Post-FTX, senators want Gensler to do more to police crypto industry

Quick Take

  • Sen. Dick Durbin, D-Ill., the second-highest ranking Democrat in the Senate, used much of his question time with Securities and Exchange Commission Chair Gary Gensler during Wednesday testimony to criticize the crypto industry.

Senators of both parties who oversee the Securities and Exchange Commission pressed SEC Chair Gary Gensler to crack down even harder on crypto companies. 

Sen. Dick Durbin, D-Ill., the second-highest ranking Democrat in the Senate, used much of his question time with the regulator during Wednesday testimony to criticize the crypto industry and push Gensler to be more aggressive in policing it. 

“They spent billions on sports arena or stadium naming rights deals to gain misguided credibility with everyday Americans and manipulate prices with phony tokens of no underlying value,” Durbin said, while also noting accusations levied at FTX, Binance, and others of failing to adequately protect or safeguard customer assets. “This is happening over and over again. This doesn’t sound like America.” 

Durbin also flagged efforts by the industry to lobby Congress, saying he never asked for money from the industry but was surprised to see that his campaign received $20,000 from the sector. Failed crypto mogul Sam Bankman-Fried was one of the biggest political donors in the U.S. during the last two campaign cycles, primarily to Democrats, though he claimed in an interview that he also secretly gave millions to Republicans. Some of the charges brought by federal prosecutors against Bankman-Fried allege criminal campaign finance violations. 

“I hadn’t asked for it and didn’t realize I’d received it,” the Illinois Democrat said. “But they are playing everywhere they can to buy influence in the process.”

Durbin then pressed the SEC chair about how to "protect American consumers from cryptocurrency in the future".  

Though Gensler agreed that there was “a tremendous amount of bad actors in the field,” he defended the underlying technology while asking for more funding for his agency to police the industry.  

The SEC chair criticized the combining of different market functions at trading platforms, reiterating a point he’s made before that “we would never allow the New York Stock Exchange to also trade against their customers.” 

Criticism over FTX, rulemaking

Sen. John Kennedy, a Republican from Louisiana, questioned Gensler as to why he didn’t seek an emergency injunction to force failed crypto giant FTX to pause operations before the company collapsed in November. The agency recently sought, but did not obtain, a full injunction to pause operations by Binance.US. 

“Why didn’t you do that? That’s what we pay you folks to do,” Kennedy asked, while also referring to failed crypto mogul Sam Bankman-Fried as “the fourth runner up in a John Belushi lookalike contest.” 

Gensler essentially responded that investigations take time.

“We investigate by the book. You, I'm sure, and the American public, want us to follow the facts, follow the law, properly get people subpoenas," adding that investigation targets "effectively burn clock." 

Sen. Bill Hagerty, R-Tenn., questioned Gensler about companies and developers leaving the due to friction with the U.S. legal system. Hagerty couched his remarks partly in the industry being easier to monitor, and regulators being better able to prevent projects from scamming customers, if it is largely in the U.S. 

"What I've seen happen just this year alone, is that U.S. share of stablecoin volume has gone down, U.S. blockchain developer jobs have decreased here in America, and I think what's happening is that industry players are migrating overseas to other jurisdictions where the rules of the road are clearer," said Hagerty. "If we had a robust rule set here, would we have the ability to track the illicit actors that operate here in America and is there a way for clarity?" 

Gensler responded that industry is largely leaving because the industry is "built in-part on a business model of 'catch us if you can,'" adding that projects and firms seek "regulatory arbitrage" by setting up in countries like the Bahamas seen as having less active financial regulation and law enforcement. 

The SEC chair compared most tokens to venture capital investments. 

"Most venture capital investments fail, just statistically, so many of these tokens, if you think of them a bit like startups, are likely to fail, and yet they're not making full, fair and truthful disclosures to the investing public," said Gensler.  

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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