Sam Bankman-Fried Found Guilty; Capital Markets Hearing Drips With SEC Overreach

SBF is guilty

Here’s a selection of media outlets who covered the trial of FTX CEO Sam Bankman-Fried and the guilty verdict on all 7 counts last night:

what you should know: There is still a second trial expected in March 2024 which will cover the campaign finance laws that Bankman-Fried violated.

yesterday’s HFS hearing

Yesterday’s 2-hour House Financial Services (HFS) Capital Markets Subcommittee Hearing on the SEC’s agenda for capital markets went as expected.  The Republican majority, owners of the Committee’s agenda, led by subcommittee Chair Rep. Ann Wagner (R, MO), expressed deep skepticism about the SEC’s machinations in the markets. And the Democratic caucus provided support *mostly* for the SEC.

See the recorded video and hearing documents here.

Rep. Wagner noted the SEC had not responded within the requested 30 days to a Congressional letter in September on the SEC’s predictive data analytics rule proposal. Previously, HFS Chair Patrick McHenry (R, NC) threatened to subpoena SEC Chair Gary Gensler at a September SEC Oversight hearing for Gensler’s and his agency’s lack of meaningful response to Congressional requests. Is Wagner’s letter and the resulting echo another mark in favor of the threatened subpoena?

Rep. Brad Sherman (D, CA), the subcommittee’s Ranking Member, spoke next and didn’t hesitate to commence with criticism of digital assets and laud the SEC for its jurisdiction over it saying, “Some $130 million of cryptocurrency has gone to Hamas and Palestinian Islamic Jihad and the SEC is the one agency here in Washington that is most effective in clamping down on crypto which is designed to be a perfect means for *hidden money* –  hence the term *cryptocurrrency*  – getting to the worst actors in the world.” Sherman’s comment appeared to use data from an October 10 WSJ article that has since been corrected by the reporters.

HFS hearing – Q&A

Rep. Sherman brought up a proposed “safeguarding” rule – the SEC’s controversial custodial rule which would inhibit digital assets. Sherman said it was a good rule for crypto (intangible assets), but questionable when it comes to tangible assets. SIFMA CEO and witness Ken Bentsen quickly answered that the rule was an overreach by the Commission and “inconsistent with how prudential regulators govern custodians.”

Rep. Wiley Nickel (D, CA) brought up SAB 121 – another custody quagmire for digital assets and the recent GAO decision against the SEC’s bulletin. Nickel was not a fan of SAB 121 and neither was SIFMA CEO Bentsen in that it has forced traditional banking firms to abandon plans (e.g. BNY Mellon) to provide custody of digital assets.

Noting the 61 rules issued by the SEC in the current Administration, Rep. French Hill (R, AR) strongly criticized SEC Chair Gary Gensler during his five minutes of witness questioning and noted how the SEC is now losing in the Federal courts (Grayscale, Ripple among others). Hill then had the Wall Street Journal editorial published yesterday – “Gary Gensler loses again” – entered into the Congressional record.

more tips:

Read, “Gary Gensler and the SEC Lose Again” by The Wall Street Journal’s Editorial Board.

what you should know: In spite of some Dem support, whether you’re a Democrat or Republican, the SEC is a bipartisan magnet for griping.

battleground Ohio

Senate Banking Chair Sherrod Brown (D, OH) is colliding with digital asset supporters’ efforts amidst the Senator’s re-election campaign. But, Brown appears unfazed and tells Politico’s Zach Warmbrodt: “I don’t care if they do… They only serve to discredit themselves. These corporate interests are going to attack me for standing up to their illicit financing of terrorism and fentanyl? I mean, bring ’em on if that’s what they’re going to do.” He never changes.

Brown’s 2024 Republican adversaries are all running even with him according to recent polls.  Read more on the state of play in Ohio.

more tips:

How Ohio became a key player in the fight over cryptocurrency regulations (Sept. 20) – Columbus Dispatch

what you should know: The “Stand With Crypto” lobbying effort, created by Coinbase, continues to target Ohio. Yesterday, the org held a “Digital Town Hall” with Rep. Greg Landsman (D, OH), a member of the Problem Solvers caucus. Landsman asked questions and mostly listened to participants’ answers during the event. At best, he is undecided on digital assets legislation and in “learn” mode.

Rep. Casten

Rep. Sean Casten (D, IL) is taking a leadership role among anti-crypto House Democrats on digital assets policy. One of his first solo moves was his prominent “page 1” signature on the Sen. Elizabeth Warren (D, MA) letter to the White House last month in regards to crypto and terrorist financing coming just after the October 10 Wall Street article.

This past Monday, Casten penned an op-ed in The Hill titled,”Stopping future crypto-financed terrorism.” Read it. Among other points, Rep. Casten believes all the recent House Financial Services Committee legislation on digital assets such as the stablecoin and digital asset market structure bills need to be “rescinded.”

Casten also claims the industry is getting in the way writing, “It’s also time for the crypto industry to put safety first. Since 2020, the industry has spent more than $45 million on its lobbying efforts, with nearly $6.6 million of that being spent in the second quarter of this year alone. Those efforts led directly to the bills introduced above. Given the damage to their own reputation, they need to call to rescind those bills and replace them with ones that provide no differential regulation between alternative money transfer systems.”

what you should know: Rep. Casten appears to be the perfect warrior for anti-crypto Democrats. At last week’s HFS Subcommittee on Digital Assets, Financial Technology and Inclusion hearing on FinTech, he said “As long as we have mixers and anonymous wallets, blockchain is just a really bad accounting system.” Rep. Casten doesn’t seem to like the technology. But, at the inaugural Digital Assets Subcommittee hearing in March, Rep. Casten audibly worried about sounding like a “luddite” and said, “blockchain is a fascinating technology.”

stablecoin subpoena

Payments provider PayPal announced yesterday that it received a subpoena about its stablecoin plans from the SEC. The Company’s stablecoin – known by the ticker PYUSD – had received scrutiny from anti-crypto Democrats who were embroiled in negotiations over the House Financial Services Committee stablecoin bill.

On August 10, HFS Ranking Member Maxine Waters (D, CA) said at an HFS hearing, “I am deeply concerned that PayPal has chosen to launch its own stablecoin while there is still no Federal framework for regulation, oversight, and enforcement of these assets…” Read more. And poof… a subpoena.

PayPal’s public filing from yesterday reads, “On November 1, 2023, we received a subpoena from the U.S. SEC Division of Enforcement relating to PayPal USD stablecoin. The subpoena requests the production of documents. We are cooperating with the SEC in connection with this request.”

what you should know: Anti-crypto Dems want “pre-emptive” Federal oversight of stablecoins, pro-crypto forces want “parallel” State and Federal oversight. This subpoena would appear to be an extension of that battle and echoes criticism of the SEC and its efforts to rein in the alleged abuses or autonomy its Democratic majority sees in the private sector. The subpoena was also well-timed to yesterday’s HFS hearing, run by the Republican majority, on the SEC agenda.

sanctions tightrope

According to the Congressional record, Rep. French Hill was on the House floor on Wednesday and spoke in support of “H.R. 340, the Hamas International Financing Prevention Act.” The bill, re-introduced by Rep. Brian Brian (R, FL) and co-sponsored by Rep. Josh Gottheimer (D, NJ), (originally in January), emphasizes the importance of sanctions in combatting terrorist financing. See more on Rep. Mast’s website. It passed by a vote of 363-46.

Meanwhile, digital assets have been inextricably tied to Hamas and terrorist financing by the recent WSJ article and Republicans (House Republicans, in particular) have been careful not back away from it. Yet, Republicans emphasize sanctions as the optimal answer.

On the other hand, Democratic leadership (in the Senate, in particular) appears to back sanctions as well as sees the need to crack down on digital assets.

Rep. Hill said Wednesday, “In addition to my work on the Foreign Affairs Committee, I serve on the House Financial Services Committee. Over the years that I have been in Congress, I have been on the Task Force to Investigate Terrorism Financing and the Subcommittee on Terrorism and Illicit Finance. Today, once again, we come to this House floor to tackle a new form of illicit finance. It was shocking to a lot of people in America to read in The Wall Street Journal that Hamas is now using digital assets in order to raise funds and move money around. Just as we tackle illicit charitable use, illicit cash use, illicit bank use, this committee is dedicated to tackling this new form of escaping our anti-money laundering Bank Secrecy Act laws in order to fund terror. I expect all of my colleagues to be together, working together to pass this bill and, in fact, standing up against this new form of terror finance by using digital assets.”

hear ye, hear ye

This could be fun. The HFS Committee led by Chair McHenry announced a full Committee Hearing titled, “Member Day.” Taking place on November 9 beginning at 9 a.m. ET, “Members of Congress, Delegates, and the Resident Commissioner will have the opportunity to testify before the Committee.” Read a bit more.

Also, another hearing on the Internal Revenue Service (IRS) proposed rulemaking for digital assets has moved to November 13 (was November 7). The IRS said yesterday, “Given the large amount of interest in the issue, the IRS wanted to give as much advance public notice of the change in advance of the Federal Register notice. In addition, the hearing will be conducted telephonically, rather than at the IRS headquarters building in Washington. The Federal Register will have additional details on how the public can listen to the hearing.” Read more.


Coinbase beats Q3 estimates, USDC interest income rebounds to $172 million – The Block

Block shares surge after earnings beat and strong Square, Cash App growth – CNBC

still more tips

Commissioner Pham Announces Agenda for the Upcoming Global Markets Advisory Committee Meeting on November 6 –

Guidance for crypto firms to help them comply with marketing rules –

Hong Kong to stoke tokenisation of real-world assets and stablecoins to build web3 hub – DL News

Sam Bankman-Fried Lambasted by Prosecutor Right Before Jurors Begin Deciding His Fate: SBF Thought ‘He Could Fool the World’ – CoinDesk