Brad Garlinghouse, the CEO of blockchain company Ripple, said the SEC’s lawsuits against leading crypto exchanges, including Binance and Coinbase, are an attempt to overcompensate for the agency’s failure to prevent crypto exchange FTX from misusing customer assets, leaving users with billions of dollars of missing funds when the exchange collapsed last fall.
The new CEO of FTX has now released a report accusing a senior FTX lawyer of assisting the exchange's former CEO in the misuse of deposits and avoiding detection.
“If it wasn’t already clear, it should be now – Chair Gensler’s laughable ‘pro-innovation’ stance (as he said today), is exactly the opposite,” Garlinghouse wrote in a June 6 Twitter post. “What this also tells me is that the SEC is throwing lawsuits at the wall and hoping they distract from the agency’s FTX debacle.”
John J. Ray III, the new CEO of FTX, released a report detailing the actions of an unnamed senior attorney, who some believe to be Daniel Friedberg, who helped Sam Bankman-Fried, the founder and former CEO of the exchange, misuse customer assets, the Wall Street Journal reported. Ray's report accuses the attorney of assisting Bankman-Fried in lying to banks and auditors and fabricating documents. When FTX collapsed in November, its customers were owed almost $9 billion, according to the report.
On June 27, a judge denied Bankman-Fried’s request to throw out at least 11 of the 13 criminal charges he faces, Reuters reported. Federal prosecutors are accusing Bankman-Fried of misusing customer funds to cover losses at his hedge fund and making illegal political donations while misleading investors. "The arguments are either moot or without merit," the judge wrote in a ruling.
Coinnounce reported that Bankman-Fried had previously had a relationship with SEC Chair Gary Gensler, and members of the public have suggested that this relationship is the reason the SEC failed to notice warning signs of FTX’s mismanagement and impending collapse.
After the SEC filed a lawsuit against Binance, the largest crypto exchange in the world, earlier this month, Judge Amy Berman Jackson said during a court hearing that the SEC has not presented evidence to support its claim that Binance customers' funds are at risk.
"Similarly, you all repeat in the memo that there's no evidence, absolutely no evidence of any dissipation of assets whatsoever," the judge said, according to a transcript of the hearing. "And the government at this point has said they haven't seen the evidence of offshore transfers from BAM Trading itself."
Guy Turner, a founding member of Coin Bureau, said in a June 17 tweet, "So they completely missed FTX's misuse of customer funds and lied about Binance doing it? Seems very on-brand."
Attorney Coy Garrison, a former regulator who is now a partner at Steptoe & Johnson LLP, said he believes the SEC could be trying to overcompensate for its failure to catch Bankman-Fried, The Trusted Professional reported. "There is a political incentive to bring bigger cases post-FTX to be viewed as the responsible cop on the beat,” Garrison said in an interview.
Patrick Hillman, Binance’s chief communications officer, said in a June 6 tweet that the SEC’s attempts to equate all crypto exchanges to FTX are hindering the development of consumer protections in the industry. “The ongoing effort to paint the whole industry with the broad brushstroke of FTX is blatantly transparent and detrimental to users across the globe. There is room to grow in this industry from a user protection standpoint, but the discussion must be grounded in reality,” Hillman said.
