Aitan Goelman is a partner with Zuckerman Spaeder, LLP and the former director of enforcement at the Commodity Futures Trading Commission.
Even as cryptocurrency and other digital assets resident on blockchain have increasingly permeated the public consciousness, the question of regulatory authority has largely gone unanswered. Often, seismic events in the financial industry, like the collapse of FTX, lead to clarity.
The U.S. Securities and Exchange Commission and Commodity Futures Trading Commission filed enforcement actions against SBF as well, alleging that his actions violated the securities laws and the Commodity Exchange Act , respectively. There has been considerably less consistency in the SEC’s approach to crypto. In the last administration, the SEC seemed relatively uninterested in crypto. Its only notable effort was to belatedly take action against the spate of Initial Coin Offerings , which were fairly clearly unregistered securities offerings, but eschewing any attempt to more broadly regulate crypto.
In this regard, the SBF charges can be seen as a victory for CFTC. Although the SEC charged SBF with securities fraud, it is related to lies he told to FTX investors, something that is inarguably in the SEC’s wheelhouse. The SEC did not allege that the underlying crypto itself – FTT – was a security, while both the CFTC and the S.D.N.Y. alleged that crypto is a commodity.
However, the fact that the SEC defined FTT as a “security” in its charges against Ellison and Yang, but not in its case against SBF, demonstrates that the agency is bolder in pressing its expansive definition of “crypto asset securities” when it knows it won’t have to fight that issue in front of a judge.Prior to FTX’s implosion, there seemed to be an emerging consensus that Congress should establish a comprehensive regulatory framework for crypto.
To pass, this bill will have to overcome SBF’s earlier public endorsement – a boon at the time, but now may taint the legislation by association. The last time Congress significantly expanded the CFTC’s responsibilities – when the Dodd-Frank bill brought swaps under the agency’s ambit after the financial crisis of 2008-09 – the CFTC’s budget did not keep pace with its enlarged remit.
Crypto enthusiasts reacted to the implosion of FTX by arguing that there are fraudsters in every industry. Some also noted that centralized exchanges like FTX are in many ways the antithesis of the ethos of crypto, which was intended to be a decentralized form of finance independent of the need to trust in institutions or other market participants.
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