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SEC Chair Gensler: Crypto Companies – You Have Been Warned

2 mins
10 November 2022, 13:18 GMT+0000
Updated by Geraint Price
10 November 2022, 14:22 GMT+0000
In Brief
  • U.S. Securities and Exchange Commission Chair Gary Gensler told Squawk Box that the recent FTX collapse was part of a pattern.
  • He said that these companies consistently borrow against customer funds to further invest, without proper disclosure.
  • The SEC Chair laid out three paths the regulator is taking to protect consumers from the risks of crypto firms.
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Gary Gensler, the chair of the Securities and Exchange Commission (SEC), has fired a warned shot at the crypto industry saying that: “We need to protect crypto investors because the runway is getting shorter.”

While Gensler could not speak specifically about any current investigations into the FTX collapse, he said the incident was a pattern being repeated by crypto firms. He said they take customer’s money, then borrow against it to make further investments, without making the proper disclosures. “When you mix together a bunch of customer money, and borrow against it, investors get hurt,” Gensler said. 

FTX is on the verge of collapse after Binance backed out of its plans to acquire Sam Bankman-Fried’s struggling company. According to people familiar with the matter, Bankman-Fried told investors that FTX is facing a shortfall of up to $8 billion from withdrawal requests and needs emergency funding. CNBC’s Andrew Sorkin asked Gensler whether the SEC is investigating FTX.

Multiple Paths to Protect Consumers

Responding to criticism that the SEC had not done enough to protect the investors harmed by the FTX debacle, Gensler said clear regulations are in fact in place, but that crypto exchanges are largely non-compliant.

Gensler explained that there were three paths that the SEC is taking to protect investors with regard to crypto firms. “One path is working with those crypto exchanges, and to get them properly registered and that’s so the public’s protected,” he said. 

“But we have another path, which is enforcement,” Gensler added. The SEC chair then referred to a recent case with the cryptocurrency LBRY, in which the regulator charged the issuer with illegally selling unregistered tokens. The SEC has a high profile ongoing case with Ripple Labs regarding the same matter.

Education, Education, Education

Gensler then said the third path is investor education.

“When you mix together a bunch of customer money and borrowing against it, investors get hurt,” says Gensler. “This is a very interconnected world in crypto with a few concentrated players. When markets turned on them, it appears that a lot of customers lost money.”


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