- The SEC’s regulatory oversight seems a bit unfair and chaotic when we look at the Silvergate Bank, Mango Markets, and Coinbase cases.
- Silvergate Bank had to go bankrupt because of regulatory pressure in the post-FTX period.
- Mango Markets had to pay two six-figure fines and had its reputation destroyed in 2022, at which point regulatory agencies started hounding it.
- Coinbase won a small victory against the SEC after the D.C. Third Court Circuit panel agreed that the SEC’s denial of Coinbase’s petition was ‘close to vacuous.’
We all know that the SEC can sometimes be…erratic in its regulatory rulings. Well, they might have overdone it this time.
Crypto regulatory pressure is impacting everyone, and we’ll go over three of the most important ones:
- Silvergate Bank’s forced bankruptcy because of regulatory oversight
- Mango Markets’ continuous hounding by regulatory agencies after an incident in 2022
- The SEC’s ‘vacuous’ denial of Coinbase’s rulemaking petition
Many in the industry are complaining about chaotic rulemaking from the SEC, especially crypto exchanges and other services offering digital assets.
Let’s see what’s happening to understand how the SEC’s riling everyone up.
First Victim – Silvergate Bank
Silvergate Capital (Silvergate Bank’s parent company) went bankrupt last week. However, that’s not because of the pressure it faced after the FTX catastrophe.
It was because of regulatory obstacles, as Elain Hetric (the company’s former Chief Administrative Officer) said in a filing.
She emphasized that the bank could cover all liabilities to depositors and hold its own in the post-FTX period. However, generalized risk perception, fear, and several crypto-related insolvency proceedings changed that.
After the bank’s collapse, the SEC claimed that Silvergate had ‘misled investors.’ However, this doesn’t seem to be true, as the bank appears to have held up its end of the bargain until regulators became more aggressive.
Even after attempting to restructure its business, supervisory pressure continued, demanding a more thorough change in its business model.
As it were, such a transformation was impossible while also ‘preserving as much value as possible for stakeholders.’ So, the bank chose bankruptcy in an inescapable situation.
Second Victim – Mango Markets
Decentralized exchange Mango Markets suffered a multimillion-dollar hack and succumbed to a terrifying spree of regulatory investigations.
Now, the CFTC is demanding a six-figure settlement.
The agency is accusing Mango Markets of not registering as a commodities exchange, illegally serving US customers, and not checking its customers’ identities.
Eventually, Mango DAO (the exchange’s governing body) decided to pay $500K to the CFTC. This happened after it paid another $700K to the SEC after accusations appeared that Mango had sold $MNGO as an unregistered security.
Mango Markets has a grim history. In 2022, before the FTC collapse, a massive market manipulation orchestrated by Avi Eisenberg wiped out the exchange’s assets.
That’s when the regulatory hell began for the exchange. US regulators took aim and never looked away, ready to pounce on it at the slightest misstep.
Third and Most Egregious Victim – Coinbase
Do you remember when the SEC officially ‘regretted any confusion’ over crypto securities, and Coinbase’s legal expert criticized the agency’s position?
Now, Coinbase is pressuring the SEC to ‘create new rules for digital assets.’ But the SEC is having none of it, and they’re firing back.
If Coinbase wants to arrange its business in a way that does not comply with the existing regulatory framework, that does not establish a right to have the framework adapted to meet their business.SEC Lawyer Ezekiel Hill
Apparently, the SEC thinks it doesn’t have to create new rules to accommodate Coinbase. The exchange thinks the regulatory oversight makes it ‘impossible’ to operate and comply.
But this is old news from 2022.
What happened yesterday is more telling – the D.C. Third Court Circuit panel said the SEC’s denial of Coinbase’s petition for new rules is ‘close to vacuous’ and lacks meaning.
Coinbase’s counsel argued that the SEC had offered ‘zero explanation’ for denying the exchange’s petition and that its enforcement was arbitrary and capricious at best.
The judges also emphasized the SEC’s disinterest in offering clear guidance for the crypto industry. This is surprising, given that this isn’t the SEC’s first rodeo with crypto entities. By now, it should be fully capable of offering higher-level guidance.
But…it’s not doing that. And the question on everyone’s lips is ‘why?’
Looking Back – Has the SEC Been Shooting Blindly?
It seems that, no matter where we look, the SEC has been sending crypto entities to the underworld left and right. And in some (or many) cases, it hasn’t been exactly ‘fair.’
They did apologize to Coinbase and others. That, they did.
But is that a sign of better regulatory judgment going forward? It seems the SEC’s still not giving an inch in Coinbase’s case, despite acknowledging they created confusion here and there.
References
- Silvergate Capital Bankruptcy Notice (Stretto)
- SEC accuses Silvergate of misleading the public after FTX collapse (Blockworks)
- Regulatory Joint Statement in January (Federal Reserve)
- US SEC, Coinbase clash in court over crypto rulemaking (Reuters)
Disclaimer: The opinions expressed in this article do not constitute financial advice. We encourage readers to conduct their own research and determine their own risk tolerance before making any financial decisions. Cryptocurrency is a highly volatile, high-risk asset class.
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