The dramatic collapse of Sam Bankman-Fried’s crypto exchange, FTX, may have come as a shock to the Miami Heat,
Tom Brady,
Twitter bots and financial-news talking heads. But crypto is following a well-worn path of financial innovations, such as subprime mortgages and credit-default swaps, that began with dazzling rewards and ended with crippling losses.
Proponents say crypto holds great promise for making the financial system more efficient and inclusive. Maybe. But we’ve heard that story before. History is littered with financial schemes promoted by criminals and charlatans who claimed that the latest and greatest tools had evolved beyond the need for regulation or a cop on the beat. During the 2008 collapse and every financial crisis before that, these claims have proved dangerously delusional. Crypto is no exception.
FTX’s implosion should be a wake-up call. Regulators must enforce the law before more people get cheated, and Congress must plug the remaining holes in our regulatory structure—before the next crypto catastrophe takes down our economy.
Crypto executives who break the law are just like any other crooks, and the Justice Department should use its full range of tools, including criminal penalties, against them. If Mr. Bankman-Fried and FTX executives committed fraud, then federal prosecutors should send them to prison. But FTX’s fall, like the collapse of Lehman Brothers before it, isn’t limited to one out-of-control company.
That means the Securities and Exchange Commission needs to suit up as well. Market manipulation, theft, insider trading—the SEC has decades of experience in rulemaking and monitoring retail investment and knows how to root out fraud and hold cheaters accountable. The longstanding legal test defining securities gives the agency the power—but power is worthless if the cop on the beat won’t use it. The SEC has brought some enforcement actions related to fraudulent and unregistered crypto offerings over the past few years, but it has fallen far behind as the crypto industry has drawn in millions of new investors.
The Treasury Department has also moved, using existing law to impose sanctions on two crypto mixing services, Blender and Tornado Cash, which were used to launder billions of dollars worth of virtual currencies, including hundreds of millions stolen by hackers. Crypto lobbyists howled, but…
Click Here to Read the Full Original Article at RSSOpinion…