Gary Gensler’s SEC is playing a game, but not the one you think

On February 13, a federal judge suspended the cases of the Securities and Exchange Commission and the Commodity Futures Trading Commission against former FTX CEO Sam Bankman-Fried. You’ll be forgiven if you missed this story – headlines and social media were dominated by breaking news that the SEC was suing crypto firm Paxos for minting Binance’s stablecoin, Binance USD (BUSD).

But we are not here to discuss whether stablecoins are securities. The Howey test has been debated to death, and while few people really expect to profit from a fiat-pegged token, the issue is more subtle than the debate usually suggests.

The fact is that the Paxos story broke on the same day that United States District Judge Kevin Castel adjourned the Bankman-Freed case. And the stablecoin debate that followed has diverted attention from this very important change, distracting many from what should have been a bigger story.

Delay Tactics: A Proven Legal Technique

Judge Castel granted the DOJ’s motion to stay FTX’s lawsuits filed by the SEC and CFTC. Not surprisingly, Bankman-Fried agreed to suspend civil cases.

Since pleading not guilty to stealing billions of dollars from his collapsed stock exchange and posting $250 million bail, Bankman-Fried has been living in his parents’ mansion in Palo Alto, California. He can soak up the sun by the pool and play any League of Legends he wants, while millions of FTX customers who have lost billions of dollars await justice and redress.

Expect the SEC to use its Kraken game against staking protocols.

You can argue that the timing of these two stories – the Paxos BUSD lawsuit and the Bankman-Fried suspension – is a mere coincidence. And even prosecutors argued that delaying those trials made sense because of the significant overlap between them. But it’s very convenient for both Bankman-Fried and SEC Chairman Gary Gensler.

Delaying tactics are nothing new in court cases. Establishing the time and distance between the defendant and the crime itself is a well-established strategy. And let’s not forget: it took two months just for Bankman-Fried to be extradited from the Bahamas and formally charged on US soil.

Gensler is a master magician, and he uses the wrong direction to distract us.

Unfortunately, the real story here is much more insidious. On February 9, it was announced that Kraken would not only have to shut down its U.S. cryptocurrency staking service, but also pay a $30 million fine in settlement with the SEC. Naturally, the internet was blasted with the news and its implications for US cryptocurrency consumers.

Coinbase founder and CEO Brian Armstrong announced that his company would fight back, tweeting on Feb. 12 that “Coinbase’s staking services are not securities. We will gladly defend this in court if necessary.”

Encouraging words. But it’s all just a distraction. Gensler is a magician, and his crackdown on crypto, under the guise of protecting investors, is part of a misguided ploy.

“Today’s action should send a message to the market that betting as a service providers must register and provide full, honest and truthful disclosure and investor protection,” Gensler said. said.

It’s not about protecting investors. It’s about keeping the public and media on the story of “cryptocurrency as a security” while Gensler tricks us into forgetting that he met with Bankman-Freed a few months before the FTX crash, but failed to prevent it.

We are not in the Matrix – we are in an experiment with selective attention

In 1999, research psychologist Christopher Chabris and cognitive scientist Daniel Simons asked a group of people to watch a video and count the number of times players in white shirts passed the ball. What the audience often didn’t notice was the man in the gorilla suit walking right through the circle of players.

It was reported, but little researched, that Gensler dated Bankman-Freed prior to the collapse of FTX. In March 2022, the SEC chairman held a 45-minute Zoom call that was described as “out of the ordinary” in which they discussed the new trading platform, among other things.

Thus, fraud and money laundering on a massive scale took place not only in front of Gensler, but right under his nose. And he should be under incredible scrutiny right now, explaining how he missed the impending collapse of FTX, wire fraud, campaign finance violations, and the money laundering conspiracy that Bankman-Fried has since been accused of.

Congress should ask Gensler some tough questions about his inability to prevent such a catastrophe, despite his ties to Bankman-Freed. But the focus is not on this element of the story. Gensler and the Securities and Exchange Commission are working hard to keep everything but that in the spotlight. Kraken staking services. Paxos BUSD stablecoin. And last? Do Kwon.

The SEC suddenly took the time to accuse the founder of Terraform Labs of “managing a multibillion-dollar cryptocurrency securities fraud.” But Terra Luna and the TerraUSD token crashed in May 2022. So why are they finally bringing these charges now?

The SEC has listed Kraken for $30 million, but that doesn’t mean they have a case.

“We contend that Terraform and Do Kwon have failed to provide the public with the complete, accurate and reliable information required for a variety of crypto asset securities, most notably Luna and Terra USD,” Gensler said in a statement. “We also allege that they committed fraud by repeating false and misleading statements in order to gain credibility before inflicting devastating losses on investors.”

The Terra explosion is estimated to have cost investors more than $40 billion. But that was almost a year ago. And FTX investors lost about $10 billion. So it’s safe to say that the SEC is not very good at protecting investors.

Is the SEC overcompensating, or is it something more sinister?

At best, this recent round of regulatory crackdowns is the result of the SEC overcompensating for past failures that go much further than just FTX and Terra. At its worst, this is Gensler’s attempt to distract us from the fact that he is either corrupt or incompetent, and hopes we forget that he dated Bankman-Freed in 2022.

We need to remember that Kwon is still single. So does Bankman-Fried. However, millions of retail investors lost their savings. Where was Sheriff Gensler then?

Zach Colbert is the head of content at Cryptology and the official content creator for Binance Feed. He received a degree in digital media from the University of Brighton in the United Kingdom.

This article is for general informational purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are those of the author only and do not necessarily reflect or represent the views and opinions of Cryptooshala.

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