In 2022, the US Securities and Exchange Commission (SEC) imposed charges against the founder of FTX, Sam Bankman-Fried, after the exchange filed for bankruptcy. This year, the SEC has gone after some of the largest players in the cryptocurrency market, Genesis and Gemini. Democrat lawmakers are now supporting the enforcement actions taken by the SEC, and they want regulatory clarity in the sector.
Democrat lawmakers call upon the SEC to regulate crypto
According to US House Representatives Jesús “Chuy” Garcia and Stephen F. Lynch, several crypto companies went under because of the crypto winter that happened in 2022. The crypto winter created the need to protect the economy from the harmful practices happening in the crypto sector.
The Democrat lawmakers referred to the collapse of FTX as one of the reasons why the cryptocurrency industry needed to be regulated. They noted that the current FTX CEO, John Jay Ray III, had referred to the situation at FTX as “a complete failure of corporate controls.” The lawmakers added that the lack of corporate controls was an issue that affected the entire crypto industry.
To prevent another collapse of a large player in the cryptocurrency industry, the lawmakers noted a need to comply with the existing securities laws that include provisions to guarantee markets and investors are protected from bad actors.
They also referred to the classification of the majority of crypto assets. The chair of the SEC, Gary Gensler, has previously said that the majority of cryptocurrencies in the sector were securities because they passed the Howey test to be classified as an investment contract where money is invested with the expectation of making profits from the effort made by the enterprise.
The Democrats agreed with Gensler’s opinion that the crypto market was needed to comply with the securities laws. Additionally, investor protection was important despite the underlying blockchain technology. If crypto firms complied with the existing securities laws, they would not engage in negative practices such as misusing customer funds and laundering money.
Lawmakers address lobbying and promotion efforts by crypto firms
The lawmakers noted that the cryptocurrency sector was “notorious” for trying to circumvent the law through the courts to challenge any efforts to regulate the sector. Additionally, crypto firms were also engaged in lobbying efforts that benefit their activities at customers’ expense.
Recently, Binance, the largest cryptocurrency exchange, lobbied the Department of Justice to bar it from taking any regulatory action against the exchange. Before its collapse, FTX also lobbied US lawmakers to regulate the crypto market.
Some cryptocurrency exchanges have also used advertisement strategies like celebrity endorsements, philanthropic moves, and political donations to promote their activities. These promotions have been made to paint these companies as trustworthy.
Garcia and Lynch added that FTX and other crypto firms were replicating some of the worst things that happen on Wall Street and Big Tech. They compared the current situation in the crypto sector to the 2008 financial crisis, where investors were subjected to high volatility while preying on consumers.
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