Gary Gensler’s tenure as Chair of the Securities and Exchange Commission (SEC) has become increasingly contentious, particularly after OpenSea’s CEO, Devin Finzer, announced via tweet on August 28, 2024 that the company received a Wells Notice from the Securities and Exchange Commission (SEC). A Wells Notice signals the SEC’s intent to pursue enforcement action against a leading NFT marketplace.
This latest notice epitomizes the Gensler-led SEC’s aggressive and controversial approach to digital assets. Critics argue that Gensler’s actions reveal a reckless disregard for the statutory framework governing the SEC and its policy goals, raising serious concerns about whether he is prioritizing his regulatory agenda over the best interests of investors and markets.
In my December newsletter, I talked about FTX crypto exchange founder, Sam Bankman-Fried’s, arrest in the Bahamas and the list of charges from the Department of Justice, SEC and CFTC. SBF is not the only one in legal jeopardy.
Celebrities Tom Brady (geez, he’s had a BAD year, huh?), Larry David and Kevin O’Leary are on the wrong side of legal action, as well.
Days after SBF filed for FTX bankruptcy, attorney Adam Moskowitz of The Moskowitz Law Firm, a South Florida litigation boutique, and Boies Schiller Flexner filed actions in Miami federal and state court against Bankman-Fried and celebrity promoters of the exchange.
The federal class action suits allege that FTX’s yield-bearing accounts (YBAs), which pay interest on crypto holdings, were actually unregistered securities in violation of both state and federal securities laws and that celebrities who promoted them should therefore be on the hook for investor damages.
The Moskowitz action, filed on Nov. 15, claims damages are over $11 billion (yes, with a B).
A separate state action in Florida names Brady, Shark Tank TV personality Kevin O’Leary and former Boston Red Sox star David Ortiz — all Florida residents — as defendants. That suit was filed by the law firm of Boies Schiller, seeking a declaratory judgment on whether FTX YBAs are unregistered securities and if, by extension, celebrity promoters violated consumer laws by promoting them.
Bottom line: let the celebrity endorser … beware. Because they may be the only deep pockets accessible to investors, who likely won’t see a satoshi returned from the bankruptcy proceedings.
Reminder: Do NOT keep your assets on centralized exchanges. They are not banks. They are a marketplace where you trade cryptos. Learn to self-custody your assets. That’s the true power of digital ownership in the new economy.
Today, I did a segment on Coindesk TV’s morning show, First Mover, with hosts Christine Lee and Lawrence Lewitinn. We discussed the CFTC Chairman’s testimony at the Senate Agriculture Committee hearing on the FTX demise and need for amendments to CFTC’s regulatory authority to increase its ability to regular crypto asset spot trading of digital asset commodities like bitcoin and ethereum.
FTX, one of the world’s largest cryptocurrency trading platforms, filed for bankruptcy earlier this month after a series of reports about its shoddy finances triggered a run on its books. FTX also lost billions of dollars in customer deposits on risky bets made by Alameda Research, an investment firm run by FTX founder Sam Bankman-Fried.
Summary of CFTC Chairman Benham’s Remarks:
noted that in the absence of stringent and uniform standards, the digital asset market rapidly expanded
we need to move quickly on a thoughtful regulatory approach to establish guardrails in these fast-growing markets of evolving risk, or they will remain an unsafe venture for customers and could present a growing risk to the broader financial system.
CFTC lacks the necessary and direct authority to write rules and to oversee this marketplace.
CTFC is more reactive than proactive due to constraints in the enabling legislation that created its regulatory authority. Instead, it can only reach the crypto market (or commodities market, more broadly) through more limited authority activated when fraud or manipulation has already occurred. By then, it’s already too late.
In the absence of direct regulatory and surveillance authority in an underlying cash market, CFTC enforcement activity begins with a referral or whistleblower tip from an external source.
Despite this limitation, the CFTC has brought more than 60 enforcement cases in the digital asset space since 2014,with total penalties of just over $820 million. In fiscal year 2022, more than 20% of our 82 enforcement actions involved digital assets.FN3CFTC asks Congress for Comprehensive regulation to protect customers on the front end by stopping fraud before it occurs.
He supports the Stabenow/Boozeman bill August 2022: Digital Commodities Consumer Protection Act (DCCPA) to amend the Commodity Exchange Act to provide the Commodity Futures Trading Commission jurisdiction to oversee the spot digital commodity market
Under the DCCPA, FTX would not have occurred. Main failures would have fallen within the core protections under this proposed law.Consumer protection is paramount, as well as consumer education of operating safely, legally and confidently in the new digital asset economy.Comes for VPNs, as well. What’s the impact on financial and information privacy?
Finally, Chair Behnam recommended that any legislative amendment strike the right balance to provide sufficient authority and guidance but not hamstring the agency from being able to shift and adjust and evolve with the market. The House Financial Services Committee Chaired by Maxine Waters will hold its own hearing on Dec. 13th, titled “Investigating the Collapse of FTX”.
Watch the hearing and download Chair Behnam’s prepared remarks here.
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