Why We Support SEC Crypto Regulation

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Last year, we saw FTX join a long list of crypto-asset companies that shut down during the “crypto winter” of 2022, underscoring the urgent need to protect our economy from harmful industry practices. cryptography. These meltdowns have cost investors trillions and disproportionately hurt low-income, Latino, black, and first-time investors. In FTX’s bankruptcy filing, the company’s acting CEO James Ray, tasked with cleaning up the mess created by disgraced founder Sam Bankman-Fried, said he had never “seen a failure as comprehensive of corporate controls” as he saw at FTX. Unfortunately, the lack of corporate control is not an isolated issue at FTX, and it is indicative of an industry that refuses to comply with existing regulations.

To avoid another meltdown, businesses that issue cryptocurrencies, crypto exchanges, and other affected businesses must comply with existing securities laws, which include proven provisions that ensure investors and markets are protected against bad actors.

According to SEC Chairman Gary Gensler and recent court rulings, the vast majority of crypto assets are securities because they meet the Howey test, or a framework set by the U.S. Supreme Court. According to the Howey test, an entity is a security when there is an investment contract. An investment contract exists when money is invested in a joint venture with the expectation of profit from the work of others. We agree with Chairman Gensler that “nothing in the crypto markets is inconsistent with securities laws” and “investor protection is equally relevant, regardless of the technologies under -lying”. If crypto-asset companies complied with applicable laws, they could not engage in harmful practices such as misusing customer funds, giving preferential offers to friends, and money laundering. .

The crypto industry is notorious for trying to cloud the law by using the courts to challenge attempts at regulation and lobbying for regulatory exclusions that benefit them at the expense of ordinary people. More recently, Binance, the world’s largest cryptocurrency exchange, reportedly lobbied the Department of Justice (DOJ) to prevent it from taking action against the company. Some crypto companies have also used celebrity endorsements, philanthropic efforts, political donations, and claims around innovation to evade scrutiny, curry favor with the public, and present the industry as worthy. confidence.

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There is nothing innovative about the way FTX and other crypto players have replicated the worst trends on Wall Street and Big Tech. They recreated many elements of the 2008 financial crisis, concentrated wealth and power at the top, subjected investors to incredible volatility, and preyed on consumers. True innovation must promote financial stability and inclusion.

The American people cannot afford another economic collapse brought on by corporate greed and malfeasance. Policymakers must protect our economy from bad actors by urging the crypto industry to comply with existing laws, invest in truly innovative solutions, and create a more inclusive financial system.

Jesús “Chuy” García represents Illinois’ 4th District. Stephen F. Lynch represents Massachusetts’ 8th District. Both serve on the Financial Services Committee of the US House of Representatives.

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