London Daily

Focus on the big picture.
Friday, Sep 22, 2023

Washington watchdogs outgunned in crypto's Wild West

Washington watchdogs outgunned in crypto's Wild West

The oversight gaps that allowed for the disastrous failure of FTX underscore the deep risks of trading on unregulated digital currency exchanges.

The epic collapse of FTX and founder Sam Bankman-Fried’s investment empire has left Washington officials scratching their heads: Why didn’t U.S. regulators stop this mess before it took down the crypto market?

There wasn’t much they could do, according to more than a half-dozen interviews with regulators, lawmakers, lawyers and other compliance experts. The Bahamas-based exchange’s offshore location and sprawling corporate structure made it a difficult target for the federal agencies tasked with protecting investors from fraud and manipulation.

“Blaming them?” said John Reed Stark, a crypto skeptic who once led the Securities and Exchange Commission’s internet enforcement office. “That’s like Oswald blaming the Secret Service because he killed Kennedy.”

The oversight gaps that allowed for the disastrous failure of FTX — which until just weeks ago was one of the world’s most respected crypto businesses before it was exposed as a house of cards — underscore the deep risks of trading on unregulated digital currency exchanges. It has prompted policymakers in Congress and at federal agencies to consider new laws and more aggressive penalties to head off a future meltdown. Crypto has flourished in a regulatory gray area, where even activities that resemble traditional financial products have escaped oversight.

A big question is whether regulators have sufficient authority or need more power. Two key financial market agencies — the SEC and the Commodity Futures Trading Commission — are facing scrutiny about why they didn’t do more to shield consumers.


CEO of FTX Sam Bankman-Fried testifies during a hearing before the House Financial Services Committee December 8, 2021.

“Part of what we’re seeing is a sign that the financial regulatory system is not able to evolve as quickly as it needs to, to address emerging threats,” said Kate Judge, a professor at Columbia Law School.

FTX’s bankruptcy filings include hair-raising allegations of top executives — including Bankman-Fried, a former political mega-donor — treating FTX and its 130 affiliates like a slush fund. Behind its sleek veneer, FTX was actually a loosely organized network of investment firms, crypto businesses and holding companies with no centralized accounting system, little oversight of personnel and few internal controls to prevent Bankman-Fried and other employees from dipping into the company till.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” FTX’s new CEO John Ray III, who previously managed Enron’s restructuring, wrote in a bankruptcy filing on Thursday. “This situation is unprecedented.”

Because FTX’s Bahamas-based parent company never registered with the SEC or the Commodity Futures Trading Commission — and spent tens of millions of dollars on a Washington influence campaign to fend off any argument that it was required to do so — FTX’s internal operations were never scrutinized like Wall Street banks or traditional exchanges.

The SEC and the CFTC have the power to launch investigations into businesses that aren’t registered with them, but there needs to be an indication of potential fraud or manipulation impacting the securities and derivatives markets they regulate.

“You can never stop fraud,” CFTC Chair Rostin Behnam said in a Nov. 14 interview. “A regulated entity is certainly going to be in a much better position to avoid issues around illegal activity or using customer money for illegal reasons.”

It’s one reason why SEC Chair Gary Gensler has been calling for crypto exchanges to register with his agency, according to sources familiar with the commission’s thinking. Registered exchanges have to fork over their books upon demand.

Gensler, who led the CFTC during the Obama administration, has argued for two years that securities laws cover most crypto activity.

But the SEC’s efforts to probe unregistered digital currency businesses are often met by fierce resistance — including costly legal battles from industry and broadsides from crypto-friendly lawmakers in Congress.

In March, Gensler even spoke with Bankman-Fried, fellow FTX executives and stock exchange operator IEX about IEX’s plans to enter the crypto market, according to people familiar with the meeting. FTX’s U.S. affiliate later announced an investment in IEX.

Before the executives could get far into their presentation, Gensler interrupted and spent the rest of the meeting talking about how crypto exchanges should meet the standards of stock exchanges, the people said, asking not to be named while discussing private conversations.

“I don’t think — under our framework — that there was an opportunity for the SEC to intervene in this case,” Rep. Stephen Lynch (D-Mass.), who chairs the House Financial Services Committee’s financial technology task force, said in an interview.

Senate Banking Chair Sherrod Brown (D-Ohio) said the SEC chief “believes he has the authority to do a lot of things, but Gensler’s problem was he inherited an agency that essentially opened the door for these crypto companies.”

The CFTC had oversight of one component of Bankman-Fried’s empire, LedgerX, a derivatives exchange that had been registered with the agency for roughly four years before it was acquired by FTX’s U.S. affiliate in 2021.

Critics such as the consumer group Better Markets have complained in recent days that the CFTC should have pursued red flags surrounding FTX.

But Behnam said the CFTC only has the ability to look at LedgerX — one of the FTX entities that’s not bankrupt and continues to operate.

“Any rational person would take from that that regulation worked,” said Behnam, who has repeatedly called on Congress to give his agency more authority over exchanges that facilitate trading of Bitcoin and other crypto commodities.

Behnam has thrown his support behind a Senate bill that would empower his agency to police digital assets, but the legislation is now facing political headwinds because it also had the backing of FTX.

Treasury Secretary Janet Yellen on Wednesday urged Congress to address crypto regulatory gaps that were identified in an Oct. 3 Financial Stability Oversight Council report spotlighting the dangers that could develop with the industry’s unregulated growth. The council is led by Treasury and includes other top financial regulators, including the heads of the SEC and the CFTC.

In the meantime, with Congress likely to be at odds for months over how to police the market, Yellen wants regulators to start stretching their authority.

“We have very strong investor and consumer protection laws for most of our financial products and markets that are designed to address these risks,” she said in a statement. “Where existing regulations apply, they must be enforced rigorously so that the same protections and principles apply to crypto assets and services.”

Newsletter

Related Articles

London Daily
Close
0:00
0:00
Paper straws found to contain long-lasting and potentially toxic chemicals - study
You Are So Beautiful
FTX's Bankman-Fried headed for jail after judge revokes bail
Postmodern Jukebox European Tour Version
Blackrock gets half a trillion dollar deal to rebuild Ukraine
An old French tune (by Georges Brassens) Pomplamoose ft. John Schroeder
Steve Jobs' Son Launches Venture Capital Firm With $200 Million For Cancer Treatments
Sattahip Motor Show 20
Greek PM offers tourists affected by wildfires a free stay in Rhodes next year.
SONATE AU CLAIR DE LUNE - Moonlight sonata
Google reshuffles Assistant unit, lays off some staffers, to 'supercharge' products with A.I.
A kiss to build a dream on
End of Viagra? FDA approved a gel against erectile dysfunction
Wonderful Tonight - Eric Clapton (Boyce Avenue acoustic cover)
UK sanctions Russians judges over dual British national Kara-Murza's trial
Mean Blues
US restricts visa-free travel for Hungarian passport holders because of security concerns
La Chansonnette
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Pattaya Addicts
Southeast Asia moves closer to economic unity with new regional payments system
Franz Liszt - Liebestraum - Love Dream
Political leader from South Africa, Julius Malema, led violent racist chants at a massive rally on Saturday
Dream a little dream of me
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
Unchained Melody sung like you've NEVER heard!
How “peacekeepers” at the UN spend our American tax dollars.
Dave Brubeck - Take Five
'I am not your servant': IndiGo crew member, passenger get into row over airline meal
Édith Piaf - Non, Je Ne Regrette Rien (Sofie)
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Rondo Alla Turca
Spanish Citizenship Granted to Iranian chess player who removed hijab
Kiss of fire
US Senate Republican Mitch McConnell freezes up, leaves press conference
Tom Jones - I´ll Never Fall In Love Again 1967, 1989, 2001
Speaker McCarthy says the United States House of Representatives is getting ready to impeach Joe Biden.
Israel Cachao López - Guajira Clásica
San Francisco car crash
Edward Maya - Stereo Love (feat. Vika Jigulina) (Extended Mix)
This camera man is a genius
Strauss - Radetzky March - Karajan
3D ad in front of Burj Khalifa
La vie en rose
Next level gaming
The Temptations - My Girl (Smokey Robinson Tribute) 2006 Kennedy Cent
BMW driver…
Orlando Cachaito Lopez Redencion
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Edith Piaf - NON, JE NE REGRETTE RIEN
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
RADETZKY MARCH-2008-Wien, New Year Concert
Musk announces Twitter name and logo change to X.com
Only you (And you alone)
The future of sport
Strangers In The Night
New York City Agrees to Compensate Demonstrators Subjected to Excessive Force and Unlawful Arrests Amidst Widespread Protests
Charles Aznavour - La Boheme
Paul Simon: "I can't perform anymore due to hearing loss"
Summer time
The politician and the journalist lost control and started fighting on live broadcast.
Sting and Stevie Wonder - Fragile (from Sting's 60th birthday concert)
The future of sports
Aux Champs Elysees
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Stand By Me - Ben E. King (Boyce Avenue acoustic cover)
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
La Mer (Beyond the Sea) – Avalon Jazz Band
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
She
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Nathalie Song by Enzo Petrachi Stjepan Hauser Cello
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
Shape of My Heart - Sting (Boyce Avenue acoustic cover)
Swedish Embassy in Baghdad Engulfed in Flames Amidst a Firestorm of Protests
Radiohead - Creep
TikTok Takes On Spotify And Apple, Launches Own Music Service
Quizás,Quizás,Quizás - Andrea Bocelli - Jennifer Lopez
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Perhaps, Perhaps, Perhaps - Multi-Couples
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Pentatonix Havana
House of Commons rejects nine significant amendments from the Unelected, Privilaged House of Lord - Overturn Crucial Migration Bill Amendments in a Bid to Curb Unauthorized Maritime Immigration
Paula Cole - Autumn Leaves
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Oscar Benton Bensonhurst Blues
Typo sends millions of US military emails to Russian ally Mali
OH NANANA vs ABUSADAMENTE
Muslim Tycoon Asif Aziz Receives Approval for the Transformation of the iconic London Trocadero Landmark into Mosque
Nina Simone - ”I Put A Spell On You”. Vezi aici cum cântă Jeremy Ragsd
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
NIGHTWISH - The Phantom Of The Opera
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
Motorshow 2016 Tanjay Negros Oriental
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
Monica Bellucci - Ti Amo
Europe is boiling: Extreme Weather Conditions Prevail Across the Continent
Michael Jackson - Billie Jean Milena The Voice France 2018
Israeli Prime Minister Netanyahu Hospitalized Due to Dehydration Amidst Summer Heatwave
Michael Buble (Help Me Make It Through The Night) feat Loren Allred
Memories Canon In D - Maroon 5 (Boyce Avenue piano acoustic cover)
Matteo Simoni - Marina
Maroon 5 - One More Night
Maroon 5 - Memories
Mark Knopfler - Brothers In Arms (Berlin 2007 Live)
Mark Knopfler & Emmylou Harris - Romeo And Juliet (Real Live Roadrunni
Marina, Marina - The LUCKY DUCKIES intimist live concert at Guimarães
Major Lazer & DJ Snake – Lean On Mauranne The Voice France 2016
Love Theme from Romeo and Juliet - Joslin - Henri Mancini, Nino Rota
LoLa & Hauser - Love Story
Linkin Park Jay-Z - Numb Encore (Live 8 2005)
Hallelujah Mennel Ibtissem, The Voice France Leonard Cohen
Leonard Cohen - Dance Me to the End of Love
Leonard Cohen & Natasha Rostova - Dance me to the end of love
La casa de papel - Bella Ciao
La Camisa Negra
L'italiano (Toto Cutugno) - The Gypsy Queens
Juanes - La Camisa Negra
Jonathan and Charlotte - Britain's Got Talent 2012 Live Semi Final - U
John Powell - Assassin's Tango
Joe Cocker - You Can Leave Your Hat On (LIVE in Dortmund)
Joe Cocker - Unchain My Heart 2002 Live
Joe Cocker - A Whiter Shade Of Pale
Jay Z & Alicia Keys - Empire State of Mind LIVE
Jason Mraz - Im Yours (live)
Jarrod Radnich - Bohemian Rhapsody - Virtuosic Piano Solo
James Blunt - You're Beautiful
James Blunt - You're Beautiful & Bonfire Heart (Live at The Nobel Peac)
If You Go Away - Helen Merrill & Stan Getz (Tribute to Virna Lisi)
I'LL BE MISSING YOU
I Say a Little Prayer
Hotel California ( Eagles ) 1994 Live
Historia de un amor - Luz Casal. Vezi interpretarea Biancăi Sumanariu
Here Comes The Sun - The Beatles (Boyce Avenue acoustic cover) on Spot
Heart - Stairway to Heaven Led Zeppelin - Kennedy Center Honors
HAVANA by Camila Cabello Zumba Pre Cooldown TML Crew Kramer Pastra
HAUSER and Señorita - I Will Always Love You
HAUSER - Waka Waka
HAUSER - Sway
HAUSER - Lambada
HAUSER - Historia de un Amor
HAUSER - Despacito
Great Pretender
Georgia May Foote & Giovanni Pernice Samba to 'Volare' - Strictly Come
Gary Moore - Still Got The Blues
GIPSY KINGS VOLARE Penelope Cruz
Fugees - Killing Me Softly With His Song
French Latino - Historia de un Amor
For A Few Dollars More The Danish National Symphony Orchestra (Live)
Flashdance • What a Feeling • Irene Cara
Filip Rudan - “Someone You Loved” Audicija 4 The Voice Hrvatska Sez
Eric Clapton - Wonderful Tonight
Enya - Only Time
Enrique Iglesias - Bailando (English Version) ft. Sean Paul
Enrique Iglesias - Bailamos
Elena Yerevan Historia de un amor
Ed Sheeran - Shape of You (Official Music Video)
Ed Sheeran - Perfect Symphony [with Andrea Bocelli]
Ed Sheeran - Perfect (Official Music Video)
Easy On Me - Adele (Boyce Avenue 90’s style piano acoustic cover) on S
ERA - Ameno
ELENA YEREVAN- Cancion Del Mariachi-IN STUDIO-2017 DPR
Dust In The Wind - Kansas (Boyce Avenue acoustic cover)
Don't Let Me Be Misunderstood
Despacito x Shape Of You - Pentatonix
Deep Purple - Child In Time - Live (1970)
David Foster When A Man Loves A WomanIt's A Mans World (SealMichael Bo
Dance me to the end of Love ( Pi-Air Design )
Coolio - Gangsta's Paradise (feat. L.V.) [Official Music Video]
Conquest Of Paradise (Vangelis), played on Böhm Emporio organ
Cielito Lindo
Chico & The Gypsies - Bamboleo
Canción Del Mariachi - Antonio Banderas, Los Lobos • Desperado
Camila Cabello - Havana (Audio) ft. Young Thug
Camila Cabello - Havana ( cover by J.Fla )
California Dreamin' - The Mamas & The Papas José Feliciano (Boyce Ave
Buster Benton - Money Is The Name of The Game
Hallelujah Pentatonix
Bobby McFerrin - Don't Worry Be Happy (Official Music Video)
Bob Dylan - Knockin' On Heaven's Door Emilia The Voice Kids France
Besame Mucho - Cesaria Evora
Ben E. King - Stand by Me Sax Cover Alexandra Ilieva Thomann
Bella Ciao
Bella Ciao - INSTRUMENTAL
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Bad Romance - Vintage 1920's Gatsby Style Lady Gaga Cover ft. Ariana Savalas & Sarah Reich(1)
BELLA CIAO 2020 - KARAOKE ITALIANO
BAMBOLEO - Gipsy Kings • Antonio Banderas, Katya Virshilas
BAILANDO (original)
Awesome Ukrainian yodeler - SOFIA SHKIDCHENKO (with English subtitles)
Avicii - The Nights
Atom - The Great Gig in the Sky
Aretha Franklin - (You Make Me Feel Like) A Natural Woman (Official Ly
Antonio Banderas - Cancion del Mariachi (Desperado)
André Rieu - Zorba's Dance (Sirtaki)
André Rieu - Can't Help Falling In Love
André Rieu & Mirusia - Ave Maria
Andrew Reyes Elton John - Don't Let The Sun Go Down The Voice 2020 (
Andreas Kümmert Whiter Shade Of Pale The Voice of Germany 2013 Showd
And I Love You So
All About That Bass - Postmodern Jukebox European Tour Version
Alan Walker - Faded (Piano Cover)
Ain't No Sunshine -- Bill Withers (cover by Canen 12 y.o.)
African music
Adriana Vidović - “Creep” Audicija 4 The Voice Hrvatska Sezona 3
Adriana Vidović - “Believer” Nokaut 3 The Voice Hrvatska Sezona 3
A Fistful of Dollars - The Danish National Symphony Orchestra and Tuva
4 Beautiful Soundtracks Relaxing Piano [10min]
2CELLOS - Whole Lotta Love vs. Beethoven 5th Symphony [OFFICIAL VIDEO]
2CELLOS - Smooth Criminal (Live at Suntory Hall, Tokyo)
2CELLOS - Smells Like Teen Spirit [Live at Sydney Opera House]
2CELLOS - Despacito [OFFICIAL VIDEO]
13 Year Old Girl Playing Il Silenzio (The Silence) - André Rieu
094.All About That Bass
00 - SADNESS PART 1
(Ghost) Riders In the Sky (American Outlaws Live at Nassau Coliseum, 1
(Everything I Do) I Do It For You - Bryan Adams (Boyce Avenue ft. Conn
What a wonderful world
Moon river
×