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SEC’s Gary Gensler threatened with subpoena over FTX interactions: ‘You refuse to be transparent’

SEC’s Gary Gensler threatened with subpoena over FTX interactions: ‘You refuse to be transparent’
US Representative Patrick McHenry asked the SEC in February for records relating to its probe of former FTX Chief Executive Sam Bankman-Fried. Credit: John Nacion/Shutterstock
  • Gary Gensler was up before the financial services committee in the House of Representatives on Wednesday.
  • Committee chair Patrick McHenry ripped into Gensler over what he calls the SEC’s “stonewalling” to provide documents.
  • The documents relate to the SEC’s investigation of Sam Bankman-Fried.

A Republican lawmaker on Wednesday threatened to subpoena records from the Securities and Exchange Commission.

The records relate to the regulator’s investigation of FTX CEO Sam Bankman-Fried.

House Financial Services Committee chair Patrick McHenry came out swinging into a tense hearing, ripping into SEC Chair Gary Gensler in his opening statements.

“You refuse to be transparent with Congress regarding your interactions with FTX and Sam Bankman-Fried,” McHenry told Gensler. “Your lack of responsiveness to this committee’s legitimate oversight continues to be unacceptable.”

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McHenry said the SEC has dragged its feet on supplying records to help Congress understand its probe into Bankman-Fried.

“I do not want to be the first chairman of this committee to issue a subpoena to the Securities and Exchange Commission,” McHenry told Gensler.

“And you should not want to be the first SEC chair to receive a Congressional subpoena.”

The SEC charged Bankman-Fried with defrauding investors in December. The charges followed a criminal indictment against the disgraced founder from the US Department of Justice.

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Bankman-Fried goes on trial next week on the criminal charges.

In February, McHenry and Representative Bill Huizenga, a Michigan Republican, launched an investigation into how the SEC had handled its probe of FTX. As part of this effort, they sent a letter to Gensler, asking for internal messages and memoranda relating to the FTX charges, as well as its communications with Justice.

In a follow-up letter in April, they accused the SEC of ignoring their deadline. “The subsequent staff-level conversations have yet to yield any of the requested documents,” the letter said.

In May, the pair sent yet another letter to Gensler, saying the SEC had been “less than forthcoming” in providing Congress with documentation, including that relating to the FTX probe, and demanding that he comply fully with the records requests.

On Wednesday, McHenry told Gensler “patience was wearing thin” on the matter.

“Seven months later, the committee has not received a single non-public document that was not part of a Freedom of Information Act production,” McHenry said.

“The SEC is not above the law, nor is it unique. Other financial regulators have routinely complied with Congressional oversight.”

His last resort was to issue the subpoena for records, he said.

“Either we find a path forward where the SEC recognises Congress as a co-equal branch of government and is responsive to our oversight duties, or my option is to issue a subpoena.”

Confidential documents

In June, the same House committee quizzed the SEC’s top lawyer, Megan Barbero, over document requests, including those of McHenry and Huizenga.

Barbero said then that in the case of the FTX documents, the commission must balance Congress’s need for information with its own need to not prejudice the upcoming trial against Bankman-Fried.

“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.”

McHenry said on Wednesday that Barbero’s office had indicated that the SEC was ready to hand over the docs, pending an internal vote. He pressed Gensler to say when he had scheduled the vote for.

Gensler would only say that his staff continued to work with McHenry’s on the matter before he was repeatedly cut off by McHenry, who appeared frustrated.

Skeleton crew

A looming government shutdown cast a shadow over the hearing and gave fodder to the committee’s minority Democrats. The committee’s top Democrats, Maxine Waters, blamed “extreme MAGA Republicans” for causing the shutdown at the expense of government workers and ordinary Americans.

Gensler said that if the shutdown were to go ahead, the agency would be overseeing markets with 90% of its staff furloughed.