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They also highlighted the regulatory watchdog’s role in the recent crypto contagion.
Stuart Alderoty, General Counsel at Ripple, recently highlighted the part played by the U.S. SEC in the recent crypto contagion triggered by the FTX implosion. According to him, Congress should examine the financial regulator’s policies that might have contributed to the contagion. Alderoty believes some of these policies were beyond the SEC’s jurisdiction.
He made these remarks in a recent article published on Fortune Magazine. Alderoty noted that the SEC is repeatedly going beyond its jurisdiction, and Congress has the responsibility to ensure that it keeps the regulator in proper check, especially after the FTX and BlockFi fiascos.
I laid out a few thoughts today in @FortuneMagazine on the need for congressional oversight of the SEC after the recent collapses of BlockFi and FTX (among others): https://t.co/Z91Hk48fsc
— Stuart Alderoty (@s_alderoty) January 11, 2023
He asserted that the SEC is one of the major reasons why BlockFi got entangled with FTX and consequently collapsed with the bankrupt crypto exchange. BlockFi had to look to FTX to support its financial stand in an attempt to meet the $100M settlement demanded by the SEC following the charges brought on the crypto lender. Alderoty had made similar claims last November.
Due to its resulting relationship with FTX, BlockFi filed for bankruptcy two weeks after FTX, citing its exposure to the exchange as the major trigger of its liquidity crisis. The crypto lender’s collapse has resulted in losses in consumers’ funds and over $1B owed to creditors, with a $30M balance yet to be paid to the SEC in the settlement.
Congress Should Keep the SEC in Check
Alderoty mentioned that the SEC does not have the right to enact new laws for itself, and it does not possess as much power over the crypto industry as it claims to have. He then highlighted that it is Congress’ duty to oversee the SEC and make sure the watchdog is kept in check, according to the Legislative Reorganization Act of 1946.
The California-based lawyer pointed out the fact that the SEC’s policies in the crypto scene have been frowned upon by several pundits and consumers within the space, asserting that the agency has more interest in exercising its power than adhering to sound policies.
Ripple Chief Brad Garlinghouse agreed with these claims, highlighting them on his Twitter handle.
I know some may forget this fact from time to time, but as @s_alderoty so eloquently said, “The SEC can only exercise the authority expressly granted to it by Congress.” Check out more in Stu’s op-ed below https://t.co/GpfqQwcSEN
— Brad Garlinghouse (@bgarlinghouse) January 11, 2023
Notably, U.S. lawmakers have begun questioning the SEC over its policies in the crypto industry following the FTX collapse. Alderoty noted that he hopes Congress provides more clarity for the crypto industry this year so as to avoid more regulation-by-enforcement moves from the SEC. This further mirrors Garlinghouse’s previous remarks on the matter.