’s commitment to protecting investors with his decision to invest resources in celebrity Kim Kardashian’s promotion of a fraudulent cryptocurrency. Resources would have been better deployed to perform due diligence on FTX’s finances.

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

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

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

Methods Missed Major Crypto Meltdowns

Fellow Democrat Tom Emmer also criticized Gensler’s “blind and inconsistent” methods of regulating the crypto industry. Earlier this year, several crypto firms complained to Emmer that Gensler’s disclosure demands were cumbersome and stifled innovation.

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

We’re even more worried now that we’ve seen his strategy miss Celsius, Voyager, Terra/Luna – and now FTX.

— Tom Emmer (@RepTomEmmer) November 25, 2022

SEC Chairman Gary Gensler criticized a regulation-by-enforcement approach that did little to clarify compliance. He insisted that existing securities laws already provide crypto companies with the necessary compliance guidelines. They also grant the SEC the power to remedy noncompliance through civil enforcement actions.

In an interview with Yahoo Finance on December 6, 2022, Gary Gensler said the “trail is getting shorter” between crypto company compliance and civil enforcement actions and confirmed that the SEC has enough authority to rule on space.

Gensler’s stance at odds with calls for post-FTX legislation

Gensler’s assertion that the SEC has sufficient authority over the fly industry disagrees with the views of his fellow politicians. Crypto-skeptic Senator Elizabeth Warren is drafting a new bill to give the agency broader jurisdiction.

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

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

So far, the senator’s new bill includes regulations that require crypto companies to disclose audited financial statements. They should also maintain a minimum level of capital necessary to honor customer withdrawals.

Gary Gensler and Sherrod Brown read the same playbook?

Still, Senate Banking Committee Chairman Sherrod Brown has warned against rushing to pass new legislation lest the crypto industry heavily influence new bills.

Gensler and Brown’s reluctance reflects the challenges a highly polarized Congress faces in passing new legislation. Unfortunately, this can drive crypto companies offshore, exposing more US investors to poorly regulated companies.

Despite discussions with US regulators, crypto lender and exchange Nexo announced on December 5, 2022 that it would exit the US market due to a lack of regulatory guidance.

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Disclaimer Information provided as part of independent research represents the views of the author and does not constitute investment, trading or financial advice. BeinCrypto does not recommend buying, selling, trading, holding or investing in cryptocurrencies

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