Securities and Exchange Commission Chairman
Gary Gensler
is trying to spin the FTX blow-up as a cautionary tale about the crypto “wild West.” But where was the SEC sheriff when
Sam Bankman-Fried
was funneling FTX customers’ funds to his Alameda Research trading house to finance risky bets and a lavish lifestyle?
In September 2021, Mr. Gensler rejected major industry players’ contention that he needed congressional authorization to regulate crypto products. “We have robust authorities at the Securities and Exchange Commission and we’re going to use them,” he told the Washington Post. “We’ll also be the cop on the beat, bringing those enforcement actions.” And the commission has—but not against FTX.
Mr. Gensler has claimed that all cryptocurrencies except Bitcoin and a few others that he won’t specify are securities subject to SEC regulation and thus require the same robust investor disclosures as stocks and bonds. He has also claimed jurisdiction over crypto lending platforms and trading exchanges on the premise that digital assets are securities.
Under his watch, the SEC has continued litigation launched by his predecessors against tokens XRP and LBRY. A federal judge on Nov. 10 ruled for the SEC that LBRY was selling an unregistered security. Last fall Mr. Gensler threatened to sue crypto exchange
if it proceeded with plans to pay interest on customer deposits of a stablecoin pegged to the U.S. dollar.
In October the SEC charged celebrity
Kim Kardashian
with touting digital tokens on social media without disclosing the remuneration for her endorsement. (She settled with the SEC for $1.26 million without admitting or denying its findings.) Mr. Gensler has repeatedly admonished crypto exchanges for “commingling” activities by serving as custodians for customer deposits, market-makers and lenders.
“There’s going to be a problem on lending platforms or trading platforms,” Mr. Gensler warned in September 2021. “And frankly, when that happens, I think a lot of people are going to get hurt.” Last month his prophesy came true as Mr. Bankman-Fried’s “house of cards,” to quote the SEC complaint, collapsed.
According to the commission, starting in 2019 FTX “lent” Alameda billions of…
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