HACKER Q&A
📣 boppo1

How did the CFTC and SEC miss FTX and Alameda?


I remember all this stuff about Gary Gensler/ the SEC/ CFTC working hand in hand with SBF to craft "crypto regulations". SBF was going on and on about "embracing regulations" and "regulations are good for us" in interviews. Hell I was almost sold on investing in FTX because it seemed like they would be the juggernaut that plays ball with the US government. It was a big deal.

And now this clear, textbook fraud with FTX and Alameda. What are regulators good for? How could they play so nice with a 'villainous' firm? I dread to think of what those regulations would have been like. It seems like they're either unbelievably incompetent or complicit.

EDIT: My point here isn't about whether or not I think crypto should be regulated. My point is if crypto is going to be regulated, shouldn't regulators be able to sniff out a bad actor? Imagine if Madoff had started working with the SEC to help consult on policy. Wouldn't people have been upset with the SEC when he went bust since he was rubbing shoulders with them?

  👤 blitzar Accepted Answer ✓
Which one is it, pick one ffs ... crypto is unreglated or crypto is regulated?

Why does everyone bang on about how it is not trad finance and it shouldnt be regulated, tell you all about how they are genius tier traders who make tons of money BUT its the governments fault they lost it all for not regulating their unregulated financial "investments" hard enough.

👤 PaulHoule
Most of FTX was outside the US and outside the US jurisdiction

https://www.cryptovantage.com/best-crypto-exchanges/ftx-vs-f...

👤 kasey_junk
The cftc has ~700 employees total, not just investigators, total employees.

They do not typically proactively investigate firms, they do so when there is evidence of a violation, usually after complaints of losses are made.

Also, due to resource constraints they tend to prioritize investigations by the number of people impacted.

FTX frankly doesn’t meet either of those bars. By the time people would complain about losses the whole thing unravelled and as big a topic it is on hn not many people are actually impacted by it. At least compared to some of the big gold grifts that are out there.

👤 barnabee
Madoff was absolutely working with and connected to regulators [0] in various capacities. The idea that the current regulatory framework really helps consumers or effectively polices the truly bad actors is unfortunately far from the truth.

So yes, people should be upset with the SEC and other regulators, and should demand more appropriate and effective regulation (and/or enforcement) that actually targets the worst behaviour and protects the most vulnerable, rather than policing access and providing incumbents with a regulatory moat for little or no benefit.

[0] https://en.wikipedia.org/wiki/Bernie_Madoff#Government_acces...

👤 matt_s
The SEC creates rules and has zero jurisdiction for criminal prosecution, they refer potential cases to DOJ. They probably lean on having air tight cases because their opponents are better financially prepared to spend their way around any lawsuit/action.

Also, the stock market cops are essentially FINRA (self policing non government company), SEC is the rule writer and hand slapper for the most part. I don't know how crypto regulations were supposed to be setup. If it was the same setup as SEC/FINRA where entities have to self-report data, then fraud would be somewhat easy.

👤 logicalmonster
Just wondering: why would the regulators (with whatever minimal regulation exists now) even want to catch any large-scale fraud?

It's to their greatest benefit to have a few good examples of crypto crashes in order to gain a casus belli to have full-scale crypto regulation.

👤 fiat_fandango
It's called having influence over US officials just short of bribery.
👤 norwalkbear
It's about incentives. FTX "donated" to the right people and Bankman/Ellison families were very politically connected to the democrats and Biden admin.