Securities & Exchange Commission Chair Gary Gensler suggested Wednesday in an exclusive interview with Yahoo Finance Live failed crypto exchange FTX violated securities laws by using customer assets to trade at its affiliated hedge fund, Alameda Research.
"I can't speak to any one case or any one situation, but our securities laws say that you need to properly segregate customer funds," Gensler said.
"You also shouldn't be running a broker dealer or a hedge fund, and an exchange. The New York Stock Exchange doesn't also have a hedge fund on the side and trade against their customers."
Gensler said some crypto platforms have asked the SEC to continue the ability to lend, trade, and operate an exchange and a hedge fund under one company, something the agency won’t allow, as is custom under traditional securities laws.
"We have said, no, you have to separate it out,” Gensler said. "Some have come in and said: can we have a lighter touch regulation? We've said, no."
'The basic message that I have had is the same public message as private message," said Gensler. "Come into compliance. Your field will not last long outside of public policy norms."
Lawmakers on both sides of the aisle have been pointing fingers at the SEC over the failure of FTX.
Democratic Senator Elizabeth Warren has called on the agency to "suit up" and said federal agencies should use their expansive authority to crack down hard on crypto fraud. The SEC and Department of Justice are reportedly investigating FTX for criminal and civil violations.
Gensler told Yahoo Finance: "We’re already suited up."
When it comes to regulating crypto, Gensler wouldn’t say whether the agency would write new tailored rules next year, despite the crypto meltdown seen this year. Data from Coinmarketcap shows the total value of crypto assets has declined to around $840 billion as of Wednesday afternoon, down from north of $2 trillion at the star of the year.
Gensler again emphasized the agency would enforce securities laws already in place, noting the SEC has taken 100 enforcement actions total against crypto firms — a few dozen of which have come under Gensler’s leadership.
"We are enforcing [existing securities laws]. We have publicly been saying to these crypto intermediaries — they might call themselves crypto lenders or exchanges — these crypto intermediaries, in essence, the casinos, if I might say it again, to come into compliance with the law," he said.
Gensler told Yahoo Finance he has one goal when it comes to regulating crypto next year: making crypto exchanges and lending platforms come into compliance.
"They can do that appropriately, working with the SEC, or we can continue on a course with more enforcement actions, and I would have to say that the runway's getting shorter," he said.
Asked why it’s taking so long for crypto exchanges to register with the SEC, Gensler deferred to the exchanges.
"It’s really on them," said Gensler. "We've been clear. We can use some exemptive authority to tailor things, as you said earlier, but it's not to drop the basic protections of separating out these businesses into a separate exchange."