SEC Chairman Gary Gensler Hires Staff to Investigate Crypto Industry

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Gary Gensler, Chairman of the United States Securities and Exchange Commission (SEC)/ Photographer: Melissa … [+] Lyttle/Bloomberg

© 2021 Bloomberg Finance L.P.

In the wake of FTX’s collapse and accusations against the company and some of its executives, regulators are cracking down on cryptocurrency markets. In my experience as the founder of a compliance executive search firm, once the SEC steps up its investigations, other regulators will also join in their own investigations and enforcement actions.

The Securities and Exchange Commission (SEC), the primary regulator of the finance and securities industries, is increasing its staff, an SEC spokesperson told CoinDesk last Wednesday. The new staff will contribute to the agency’s ability to review, investigate, audit, review and potentially prosecute violations of securities law related to these new crypto products and trading activities. The regulator’s representative did not reveal how many new positions would be added.

In May 2022, the SEC announced that the agency would hire 20 additional regulatory officers. The new hires would be part of the newly renamed Crypto Assets and Cyber ​​Unit, growing to 50 professionals responsible for “protecting investors in the crypto markets and against cyber threats.”

According to the SEC, the additional staff would include supervisors, investigative attorneys, fraud analysts and trial attorneys, who would focus on investigating securities law violations in the following areas: asset offerings crypto, exchanges and lending and staking products; decentralized financial platforms; non-fungible tokens and stablecoins.

SEC Chairman Gary Gensler said in the announcement, “The United States has the largest capital markets because investors trust it, and as more and more investors enter the markets of cryptography, it is increasingly important to devote more resources to their protection”. Gensler added, “The Division of Enforcement’s Crypto Assets and Cyber ​​Unit has successfully filed dozens of lawsuits against those seeking to take advantage of investors in the crypto markets. By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing. in the crypto markets while continuing to identify cybersecurity disclosure and control issues. »

Since its inception in 2017, the unit has brought over 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling over $2 billion.

In July, Gurbir Grewel, head of SEC Enforcement, asked Congress for additional resources to effectively monitor and scrutinize the crypto industry, according to reports from Coindesk. Grewal called for the House Financial Services Subcommittee to allocate sufficient funds to recruit and hire 125 more regulatory professionals, as the SEC struggles to keep up with the number of investigations, bankruptcies and implosions of digital asset platforms.

Are crypto exchanges safe and qualified custodians?

Last Thursday, in prepared remarks ahead of an Investor Advisory Board meeting, Gensler made comments regarding U.S. cryptocurrency exchanges, reiterating his position that cryptocurrency exchanges are not safe depositories. and qualified. Gensler said, “To be clear: Just because a crypto trading platform claims to be a qualified custodian doesn’t mean it is. When these platforms fail – something we’ve seen time and time again – investors’ assets have often become the property of the bankrupt company, leaving online investors in bankruptcy court. The SEC chairman tweeted about the agency’s proposal to make sure custodial companies meet segregation of funds requirements and pass annual audits by certified public accountants.

Public Citizen, a nonpartisan nonprofit consumer advocacy group with more than 500,000 members, wrote an open letter praising Gensler for acknowledging that some crypto companies issue unregistered securities and act as exchanges. unregistered, brokers or other regulated financial intermediaries.

The advocacy group claims that “crypto enthusiasts have perpetrated a massive Ponzi scheme, disproportionately harming people of color and those with modest incomes.” He goes on to say in the letter, “The crypto balloon has been inflated by influencers, many of whom have been surreptitiously paid; massive ad campaigns funded by the misuse or theft of customer funds by crypto firms; and a rogue gallery of online crypto enthusiasts, some of whom have a personal interest in inflating the price of tokens.

What the SEC is targeting

The SEC alleges that many digital tokens are unregistered securities. The agency points to FTX Exchange Token FTT and yield products offered by a number of platforms. The regulator has separately accused cryptocurrency platform Kraken of improperly offering securities in the form of its staking service. According to the regulator, Kraken failed to adequately disclose the risks of participating in the program. The crypto platform agreed to pay $30 million to settle the fees and shut down the product.

The SEC is also taking a shot at international crypto exchange Binance – whose top executive Changpeng Zhao has shed light on the FTX scandal – by threatening to sue Paxos to stop offering Binance USD. The regulatory agency claims that BUSD is an unregistered security.

Regulators have also questioned the independence of Binance’s US and global arms. According to the Wall Street Journal, the two appear to be more converged than previously revealed, allegedly “mixing personnel and finance and sharing an affiliated entity that bought and sold cryptocurrencies.” The Journal reported that Binance potentially had access to US customer data, since its developers in China had access to software code belonging to Binance.US users’ digital wallets.

The Crypto Executive Fights Back

Crypto executives such as Coinbase CEO Brian Armstrong are critical of Gensler’s actions. Armstrong told Bloomberg TV that the United States is behind in getting its regulatory law in place, while the rest of the world embraces crypto. Armstrong also defended Coinbase’s staking product, according to the block. He called for a “clear rulebook” on crypto assets and criticized Gensler’s regulation-by-enforcement approach.

What it all means

With the heightened scrutiny and enforcement actions from the SEC, companies will step up internal hiring to ensure compliance with crypto laws and regulations.

Here are 10 open compliance positions within the crypto space: Coinbase—Senior Regulatory Policy Officer Coinbase—ACH Analyst, Payments Risk Operations Cash App—Crypto Regulatory Counsel eBay—Crypto Counsel Andreessen Horowitz (a16z)—Partner 22, Compliance Officer, Crypto Zero Hash—Associate General Counsel, Regulatory Zero Hash—Vice President Legal, Regulatory Anchorage Digital—Compliance Testing and Monitoring Analytics Associate Anchorage Digital—Head of Compliance Testing and Monitoring Paxos—Compliance Program Manager Risk Assessment

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