Elizabeth Warren urges tougher regulation, says solution to crypto fraud starts with SEC

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U.S. Senator Elizabeth Warren urged banking and environmental regulators to tackle crypto fraud with the Securities and Exchange Commission (SEC) in a January 25 speech.

Warren said that over the past 12 months, the crypto industry has seen giants like Celsius and FTX crumble under the weight of their own “fraud, deceit and gross mismanagement,” which has created a emergency to protect the “honest investors” who are victims.

The failure of these crypto businesses has particularly hurt black investors and people from underbanked communities, Warren said, adding:

“Crypto fraud is a big problem, but it’s one we can solve. The solution starts with the SEC.

Warren said regulators’ approach to crypto regulation has varied in different directions. She added that during President Donald Trump’s administration, regulators had given the “green light” to junk tokens and unregistered securities, rug draws, Ponzi schemes, pump and dump schemes, money laundering and the evasion of sanctions.

However, Warren said with Gary Gensler at the helm, the SEC “got off to a good start.”

The senator added that the SEC has held banks and public companies accountable for cryptocurrency custody risks. This has prevented the launch of Bitcoin exchange-traded funds which are “particularly prone to fraud and market manipulation”.

The SEC has also tightened its grip against the provision of crypto lending services and initiated a record number of enforcement actions over the past year.

The Crypto Industry Is ‘Afraid’

The SEC is “getting stronger” and the crypto industry is pushing to escape regulatory scrutiny. Warren said:

“…the industry is afraid of a strong SEC, and that’s why it spends millions of dollars each year lobbying to escape SEC scrutiny.”

Crypto players like to “overtake and outperform regulators,” Warren said. But its goal is to ensure “honest and fair financial markets”, she said.

Warren said applying securities laws to cryptocurrencies is the “right approach.” Crypto should be no exception to the same business, same risk, same regulation principle, she added.

Praising the SEC’s work under Gensler, Warren said Gensler is proving to be the “right leader to get the job done.” But the SEC needs to use more of its tools and power to enforce the rules and curb crypto fraud, she said.

Even though Warren praised Gensler, many questioned his abilities. In December 2022, New York Senator Ritchie Torres asked the US Government Accountability Office to investigate the SEC’s failure to detect alleged FTX fraud before its collapse.

The SEC and Gensler have also received criticism from Minnesota Sen. Tom Emmer, who said Gensler should answer for the cost of his regulatory failures in Congress. Emmer even alleged that Gensler knew about the fraud at FTX before it collapsed.

Congress, banks and other regulators must join the fight

Warren said Congress needs to ensure the SEC and other regulators have the resources and authorities to regulate “every corner of the crypto market.”

She added that environmental regulators such as the Department of Energy and the Environmental Protection Agency must require crypto miners to disclose their energy consumption and environmental impact.

Additionally, she said regulators need to step up and isolate the fraud industry now that banks like Silvergate have opened up the banking industry to cryptocurrency risks.

Warren added:

“With tough rules and enforcement by tough regulators, we can give the crypto industry a chance to prove if it can deliver on its promises…”

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