Mark Cuban is not happy and makes it known.
The successful entrepreneur seems, like most of the business community, to have been shocked by the implosion, in less than a week, of FTX, one of the big players in the crypto sphere.
The cryptocurrency exchange filed for Chapter 11 bankruptcy on November 11, after three turbulent days that saw a company valued at $32 billion in February urgently call on rivals for help.
But FTX’s financial situation was too dire for a potential savior to try to save it. Binance, the biggest crypto exchange and big rival to FTX, tried but eventually gave up.
“As a result of the company’s due diligence, as well as the latest news reports regarding mismanaged client funds and alleged US agency investigations, we have decided not to pursue the potential acquisition of http://FTX .com,” Binance said on November 9.
“At first, our hope was to be able to help FTX customers provide liquidity, but issues are beyond our control or our ability to help.”
FTX Controversial Practices
As a crypto exchange, FTX executed orders for its clients, taking their money and buying cryptocurrencies on their behalf. FTX acted as custodian, holding clients’ cryptocurrencies.
FTX then used the crypto assets of its clients, through the trading arm of its sister company Alameda Research, to generate liquidity through borrowing or market making. Money borrowed by FTX was used to bail out other crypto institutions in the summer of 2022.
At the same time, FTX used the cryptocurrency it issued, FTT, as collateral on its balance sheet. This represented a significant exposure, due to the concentration risk and volatility of FTT.
Once this exposure was revealed, clients, fearing a collapse of FTX, rushed to liquidate their crypto positions and get their money back. On November 6, customers withdrew a record $5 billion. It was a stock market race. This led to the insolvency of FTX, as it did not have the crypto assets, now on loan or sold, to honor its clients’ sell orders.
The panic caused cryptocurrency prices to plummet. Shares of crypto companies like Coinbase (PIECE OF MONEY) – Get a free reportMicroStrategy (MSTR) – Get a free report and Robinhood (HOOD) – Get a free report are sold by investors who fear a contagion effect. The question now is which companies will be impacted.
The search for accountability has also begun, trying to figure out how a company of this size can implode, without regulators realizing the risk, especially as its former CEO, Sam Bankman-Fried, whispered in the ear of these same regulators and politicians to define what regulation would be appropriate for the sector.
Where was the SEC?
Mark Cuban, who has invested in several cryptocurrency-related businesses and projects, believes regulators have not done their job. It targets in particular the American Securities and Exchange Commission (SEC).
For the billionaire, contrary to popular belief, the crypto industry is regulated. It turns out that the SEC has failed in its role. That’s what he just said on Twitter.
“Everyone says crypto is unregulated,” the Shark Tank star tweeted on November 12. “That’s not true. The SEC says it regulates crypto. Ask Kim Kardashian and the tokens they sued or settled with.”
He continued, “The question is, given the visibility of central exchanges, why hasn’t the SEC already knocked on their door?”
FTX was a centralized exchange.
The owner of the Dallas Mavericks refers to sanctions and fines imposed on cryptocurrencies or projects by the SEC. For him, if the SEC sees fit to punish Kim Kardashian for promoting fraudulent coins, that clearly means the federal agency is regulating the industry. Part of the blame for the FTX debacle therefore lies with them.
Last month, the SEC indicted Kardashian for promoting a cryptocurrency on social media that turned out to be a scam. The reality star has agreed to pay $1.26 million in penalties to settle the investigation.
The crypto industry is particularly wary of the regulatory agency, accusing it of deliberately refusing to issue clear rules. The federal agency prefers regulation by enforcement, criticize crypto players.
Contacted by TheStreet, the SEC did not immediately respond.
“I think investors need better protection in this space. But I would say that’s an area that’s clearly non-compliant,” SEC Chairman Gary Gensler told CNBC Nov. 10. “But there are regulations and these regulations are often very clear and we have several paths.”
“And one way is to work with these crypto exchanges, these crypto lending platforms, and register them properly and why it matters is that the public is protected. But we have another way which is enforcement “We brought between my predecessor and the SEC teams now have at least 100 actions in this matter and we were very clear in those various enforcement actions and we had a big win.”
The SEC, the Commodity Futures Trading Commission (CFTC), and the Department of Justice (DoJ) have opened investigations into FTX. Regulators are under pressure from legislators.
Senator Elizabeth Warren called for “more aggressive enforcement” of consumer protection laws.
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