Will SEC investigate itself after Gary Gensler dealt embarrassing blow in Bitcoin ETF debacle?
Gary Gensler really knows how to snatch defeat from the jaws of victory.
That's the word from market executives and crypto officials on the strange occurrence that went down late Tuesday. The SEC shocked the $1.7 trillion crypto market by approving a "spot" bitcoin exchange-traded fund, a day earlier than planned.
SEC DUPED, X ACCOUNT HACKED, BITCOIN ETF NOT APPROVED
But it didn't.
Wall Street's top cop said it was the apparent victim of a hack; someone broke into the commission's official X (formerly Twitter) account and falsely broke news that it gave the ETFs the green light. After Bitcoin spiked to nearly $48,000 from around $46,700 in the seconds after the posting, the SEC and Gensler, its chairman, were forced to admit it was a fake. The account was "compromised," causing a mini crash in the digital coin as it fell to $45,695.
Yikes!
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Aside from the regulatory implications, the incident is among the most embarrassing to hit the commission in recent years. The SEC had been preparing for a big announcement on Wednesday of the Bitcoin "spot" ETF approvals — a key event in the maturing of the $1.7 trillion crypto market.
The approval would open crypto to possibly millions of retail investors. The ETF would track the daily prices of Bitcoin; small investors could buy and trade shares of the ETF on a major stock exchange for the first time in history.
Despite the SEC claims of being a victim in the mess, lawyers who deal in securities law say the circumstances surrounding the faux posting and the wild swings in Bitcoin it caused should spark an investigation into the SEC by the SEC. Bitcoin is technically a commodity, thus under the direct regulatory purview of the Commodity Futures Trading Commission. But, securities lawyers say the SEC has been blurring the lines of its mandate in recent years, particularly in its crackdown on crypto. Many say if a hack of this nature occurred on an account of a Wall Street or crypto firm, SEC staffers would already be on the phone demanding answers.
In addition to possible market manipulation, the SEC passed new rules in July for so-called "cybersecurity risk management" for regulated entities. These rules would "require registrants to disclose material cybersecurity incidents and material information on their cybersecurity risk management strategy and governance."
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"They have to look into this matter since Bitcoin moved so much, it's a given," one securities lawyer told Fox Business. "A registered broker deal would have to make a filing with the commission because the price of bitcoin moved materially. Also, the SEC violated its own cybersecurity rules. I've never seen something like this."
SEC press officials didn't return calls regarding how and if it plans to investigate the compromise and the motives of who was responsible. In a statement to Fox Business, it said the X account "has been compromised. The unauthorized (posting) regarding bitcoin ETFs was not made by the SEC or its staff." An SEC spokesperson added, "The SEC has determined that there was unauthorized access to and activity on the @SECGov x.com account by an unknown party for a brief period of time shortly after 4 pm ET. That unauthorized access has been terminated. The SEC will work with law enforcement and our partners across government to investigate the matter and determine appropriate next steps relating to both the unauthorized access and any related misconduct."
Gensler, meanwhile, is a controversial figure on Wall Street and in crypto for his heavy-handed regulatory approach as chair. Wall Street executives say his priorities veer into new and unchartered areas of enforcement, such as mandatory climate disclosures.
Crypto executives say he has exceeded his statutory mandate by regulating crypto through enforcement actions even though the SEC doesn't have clear congressional authority to do so. They say he was forced to approve the spot Bitcoin ETFs only after losing several high-profile court cases challenging his crypto regulation.
It is no surprise that after the hack, he was vilified by crypto enthusiasts and Wall Street executives as a clueless bureaucrat. Scores of trolls reposted an October warning also from the SEC official X account that said: "Be careful what you read on the internet. The best source of information about the SEC is the SEC."
None other than the famed national security leaker Edward Snowden from his official account stated: "Jesus Christ Gary get your shit together." In a subsequent post by Snowden, he stated: "You had one job." Snowden is wanted in the US on espionage charges, and he now lives in Russia.
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The announcement of Wednesday's likely approval has been well choreographed by the SEC staff in recent weeks, during conversations with issuers like BlackRock, Ark Investments, Greyscale, and others.
In recent days, Gensler himself has been posting on X warning of the dangers of the still opaque crypto business, a move seen as preparing the markets for the big announcement on Wednesday with the ETFs set to trade Thursday.
It's unclear if the hack will impact the timeline of the approval process; the lawyer involved in the matter says it would be unprecedented for the commission now to reject the applications after recently expediting matters with applicants.