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US Congress asks SEC to release details on interactions between FTX, its founder, and DoJ

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Legislation Regulation generic 2

Legislation Regulation generic 2

Representatives McHenry and Huizenga of the US House Financial Services Committee have voiced their concerns about the cooperation between the United States Securities and Exchange Commission (SEC)and the Department of Justice (DoJ). 

Representatives McHenry and Huizenga speak out

The lawmakers have also expressed their disapproval of SEC Chair Gary Gensler due to the timing of charges against Sam Bankman-Fried, the founder of FTX. They have urged Gensler to provide records and communications from the SEC’s Division of Enforcement, his office, and between the agency and the Justice Department. The request pertains to Bankman-Fried’s charges from Nov. 2 until Feb. 9.

Sam Bankman-Fried was set to appear before the House Financial Services Committee hearing on Dec. 13. However, he was arrested in the Bahamas as part of an extradition agreement with the US. Sam Bankman-Fried, who previously served as the CEO of FTX, was charged with eight criminal counts, including wire fraud. 

Meanwhile, the SEC and the Commodity Futures Trading Commission (CFTC) lodged separate civil suits against him. The arrest and charges’ timing raises questions about the SEC’s process and cooperation with the Department of Justice.

Since Bankman-Fried was absent from the December committee hearing, FTX CEO John Ray became the only witness. Nevertheless, the Senate Banking Committee scrutinized FTX’s “bubble burst” during its hearing on Dec. 14. Another hearing on the “crypto crash” of 2022 is slated to happen on Feb. 14.

Regulators continue to apply scrutiny to the crypto sector

The US government’s crackdown on crypto exchanges and their operators led to the charges against Bankman-Fried. The SEC and the CFTC have ramped up their scrutiny of the industry. The SEC contends that several digital assets traded on these platforms are securities and thus should fall under regulation.

On Feb. 8, the SEC began investigating Kraken, one of the largest cryptocurrency exchanges, for possible infringements of securities laws. The investigation focused on Kraken’s alleged sale of unregistered securities. Shortly after this development was made public, Kraken discontinued its crypto staking service in the US and promptly settled with a $30m fine.

Just two days ago, the chair of the SEC, Gary Gensler, cautioned the crypto industry about staking and US regulations during an interview. In the aftermath of Kraken’s settlement, Gensler warned other global crypto market participants as the commission is expected to increase its scrutiny of more exchanges.

On Feb. 10, the cryptocurrency market declined substantially as a result of the actions of the SEC against Kraken and fears of cryptocurrency staking. The cool-off in crypto prices saw top digital currencies such as bitcoin (BTC) and ethereum (ETH) retrace from Q1 2023 highs.

The move by Kraken seems to have confirmed the rumors revealed by Brian Armstrong, CEO of Coinbase, about the SEC’s intentions to eliminate crypto staking for US retail investors. Although he did not disclose the source of the rumor, he stated that it would be a “terrible path” to pursue if it were true. 

With regulators intensifying their scrutiny of the crypto industry, numerous analysts forecast that more crackdowns are imminent. The aforementioned upcoming hearing on Feb. 14 is anticipated to offer additional insights into the government’s strategies for the sector and the effects these measures may have on investors and traders.

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