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SEC Chairman Gensler says FTX reboot led by ex-NYSE chief is possible if done ‘within the law’

SEC Chairman Gary Gensler mocks for putting a gun to his head in response to a reference to Rep. Emanuel Cleaver, Democrat of Missouri,’s “flaming stools” during the Financial Services Committee hearing in the Chamber entitled “Oversight of the Securities and Exchange Commission”, in the Rayburn Building, Tuesday, April 18, 2023.

Tom Williams | CQ-Roll Call, Inc. | Getty Images

WASHINGTON — A revived FTX could work if new leadership did it with a clear understanding of the law, SEC Chairman Gary Gensler told CNBC on the sidelines of Fintech Week DC.

Gensler was referring to reports that Tom Farley, former chairman of the New York Stock Exchange, would be from a shortlist of three bidders vying to buy what’s left of the bankrupt crypto exchange. Farley launched his own digital asset exchange in May, called Bullish, which is reportedly one of the latest contenders in the bankruptcy auction.

“If Tom or anyone else wanted to work in this field, I would say, ‘Do it within the law,'” Gensler said Wednesday. “Build investor trust in what you do and make sure that you are disclosing appropriate information – and also that you are not mixing all these functions, trading against your clients. Or using their crypto assets for your own purposes. ”

FTX founder Sam Bankman-Fried was guilty last week on the seven charges against him, including fraud and money laundering charges. According to the charges, his exchange, which filed for bankruptcy a year ago, funneled clients’ money to sister hedge fund Alameda Research.

Alameda was a market maker for the FTX exchange and enjoyed privileges, such as a $65 billion credit line requiring no collateral. Unlike other clients of the platform, Alameda also had the unique ability to go negative in its trade bets, without its positions being liquidated.

“We would never let the New York Stock Exchange also run a hedge fund and trade with its members or with clients in the market,” Gensler said.

FTX and Alameda were supposed to be separated by a firewall. But evidence presented during the month-long trial made clear how comfortable they were in practice.

“FTX and Alameda had an extremely problematic relationship,” Nic Carter of Castle Island Venture told CNBC. “Bankman-Fried operated both an exchange and a prop store, which is very unorthodox and just not really allowed in truly regulated capital markets.”

Sam Bankman-Fried is the foreman who reads the verdict to the court.

Artist: Elizabeth Williams

In addition to the criminal charges, the SEC and the Commodity Futures Trading Commission have filed civil lawsuits against FTX. The SEC in December accused Bankman-Fried for running nothing less than a “brazen,” years-long fraud “from the beginning.”

Gensler said that when it comes to considering new rules governing the industry, existing securities laws are “very robust and strong.” Just apply them.

“There is nothing about crypto that is inconsistent with securities laws,” he said. “There are just a lot of actors in the world who are not currently following these proven laws.”

FTX was based in the Bahamas and used primarily by clients outside the United States, although it had a small American subsidiary. Crypto exchange Binance is under fire from US regulators even though it operates an international business. THE SECOND And CFTC have both filed suit against Binance, alleging that the company and its founder Changpeng Zhao worked to subvert “their own controls” to allow wealthy U.S. investors and customers to continue trading on its unregulated international exchange.

“Think about how many players in this space are currently flouting international sanctions and money laundering laws and using crypto for nefarious or evil actions,” Gensler said, without naming any companies or companies. ‘people.

The SEC has recently suffered some interim losses in court, including to wave on the $1.3 billion the company raised in what the SEC called an unregistered securities offering, as well as in grayscalerelated to the company’s application to convert its Bitcoin trust into a Bitcoin spot exchange-traded fund.

Gensler said that over the past six years, the SEC has filed or settled 150 crypto cases. One of his legal disputes is with Coinbasea US-listed crypto exchange that is threatening to leave the country due to regulatory constraints.

Gensler said businesses must follow the law, although he avoided referring to specific cases.

“If they are a non-compliant fraudster, why would we want them in our markets?” he said.

WATCH: Former SEC Chairman Jay Clayton on the Bankman-Fried Trial

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