Profile in Courage: SEC Chair Gensler

Public Citizen commends SEC for fighting scams in crypto land

By Bartlett Naylor

Chairman Gary Gensler may not be a linebacker, but he’s been blowing through the cryptocurrency offensive line and sacking some of the biggest exchanges in the backfield.

On June 5, 2023 the Securities and Exchange Commission (SEC) that he chairs brought suit against Binance, the largest crypto exchange, alleging shenanigans similar to the SEC’s suit against FTX—taking customer funds for speculation. On June 6, he brought a similar suit against Coinbase.

According to its press release, the SEC’s charges against Binance ”include operating unregistered exchanges, broker-dealers, and clearing agencies; misrepresenting trading controls and oversight on the Binance US platform; and the unregistered offer and sale of securities.”

Here’s what Chair Gensler’s SEC enforcement director said of the Binance activities, worth a verbatim read:

“We allege that [Chengpeng] Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law. As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”

The lawsuit itself contains some salty comments from Binance execs: ”We are operating as a fking unlicensed securities exchange in the USA bro.”

In the Coinbase suit, the SEC alleges “Since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities. The SEC alleges that Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law.”

For context, Binance is the world’s largest crypto exchange, often dealing with nearly half of trading, while Coinbase represents about 5 to 10 percent in a given month. But Coinbase is the largest exchange operating in the United States and has services some 108 million customers.

Binance and Coinbase enjoy extensive enablers in Congress. The House Agriculture and Financial Services Committees’ chairs introduced legislation that would protect these exchanges by essentially stripping the SEC of oversight. They introduced their bill June 2, then invited the Coinbase chief legal officer to extoll its virtues in a public hearing on June 6. The House Financial Services Committee did the same the week later.  And the House Energy and Commerce Committee joined the crypto celebration with a June 7 hearing on the virtues of blockchain, the electronic ledger that records cryptocurrency transactions.

Undaunted by this demonstration of congressional solidarity with crypto, Chair Gensler questions the value of crypto altogether. We already have a working, efficient, digital currency, he says; it’s called the dollar. Indeed, most transactions take place with credit and debit cards, where electrons zip through the internet. Who uses paper cash anymore? To those in Congress who fret that getting tough on crypto will drive the industry overseas: Good riddance. And for that matter, other countries are cracking down on crypto, such as the European Union

There are hundreds of paid crypto supporters. Many work for academies, which the likes of FTX’s disgraced founder Sam Bankman Fried carpeted with stolen funds in the form of grants. There are ongoing “research centers” at several universities on blockchain and cryptocurrency. Of course, none of these will get any more funding if they declare it a Ponzi scheme. These professors are routinely called to testify before Congress on the benefits of crypto. There are thousands (likely more) crypto investors on social media whose personal investment will only rise if they can chat up the price and deride critics. They take special, caustic aim at Gensler.

Public Citizen believes crypto amounts to a giant Ponzi scheme, whose victims disproportionately include low- and moderate-income individuals and people of color.  We welcome Chair Gensler’s zeal to protect scammed investors and honor his brave stand against crypto’s congressional and other enablers.

By contrast, there’s not much money in criticizing crypto outside law enforcers. That makes Gensler’s stand (and that of state Attorneys General, notably New York) all the more valiant.

Ideally, Chair Gensler and the SEC will force so many sacks that the crypto industry will be forced to punt.