In the wake of the arrest of and charges of fraud against Sam Bankman-Fried, the disgraced founder and former CEO of the FTX cryptocurrency exchange, both the House and the Senate are holding previously planned hearings this week centering on the FTX implosion. The House Financial Services Committee—before which Bankman-Fried was expected to testify prior to his arrest—is holding a hearing today on the collapse of FTX specifically, while the Senate Banking Committee hearing on Wednesday will look at broader financial issues with crypto regulation.
Both the House and Senate hearings should aim to get to the bottom of what happened at FTX and what was known by its executives, including Bankman-Fried. In the House hearing, the task should be to explore FTX’s misdeeds and who at the company bears responsibility for them. The Senate hearing should look at regulations that need to be changed as well as current laws on the books that may have prevented FTX’s actions, leading to its implosion, and that should be used now to punish any fraud that occurred.
The hearings should also look at the misplaced priorities of the Securities and Exchange Commission (SEC) and whether its focus on advancing ideological agendas has hindered its ability to investigate and detect fraud before it hits the media headlines. Under the tenure of Chairman Gary Gensler, the SEC has pursued agendas such as environmental, social, and governance (ESG) mandates and going after legitimate cryptocurrencies such as XRP and LBRY in arbitrary enforcement actions in which no fraud was alleged—seemingly at the expense of the SEC’s core function of protecting investors from fraud and deception. SEC Commissioner Hester Peirce warned about this mission creep, commenting that pursuing ESG mandates “distracts us” from “other important work to do.”
Members of the House and Senate should also look at regulatory barriers to alternatives to centralized platforms such as FTX. These would include both trust accounts and exchange-traded funds that have established legal protections for financial consumers, as well as decentralized exchanges in which crypto holders are less dependent on intermediaries like Bankman-Fried.
The hearings should shine a spotlight to help ensure that any wrongdoing by Bankman-Fried and his cohorts gets swiftly punished while avoiding the promotion of unfocused regulation that would harm legitimate entrepreneurs, investors, and consumers”
Related analysis: What the FTX Collapse Tells Us About Regulators and ESG