SEC Chair Gensler on crypto: 'I have never seen a field that is so ripe with misconduct' https://www.kitco.com/news/2023-09-...-a-field-that-is-so-ripe-with-misconduct.html Securities and Exchange Commission (SEC) Chair Gary Gensler appeared before the Senate Banking Committee on Tuesday to answer questions related to a variety of topics, including artificial intelligence, mutual funds, investor protection measures, and the agency's series of enforcement actions against cryptocurrency companies. In his prepared statement, Gensler said, “There is nothing about the crypto asset securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws.” He said that while “Congress could have said in 1933 or in 1934 that the securities laws applied only to stocks and bonds,” they actually included “a long list of 30-plus items in the definition of a security, including the term ‘investment contract.’ As I’ve previously said, without prejudging any one token, the vast majority of crypto tokens likely meet the investment contract test.” “Given that most crypto tokens are subject to the securities laws, it follows that most crypto intermediaries have to comply with securities laws as well,” Gensler said. He noted that various sections of the Securities Exchange Act of 1934 “require that intermediaries acting as securities exchanges, brokers and dealers, and clearing agencies are subject to the securities laws, and must register or satisfy requirements for an exemption.” “Given [the crypto] industry’s wide-ranging non-compliance with the securities laws, it’s not surprising that we’ve seen many problems in these markets,” he said. “We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place. Thus, we have brought a number of enforcement actions – some settled, and some in litigation – to hold wrongdoers accountable and promote investor protection.” Gensler highlighted that the SEC has “issued a reopening release that reiterated the applicability of existing rules to platforms that trade crypto asset securities, including so-called ‘DeFi’ systems,” and said, “While our current investment adviser custody rule already applies to crypto funds and securities, our proposal updating it would cover all crypto assets and enhance the protections that qualified custodians provide.” After finishing his prepared remarks, the floor was opened to questions from the Senators on the committee. In response to an early question related to cryptocurrencies, Gensler maintained his position that the SEC should be the agency to oversee the growing industry, and at one point said that in his 44 years of experience related to finance, he has “never seen a field that is so ripe with misconduct. It’s just daunting.” Responding to a question related to companies providing full financial disclosures to investors before offering a product on the market, Gensler said that when it comes to crypto, he wanted to ensure that, “to the extent a crypto token is a security, that investors get a chance to make their decisions based on a full, fair, and truthful disclosure.” When asked if the protection principles applied in other markets would help protect Americans from crypto abuses that cost consumers billions, Gensler said those principles would help protect investors, “but right now, unfortunately, there’s significant non-compliance, and it’s a field that is ripe with fraud, abuse, and misconduct.” On the topic of the recent flurry of spot Bitcoin ETF applications and the ruling that the SEC must review Grayscale’s application to convert the Grayscale Bitcoin Trust (GBTC) into an ETF, Gensler said, “We are still reviewing that decision and reviewing multiple filings around Bitcoin exchange-traded products. I’m looking forward to staff’s recommendations on similar questions.” Senator Lummis (R-WY) asked Gensler a more technical question about a rule that requires companies, including banks, to place cryptocurrencies under custody on their balance sheets. “Like we saw in the Celsius bankruptcy last year when thousands of customers were made unsecured creditors, isn’t it true that placing custody assets on the company's balance sheet could result in consumer assets being seized by creditors in the event of a bankruptcy, and that that would hurt consumers?” Senator Lummis asked. “You're absolutely right about the Celsius finding,” Gensler said. “But what was interesting in that bankruptcy finding is a judge said these are not segregated protected assets. By and large, the investors were just lining up in bankruptcy, and that was regardless of a staff accounting bulletin that the SEC put out because Celsius was a private company. The staff accounting bulletin was staff advice on how to do accounting in public companies.” “The reason the staff came to that conclusion, which is different than for stocks and bonds in custody, is because the laws in the U.S. right now tend to be that you can't readily, easily segregate those crypto assets the way Celsius was taking it on,” Gensler said. “So the judge said get in line. And that’s happened in Voyager, it’s happened in FTX, it’s happened in Terra Luna, it’s happened in each of these various bankruptcies.” “Well, let's then talk about the relationship of bulletin 121 to banks,” Lummis said. “The requirement prevents banks from offering crypto asset custody because it requires the assets to be backed one-for-one by U.S. dollars. If that standard were applied to legacy custody banks like BNY Mellon, they would have to have trillions in regulatory capital. So that prevents the most heavily regulated financial institutions in the country from offering custody.” “So if your ultimate goal is to provide real consumer protection, shouldn’t the SEC withdraw staff accounting bulletin 121 to allow banks to provide custody?” Lummis asked. “The staff accounting bulletin is just about public companies and how to properly show that to investors in those banks, not the people getting the custody,” Gensler replied. “The bank regulators are free to address how they wish to treat capital. But this is just about, does the balance sheet have those custodied crypto as a liability while also having the crypto as an asset? We don't speak to how it's backed, that’s up to the bank regulators.” Gensler concluded his prepared remarks by saying, “Though we are blessed with the largest, most sophisticated, and most innovative capital markets in the world, even a gold medalist must keep training.” “Technology, markets, and business models continue to change dramatically,” he said. “We now live in the age of electronic trading and generative AI. We’ve had dramatic growth in the scale, size, and interconnectedness of our capital markets, with individual investors participating more than ever before. Further, there are other fast-growing economies that, if they can, may seek to supplant us. I am grateful to work alongside this remarkable staff and my fellow Commissioners to promote the efficiency, integrity, and resiliency of the markets.”
Breaking: water is wet also 99% of crypto is probably a 0 also paradoxical bitcoin is an enormous deal (imo of course) it’s a confusing space
In his lifetime, he's probably never seen any industry that's so ripe with misconduct but there are plenty of industries that are ripe with misconduct at at least one point in their existence including the stock market itself. At one point, it was the wild wild west that was ripe with insider trading, front-running, fraud, falsifying of financial statements, pump & dump until regulations were put in place that curtailed some of the practices and even with the regulations put in place, some of the misconduct still exist today. Bernie Madoff anyone?? And how about the timeshare industry? To say there is not a field that's so ripe with misconduct is an understatement. As long as money is involved, people will try everything they can to try to get ahead and not many of them are honorable.
even bucket shops back pre SEC dealt in real money. the world has never seen such enormous financial fraud, aka crypto valuation, in its entire history. The is first time ever where fake money (Tether) being treated the same as real money. remove fraud and crypto valuation will collapse to levels no one can imagine.
Isn't it HIS job to then regulate and take enforcement action against those shady outfits if he believes they fall under the definition of investment contract. Weird.
It's so ironic that crypto is supposed to be anti-fraud with everything blockchain-based. How can you not have complete transparency when everything is determined by a computer algorithm and all the transactions in the ledger are not able to be altered? It turns out that whenever there is people and money involved, interesting things happen...
%% Pied Piper all over again, good rat trap. Warren Buffet warned ''rat poison'' Maybe time shares should be priced in bitconLOL IF the SEC doesn't mind,