Crypto lender Nexo on Monday announced it would leave the US market, blaming a “lack of regulatory clarity.” Two days later, the country’s de facto crypto regulator had a simple message for the company.
Don’t let the door hit you on the way out.
Gary Gensler, the chair of the U.S. Securities and Exchange Commission, has brought dozens of enforcement actions against crypto companies since his appointment in 2021, he told Yahoo Finance in an interview Wednesday. Those actions, he insisted, were about protecting American investors from a “noncompliant” — read: dangerous — market.
Nexo’s exit from the US market is another “way to protect US investors,” he said dryly.
As some had predicted, Washington has soured on crypto in the wake of FTX’s collapse. Semafor reported last week on the “sudden willingness of some lawmakers to freely and openly trash the industry.”
One of those lawmakers is Sen. Elizabeth Warren (D-Mass.), who is crafting a bill that would give the SEC regulatory authority over the market and impose requirements for audited financial statements and “bank-like capital requirements” on centralized crypto players like Coinbase and Kraken.
The industry has chafed at the prospect of falling under SEC jurisdiction, given the arduous and expensive requirements that befall assets deemed securities. Crypto lobbyists have instead sought to have cryptocurrencies classified as commodities, like oil or gold, and placed under the jurisdiction of the Commodities and Futures Trading Commission.
Gensler seems to be no exception to the changing climate in Washington. In his interview Wednesday, he repeatedly called crypto exchanges “casinos” operating in a “largely noncompliant field.”
“You might think of them as the casinos, wherein the investing public is looking for a better future,” he said. “The storefronts, if you wish, or the casinos, need to come into compliance with time-tested laws [such as] not using customer funds, as many of them do. Their business model now is offering the public … an interest return in crypto … and then possibly trading against their customers, trading ahead of their customers.”
That sort of behavior is barred in much of traditional finance, he continued.
“Our securities laws say that you need to segregate customer funds properly,” he said. “The New York Stock Exchange doesn’t also have a hedge fund on the side that trades against their customers.”
But he brushed away the notion that the SEC needs new authority to police the crypto market.
“The basic protections in our securities laws for 80 or 90 years apply to this field … so it’s really on them,” he said. “They can do that appropriately … or we can continue on a path with more enforcement actions. And I can say the runway is getting shorter.”
In announcing it was leaving the US market, Nexo said US regulators had acted in bad faith.
“Initially, regulators encouraged our cooperation and a sustainable path forward seemed viable, but recent events and the subsequent change in regulators’ behavior point to the opposite,” Nexo said. “Our decision comes after more than 18 months of good-faith dialogue with U.S. state and federal regulators. Despite their inconsistent and changing positions, Nexo has engaged in significant ongoing efforts to proactively modify its business in response to their concerns.”
When asked about a March 29 meeting with former FTX CEO Sam Bankman-Fried, Gensler declined to comment.
“We meet with market participants, and the basic message I’ve had is … ‘come into compliance. Your field will not last long outside public policy norms,’” he said. “Some of these platforms have come in and said, ‘We want to continue to run a commingled platform.’ … We’ve said, ‘No, you have to separate it out.’”
Meanwhile, Gensler is taking heat for his failure to catch alleged fraud at FTX.
Rep. Ritchie Torres, D-N.Y., sent a letter to the Government Accountability Office Tuesday asking that it conduct an “independent review” of Gensler’s SEC, according to Punchbowl News.
“Chair Gensler has said on countless occasions that there is no need for authorizing legislation from Congress: the SEC presently possesses the authority it needs to regulate crypto exchanges,” Torres wrote. “If the SEC has the authority Mr. Gensler claims, why did he fail to uncover the largest crypto Ponzi scheme in US history? One cannot have it both ways, asserting authority while avoiding accountability.”