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Mark Cuban, John Reed Stark clash over the cause of FTX’s collapse

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Beaxy

Mark Cuban thinks the SEC could have saved U.S. customers from FTX had it adopted Japan’s approach to crypto regulation, but John Reed Stark disagrees.

Billionaire entrepreneur Mark Cuban has again locked horns with former securities chief John Reed Stark, this time over who was ultimately to blame for FTX’s collapse and the impact on creditors.

During a heated back-and-forth exchange, Cuban argued had the United States Securities and Exchange Commission set “clear regulations,” no one would have lost money from its collapse.

Stark earlier suggested cryptocurrency and stablecoins — including central bank digital currencies — solve no problems and that the crypto industry operates without regulatory oversight, consumer protections and audits, among other things.

You should read up on how Japan deals with regulation. https://t.co/yHCVwZAqvG

When FTX crashed, NO ONE IN FTX JAPAN LOST MONEY.

If the USA/SEC had followed their example by setting clear regulations that required the separation of customer and business funds and clear… https://t.co/Msvn9o9PCU
— Mark Cuban (@mcuban) July 4, 2023

Cuban argued that Japanese regulators — an increasingly Web3 friendly jurisdiction — are an example of a regulator that has done it right.

“When FTX crashed, NO ONE IN FTX JAPAN LOST MONEY,” he said.

Stark — a cryptocurrency skeptic — shot back, saying it “seems a bit of a stretch” to blame the SEC for the collapses of FTX, BlockFi, Celsius, Terra and Voyager, or what he called “dumpster fires.”

While Stark conceded that the SEC isn’t always right, he claimed the regulator saved investors “millions, perhaps even billions” in crypto losses.

The ex-SEC official claimed while the cryptocurrency industry seeks regulatory clarity, whenever rules are promulgated or proposed, “the crypto industry cries foul” and often responds by filing a “flashy legal challenge to its enactment.”

Cuban hit back, explaining the “best way” to prevent cryptocurrency fraud is to implement “brightline investor protection regulations.” He added:

“Anyone who doesn't register is de-facto in violation, can't operate and will be shut down. That's how you protect crypto investors.”

Stark, however, claims that the SEC only charged the likes of Binance, Coinbase, Beaxy and Bittrex months after the regulator made it clear that those firms were not in compliance.

“[These firms] opted to ignore the SEC — and reap profits for as long as possible without registering,” Stark added.

That is worthy of study Mark, thanks.

The laws in Japan require crypto exchanges to register with authorities, to keep customer money separate from their own accounts, to hold at least 95% of customers’ digital assets in a cold wallet and to entrust clients’ holdings of…
— John Reed Stark (@JohnReedStark) July 4, 2023

It is the second time in three weeks that the pair have clashed over how cryptocurrency should be regulated.

On June 11, Cuban called out the SEC for purportedly failing to provide cryptocurrency firms with a clear registration process.

He claimed it’s “near impossible to know” what constitutes security because the SEC’s “Framework for ‘Investment Contract’ Analysis of Digital Assets” document fails to explain how cryptocurrency firms can come into compliance.

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Coin Telegraph

The billionaire investor got stuck into a heated debate with former Securities and Exchange Commission official John Reed Stark over crypto regulation.

Crypto Twitter was witness to a fierce debate this week, with billionaire investor Mark Cuban accusing SEC’s Gary Gensler of throwing crypto under the bus while a former SEC official was quick to come to the regulator’s defense.

In a spirited back-and-forth exchange on Twitter with former SEC officer John Reed Stark that started on June 14, Cuban took issue with Stark’s seeming defense of the SEC’s recent legal action against crypto exchange giant Binance.

Cuban accused Stark of misinterpreting the impact of the case and blamed SEC Chair Gary Gensler’s “regulation via litigation” approach for sabotaging crypto startups.

John. I think you are misreading the impact of what the judge said. It’s not related to this suit.

Not all crypto businesses that have tokens or are considering using tokens are large “enterprises”. Which is the assumption, I believe you are making. (Correct me if I’m wrong…
— Mark Cuban (@mcuban) June 14, 2023

Stark had earlier argued that crypto-related businesses should be treated as “large enterprises” by regulators. However, Cuban argued that many crypto businesses are small and shouldn't be told to “hire securities lawyers” just to get a start in the industry.

Stark also reiterated his support for the SEC’s actions against Binance, noting that the industry remains largely unregulated and that the move will eliminate “bad actors” and promote transparency.

From there, the debate pivoted to a discussion on how best to regulate cryptocurrencies, with Stark pushing the line that crypto assets should not be treated as “pink sheets or stocks.”

Conversely, Cuban called Stark’s take biased, suggesting that tokens could, in fact, be treated similarly to other securities and that the SEC should propose clearer guidelines for them.

Mark Cuban is a well-known American entrepreneur and investor. He first became involved in crypto in 2017, when he declared Bitcoin (BTC) to be nothing more than a pyramid scheme. Over time, Cuban has become more supportive of digital assets and now appears to advocate for the industry.

Now we are talking tech. You are in my space John. I don’t comment. I do. My entire career has been people telling me why the companies I started were ridiculous and not needed. Until they found themselves using them.

Smart contracts are about 6 years old. Maybe the name… https://t.co/da2zEvjtHU
— Mark Cuban (@mcuban) June 15, 2023

John Reed Stark was previously chief of the SEC’s Office of Internet Enforcement. Currently, Stark stands as a moderate skeptic of crypto and provides a wide range of legal commentary on digital assets to his 21,000 followers on Twitter.

Ultimately, Cuban conceded that just like all of the early-internet companies, “90 percent of blockchain companies” and “99 percent of tokens” will go broke. Those that emerge victorious “will be game changers. That’s the way tech works,” he said.

Cuban wrapped things up with words of support for crypto, saying that no one could refute the potential impact of crypto on the wider economy.

He said “Crypto Derangement Syndrome” — his term for an irrational hatred of crypto — would have the same negative effect as those overhyping its potential.

“With all due respect, Crypto Derangement Syndrome is just as big a problem as the crypto maxis over hyping crypto.”

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Former SEC chief blasts ‘bogus’ catchphrase: ‘Regulation by Enforcement’

January 23, 2023 Coin Telegraph

Coin Telegraph

Lawyer and former SEC official John Reed Stark came out in defense of the SEC’s enforcement efforts in the crypto space.

A former Securities and Exchange Commission (SEC) official has slammed "cryptocurrency lobbyists" for labeling SEC enforcement actions as "regulation by enforcement" — calling the term a "Bogus Big Crypto Catch Phrase."

John Reed Stark, a former chief of the Securities and Exchange Commission Office of Internet Enforcement and a crypto skeptic, opined in a Jan. 22 post that the argument is "sorely misguided" as it was just how securities regulations worked.

"Litigation and SEC enforcement are actually how securities regulation works," he argued. "The flexibility of SEC statutory weaponry is an SEC hallmark, enabling SEC enforcement to keep fraud in check."

"In fact, the repetitive chorus of RBE [Regulation by Enforcement] is not only a misguided, deflective effort designed to tap into sympathetic libertarian and anti-regulatory mores – it's also utter nonsense."

According to Stark, when the SEC Office of Internet Enforcement was created in 1998, there were critics who said SEC regulations were too vague and regulation by enforcement would stifle the growth of the Internet.

"In hindsight, relying upon the flexibility of securities regulation to police the Internet cleared out the more egregious instances of early online securities fraud," he argued.

"Moreover, vigorous online SEC enforcement efforts also paved the way for legitimate technological innovations to flourish, rendering markets more efficient and transparent, thereby allowing investors more opportunities for success,” he said.

Over the last few years, the SEC has launched more than a few high-profile cases against crypto companies such as Ripple and LBRY, prompting some critics to label the SEC as using enforcement actions to develop the law on a case-by-case basis rather than creating clear regulations.

Regulation by enforcement has a terrible chilling effect, and rhetoric matters - we've already seen a huge amount of crypto talent, asset issuers, and startups go offshore.
— Brian Armstrong (@brian_armstrong) September 20, 2022

Ripple General Counsel Stuart Alderoty has also previously questioned the approach in a Nov. 28, 2022 post, citing the high-profile collapse of FTX and the related contagion that claimed BlockFi as evidence it doesn't.

Another SEC “regulation by enforcement” success story.

Months after $100M BlockFi/SEC deal BlockFi in b/cy. $275M loan outstanding to FTX from BlockFi. Unknown amounts owed to BlockFi from FTX. Nothing ever registered. Fines paid? With whose money? Consumers decimated. https://t.co/XWflfRDIMk
— Stuart Alderoty (@s_alderoty) November 28, 2022

In Starks opinion however, the SEC is following the law with its actions, citing the legal wins where courts have found in its favor.

"Indeed, courts have upheld a broad array of SEC cases involving crypto-related offerings. In fact, in the 127 crypto-related enforcement actions already filed by the SEC, the SEC has not lost a single case," Stark said.

"The SEC's approach is rarely improperly expansive, nor does it involve rogue SEC enforcement efforts."

"Rather, the SEC typically adopts a reasoned, common sense application of the basic requirements of the federal securities laws to new and evolving market conditions and technologies," he added.

Timothy Cradle, a former Celsius employee and current Director of Regulatory Affairs at the Blockchain Intelligence Group replied to Stark's tweet, questioning whether clear regulations would ultimately be a better policy than regulation by enforcement.

"I agree with the argument, however, would it be too much to ask that the SEC and CFTC issue guidance much in the same way FinCEN did in 2019?" he said.

"If big crypto is saying it needs clear rules of the road, wouldn't it make sense for the regulators to clarify in an official communication, such as guidance, that their rules do apply to cryptocurrencies?" Cradle added.

Chris Hayes, a former Advisory Board Member for the PA Blockchain Coalition also commented, arguing that "A sensible regulatory approach would be for the SEC to issue a request for comment on how digital assets might not be able to meet the registration obligations due to their digital nature on blockchain."

"Take that information and then propose a rule on how these tokens can comply under the 33 act, taking into account the technological differences that impact custody, secondary sales and settlement time/structure in comparison to traditional securities."

John Reed Stark

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