Lawyers, accountants and other financial professionals should have stepped in to halt the fatal mistakes going on inside crypto firms such as FTX long before they imploded, said Christy Goldsmith Romero, a commissioner with the U.S. Commodity Futures Trading Commission (CFTC).
At the risk of offending their crypto employers, Goldsmith Romero said the experienced hands – also including the investment firms backing these companies – “need to step up, and call for compliance, controls and other governance, without allowing the promise of riches and the company’s marketing pitch to silence their objections to obvious deficiencies.”
“FTX operated in a manner that simply should not be possible in the presence of appropriate independent governance and gatekeepers, even in an unregulated environment,” she said in remarks prepared for delivery Wednesday at an event examining the FTX bankruptcy, hosted by the Wharton School and the University of Pennsylvania’s Law School. “Gatekeepers should have seriously questioned the operational environment at FTX in the lead up to its meltdown.”
Goldsmith Romero, a Democratic appointee who is the lead commissioner for the agency’s technology advisory committee, has previously warned about the potential risks from the largely unregulated industry.
“There is no shortage of lawyers working for unregulated crypto companies, including former federal government lawyers,” she said Wednesday. One of FTX’s most prominent names was Mark Wetjen, a former CFTC commissioner and acting agency chairman.
Her lengthy remarks also called for a total separation of customer funds from a company’s own assets. That should be part of any future congressional legislation, she said, in addition to better controls on conflicts of interest with companies’ insiders and affiliates, strong cybersecurity demands and wide application of the Bank Secrecy Act that guards against money laundering.
“The crypto industry should not wait for legislation,” she said.
She also favors establishing an independent self-regulatory organization (SRO) to oversee any spot market for digital commodities, suggesting an SRO would operate outside the exchanges.
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