Sec Chair Gensler States That if Done “Within the Law,” a Reconstituted FTX Led by the Former CEO of the NYSE is Feasible

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Last Updated on November 9, 2023 by Bitfinsider

Gary Gensler, the chair of the SEC, said on the fringes of DC Fintech Week that a resurrected FTX might succeed provided the new leadership approaches it with a clear understanding of the law.

Gensler was making reference to rumors that three buyers are in the running to purchase the remnants of the collapsed cryptocurrency exchange, including Tom Farley, a former president of the New York Stock Exchange. Bullish, the digital asset exchange that Farley founded in May, is purportedly among the top candidates for the bankruptcy auction.

“If Tom or anybody else wanted to be in this field, I would say, ‘Do it within the law,’” Gensler stated on Wednesday. “Build the trust of investors in what you’re doing and ensure that you’re doing the proper disclosures — and also that you’re not commingling all these functions, trading against your customers. Or using their crypto assets for your own purposes.”

Last Monday, Sam Bankman-Fried, the creator of FTX, was convicted guilty on all seven criminal counts brought against him, including allegations of money laundering and fraud. The indictments state that his exchange, which declared bankruptcy a year ago, was sending client funds to sister hedge fund Alameda Research.

As a market maker on the FTX exchange, Alameda was granted benefits like a $65 billion credit line that didn’t need collateral. Alameda was also given the exceptional privilege of being able to lose money on its trading wagers without having its positions liquidated, in contrast to other users of the platform.

According to Gensler, “We would never let the New York Stock Exchange to operate a hedge fund and trade against their members or customers in the market.”

A firewall was intended to be installed between FTX and Alameda. However, during the course of the month-long trial, the facts proved just how comfortable they actually were.

“FTX and Alameda had an extremely problematic relationship,” Nic Carter of Castle Island Ventures stated to CNBC. “Bankman-Fried operated both an exchange and a prop shop, which is super unorthodox and just not really allowed in actually regulated capital markets.”

In addition to the criminal accusations, FTX was sued in a civil suit brought by the Commodity Futures Trading Commission and the SEC. In December, the SEC charged Bankman-Fried with operating a “brazen,” multi-year fraud “from the start.”

Gensler stated that the current securities laws are “very robust and strong” in terms of evaluating additional regulations governing the business. All that’s left is to enforce them.

“There’s nothing about crypto that’s incompatible with securities laws,” he said. “You’ve got just a lot of worldwide actors that are currently not complying with these time-tested laws.”

Although it had a little American affiliate, FTX was mostly employed by clients outside of the United States and was headquartered in the Bahamas. Despite operating an international business, U.S. regulators are targeting cryptocurrency exchange Binance. Both the SEC and the CFTC have filed accusations against Binance, claiming that the business and its founder, Changpeng Zhao, have conspired to circumvent “their own controls” in order to permit wealthy American investors and users to go on trading on its unregulated foreign exchange.

Without mentioning any specific businesses or people, Gensler added, “Think about how many actors in this space are not complying right now with international sanctions and money laundering laws and are using crypto for nefarious or bad actions.”

The SEC has recently lost a few temporary legal battles in the courts. These battles involved Ripple and Grayscale, respectively, and the $1.3 billion the companies raised in what the SEC termed an unregistered securities offering and the application Grayscale made to turn its bitcoin trust into a spot bitcoin exchange-traded fund.

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