Why we support SEC regulation of crypto  

Last year, we saw FTX join a long list of crypto asset companies that went out of business during the “crypto winter” of 2022, underlining the urgent need to protect our economy from the harmful practices of the crypto industry. these collapses have cost investors billions and have disproportionately harmed low income, Latin, BlackY first time investors. In FTX’s bankruptcy filing, the company’s interim CEO James Ray, tasked with cleaning up the mess created by the disgraced Sam Bankman-Fried, saying that he had never “seen such a complete failure of corporate controls” as he saw at FTX. Unfortunately, the lack of corporate controls is not an isolated problem for FTX and is indicative of an industry that refuses to comply with existing regulation.

To avoid another meltdown, cryptocurrency issuers, cryptocurrency exchanges, and other relevant businesses must comply with existing securities laws, which include proven provisions that ensure investors and markets are protected from bad actors.

According to SEC Chairman Gary Gensler and recent court decisionsthe vast majority of crypto assets are securities because they meet the Howey Test, or a framework set out by the US Supreme Court. According to Howey’s test, an entity is a security when an investment contract exists. An investment contract exists when money is invested in a common enterprise with the expectation of earning a profit from the work of others. We agree with President Gensler that “nothing about crypto markets is inconsistent with securities laws” and “investor protection is just as relevant, regardless of the underlying technologies.” If crypto-asset companies complied with existing laws, they would not be able to engage in harmful practices such as misusing client funds, offering special deals to friends, and laundering money.

The crypto industry is known for trying to obscure the law by using the courts to challenge attempts at regulation and lobbying for regulatory exceptions that benefit them at the expense of ordinary people. Most recently, Binance, the world’s largest cryptocurrency exchange, allegedly held down the Department of Justice (DOJ) to prevent it from taking action against the company. Some crypto companies have also used celebrity endorsement, philanthropic efforts, political donationsand claims around innovation to escape scrutiny, curry favor with the public, and frame the industry as trustworthy.

There is nothing groundbreaking about the way that FTX and other crypto players have replicated the worst trends on Wall Street and Big Tech. They have recreated many elements of the financial crisis of 2008, concentrated wealth and power at the top, subjected investors to incredible volatilityY abused consumer. True innovation must promote financial stability and inclusion.

The American people cannot afford another economic collapse fueled by greed and corporate misconduct. Lawmakers must protect our economy from bad actors by urging the crypto industry to comply with existing laws, invest in solutions that are truly innovative, and create a more inclusive financial system.

Jesús “Chuy” García represents District 4 of Illinois. Stephen F. Lynch represents the 8th District of Massachusetts. Both serve on the US House of Representatives Committee on Financial Services.

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