Sheila Warren, CEO of the Crypto Council for Innovation, an organization of crypto industry leaders, said that the collapse of FTX has prompted some to call for more regulation of the crypto industry.
However, Warren said the prosecution of FTX executives, including co-founder and former CEO Sam Bankman-Fried, shows that the industry is already subject to laws, and FTX's collapse should not be blamed on the industry, but rather on the individual. The Justice Department and the Securities and Exchange Commission (SEC) have both ramped up efforts to police the industry over the last year and say they will continue to do so.
Deputy Attorney General Lisa Monaco told The Wall Street Journal (WSJ) in December that the Department of Justice (DOJ) began pouring resources into cryptocurrency investigations more than a year ago, which have helped in the prompt prosecution of Bankman-Fried and will continue to be used in enforcement efforts in the future. “Those investments are paying off in the prosecutorial firepower you are seeing," Monaco said. Some critics have said that government authorities are lagging in their efforts to rein in the crypto industry, emphasizing that crypto exchanges such as FTX perform multiple functions that, in the capital markets, are handled by separate entities, according to the WSJ.
"This case demonstrates that crypto is subject to variety of regulations and laws already. This isn't about the tech, it's about bad actors committing fraud. Rules for holding them accountable are important," Warren wrote in a Jan. 4 tweet.
Warren said on CNBC that she believes that Bankman-Fried, who is facing eight criminal charges -- including money laundering, wire fraud and commodities fraud -- demonstrates that players in the crypto industry are already being held to standards that are "meant to prevent or hold accountable bad actors from engaging in bad things. So this isn't really about crypto per se," Warren said. "It's about one individual, or perhaps allegedly a small group of individuals, who perpetuated a massive fraud in business mismanagement, allegedly deliberately, upon a whole host of innocent victims."
The SEC said in December that it is increasing its scrutiny of audits performed on crypto companies, citing concerns that investors might gain false reassurances from audit reports, according to WSJ.
Paul Munter, the SEC’s acting chief accountant, said, "We’re warning investors to be very wary of some of the claims that are being made by crypto companies." Munter expressed concern that potential investors might be misled by audits, including proof-of-reserves reports, which he said do not necessarily contain "enough information for an investor to assess whether the company has sufficient assets to cover its liabilities."
In October, SEC Commissioner Hester Peirce asked Congress to pass a bill that could provide regulatory clarity in the crypto industry, Pensions & Investments reported.
Peirce said that under SEC Chairman Gary Gensler, "We haven't really done anything besides bringing enforcement actions [in the crypto sector.] We've issued some limited relief, but I think that relief is not expansive enough to allow some traditional players who are interested in this space to come in. I think it is a good time for legislation. It's up to Congress to figure out how they want to allocate the regulatory responsibility."
