SEC's Gensler on Suing Binance, Regulating Crypto

given all the allegations you've brought in your 136 page complaint against binance and CG Zhao a lot of these things are things we've seen in other forms without crypto is this a crypto case Etc is this a pretty straightforward Securities case you raise a good question this is actually a straightforward Securities case but it's in the context of crypto and let me just say crypto tokens the investing public needs that same uh disclosure a full fair and truthful disclosure we say and in the crypto space it's largely built on a business model that's non-compliant with the Securities laws people are co-mingling all of the customer funds there it would be as if the New York Stock Exchange is also operating a hedge fund and trading against their customers or add to it that they don't have proper controls to avoid manipulative trading on the platform by their sister so here Finance at a sister organization controlled by Mr Zao called Sigma chain so absolutely it's straightforward protect the public through the Securities Law build confidence and Trust but it's in the context of crypto you have said elsewhere that there are certain custody rules here that registered financial advisors have to pay attention to when it's something like binance are you looking at some of those financial advisors for possible violations well I'm not going to get into any one investigation or case uh that we haven't yet brought but I would say this to all of those investment advisors out there that may be interested in trading in crypto your client funds under an existing 2009 role have to be proper qualified custodians and that's not what you have on binance make no mistake uh in fact as we alleged your funds in custody of Finance you don't even know really who's uh where it's where it is you know that Mr Zao ultimately is controlling it but it may have actually moved it to a sister organization there's another one that we allege Merit Peak the billions of dollars of funds were moving to so that race is another question about the extent to which what you're seeing with respect to binance Mr Zao May well apply to other companies doing similar things do you have similar custody problems with other people dealing with crypto obviously this is the largest exchange there is but other similar entities I would say this it may be the largest exchange because we allege that they had uh corrupted their uh trading volumes by a lack of risk controls about their affiliate Sigma chain and wash trading but moving on to your question there are challenges of custody throughout this space and secondly there's a business model that bundles and co-mingles functions that we don't see nor would we allow elsewhere in finance and so there's parallels here to the FTX fraud manipulation that we saw and we allege against sambachman freed where he had a sister organization Alameda and the special arrangements with that trading platform FTX you see platform after platform that the entrepreneurs behind the platform also are trying to build wealth for themselves and their investors through sister organizations hedge funds trading against the customers or even even as it relates to uh where there might not be a sister organization that they're dealing against their customers given what you just said that you've seen this in the business models not just of Finance but elsewhere what does this mean for the crypto industry more broadly look I think the crypto industry more broadly if it's going to have any success going forward has to come into compliance with basic public policy about disclosure about avoiding conflicts about segregating properly segregating customer funds and guarding against fraud manipulation without that this whole area stands a chances a collapsing like a house of cards and uh look there's there's legitimate questions out there what even might be the value of the individual tokens we're Merit neutral but we're not public policy neutral um the business models need to adjust to come into compliance and that may be hard work but it's going to promote trust in this field which otherwise uh it's just as I've often said it's it's a wild west and a bunch of Casino operators in your complaint you name specifically some tokens that you say are unregistered Securities I I assume that that's not a complete list are you going to come up with a complete list are you going to do this by by enforcement action or might there be a regulatory statement these are all of the cryptos that we think are are securities their subject to regulation number one we've already had those regulatory statements in there by Congress and the U.S Supreme Court and an investment contract is one of 30 Terms in the definition of securities and as Thurgood Marshall a famous uh Justice of the Supreme Court said Congress painted with a broad brush that we've secondly yes we've brought enforcement actions well over a hundred and we've been clear whether it's settled or litigated actions and courts have seen uh us lay out the facts to the public uh that most of these come under the Securities laws and it comes down to this David the public is relying on a group of entrepreneurs in the middle and they're looking at the Twitter feeds they're looking at the websites and these are the same entrepreneurs that are hiring lawyers to try to thwart the investor production we're talking about so I think that the rules and the regulations are already clear to what extent Mr chair is there coordination within the U.S government the cftc went after binance back in March as I recall there there's talk about maybe the doj Department of Justice looking at as well are you coordinating behind the scenes well I again I can't go into any specifics but we do work with our federal law enforcement Partners in the coinbase uh filing this morning we work with 10 states across this great nation including Alabama and California and eight others so we coordinate and have brought an action on coinbase with 10 states and uh we work with the cftc when appropriate we work with the justice department uh whether it's around the FTX uh fraud and manipulation charges we've worked with other law enforcement Partners around uh something called Terra Luna you might remember about a year ago that blew up and and uh doe Quan the individual behind that so we've got good working relationships I couldn't be prouder though of our enforcement staff at the SEC and working collaboratively across uh agency inside the SEC I'm curious Mr chair uh looking at the complaint you've asked for a permanent injunction you've asked for discouragement they'll gotten gains you have not as far as I can tell gone for temporary restraining order why haven't you tried to shut it down immediately um I think as we said in our uh filing yesterday that we thought it was appropriate and uh to file uh with regard to an asset freeze and there really are concerns here David on the Finance platforms uh and the movements of money uh as to what's really behind the curtain here and we know Mr Zao controls it all we know that investors were misled about the risk controls and that that they concealed an awful lot from the investing public about where their funds and custody was held and really sought actively to to evade U.S law but why aren't you shutting it down right now why aren't you asking for a temporary restraining order takes work with court David okay fair enough let me ask you are you concerned at all about larger repercussions throughout the crypto industry that given the size at least as you say the reported size at least a binance that this could lead to a widespread sort of dislocation within the crypto industry look right now the industry is dislocating American Publix money and frankly there's too many frauds and scams and too much High picking the pockets of the American public so I'm just I'm just frankly what I'm deeply worried about is an ongoing sector of our Capital markets that undermines the trust in the capital markets it's not only that people are losing money in bankruptcies and scams and huckster and Flim Flam artists but it's also about undermining that which really is part of our whole economic success a hundred trillion dollar Capital markets why should the New York Stock Exchange or broker dealers that we all know and respect undermined by this other corner of the capital markets uh which is sort of what sort of saying thumbing their nose and saying catch us if you can uh finally Mr chair I mean you obviously know a lot about binance your colleagues have really spent a lot of time going through it and you're not asking for dissolution of the company but from what you've seen are the is the wrongdoing that you've identified in your complaint is it so inherent to the operation that as a practice matter binance really can't survive look it needs to come into compliance I would definitely say to the investing public beware those investment advisors that are registered with us it's not a qualified custodian but everyone else as well beware about your funds on that platform when there's been such a really extensive web of deception and concealment and efforts to evade the law uh both on the U.S platform the international platform that has been offered to U.S investors and um all built all built on a set of tokens I mean what really stands behind their own binance tokens BNB and the like and and what's if you can sort of say what is the economic rationale if you're an investor for some of these tokens that finances uh behind

Channel: Bloomberg Television

Views: 23,880

Keywords: Bloomberg

Id: T5rnSJKMNFs

Length: 11min 29sec (689 seconds)

Published: Tue Jun 06 2023