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FTX was operating with a “toxic combination” of factors that would lead to investors getting hurt, the chairman of the U.S. securities regulator has said.
Speaking to CNBC, Securities and Exchange Commission (SEC) chair Gary Gensler compared FTX’s crisis to the collapses of Terra and various other crypto platforms earlier this year.
“This is a very interconnected world in crypto with a few concentrated players in the middle,” he said.
“One of those players had the toxic combinations of lack of disclosure, customer money, a lot of leverage (borrowing) and then trying to invest with that, and then when markets turned on them, it appears that a lot of customers lost money,” added Gensler.
The SEC is reportedly investigating FTX in a probe that has been going on for several months. Gensler would not confirm this in the interview.
The regulator also said that the crypto field was “significantly non-compliant” and that clear laws already exist with the intention of protecting consumers.
Nevertheless, he agreed that investors “need better protection in this space.”
In an olive branch to crypto CEOs, Gensler said firms should “come in and talk to us” but warned that “the runway is getting shorter” for compliance.
He also pointed the finger at “celebrity crypto entrepreneurs,” to whom he said the public “can fall prey,” though did not name any figures in particular.
Gensler, who taught a course on Blockchain at MIT, iterated his view that there are “some interesting innovations” in technology.
Regulator response
In the wake of FTX’s liquidity crunch, it emerged that a trio of U.S. authorities had all been investigating the firm.
In addition to the SEC deepening its existing investigations, the Commodity Futures Trading Commission (CFTC) is now also reported to be looking into the company.
According to the Wall Street Journal, the Department of Justice is also scrutinizing the exchange. DoJ investigators are said to be in contact with the SEC.
If customer funds are lost in an FTX collapse, this would likely heap further pressure on lawmakers and regulators to tighten up rules on crypto.
Senator Elizabeth Warren has already called for “more aggressive enforcement” of consumer protection laws following FTX’s woes. But Coinbase CEO Brian Armstrong argued that punishing US companies for firms that are largely trading offshore “makes no sense.”