Letters from House Financial Services
Posted on by John Ebbert

Dueling Letters: Republicans Want SEC; Democrats Want SBF

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letter #1: investigating SEC

Republicans apparently never forgot that last December former FTX CEO Sam Bankman Fried (SBF) was arrested the day before he was scheduled to appear in front of the House Financial Services (HFS) Committee.

On Friday, Republicans, who represent the new majority of HFS sent a letter (see it) requesting a record of all Securities and Exchange Commission (SEC) communications about FTX founder Sam Bankman Fried (SBF) from November 2, 2022 to last Thursday, February 9, 2023.

Chair Rep. Patrick McHenry (R, NC) and Rep. Bill Huizenga (R, MI), who is Chair of the House Oversight Subcommittee on HFS signed the letter and gave the SEC and its Chair, Gary Gensler, two weeks to deliver. They write, “The timing of the charges and his arrest raise serious questions about the SEC’s process and cooperation with the Department of Justice.” Unspoken is that Republicans believe that some sort of partisan malfeasance may have been perpetrated to willfully undermine the ability for the Committee to talk to SBF. Gensler is a Democrat appointed by the Biden Administration in 2021.

In Friday’s tweet containing the screenshots of the letter, Rep. Huizenga explained, “Since [Gary Gensler] won’t abide by his own polices to ‘come in and talk’, the House GOP will hold him accountable.” Republicans have kept their request strictly to SBF rather than a broader focus of SEC communications about FTX.

In addition to Gensler, the SEC’s head of enforcement, Gurbir Grewal, is also singled out in the letter. Given the Feb. 24 delivery requirement for the SEC by the Committee, an update from the Committee on next steps such as a hearing would likely come the week of Feb. 27. 

letter #2: investigating SBF

On Friday evening, House Financial Services Ranking Member Maxine Waters (D, CA) delivered in a letter the Democratic response to McHenry/Huizenga and requested that the Committee pursue SBF rather than the SEC:  “I believe that the Committee’s efforts would be best spent obtaining a complete understanding of the improper activities that took place at FTX, why they occurred, and who was responsible for those actions, so the Committee can assess whether additional statutory or regulatory reforms are necessary to prevent such events in the future.”

Back in early December, and prior to SBF’s arrest, then-Chair Waters and SBF communicated openly on Twitter about Bankman-Fried’s possible appearance in front of the Committee on December 13.

At the end of Friday evening’s letter, Ranking Member Waters holds out the fig leaf of legislation to protect consumers to McHenry: “Working together, our Committee can get to the bottom of the events that occurred, and we can take the urgently needed steps to pass legislation in a bipartisan manner that protects investors and prevents a failure like FTX from ever happening again.” This positioning toes the line of the Biden Administration’s and the SEC’s anti-crypto “tilt” recently with no mention of, or interest in, promoting innovation.

See the Democratic House Financial Services press release, too. It appears increasingly possible that Democratic leadership also believes remaining anti-crypto is a winning issue that can help them in the 2024 presidential election.

passive but aggressive

“’We had not tried to sit down with people in the industry‘ to discuss staking” – said Republican SEC Commissioner Hester Peirce about last week’s SEC enforcement action against crypto exchange, Kraken.  According to Coindesk who reported on her comments at a University of Pennsylvania student conference, she believed the SEC actions were “arbitrary.” Read more. Peirce’s dissent on the Kraken opinion was the only one among the three Democrats and two Republicans on the Commission.

Fed governor on crypto

Speaking on Friday at the Global Interdependence Center Conference: “Digital Money, Decentralized Finance, and the Puzzle of Crypto,” Federal Reserve Governor Governor Christopher Waller offered his views on the crypto landscape. In his speech, he said, “To me, a crypto-asset is nothing more than a speculative asset, like a baseball card.” But, he concluded with hope for the future, “While it is critical that we ensure that the financial stability risks associated with crypto-assets are mitigated, it is important that we keep the various parts of the crypto ecosystem distinct in our minds as the debate about if and how to regulate crypto rolls on. Doing so will ensure we do not unduly limit the development and potential future uses of the positive features of the crypto ecosystem.” Read the speech.

A video of the entire 6-hour conference is available online and includes participation as diverse as the Federal Reserve (3 members), Wisdom Tree, Caterpillar, Coinbase and Fidelity. See the agenda.

Later in the day, Patrick Harker, CEO of Federal Reserve Bank of Philadelphia, participates in a fireside chat with RiskBridge Advisors’ William Kennedy and worries that what crypto shows – in part – is that we are becoming “a gambling society.” (begins 4:17:00) That said, he does express interest in CBDCs and what it could do for payments.

today’s events

Commodity Futures and Trading Commission (CFTC) is hosting (see press release) its Global Markets Advisory Committee (GMAC) meeting today beginning at 9:30 a.m. ET. See the agenda spearheaded by Commissioner Caroline Pham. Digital assets are featured. And, visit the live webcast on YouTube.

CFTC remit

At the FIA-SIFMA Asset Management Derivatives Forum last Friday, Commissioner Christy Goldsmith Romero of the Commodity Futures Trading Commission (CFTC) gave a speech focused on “Cyber and Climate Resilience” and said that digital assets strategy at the Commission will serve as a helpful outline in these areas. She suggested, “Just as we have done with digital assets, working with exchanges and market participants on new products in this emerging area would fulfill the Commission’s critical role of ensuring integrity in our markets.” Read it.

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