As Congress weighs the FTX collapse, Democrats appear split on how much more the Securities and Exchange Commission and its chair, Gary Gensler, could have done to stave off what the agency now calls “massive, years-long fraud.”
The scandal has exposed an already growing intra-Democratic split over the agency’s approach to digital assets. While progressives and crypto-skeptic Democrats continue to back Gensler in his stance that almost all crypto firms operate outside of existing law, some Democrats have begun to publicly question the agency’s priorities.
The split could complicate legislation on digital assets, as well as increase pressure on Gensler, who already faces scrutiny on a broad array of issues from Republicans, who will hold a majority in the House of Representatives in the next Congress.
“SEC Chairman Gensler has repeatedly claimed that most cryptocurrencies are covered by existing securities laws. Despite that, the SEC has not proposed a single rule to create guardrails for digital assets,” said Rep. Josh Gottheimer, D-N.J., during last week’s House Financial Services Committee hearing on FTX. “They failed to do their job, and they failed to protect consumers.”
Rep. Ritchie Torres, D-N.Y., also criticized Gensler to reporters after the hearing.
“Mr. Gensler’s been in office for two years and he has not enacted a single rule that would bring greater transparency or accountability to the crypto sector,” Torres said. “I’ve heard him express skepticism, but he’s not paid to be a commentator on crypto; he’s paid to be a regulator on crypto.”
Torres, who accepted approximately $14,500 in campaign donations from Sam Bankman-Fried and his brother in this election cycle, wrote a letter criticizing the agency’s approach on Dec. 6 in which he also asked for the Government Accountability Office to review of the SEC’s approach to digital assets.
“There should be an independent review of whether the SEC did thoroughly investigate FTX,” continued Torres. “It may be the case that the SEC did everything it could, so there’s nothing to fear from an independent review, the GAO is apolitical and it would certainly benefit us as legislators as we craft policies in relation to crypto.”
The Bronx Democrat added that he planned to return his FTX-tied donations.
Another young Outer-Borough Democrat expressed more confidence in the SEC.
“I believe that the jurisdiction does belong with the SEC,” Rep. Alexandria Ocasio-Cortez, D-N.Y., told the press after last week’s hearing. “And I believe that this shift or push to the CFTC should really be explored and examined, particularly in context with Bankman-Fried’s activities.”
Ocasio-Cortez is one of the most visible progressives in Congress. Her comments alluded to a push to give more power over crypto exchanges to the Commodity Futures Trading Commission, most conspicuously in an FTX-backed bill drafted in the Senate Agriculture Committee.
Senate Banking Committee Chair Sherrod Brown, D-Ohio, also emphasized that he was working hand-in-glove with Gensler on matters relating to digital assets.
“I’ve been working some with [CFTC Chair Rostin Behnam], but especially with the SEC’s Gensler,” said Brown.
The other side of the aisle
Republicans want to hear from Gensler on the topic, among other policy criticisms they’ve levied at the SEC chair.
“I would love to have seen Gary Gensler here. I think that needs to be another component of this discussion both on FTX and what any future regulation will look like. What the involvement was or wasn’t,” said Rep. Bill Huizenga, R-Mich., who will likely chair the House subcommittee most directly involved in SEC policy.
Financial Services Committee Republicans also plan to introduce their own legislation establishing definitions that will determine what digital asset does, or does not, fall under the SEC’s regulatory realm.
“We’re going to have to step in and legislate on what is a commodity and what is a security,” Rep. Patrick McHenry, R-N.C., the incoming committee chair for next Congress, told The Block.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
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