WASHINGTON, D.C.— Dennis M. Kelleher, Co-founder, President and CEO, issued the following statement regarding the CFTC’s failure to properly regulate or supervise FTX, which was registered and licensed by the CFTC and which had hired innumerable former CFTC officials:
“FTX via FTX Derivatives US LLC, a derivatives clearing organization (DCO), is licensed by and registered with the CFTC, which was supposed to regulate and supervise it. The CFTC appears to have failed miserably at that and missed what now appears to be multiple failures at FTX to meet fundamental corporate governance standards (including multiple reports of commingling of funds, gross mismanagement, conflicts of interest, improper relationships with affiliates like Alameda, etc.) if not also outright illegal conduct. Adding insult to injury, the CFTC appears to be trying to disguise its involvement with FTX by issuing a press release this morning with an incomplete if not misleading headline about FTX’s withdrawal of its application to broaden its CFTC-regulated activities; rather than openly informing the public that FTX did this, it’s headline was “LedgerX Withdraws Clearing Application,” only revealing it was FTX in the body of the release itself.
“As FTX’s regulator, the CFTC, if it had been conducting even minimal supervision or examination of FTX, presumably would have identified at least some indication of these many deficiencies and failures and required remediation or taken enforcement action. Instead, the CFTC was acting like a cheerleader for crypto, seeking to expand its jurisdiction, and working overtime to consider if not approve the FTX’s highest US regulatory priority: a dangerous application to radically change the successful, decades-long structure of clearing organizations by reducing the layers of protections for clearinghouse resilience and permitting customers to beauto-liquidated 24/7/365. Yet, this CFTC-licensed and regulated entity, which has now filed for bankruptcy protection, appears to have been effectively insolvent or on the verge of collapse under the CFTC’s nose,presumably at least in part due to having fatal risk, management, legal, and compliance flaws.
“That apparent regulatory failure is presumably due, in part, to FTX’s strategy of using revolving door hires from the CFTC and elsewhere to use their knowledge, influence, and access at the agency and in Washington to move FTX’s agenda. For example, the former CFTC Acting Chair is FTX’s Head of Policy and Regulatory Strategy and a former CFTC attorney to a former CFTC Chair is FTX’s General Counsel.
“Whether as a result of that or not, the CFTC has too often been a cheerleader for the crypto industry, including the Chair who claimed that Bitcoin would double in price if his agency was its regulator. Of course,a financial regulatory agency should not be concerned with boosting the price of any particular financial product – that’s what industry-fawning financial regulators did in the early 2000s, which contributed to the catastrophic 2008 financial crash. The Chair has also been working overtime seeking to expand the CFTC’s jurisdiction by pushing legislation making it the primary regulator of crypto, including a version that would have gutted the SEC’s ability to protect the capital markets and investors. Given that, it is no surprise that FTX’s top legislative goal was also to ensure that the CFTC was installed as its regulator. It wanted the smallest, least funded, and most “capturable” financial regulator to get the job so it could benefit from the form but not the substance of real regulation.
“Even now, after the CFTC’s failures, FTX’s implosion, and more than $2.5 trillion in crypto losses, the CFTC is echoing the industry’s talking points, which include the claim that legislation is needed now more than ever. That’s what the CFTC spokesperson said this morning, but the crypto industry has never wanted legislation that required real regulation. In fact, it is seeking special interest legislation that legitimizes crypto, enables even more predatory conduct, and, worst of all, would result in bailouts from the Federal Reserve when it gets into trouble, all as detailed here. More importantly, FTX failures and implosion are not due to a lack of legislation. That happened because the CFTC and others have not used the regulatory powers they already have to enforce the existing laws and because legislators have not adequately funded the regulators to do that.”
The CFTC’s role in the FTX collapse and many other issues related to FTX are detailed in this Fact Sheet.
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