SEC – A Watchdog or Lapdog?
When Gary Gensler’s name for Chairman, of the Securities & Exchange Commission (SEC) was suggested, the crypto community thought his induction would benefit the community.
It was true that prior to becoming SEC’s Chairman, Gensler was widely appreciated as a ‘crypto-friendly’ individual.
Currently, SEC has been taking several enforcement actions, particularly against crypto projects for which it has been under criticism by the community.
SEC is regarded as the ‘guardians of investors, particularly those on Wall Street.
Because of this, SEC has often been mocked as ‘lapdogs’ of those in charge of Wall Street affairs. It is hence heavily criticized for deviating from and not playing its due role as a watchdog.
This can be further witnessed by the unfortunate end of Enron which happened in 2001.
Although there were obvious discrepancies in Enron’s statements, yet SEC did not examine such discrepancies at least for 3 years. Consequently, Enron had fallen and unleashed its wrath upon its stakeholders.
Lesson Not Learnt after Enron’s Departure
SEC’s negligence was one of the reasons which fueled the 2008 Financial Crisis. Resultantly, eight to ten major players in Wall Street came to an end because of the crisis.
At that time, SEC was specifically warned about Wall Street financial institutions’ practices which involved active engagement with ‘risky loans’.
That time around, SEC failed once again in protecting the investors because it did not perform its job properly and responsibly.
Madoff Sneaked Right under SEC’s Nose
Thereafter, the world came to know of a multi-billion dollar Ponzi crypto scheme called the “Madoff”. The founder of the scheme eventually looted billions of dollars right under the watch of the SEC.
Once again, SEC could not do anything about Madoff but initiate the futile exercise of launching multiple investigations leading to nowhere.
Even though SEC was aware Madoff was a fraud and that investigations against Madoff were pending, the watchdog failed in identifying fraud.
Surprisingly, when Madoff was executing fraud, its founder and management were holding meetings with SEC and SEC officials.
FTX fall – Another Lesson to Be Learnt
Now the crypto world has witnessed the great fall of FTX which was overflowing with millions of investors, creditors, etc. Even the collapse of Almeda took place in the same time period when FTX was edging toward the fall.
FTX’s collapse has left millions stranded and empty-handed. Despite the fact that SEC could have easily heard the alarm and reacted by intervening, it did not take up the matter.
On the contrary, SEC’s hire-ups held secret talks with the founder of FTX, Sam Bankman-Fried.
Another important aspect relating to Almeda is that the defunct project was run by the son of Gensler’s ex-bosses father, Glen Ellison.
Why the Negligence?
The question which the crypto community raises is why SEC has so consistently been failing in fulfilling its duty towards investors.
The community’s viewpoint is that the watchdog is more interested in taking up ‘not so huge’ but ‘smaller’ cases.
The community suggests that SEC is like a bully kid taking on and targeting weaker kids in parks or outside the school building.
SEC’s history reveals that it has used force against smaller projects like LBRY whose ignorance was not as damaging as FTX’s was.
FTX had in fact defrauded millions globally single-handedly and even caused multi-billion dollar losses to its creditors/lenders.
Perhaps SEC is aware that in contrast to bigger projects, smaller projects lack the resources to take up the fight with the regulator.
SEC Is Not Well Equipped
Another angle to look at SEC’s position is that SEC is not well-equipped to deal with mega-scale frauds and massive financial discrepancies.
The problem is that SEC lacks the required number of expert manpower and machinery to fulfill its job effectively.
This is true that SEC’s financial budget is less than what is allotted to similar regulators in regions such as Europe, Africa, Asia, etc.
When the crypto industry was expanding after 2017, SEC’s budget did not increase nor did its manpower in accordance with the industry’s growth.
It seems as if SEC is intentionally letting the crypto world down, maybe at the behest of those on Wall Street.