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Congress clashes with SEC over probe into FTX boss Sam Bankman-Fried

Congress clashes with SEC over probe into FTX boss Sam Bankman-Fried
Sam Bankman-Fried, the disgraced founder of the FTX exchange. Credit: Lev Radin/Shutterstock.
  • Republican Congress members laid into the SEC’s top lawyer over documents relating to the agency’s investigation into FTX.
  • The tense hearing follows concerns that the SEC is overreaching its authority in regulating crypto and other markets.

Republicans have accused the Securities and Exchange Commission of stonewalling its attempts to get to the bottom of an investigation into disgraced crypto exchange founder Sam Bankman-Fried.

The probe is part of what they call the agency’s regulatory overreach.

The tensions bubbled up during a hearing in the House Financial Services Committee on Thursday. Representatives laid into the SEC’s top lawyer, saying her agency should have provided them with documents they asked for relating to their probe of Bankman-Fried.

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SEC Chair Gary Gensler and staff “have failed to respond to member inquiries, often with complete disregard to the questions being asked,” committee member Bill Huizenga told SEC general counsel Megan Barbero.

“This hearing could have and should have been avoided,” he said to her. “But what other choice did we have when the SEC, your boss and you, by extension, continue to be uncooperative and unresponsive?”

Letters to Gensler

In February, McHenry and Huizenga launched an investigation into how the SEC has handled the investigation of FTX. As part of this effort, they sent a letter addressed to SEC Chair Gary Gensler, asking for documents relating to the charges filed against Bankman-Fried.

In a follow-up letter in April, they accused the SEC of ignoring the deadline to prevent Congress from discussing the FTX probe with Barbero’s office. “The subsequent staff-level conversations have yet to yield any of the requested documents,” the letter said.

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In May, Huizenga and committee chairman Patrick McHenry sent Gensler another letter, saying the SEC had been “less than forthcoming” in providing documentation — including on the Bankman-Fried probe and demanded that he comply fully with requests.

The hearing on Thursday devolved into a partisan scrap over whether Barbero’s office should have responded to document requests faster.

Republicans reiterated that they have asked the agency for timely responses related to a climate disclosure proposal, which is very unpopular with the investment firms it targets, and to a letter regarding what they say is Gensler’s neglect of the SEC’s capital formation mandate.

‘Run amok’

Democrats characterised the Republican committee members’ demands as overreach.

“A better title for this hearing would be Republican micromanagement of the SEC run amok,” Democratic member Al Green said.

Barbero appeared to grow frustrated as some in Congress cut off her answers and told her to stop stalling.

She said that in the case of the FTX documents, the commission must balance Congress’s need for information with the need to not prejudice the upcoming trial against Bankman-Fried, which is scheduled for October.

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“We’ve worked closely with the committee to provide a briefing by experienced staff from the Division of Enforcement on how we work with the DoJ in parallel investigations,” she said.

“The challenge here in balancing the concerns is that committee staff have identified as priority the commission’s action memo, which is the very document that contains the information that could prejudice our civil enforcement action and the parallel criminal investigation.”

Underpinning the back-and-forth about documents is Republican opposition to Gensler’s energetic regime. Under his watch, the agency has put out a slew of regulatory proposals that touch on bond and equity markets and climate-related disclosures from investment funds.

Another hearing was held at the same time to look into fundamental changes the SEC is contemplating to stock markets.

When it comes to crypto, the commission has declined to make rules. But the frenetic pace persists nonetheless as the agency has opted instead to sue market participants it believes to be acting in breach of securities laws.

This, too, has attracted Republican ire. McHenry has co-sponsored a bill to bring a tailored regulatory framework to crypto. And earlier this month, two House Republicans filed another bill that would fire Gensler and restructure the SEC.

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