Among the exchanges such as FTX where crypto is traded, enforcement is likewise scant. None of the largest exchanges have registered with the SEC, and the agency has not taken legal action to force them to do so. This gap in enforcement means that thousands of entrepreneurs have been allowed to pitch crypto products without being compelled by financial regulators to disclose key information about the risks or even the identities of the people behind them.
Sen. Sherrod Brown (D-Ohio), who chairs the panel, wrote to Treasury Secretary Janet L. Yellen last month that he wants to work with her and other financial regulators to legislate clearer rules for the industry. Sen. Elizabeth Warren (D-Mass.) put it more bluntly in a recent Wall Street Journal editorial, arguing while she agrees the SEC has the authority to bring the industry to heel, “power is worthless if the cop on the beat won’t use it.” The agency, she wrote, “has fallen far behind as the crypto industry has drawn in millions of new investors.”
To register the token, the company would have had to assemble details about its management, business practices and at least two years of audited financial data, according to Maitra. Teams of external lawyers and auditors would have reviewed that information. Finally, the company would have submitted that package to the SEC, kicking off a back-and-forth that could extend over months as agency officials asked follow-up questions and pressed for more details.
“Satisfying the SEC that their reserves are in line with what they purported would be difficult,” Maitra said. And even if the company could have cleared those hurdles, “with these disclosures out there, every crypto fund would be poring over their financials and seeing whether it was worthy of investment.