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In the wake of FTX’s demise, regulators and law enforcement officials have revealed they are putting the crypto sector under the microscope. While their first steps focused on FTX, its sister company Alameda Research, and its executives, the top regulator said these steps were just the beginning, with companies within the crypto sector and Executives have made it wise to buy the house to avoid investigations and actions that could waste resources, damage reputations and destroy businesses.
FTX-Related Enforcement Actions
On December 13, 2022, the US Attorney’s Office for the Southern District of New York (SDNY), the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) announced a series of actions related to FTX founder Samuel Bankman. Announced. – Fried (SBF) suspected of cheating on his FTX and Alameda Research. More specifically, SBF is accused of allowing Alameda to use his FTX customer deposits. Offer Alameda profitable deals, such as faster trade execution and waivers of clearing requirements. Using FTX customer deposits for personal use; and lying about it.
The SDNY indictment charges SBF with wire fraud, wire fraud, conspiracy to commit merchandise fraud, conspiracy to commit securities fraud, conspiracy to launder money, and conspiracy to violate campaign finance laws. The SEC complaint accuses SBF of fraud in the offering or sale of securities and fraud related to the sale and purchase of securities. The CFTC complaint alleges that SBF, FTX, and Alameda committed fraud and made fraudulent misrepresentations of material facts and material omissions.
Recent Comments from Regulators
While it’s easy to distinguish extreme conduct related to FTX, regulators have made it clear that they will scrutinize conduct across the crypto industry.SEC Chairman Gary Gensler said most crypto tokens are valuable The SEC has recently failed to adequately disclose to investors the potential material adverse effects that could result from bankruptcies and financial difficulties involving crypto intermediaries to listed companies. I advised you to make sure that1, and other officials have revealed that additional scrutiny will continue into the future. I warned investors about reliability. Munter also clarified that the SEC will consider referral to law enforcement.”[i]A pre-destruction audit of FTX did not identify any weaknesses or inadequacies, and audit firms have recently expressed caution in how they analyze cryptocurrency companies. Closely scrutinize their work.
Additionally, Deputy Attorney General Lisa Monaco recently commented that cryptocurrency companies should expect more enforcement action, stating that the Department of Justice is “considering exploiting this technology … but ransomware.” It could be used for illicit purposes, whether it’s for fraud or money laundering…whether it’s misleading investors.” Monaco also warned cryptocurrency companies to adopt strong compliance programs.
Best practices for doing no harm
In light of these recent enforcement actions and comments from DOJ and SEC officials, companies in the crypto sector should immediately take the following actions:
- Ensuring the accuracy of public statements and filings, including those made by accounting firms.
- Adopt a robust compliance program with detailed risk assessment requirements and tools to avoid commingling of funds.
- Ensure strict policies and enforcement mechanisms to prevent the use or diversion of Company funds for personal purposes.
- Disclose to clients or customers how funds are used and managed.When
- Implementing and maintaining internal controls to prevent certain customers from receiving preferential treatment at the expense of other customers.
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