The U.S. Securities and Exchange Commission (SEC) may use the failure of lender BlockFi as an object lesson for why there should be clear oversight of the crypto sector.
And, by the way, BlockFi still owes $30 million of a $50 million fine.
According to Howard Fischer, a former SEC senior trial attorney who is now a partner at New York-based law firm Moses Singer LLP, the SEC won't be as aggressive about getting that money back as it would from others. He told CoinDesk TV’s “First Mover” on Wednesday the agency is more concerned with setting clear regulatory standards for the crypto sector.
“The message that the SEC will want to send, and has been trying to send, is less about the sanctity of SEC settlements than how we go about regulating a very young industry,” Fischer said.
He said the failure of the FTX crypto exchange brought to light the need for crypto companies to use the same “metrics and management techniques” used by traditional and legal financial companies.
The SEC is “much more concerned with sending a message that there needs to be regulation in this field,” he later added.
Earlier this week, BlockFi filed for Chapter 11 bankruptcy protection after pausing withdrawals, citing contagion concerns caused by the collapse of Bahamas-based crypto exchange FTX. FTX is undergoing its own bankruptcy proceedings after a CoinDesk report revealed FTX’s sister company, Alameda Research, was propped up with a significant amount of FTX’s native token, FTT. BlockFi, which once received a line of credit from FTX, said it had upwards of $355 million in crypto assets frozen on the beleaguered exchange.
Fischer said that BlockFi’s move to bankruptcy court is placing more emphasis the need to protect retail investors in crypto, who appear to be last in line to receive any form of repayments.
According to Fischer, the SEC is not necessarily “hostile” towards the digital asset industry, but it is “skeptical” of its inner workings.
“The SEC is going to be a lot more concerned not with the money from the settlement, but from what the BlockFi bankruptcy represents in terms of harm to investors, systematic risks, contagion, and what it shows about the risks to crypto world in general,” Fischer said. “That's going to be a little bit more to the front of the mind of the SEC than the $30 million that they're owed.”
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