November 29, 2022

SEC Takes Its Place In “Crypto Creditor” Line

It’s getting hard to keep up with all of the crypto collapses that have followed the FTX implosion, but apparently BlockFi filed for bankruptcy yesterday. The part of the petition that caught my eye is that the SEC is one of the largest creditors! As reported in this Bloomberg article, and shown on page 8 of the petition, the Commission has a $30 million unsecured claim relating to a $100 million settlement that BlockFi agreed to with the agency and state regulators earlier this year.

BlockFi’s attempt to discharge this debt may not do the industry any favors with SEC Chair Gary Gensler – who was profiled by the NYT last week as the “Crypto Nemesis” – but at this point, maybe there’s nothing to lose. Here’s an excerpt from that article:

Much of Mr. Gensler’s agenda may ultimately hinge on the ruling in the Ripple suit, which the S.E.C. filed in December 2020. Before the filing, Ripple’s signature token, XRP, was the third most valuable cryptocurrency; it has dropped down the rankings since the S.E.C. labeled it a security.

The outcome will also draw attention in Congress, where a slate of crypto-related bills was introduced this year. When Mr. Gensler testified in front of the Senate Banking Committee in September, he was grilled by Republican senators, who said the S.E.C. was offering insufficient legal guidance to crypto companies that wanted to comply with federal law.

“Not liking the answer from the S.E.C.,” he shot back, “doesn’t mean there isn’t guidance.”

Since we’re still in the middle of this meltdown, it’s hard to say whether the SEC’s regulatory stance and enforcement approach is having the desired outcome of protecting investors, or if the market will just take care of it by wiping out the industry. The fines lose some of their punch if they aren’t paid, and lots of crypto holders are losing everything anyway.

Liz Dunshee