The collapse of FTX led to billions of dollars in losses for investors and lenders - all of which could have been avoided if regulators had paid enough attention to the crypto sector. Now they're just imposing reckless restrictions against the industry's platforms, which will only make things worse in the long run, says a Custodia Bank spokeswoman.

Earlier in February, the U.S. Securities and Exchange Commission recalled its existence by banning cryptocurrency stacking on the Kraken exchange for U.S. residents and by suspending further issuance of BUSD Stablecoin from Paxos and Binance.

Binance chief executive Changpen Zhao

The actions have predictably caused misunderstanding from the blockchain industry. After all, Kraken is one of the most popular cryptocurrency exchanges in the world, which follows regulations. Well, BUSD is a Stablecoin whose value is tied to the dollar exchange rate and thus does not promise investors any profits.

According to Custodia Bank’s head, regulators are clearly doing the wrong thing here.

Cryptocurrency regulation problems

According to Cointelegraph’s sources, Long published an article criticising the regulators’ actions on her blog. She noted that their approach to regulating cryptocurrencies does not protect investors’ interests and only scares off bona fide market participants. Here is a relevant rejoinder in which the expert shares her take on what is happening.

Washington’s misguided campaign will only increase risks by forcing regulators to play cat-and-mouse, as they will only deal with the sudden symptoms of a real problem.

In this case, the expert makes it clear that the Securities and Exchange Commission reacts belatedly to what is happening, causing investors to lose their own money after all. A case in point here is the recent lawsuit against Terra ecosystem creator Do Kwon, who was accused of securities fraud. And while such a case sounds justified, the collapse of LUNA and UST occurred in May 2022. Accordingly, it took more than six months for the regulator to start doing something on an official level.

Custodia Bank CEO Caitlin Long

Long noted that her company was trying to create a legitimate compliant alternative that could make a significant contribution to the fight against fraudulent schemes. But right now, the only thing in the interest of most regulators is the complete elimination of any innovation, the Custodia Bank executive said.

Most interestingly, her attempts to cooperate with government agencies have been in vain. Moreover, Custodia Bank has even received a lot of unflattering comments in its direction from regulators. In other words, instead of “ensuring that the cryptocurrency market is regulated in accordance with the law”, many regulators and lawmakers are simply “looking for the edge” to imitate their tumultuous activities.

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Caitlin commented on what is happening as follows.

The calls for harsh measures are now coming from many of the same politicians who were previously enamoured of the frauds. So now they have turned 180 degrees and are throwing the baby out with the bathwater.

Here Long is clearly alluding to the situation with FTX crypto-exchange founder Sam Bankman-Fried. Still, he was indeed in close relations with some politicians and received special privileges from them.

She also stated that she had repeatedly warned regulators about actual fraudulent schemes within the digital asset industry. However, her information was ignored.

The co-founder of cryptocurrency exchange Kraken, Jesse Powell, responded. He has his own theory on the matter.

I have a theory.

Regulators let the bad guys get big and bust because it suits their purposes.

1. To destroy capital and resources in the cryptocurrency ecosystem.
2. Create problems for people and hinder the popularisation of cryptocurrencies.
3. Giving air cover to attack the good players.

The bad guys are actually on their side. The good guys are the enemy.

Kraken co-founder Jesse Powell

Meanwhile, the US Securities and Exchange Commission (SEC) announced a $1.4 million fine with former NBA player Paul Pierce for promoting the EthereumMax token (EMAX) on his social media accounts. Pierce was involved in a marketing campaign for EMAX in 2021, with SEC officials stating that he did not disclose the fact that he had been paid by the creators of the project.

Pierce also allegedly misled investors with knowingly false statements. For this, advertisers paid the athlete $244,000 to EMAX.

Paul Pierce’s EMAX ad on Twitter

This is not the first time the US Securities and Exchange Commission has sanctioned celebrities who have been involved in promoting EthereumMax. In October 2022, the regulator made an announcement of a $1.2 million settlement with Kim Kardashian on similar charges as in the case of Pierce. The star posted posts about the project on her Instagram page.

Kim Kardashian’s Instagram post promoting EMAX

The fine against Pierce was also commented on by SEC head Gary Gensler. Here’s his rejoinder.

This case is another reminder for celebrities. The law requires you to disclose to the public from whom and how much you receive for promoting securities investments, and you cannot mislead investors when you advertise securities.

Overall, the Commission’s actions in this vector carry a lot more merit than the recent sanctions against cryptocurrency exchange Kraken. Advertising projects with dubious prospects is one of the reasons why the cryptocurrency industry is shunned by big investors. So it really needs to be dealt with.


We believe that the events of February this year do raise questions for the US Securities and Exchange Commission and other such regulators. Still, they ignore cryptocurrency fraud, react too late to it, but instead they put sticks in the wheels of normal companies that are trying to operate in accordance with all the rules. Of course, this state of affairs is far from normal, so the authorities should clearly draw conclusions.


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