Rep. Ritchie Torres (D-NY) accused Gensler of being “singularly responsible” for failing to prevent FTX’s demise.

cftc, sec, ftx, doj

A Democratic congressman is calling for an independent investigation into the Security and Exchange Commission's failure to prevent the historic collapse of crypto exchange FTX. 

In a strongly worded letter sent Tuesday, Representative Ritchie Torres (D-NY) called upon the Government Accountability Office (GAO)  to conduct an independent review of the SEC’s actions—or lack thereof—in the months leading up to FTX’s implosion last month.

The letter specifically singled out SEC chair Gary Gensler for claiming exclusive regulatory dominion over crypto exchanges, while simultaneously failing to meaningfully regulate them. 

“If the SEC has the authority Mr. Gensler claims, why did he fail to uncover the largest crypto Ponzi scheme in US history?” Torres wrote. “One cannot have it both ways, asserting authority while avoiding accountability.”

The letter minced no words in claiming that Gensler is therefore “singularly responsible for the regulatory failures surrounding the collapse of FTX.” 

Torres went on to attack Gensler’s character and motivations, criticizing his decision to investigate celebrities like Kim Kardashian instead of crypto exchanges like FTX. 

In October, the SEC fined Kardashian $1.26 million for promoting EthereumMax, a cryptocurrency the agency determined to be an unregistered security. The day of the charge, the SEC rolled out a flashy video starring Gensler to promote awareness of the action—an uncommon practice in the typically bone-dry realm of securities regulation. 

Today @SECGov, we charged Kim Kardashian for unlawfully touting a crypto security.

This case is a reminder that, when celebrities / influencers endorse investment opps, including crypto asset securities, it doesn’t mean those investment products are right for all investors.

— Gary Gensler (@GaryGensler) October 3, 2022

“The operating principle of the SEC must be protection for the investing public, rather than publicity for the political appointee in charge,” Torres wrote Tuesday. 

The letter also made allusions to discord within the SEC’s own ranks, accusing Gensler’s policies of fomenting mutiny among his staff. 

“Mr. Gensler’s leadership has left the career staff at the SEC fundamentally demoralized to an extent rarely seen, with the SEC Inspector General reporting the highest attrition rate in a decade,” Torres wrote.   

One of Gensler’s colleagues, SEC Commissioner Hester Peirce, previously told Decrypt that Gensler’s approach is “not a good way of regulating,” and that many people have rightfully “given up on us.” 

“To what extent has Mr. Gensler’s demoralization of his own workforce crippled the Commission in the performance of its duty to protect investors?” Torres wrote. “The public deserves an answer.”

While the SEC has yet to produce any fines or charges against FTX, the agency has been investigating the crypto exchange for some time. In the aftermath of FTX’s implosion, though,  the Commodity Futures Trading Commission (CFTC) and the Department of Justice have also launched investigations into the failed $32 billion behemoth. 

The SEC may have similarly lost its monopoly over crypto regulation as a whole. A pending bipartisan Senate bill, yet to be voted on, would grant most authority over crypto regulation to the CFTC.

On Monday, Representative Torres introduced two bills in the House that would immediately enact crypto exchange regulations.

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