U.S. lawmakers have demanded an investigation into the SEC's violations

2024-01-14 07:42:09

On January 9, the SEC’s X account was hacked, issuing a fake ETF approval notice.

Senators Ron Wyden and Cynthia Lummis asked the SEC (SEC) to investigate in a Jan. 11 letter.

The two lawmakers asked SEC Inspector General Deborah Jeffrey to launch an investigation into the security breach that occurred two days ago and the agency’s failure to follow best cybersecurity practices.

The breach resulted in an unknown party illegally accessing the SEC’s X account and issuing a false announcement implying that the agency had approved SpotBitcoin ETF. Although the US SEC de facto approved the type of ETF a day later, the agency said the initial news was false and confirmed the violation.

Senators say the SEC should use multi-factor authentication and anti-phishing hardware tokens (i.e., security secret keys). They asked the investigation to focus on these issues and look for any other security vulnerabilities. Senators are asking for an update on the investigation by Feb. 12, 2024.

Did the SEC violate any rules?

Senators Wyden and Lummis did not suggest that the SEC violated any specific rules through negligence as a result of the breach.

The two senators noted that the White House Office of Management and Budget (OMB) issued a memo in January 2022 requiring agencies to use multi-factor authentication and security secret keys. While they acknowledge that this policy does not apply to social media sites, they say the memo makes it clear that the features are necessary to prevent attacks.

The senators did not suggest that the U.S. SEC violated certain rules that require companies to disclose securities violations. The senators, however, did hint at hypocrisy in this regard: they called the SEC’s failure “unforgivable, especially in light of the agency’s new requirements for cybersecurity disclosures.”

The senators also highlighted the “clear potential” of market manipulation in their complaints. In fact, Bitcoin suddenly fell as the SEC exposed the false nature of the announcement. Within two hours of 9:00 p.m. UTC on January 9, the price of Bitcoin (BTC) fell from $46,865 to $45,415, a drop of about 3%.

Despite the serious nature of the SEC’s mistakes, the possible consequences for the agency are unclear due to the lack of any specific violations.

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