SEC Chairman Gary Gensler is working to investigate the crypto industry
In the wake of the collapse of FTX and subsequent charges against the company and some of its executives, regulators are cracking down on cryptocurrency markets. In my experience as the founder of an executive search firm, other regulatory authorities will also engage in their own enforcement investigations and actions as the SEC ramps up its investigations.
The Securities and Exchange Commission (SEC), the lead regulator of the financial and securities industry, is increasing its staff, an SEC spokesperson said. CoinDesk last wednesday. The new number of employees will aid the agency’s ability to review, investigate, audit, investigate and potentially prosecute securities law violations related to these new crypto products and trading activities. The supervisory representative did not reveal how many new positions will be created.
In May 2022, the SEC announced that the agency would hire 20 additional regulatory staff. The new hires will become part of the newly renamed Crypto Assets and Cyber Unit division, growing to 50 professionals tasked with “protecting investors in crypto markets and against cyber-related threats.”
According to the SEC, the additional staff will include supervisors, investigative staff attorneys, fraud analysts and litigation counsel focused on investigating securities law violations in: cryptoasset offerings, exchanges, and lending and betting products; decentralized financial platforms; non-fungible tokens and stablecoins.
SEC Chairman Gary Gensler said in the announcement, “The United States has the largest capital markets because investors have faith in them, and as more investors gain access to the crypto markets, it is increasingly important to dedicate more resources to protecting them.” Gensler added, “The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets. By nearly doubling the size of this key unit, the SEC will be better equipped to police misconduct. in the crypto markets as they continue to identify disclosure and control issues with respect to cybersecurity.”
Since its establishment in 2017, the unit has taken more than 80 enforcement actions related to fraudulent and unregistered crypto-asset offerings and platforms, resulting in financial relief totaling more than $2 billion.
In July, Gurbir Grewel, head of SEC Enforcement, asked Congress for additional resources to effectively monitor and review the crypto industry, according to reporting from Coindesk. Grewal requested that the House Financial Services Subcommittee appropriate funds to recruit and hire an additional 125 additional regulatory professionals, as the SEC struggles to keep up with the number of investigations, bankruptcies and implosions of digital asset platforms.
Are crypto exchanges safe and qualified custodians?
Last Thursday in prepared remarks before an investor advisory meeting, Gensler made comments regarding cryptocurrency exchanges in the United States, reiterating his position that cryptocurrency exchanges are not safe and qualified custodians. Gensler said: “To be clear: just because a crypto trading platform claims to be a qualified custodian does not mean it is. When these platforms fail – which we have seen time and time again – investors’ assets have often become the property of the failed the company, and the investors are queuing up at the bankruptcy court.” The SEC Chairman tweeted on the agency’s proposal to ensure that depository companies meet requirements regarding the separation of funds and pass annual audits by authorized accountants.
Public Citizen, a nonpartisan nonprofit consumer group with more than 500,000 members, wrote an open letter praising Gensler for recognizing that some crypto firms issue unregistered securities and act as unregistered exchanges, brokers or other regulated financial intermediaries.
The advocacy group claims, “Crypto enthusiasts have run a massive Ponzi scheme, disproportionately harming people of color and those with modest incomes.” It goes on to say in the letter: “The crypto balloon has been inflated by influencers, many paid in secret; massive advertising campaigns that were funded through crypto firms’ misuse or theft of customer funds; and a false gallery of online crypto-enthusiasts, some of whom have a vested interest in increasing the price of tokens.”
What the SEC is targeting
The SEC claims that many digital tokens are unregistered securities. The agency points to the FTX exchange token FTT and provides products offered by a number of platforms. The regulator separately accused cryptocurrency platform Kraken of inappropriately offering securities in the form of its staking service. According to the regulator, Kraken failed to adequately disclose the risks of participating in the program. The crypto platform agreed to pay $30 million to settle the charges and shut down the product.
The SEC is also taking shots at international crypto exchange Binance – whose CEO, Changpeng Zhao, brought the FTX scandal to light – by threatening to sue Paxos to stop offering Binance USD. The regulatory agency claims that BUSD is an unregistered security.
Regulators have also questioned whether Binance’s US and global arms are independent of each other. according to The Wall Street Journal, the two appear to be more converged than previously disclosed, reportedly “mixing employees and finances and sharing an affiliated entity that bought and sold cryptocurrencies.” The Journal reported that Binance potentially had access to US customer data, as developers in China had access to software code belonging to Binance.US users’ digital wallets.
Crypto Executive Strikes Back
Crypto leaders, such as Coinbase CEO Brian Armstrong, are critical of Gensler’s actions. Armstrong said on Bloomberg TV that the US is lagging behind in getting its regulatory act together, while the rest of the world is embracing crypto. Armstrong also defended Coinbase’s betting product, according to Block. He called for a “clear rulebook” on cryptoassets and criticized Gensler’s approach to regulation by enforcement.
What all this means
With the increased attention and SEC enforcement actions, companies will increase hiring internally to ensure compliance with crypto laws and regulations.
Here are 10 open compliance positions within the crypto space:
- Coin base— Regulatory Policy Senior Manager
- Coin base—ACH Analyst, Payment Risk Operations
- Cash App— Crypto Regulatory Counsel
- eBay— Crypto Board
- Andreessen Horowitz (a16z)—Partner 22, Compliance Officer, Crypto
- Zero Hash—Legal representative, regulatory
- Zero Hash— Vice President of Legal, Regulatory
- Anchorage Digital— Compliance Testing and Monitoring Analytics Associate
- Anchorage Digital— Compliance testing and monitoring manager
- Paxos—Program manager for risk assessment
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