Lawmakers rip industry, demand SEC action during recent hearings

Crypto winter and resulting bankruptcies are pushing lawmakers to up the ante on regulators.

During a hearing last week, Senator Pat Toomey (R-PA) said the SEC is the missing cop on the crypto beat while Sen Elizabeth Warren (D-MA) ripped on the crypto industry for scamming mom-and-pop investors and pledged to introduce a bill soon to regulate the crypto market and stamp out scams.

Warren criticized the crypto industry, lambasting up to 20% returns crypto lenders like now defunct Celsius Network offered, while highlighting the influx of institutional investors into crypto from venture capital firms to hedge funds.

“Crypto has made it faster and cheaper than ever before to rip off consumers,” Warren griped during a Senate Banking Committee hearing Thursday. “Across the crypto market, the big investors are funding, hyping, and then vampire-sucking money out of crypto projects that scam mom-and-pop investors.”

U.S. Senator Elizabeth Warren (D-MA) speaks during a Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill in Washington, U.S., May 10, 2022. REUTERS/ Elizabeth Frantz/Pool

The hearing comes after the collapse of Terra’s algorithmic stablecoin UST, touched off a bear market in crypto, triggering solvency issues and the bankruptcy of several crypto lending and brokerage firms. The failures have caused investors to be frozen out of their accounts, with both retail and institutional players facing billions in losses.

Amid these failures and losses, as the Senate Banking Committee’s ranking member, Toomey is questioning where the SEC has been.

“What was the SEC doing while these companies and others were offering lending products that looked an awful lot like securities?” Toomey asked during a Senate Banking Committee hearing on crypto scams. “And what is the SEC doing now to help ensure the crypto community gets the regulatory clarity it has repeatedly asked for?”

Toomey continued: “They deserve answers now, not later. And Chairman Gensler has the answers to those and other questions — but refuses to share them with us.” Toomey also questioned why Chair Gensler was not testifying before the Senate Banking Committee.

Toomey sent a letter to Chairman Gensler last week expressing concerns about the SEC using enforcement actions rather than writing clear rules that offer regulatory clarity to the cryptocurrency industry and consumers.

“Had the SEC responded to calls for clarity on how it would apply existing securities laws to novel digital assets and services, something I and others repeatedly asked for, things might have been different,” said Toomey.

WASHINGTON, DC - JULY 28: Sen. Pat Toomey (R-PA) exits the Senate Chamber following a vote on Capitol Hill on Thursday, July 28, 2022 in Washington, DC.  (Kent Nishimura / Los Angeles Times via Getty Images)

Sen. Pat Toomey (R-PA) exits the Senate Chamber following a vote on Capitol Hill on Thursday, July 28, 2022 in Washington, DC. (Kent Nishimura / Los Angeles Times via Getty Images)

The SEC has taken enforcement actions to make crypto firms comply with securities laws, including earlier this year when the commission accused BlockFi of selling unregistered securities, while levying a $100 million fine in conjunction with 32 other states.

Last week, the SEC brought its first insider trading case for crypto, touching off expectations the findings in that case could yield more enforcement actions. Coinbase is now reportedly being investigated for allowing Americans to trade digital assets that should have been registered as securities. The Commission has yet to apply or write new rules to protect investors in crypto markets.

When asked by Yahoo Finance last month why the SEC hasn’t acted more aggressively to write rules to protect investors, Chair Gensler said he rejected the premise of the question.

“We have rules in place for what it means to be an investment company, like a mutual fund, when you put your money in,” said Gensler, pointing specifically to the aforementioned actions taken against BlockFi.

Meanwhile, Senator Sherrod Brown (D-OH), Chairman of the Senate Banking Committee also called for regulators to do more. “We will push our regulators to do more. Of course, that means the SEC,” Brown said.

Brown sent letters last week to Alphabet (GOOGL) CEO Sundar Pichai, and Apple (AAPL) CEO Tim Cook requesting information about the companies’ safeguards for mobile apps after the FBI warned against fake cryptocurrency apps that have scammed hundreds of investors for millions in losses.

Gensler also reiterated that he’s asked SEC staff to work with crypto platforms to get them registered and regulated as well as ensure that crypto tokens are registered where needed as securities.

“There’s no reason to treat the crypto market differently just because a different technology is used,” Gensler said in recorded video remarks released Thursday. “That would be like saying drivers of electric cars don’t need seatbelts because they don’t use gas.”

Gensler added, “We ought to apply these same protections in the crypto markets. We should be technology-neutral when it comes to investor protection.”

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