SEC’s Failure to Rule-make and Spotty Enforcement Approach Has Failed to Protect Consumers

Reiterates Call for Regulators to Take Action

Above: Gottheimer questions FTX Group CEO John Ray III during a House Financial Services Committee Hearing on the collapse of FTX.

Today, December 13, 2022, U.S. Congressman Josh Gottheimer (NJ-5) questioned FTX Group CEO John Ray III during a House Financial Services Committee Hearing on the collapse of FTX.

Gottheimer’s questions for Ray included whether he believed that U.S. financial regulators would have been satisfied with the accounting and risk mitigation practices that were in place at FTX; what U.S. regulators — including the SEC — could have done to protect Americans using FTX; and if Ray believes former FTX CEO Sam Bankman-Fried when he says that all FTX US users will receive “a dollar on the dollar” return of funds at the end of these bankruptcy proceedings.

In response to Gottheimer asking if U.S. users would get their money back, as Bankman-Fried previously stated, Ray said that is “very speculative at this point.”

Video of Gottheimer’s questioning can be found here.

Gottheimer’s opening statement as prepared for delivery:

Since 2019, I have raised concerns about the Securities and Exchange Commission’s (SEC) approach to digital assets. 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 and has done a haphazard job of overseeing the space. The result has been a lack of certainty and clear rules of the road. They failed to do their job, and they failed to protect consumers.

I’ve been calling on financial regulators to step up and create clear guardrails for digital assets.  Nearly a year ago, I drafted the Stablecoin Innovation and Protection Act to create tough consumer protections and prevent destabilizing runs like we saw with the so-called ‘stablecoin’ Terra that failed earlier this year. I also invited CFTC Chairman Rostin Behnam to my District to discuss what the clear regulatory steps the CFTC could take to better protect consumers and prevent thieves and snake oil salesmen from ripping off Americans with worthless digital assets. I have consistently been engaging with all market participants, associations, and regulators to promote innovation and the responsible development of promising financial technology — all with an eye to protect consumers. 

Instead of writing clear rules and guidelines for digital asset firms, the SEC has created a patchwork of ad-hoc policies for crypto firms purely through spotty enforcement actions and random letters — haphazard enforcement that has missed the worst offenders. You cannot regulate through a random patchwork of letters. You have to write clear rules of the road, which is what I’ve been calling on for years now.

Chairman Gensler has told our Committee and stated publicly that he has the authority he needs to oversee this industry. Yet, the SEC hasn’t written rules, and he has failed to foresee and prevent disasters in the industry and protect consumers — from Terra/Luna to FTX. It is time for the SEC to step up and do its job or get out of the way and let another regulator take the lead.

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