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Cryptocurrency Companies have been warned they should start to behave more like regulated securities businesses.
“Time is running out” To begin to comply with these regulations and register with the United States Securities and Exchange Commission, according to its chairman, Gary Gensler. In a interview with Bloomberg, Gensler said “The Wild West intermediaries who don’t deliver are like casinos.”
If the warnings from Gensler aren’t enough to motivate crypto companies, the recent charges against 2 former SBF employees ought to. On Wednesday, the SEC filed suit against Caroline Ellison and Gary Wang, ex-executives at Alameda Research, for allegedly defrauding investors in FTX (a digital asset exchange) who went bankrupt last month. Both defendants have now pled guilty and agreed to cooperate with investigators. The case is being handled by the United States Attorney for the Southern District of New York.
For months, Gensler has argued that digital tokens should be regulated as securities.
Among the areas of concern are the inability to properly separate the different aspects of a cryptocurrency company’s operations, such as custody and market making; and the fact that customer funds are not usually kept apart.
Gensler also questioned the value of “proof of reserve reports,” which some companies generate to show that they have enough funds to cover customer deposits. He stated that these reports do not meet the standards of regulatory oversight.
“The reserves test is not a complete accounting of a company’s assets and liabilities, nor does it satisfy the segregation of client funds under securities laws,” Gensler said.
John J. Ray, III, is responsible for overseeing the liquidation of FTX. It was reported earlier this month that the company had “practically no internal controls” or record keeping. Ray’s new management team at FTX has now identified more than $1 billion in cash assets. They have also reportedly secured more than $1 billion in digital assets.
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