SEC Chair Gary Gensler under fire amid FTX crypto chaos

Yahoo Finance’s Jennifer Schonberger discusses how lawmakers have responded to the FTX collapse, the outlook for crypto regulation now, and accusations lobbied at SEC Chair Gary Gensler for working with Sam Bankman-Fried.

Video Transcript

GARY GENSLER: The public right now would benefit from investor protection around these various service providers, if you wish-- the exchanges, the lending platforms, and the broker dealers. So we at the SEC are working in each of those three fields-- exchanges, lending, and the broker dealers-- and talking to industry participants about how to come into compliance or modify some of that compliance.

AKIKO FUJITA: That was SEC Chair Gary Gensler back in July in response to what we could expect from the Commission in the coming months on the crypto regulatory fronts. Well, amid the fallout from FTX, we are getting conflicting reports about the outcome of meetings between Gensler and Sam Bankman-Fried. For more on that, let's bring in Jen Schonberger. And Jen, we're talking about a meeting that reportedly took place before FTX filed for bankruptcy.

JENNIFER SCHONBERGER: Good morning, Akiko. The investigations and the regulatory fallout certainly heating up in the wake of FTX's bankruptcy, with lawmakers sharpening their teeth to pin this debacle on the Securities and Exchange Commission with new calls for legislation.

The top Republican on the Senate Banking Committee, Senator Pat Toomey, writing in a tweet, quote, "Congress' failure to pass legislation creating regulatory guardrails for crypto trading, combined with the complete hostility and lack of transparency by the SEC, has generating a generated a debilitated amount of legal uncertainty." The SEC reportedly met with FTX and former CEO Sam Bankman-Fried several times before the crypto firm filed for bankruptcy.

Rumors have surfaced that SEC chairman Gary Gensler helped Bankman-Fried with regulatory loopholes, trying to avoid certain filings, though that has not been corroborated. Representative Tom Emmer tweeted, quote, "Interesting. Gary Gensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this."

SEC Chairman Gensler told CNBC in an interview last week, quote, "I think we've been clear in these meetings noncompliance is not going to work. The public is going to be hurt." Now Chair Gensler has repeatedly called on exchanges to register with the SEC and said the agency is talking with crypto exchanges to get that done, though Coinbase says it doesn't see an immediate path forward to register with the SEC, saying though there's rhetoric, it's just not possible yet.

I asked Chairman Gensler back in July whether rules for traditional brokerages should apply to crypto exchanges, namely where brokerages are barred from investing customer assets. Gensler suggested to me that that should be the case, and rules should be tailored for crypto. Yet in this case, FTX was reportedly using more than half of its customer assets to lend to its sister hedge fund, Alameda.