Regulatory Risks in the Crypto Sector Post-FTX: Leadership Failures and SEC Actions Reshape Investor Confidence and Market Structure

The collapse of FTX in late 2022 marked a watershed moment for the cryptocurrency sector, exposing systemic vulnerabilities in corporate governance, transparency, and regulatory oversight. As the dust settled on the aftermath of Sam Bankman-Fried's 25-year prison sentence and Caroline Ellison's two-year term, the industry faced a reckoning. Leadership failures at FTX and its sister company, Alameda Research, underscored the urgent need for robust compliance frameworks and clearer legal boundaries. These events catalyzed a global regulatory response, with the U.S. Senate introducing the Responsible Financial Innovation Act and jurisdictions worldwide accelerating stablecoin regulations, such as the EU's Markets in Crypto Assets (MiCA) and the U.S. GENIUS Act according to a report.

Leadership Failures and Regulatory Reforms

The FTX scandal revealed a lack of accountability and risk management in crypto firms, with Bankman-Fried's fraudulent activities-estimated to have cost investors $11 billion-highlighting the dangers of unregulated innovation as research shows. In response, regulators began prioritizing stablecoins, a sector that became a focal point of policy in 2025. Over 70% of jurisdictions reviewed in the Global Crypto Policy Review 2025/26 introduced new stablecoin frameworks, emphasizing reserve transparency and redemption standards. These reforms aimed to prevent future collapses by aligning stablecoin operations with traditional financial safeguards.

The U.S. Senate's bipartisan push for the Responsible Financial Innovation Act sought to integrate cryptocurrencies into existing regulatory structures, assigning oversight to the SEC, CFTC, and OCC based on asset types. This approach balanced innovation with investor protection, a critical step in rebuilding trust after FTX according to industry analysis. However, the fragmented nature of global regulation remains a challenge, as highlighted by North Korea's $1.5 billion Ethereum heist on Bybit, which exploited unregulated infrastructure according to a report.

SEC Enforcement: A Double-Edged Sword

The SEC's post-FTX enforcement actions have been both a stabilizing force and a source of uncertainty. Under Chair Gary Gensler, the agency filed 200 enforcement actions in Q1 2025 alone, targeting insider trading, misrepresentation, and fraudulent schemes. For instance, the SEC's case against Ryan Squillante-a former equity trader who profited $216,965 from insider trading-demonstrated its commitment to holding individuals accountable according to a report. Similarly, the agency's $1.25 million penalty against FibroGen for misstating clinical trial results signaled a broader focus on corporate integrity according to industry analysis.

Yet, the SEC's enforcement strategy shifted dramatically in 2025 under Chair Paul Atkins, who prioritized "core mission goals" like investor protection over retroactive crypto enforcement. This led to a 30% decline in enforcement actions against public companies and subsidiaries compared to 2024, with several cases dismissed, including the long-standing action against Coinbase according to a mid-year update. While this realignment aimed to foster regulatory clarity, it also raised questions about the SEC's ability to deter misconduct in a rapidly evolving sector.

Investor Confidence and Market Structure

The FTX collapse eroded trust in crypto, with 40% of consumers associating the industry with criminality and fraud according to a survey. Surveys conducted in 2025 revealed a mixed recovery: while regulatory clarity-such as the GENIUS Act and anticipation of spot Bitcoin ETFs-boosted institutional adoption, retail investors remained cautious. Younger investors, in particular, relied heavily on social media and "finfluencers" for guidance, reflecting a fragmented trust landscape according to new research.

Academic analyses highlight the SEC's enforcement actions as a key driver of market structure changes. Compliance costs for crypto firms surged as they adapted to heightened scrutiny, particularly in areas like cybersecurity and operational resiliency according to industry reports. Meanwhile, institutional adoption accelerated in jurisdictions with clear regulatory frameworks, such as the U.S., EU, and Singapore, while regions with ambiguous rules saw firms adopt a wait-and-see approach according to a global policy review.

The Path Forward

The post-FTX era has underscored the need for global regulatory coordination to prevent arbitrage and mitigate illicit activity. The Financial Action Task Force (FATF) and Financial Stability Board (FSB) have emphasized cross-jurisdictional collaboration, particularly in tracking illicit flows like North Korea's Ethereum heist according to a report. For the crypto sector to regain long-term credibility, firms must adopt best practices from traditional finance, including robust governance and transparency according to industry analysis.

Investors, meanwhile, must navigate a landscape where regulatory clarity and enforcement efficacy are intertwined. The SEC's 2026 examination priorities-focusing on fiduciary standards and cybersecurity-signal a continued emphasis on investor protection according to a legal analysis. However, the sector's future will depend on its ability to balance innovation with accountability, a lesson etched deeply by FTX's collapse.