Members of the United States Senate advocated for regulation of cryptocurrency during a hearing Thursday on the collapse of crypto exchange FTX.
“One month ago, the crypto market was rocked by reports that Alameda Research, a trading firm affiliated with crypto exchange FTX, was in financial trouble. Alameda’s balance sheet was propped up by a crypto token that FTX had created. In a matter of days, FTX and most of its affiliated companies collapsed into bankruptcy,” Senate Committee on Agriculture, Nutrition and Forestry chair Debbie Stabenow said at the start of the hearing.
“At best, these events uncovered an alarming lack of internal controls and egregious governance failures. At worst, Sam Bankman-Fried and his inner circle lied to and stole from over 1 million customers,” the Michigan Democrat said.
Stabenow and the panel’s top Republican, Arkansas Senator John Boozman, have proposed legislation to give the Commodity Futures Trading Commission (CFTC) authority to regulate trade in crypto tokens that are not securities.
Testifying before the committee, CFTC Chairman Rostin Behnam said that his agency would have been able to prevent some of the abuses at FTX if such a law had been in place.
“If we are going to ensure that FTX and the other firms that are subjecting customers to billions in losses are appropriately regulated and held accountable, we need to act promptly to apply a comprehensive regulatory regime,” he said.
Several Republican senators suggested prohibiting cryptocurrencies in the US, if only temporarily, but Behnam said that a ban would not shield the country from the risks associated with crypto trading abroad.
While Democrats, including Dick Durbin of Illinois, expressed skepticism that the CFTC, a small agency sometimes described as a “soft” version of the Securities and Exchange Commission (SEC), is up to the task of regulating crypto.
Behnam said that one of the most troubling aspects of FTX’s business model is that the platform functioned simultaneously as a broker, lender and custodian of clients’ assets, something that is not allowed in conventional finance.
Like Stabenow, Behnam pointed out that LedgerX, a CFTC-registered derivatives exchange and clearinghouse acquired by FTX, earned praise from the CEO appointed by the bankruptcy court to run the FTX companies for its “solvent balance sheet” and “responsible management.”
FTX, once valued at $32 billion, filed for bankruptcy on November 11 after numerous clients sought to withdraw assets.
The firm’s founder and erstwhile chief executive, Bankman-Fried, stepped down and was replaced as CEO by John J. Ray III, a veteran of the Enron bankruptcy in the early 2000s.
In a report to the US Bankuptcy Court, Ray said that a “substantial quantity” of FTX assets appear to have been looted.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” he wrote.
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Author: El American Newsroom
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