Crypto News: Congressman Bill Posey during the House Financial Services Committee hearing of SEC Chair Gary Gensler asked questions about the investigation on crypto exchange FTX’s collapse in November 2022. Earlier in the hearing, Chairman of the Committee Patrick McHenry asked specifically about Gensler’s views on whether Ethereum (ETH) is a security or commodity. This question directly addressed the growing concerns of lack of clarity about crypto regulation and forceful enforcement actions.
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Concerns Before FTX Collapse
Taking over a discussion on comingling of various business functions by crypto companies, Congressman Posey asked the SEC Chair if he had any concerns about FTX operations before it collapsed. Responding to this, the U.S. Securities and Exchange Commission (SEC) chair said concerns were there around comingling of functions like the exchange, broker-dealer and hedge funds functions. Countering this, Congressman Posey asked, “With those concerns, did you direct your staff to look into them?”
It may be recalled that when the FTX collapse was unfolding in November 2022, it was alleged that the SEC was working with Bankman-Fried on a negotiation deal. It was said that Sam Bankman-Fried’s mother likely reached out to Gensler. If proven to be true, this allegation could prove to be fatal for the SEC staff, in the wake of the Congressional hearing developments. Gensler said in the Congressinal hearing the SEC had filed number of actions related to Sam Bankman-Fried on the number of violations of the Securities Act.
When asked when did he think that FTX was problematic, he said the actions on FTX were filed in December 2022. At the time, the SEC was accused of being very slow in initiating actions against FTX considering the huge market losses.
“We filed follow up actions in January 2023 as it is time taking to develop an investigating file. We always maintained that our goal is to bring them (crypto businesses) into compliance and to stop comingling of various functions – stop using customer funds.”
Informing Investors About FTX Impact
Bill Posey asked the SEC Chair as to how long after the SEC met with FTX did it notify public and investors about the potential risks. Gensler clarified that particulars about the SEC investigation are kept confidential to protect the integrity of the ongoing investigation. “We protect anything we do as part of our investigation and hold it confidential as its important for integrity of the investigation and respect people’s privacy.”
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