Gensler tells lawmakers crypto exchanges taunt SEC saying ‘catch us if you can’

Securities and Exchange Commission chair Gary Gensler defended his agency’s oversight of crypto markets at a House appropriations committee on Wednesday, saying that the industry is rife with conflicts of interest that hurt investors.

“They are taking investors’ funds and trading against the investors. And they’re saying, ‘Catch us if you can’. That’s the nature of the field right now,” Gensler said.

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Gensler told the committee that token entrepreneurs don’t offer consumers fair and faithful disclosure around their investment offerings.

“That’s the core. Of the 10,000 or 12,000 tokens out there, there are very few that don’t have a group of entrepreneurs in the middle that the public is counting on,” he said.

Asked if the SEC planned to issue any regulations for crypto, Gensler took his oft-repeated stance that US existing securities regulations are perfectly adequate for the budding crypto agency.

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Crypto crackdown

Gensler avoided mention of any specific company. But his comments on conflicts of interest could apply to FTX, whose disgraced CEO Sam Bankman-Fried allegedly used commingled customer funds to make undisclosed venture investments, real-estate purchases and political donations.

Bankman-Fried has pleaded not guilty to criminal charges in relation to the crash of the exchange.

As part of a crypto industry crackdown that has been ongoing in the wake of the FTX scandal, the SEC last week served Coinbase with a Wells notice.

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In response, the exchange’s legal officer repeated bitter complaints of the wider industry that while Gensler apparently sees almost all crypto assets – barring Bitcoin – to be securities, the process to actually register those securities proves impossibly complicated.

The SEC under Gensler has cracked down on several companies and individuals involved in the crypto industry.

This year has also seen the collapse of three banks with ties to the crypto industry. In addition, the federal banking regulators have discouraged banks from holding crypto assets on their balance sheets.

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Justifying his budget

Gensler has asked for 170 more staff in the 2024 fiscal year, on top of 400 more in 2023.

Asked if his agency had enough funding to police the crypto markets, Gensler responded, “We’re stretched thin. This is a small field compared to our vast $100 trillion capital markets, but it’s a field that has a significant amount of non-compliance in it.”

The SEC is partly funded by registration fees from firms it regulates, and partly by the federal government.

This means that every year, the SEC chair must go up before appropriations committees in the Senate and House to get his or her budget approved.

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Gensler said in a budget plan filed earlier this month that the capital markets, including crypto, have grown in size and complexity, and he wants to beef up the commission’s staff accordingly.

Gensler is next scheduled to testify before the House Financial Services Committee on April 18.

He has not testified before this committee since September 2021, and as Ron Hammond told DL News recently, lawmakers have been “champing at the bit to have him”.

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