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Senate Banking Chair Thinks FTX Type Problems Are Everywhere In Crypto

Published September 13, 2023 10:36 AM
Omar Elorfaly
Published September 13, 2023 10:36 AM

Key Takeaways

  • Senate Banking Committee’s chairman Sherrod Brown sides with SEC’s Gensler.
  • New crypto legislation will not pass without Brown’s approval.
  • The Ohio lawmaker believes the crypto industry is riddled with conflicts of interest and risky bets.

The chairman of the US Securities and Exchange Commission Gary Gensler attended a senate hearing regarding the commission’s approach to the crypto industry, which many have been critical of.

However, during the hearing, Sen. Sherrod Brown, Senate Banking Committee Chairman, supported Gensler’s SEC and its tight control over the industry, which Brown sees as full of fraudsters.

Brown is also a key figure in passing any new legislation regarding the crypto sector, making his opinion on the industry a way to predict future changes in the market.

Crypto Is Full Of FTX-Type Problems

“The problems we saw at FTX are everywhere in crypto – the failure to provide real disclosure, the conflicts of interest, the risky bets with customer money that was supposed to be safe,” said, the Senate Banking Committee’s chairman.

While multiple private stakeholders hoped for Gensler to receive harsh scrutiny during the senate hearing, the SEC chairman received praise Sen. Sherrod Brown, a government official whose stamp of approval is critical for passing any crypto legislation or creating a framework for stablecoins.

“FTX was just the biggest and the ugliest,” said Brown, adding, “I’m glad the SEC is using its tools to crack down on abuse and enforce the law.”

Brown continued to praise Gensler’s SEC for taking an enforcement-based approach to the industry that Brown sees as full of fraudsters and abuse.

When it was time for Gary Gensler to speak, he reiterated what Senator Brown had already mentioned, saying “I’ve never seen a field that’s so rife with misconduct. It’s daunting.”

Opposition Against Gensler

Gensler also received criticism during his Senate hearing. Sen. Cynthia Lummis went on the offense against Gensler, highlighting the potential issues caused by the SEC’s Staff Accounting Bulletin 121 , which requires companies to disclose their crypto assets on their balance sheets.

Under the bulletin, companies managing customer crypto tokens are advised to reflect their digital assets on their accounting documents. Lummis said the bulletin would influence banks’ decisions regarding providing crypto custodial services to customers. 

Gensler responded by saying, “We don’t speak to how it’s backed,” and, “That’s up to the bank regulators.”

In a stern letter  written by Lummis and Rep. Patrick McHenry, chairman of the House Financial Services Committee, the officials expressed how this measure could “deny millions of Americans access to safe and secure custodial arrangements for digital assets.”

“A recent decision in the Celsius [Network] bankruptcy, which classified all Celsius’ customers as unsecured creditors, and therefore at the back of the line to recover their assets, highlights the legal risk of effectively forcing customer custodial assets to be placed on balance sheet.”

Last month, Lummis also filed an amicus brief scrutinizing the SEC for its approach to the digital asset industry.

Among the letters’ notable quotes is “This Court should decline the SEC’s novel effort to regulate crypto asset secondary markets on the theory that crypto assets are securities, and defer to Congress to enact a proper regulatory scheme. Coinbase’s motion for judgment on the pleadings should be granted.”

Moreover, Senator Lummis filed the Lummis-Gillibrand Responsible Financial Innovation Act, in July in an attempt to eliminate ambiguity of crypto regulations, be it taxing, trading, holding, or security/commodity status. Moreover, the bill identifies key parties involved in crypto trading, including coin issuers, crypto exchange, regulating bodies, governmental taxation bodies, individual coin holders, and traders.

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