To his credit, Securities and Exchange Commission chief Gary Gensler is arguing that the Sam Bankman-Fried crypto scandal doesn’t mean we need more regulations to rein in digital-coin excess and fraud. Laws are on the books that give the current regulatory and legal system plenty of tools to prosecute bad actors. Plus theft has been illegal since the beginning of civilization.
But if our regulators are properly armed, how did the furry-haired alleged fraudster get away with something that could rival the wrongdoing of the notorious Bernie Madoff and his $65 billion Ponzi swindle?
To answer that question, you need to dissect how both Madoff and the dude known as SBF worked the regulatory apparatus — “capturing” it, if you will, so that the inquiring minds in government didn’t think it was worth their time to look into the duo’s too-good-to-be-true dealings.
Yes, “regulatory capture” — that is, the industry having sway over regulators and not vice versa — is a real problem, and has been as the financial system has grown in size, wealth and power.
On one hand, the revolving door between financial business and government is inevitable. People who work for the SEC or DOJ have a knowledge base that could benefit Wall Street firms looking to avoid trouble. The flip side of all of this is when the regulators have an eye on making a lot of money when they decide to switch sides. That’s when the…
