Category: News

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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.

Continue reading “Dueling Letters: Republicans Want SEC; Democrats Want SBF”

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agriculture committee democrats

Ranking Member David Scott (D, GA) announced the 23 new Democratic House Agriculture Committee members yesterday. The list included 10 holdovers from the previous Committee when Dems were in the majority. It’s hard to predict how the committee’s new faces will divide and conquer when it comes to digital assets. But, given the Biden Administration’s actions lately and yesterday’s Kraken news (below), digital asset interest may be difficult to pursue -especially for junior Democrats. In general, bipartisan Congressional power has lurched both pro- and anti-crypto in the past year.

On the House Ag Committee in the 118th Congress, and among the higher profile Democratic names in digital asset legislation, Rep. Darren Soto (FL) joins and Rep. Ro Khanna (CA) is no longer assigned. See the complete list. Democratic subcommittee assignments – especially on the newly re-named “Subcommittee on Commodity Markets, Digital Assets, and Rural Development” – could be illuminating on Democratic direction on digital asset legislation when announced. To date, only the Ranking Member, Rep. Yadira Caraveo (CO) has been revealed. Her position on digital assets is unknown.

Notably, Rep. Andrea Salinas (OR) joins the committee after beating a May ’22 primary challenger backed by Sam Bankman-Fried. And, committee newcomer Rep. Jill Tokuda (HI) beat a Republican in the General Election who was supported by Web3 Forward -a PAC associated with FTX executives and investors.

Rep. Jasmine Crockett (TX) and Jonathan Jackson (IL) join the Committee and were both supported by Web3 Forward.

In the last Congress, this House committee was responsible for the [H.R. 7614] Digital Commodity Exchange Act (DCEA) introduced by Chair Glenn “GT” Thompson with bipartisan co-sponsorship. The Committee also oversees the Commodity Futures Trading Commission.

Kraken down

Stressing the importance of investor protections, The Securities and Exchange Commission (SEC) announced a settlement with crypto exchange Kraken and its entities on Thursday which included a fine of $30 million and agreeing to shutdown its “staking-as-a-service program.” Read the SEC release.

Proper disclosures associated with the offering and the fact it was not registered as a security is cited. For example, on needed disclosures according to the SEC release: “When investors provide tokens to staking-as-a-service providers, they lose control of those tokens and take on risks associated with those platforms, with very little protection.” 

SEC Chair Gary Gensler said in a tweet (with a video): “Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries must provide the proper disclosures & safeguards required by our laws.”

Continue reading “New Democrats On House Agriculture; Kraken May Signal End Of Bipartisanship”

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choke point drumbeat

Perhaps building on the theme of a Nic Carter tweet on Monday that suggested a “Choke Point” type of operation “targeting the crypto space in the US”, Senator Bill Hagerty (R, TN) offered up his own tweet yesterday saying, “Regulators singling out business activities should alarm all Americans. It doesn’t matter if it’s crypto assets, firearms, or any other lawful business, using banking regulators to advance political agendas should not be tolerated.” Is he talking about a new Choke Point for crypto? Hagerty then linked to an early January Blockworks article about U.S. banks dabbling in crypto under the watchful gaze of U.S. government regulators.

Last year, Hagerty, who is considered to be pro-crypto, introduced one of many stablecoin bills in Congress along with Rep. Trey Hollingsworth (R, IN) called the “Stablecoin Transparency Act‘ -an attempt to provide clarity on how the US Dollar stablecoins can be created, used and managed. Any clear regulation saying how cryptocurrency, even stablecoins, can be used in connection to the U.S. dollar would be significant.

Alexander Grieve of D.C. government relations Tiger Hill firm tweeted, “Operation Chokepoint (using bank policy to deny banking services to sectors for political reasons) has been an issue in the past. Recent bank regulatory statements and actions seem to confirm it’s happening again – this time with crypto.”

This is a developing story.

Coinbase staking

Coinbase CEO Brian Armstrong tweeted last night, “We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.” He then links out to a Paradigm document on why Ethereum staking does not make ETH a security – see it here.

In the final tweet on his thread, Armstrong makes a plea, “Hopefully we can work together to publish clear rules for the industry, and come up with sensible solutions that protect consumers while preserving innovation and national security interests in the U.S.”

The crypto industry in the United States seems increasingly on edge. Is some big announcement coming?

Continue reading “Choke Point Drumbeat Echoed By Senator Hagerty; Coinbase Staking Rumors”

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broad regulatory jurisdiction

“The Securities Exchange Commission (SEC) is trying to seize broad regulatory jurisdiction over a massive new industry via an enforcement action against a 32-year old former Coinbase employee and his kid brother.” And so begins law firm Jones Day’s argument – which was submitted Monday to the courts – on why the SEC’s securities fraud case against Coinbase Manager Ishan Wahi should be dismissed.  Read the argument which includes comparison’s to the Howey Test beginning on page 17 of the request for dismissal (PDF)

Meanwhile, a guilty plea has been agreed to by the same Coinbase employee this week according to Reuters (subscription).  What’s going on here?

First, how the alleged scheme worked: before at least 9 different tokens were listed on Coinbase’s exchange, the Coinbase executive, Ishan Wahi, informed his brother about the imminent listing. His brother, Nikhil, would then buy the tokens on exchanges where they were already available. Once the coins were listed on Coinbase – which is an exchange with enormous liquidity relative to any other marketplaces – the token price invariably went up across the token’s entire market including Coinbase’s. And then Mr. Wahi’s brother would sell and profit.

The double-edged sword here is that there were two sets of charges: wire fraud and securities fraud driven by the Securities Exchange Commission (SEC).  There’s more to come on this legal battle as the SEC has until early April to respond to the request for dismissal.

Similar to Grayscale’s Bitcoin ETF case against the SEC coming March 7, the courts are increasingly being tasked with regulation. In this case: are these 9 digital asset tokens securities?

Mining

A new letter sent by 8 Democratic members of Congress led by Senator Elizabeth Warren (MA) expresses concern about the impact of mining cryptocurrency: “The urgency of the climate crisis, combined with the rapid growth of cryptomining in the U.S., dictates a comprehensive mandatory disclosure and data collection regime.” See the letter.

Continue reading “SEC Seizing Broad Regulatory Jurisdiction; Democrats Urge Mining Disclosures”

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TradFi’s crypto island vision

Traditional finance organization Independent Community Bankers of America (ICBA), which says its membership represents 99% of all banks in the U.S., is lobbying Congress  to “take a closer look at regulatory agencies’ ‘inadequate’ oversight of crypto and to resist efforts to let nonbank stablecoin issuers access the Fed’s payment rails,” reports Politico’s Zach Warmbrodt.

Indeed, the ICBA wants crypto explicitly separated from the banking system. The threat is apparently so acute that cryptocurrency goals lead the 2023 agenda list: “ICBA urges Congress to exercise robust oversight of the federal financial agencies. In particular, community bankers are concerned about agencies overstepping their statutory authority in rulemaking; the use of informal communications, including press statements and social media, to convey expectations and effectively make rules outside of the notice and comment requirements of the Administrative Procedure Act; and inadequate oversight of non-bank financial firms, including financial technology and cryptocurrency firms which pose significant risk to the broader financial system.” See the ICBA agenda.

Brown calls for crypto hearing

Senate Banking Chair Sherrod Brown (D, OH) has set a hearing titled “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets” for February 14. See Senate Banking’s February hearing schedule. The title for the hearing informs Brown’s pointed misgivings rather than potential for unlocking innovation in cryptocurrencies. Though he sent a letter in November to Treasury Secretary Yellen, Chair Brown offhandedly suggested at December’s “FTX implosion” hearing whether crypto should be regulated at all – perhaps suggesting that keeping it unregulated is to keep it outside of the U.S. financial system -another tactic of anti-crypto forces.

Keep an eye on: will Ranking Member Tim Scott (R, SC) attempt a partial roll out of his digital assets agenda at the hearing?
Continue reading “Bank Lobby Wants Crypto Isolated; FTX Debtors Want FTX Money Back”

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Scott on digital assets framework

New Senate Banking Ranking Member, Tim Scott (R, SC), announced that the Committee will be developing a framework for digital assets. From the press release: “The Committee will work to facilitate a bipartisan regulatory framework that accounts for both the rapid growth in the use of cryptocurrencies and the concerns raised by high-profile failures.” Read all of Scott’s priorities. However, this will be no easy task for Senator Scott as he bumps up against the agenda of Banking Chair Sherrod Brown (D, OH), who has expressed deep skepticism about cryptocurrencies – including at the December Senate Banking hearing on FTX where the Chair raised the issue of whether “regulatory clarity” was even needed.

Durbin inveighs against crypto

From the Congressional Record on Wednesday comes an entry (see it) from Sen. Dick Durbin (D, IL) who wanted to talk crypto on the Senate floor. Back in December, Durbin was critical of digital assets in the December Senate Agriculture hearing on FTX with CFTC Chair Rostin Behnam.

He did not hold back this time either with an 1,800+ word speech: “Let me tell you about crypto’s terrible, horrible, no-good, very bad year–2022. Let’s start with the most popular cryptocurrency, Bitcoin. In 2022, the currency cratered, losing more than 60 percent of its value in 1 year. To put it in perspective, if you bought one Bitcoin at the start of 2022 and held on to it today, you would be down $25,000. Think of all the Americans who could have held on to that cash for family needs or to cover a downpayment on their first home. Their money is gone…” Matt Damon, Larry David, and LeBron James are implicated as well by the Senator. Read the full speech.

Continue reading “Scott Announces Digital Assets Framework for Banking; Durbin Inveighs On Crypto”

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digital asset Democrats

Yesterday afternoon, just prior to the “Organizational meeting” for the U.S. House Financial Services Committee, Ranking Member Maxine Waters (D, CA) announced selections for Democratic subcommittee posts. The Majority Republicans announced their appointments last week.

For the new “Subcommittee on Digital Assets, Financial Technology and Inclusion,” the eight Democratic members will be:

• • Rep. Stephen F. Lynch (MA), Ranking Member
  • Rep. Bill Foster (IL)
  • Rep. Josh Gottheimer (NJ)
  • Rep. Ritchie Torres (NY)
  • Rep. Brad Sherman (CA)
  • Rep. Al Green (TX)
  • Rep. Sean Casten (IL)
  • Rep. Wiley Nickel (NC)

breaking down the Dems

Ranking Member Rep. Lynch brings his previous Congressional FinTech experience which includes his work as Chairman of the Task Force on Financial Technology  – originally established by Maxine Waters – in the 117th Congress.

Lynch, Foster, Gottheimer and Torres were members of the Congressional Blockchain Caucus in the last Congress with Foster assuming a caucus co-chair role. Rep. Gottheimer introduced the “Stablecoin Innovation and Protection Act” early last year – one of many stablecoin bills put forward in the last Congress.

Rep. Brad Sherman has been a notable critic of cryptocurrencies and Congressional blockchain buzz and will undoubtedly provide a sharp point-of-view in opposition to crypto proponents of the Committee regardless of party.

Rep. Al Green was Chairman of the Financial Services Subcommittee on Oversight and Investigations in the previous Congress and held a hearing in 2021 on “Crypto Frenzy” which looked skeptically at cryptocurrencies. He also asked during the questioning of current FTX John Ray at an HFS hearing in December if the implosion of crypto exchange FTX was “all one big mistake” and due to “sincere ignorance” on former FTX CEO Mr. Sam Bankman-Fried’s part. Mr. Ray answered dutifully, “Ultimately, others will judge him by actions.”

Continue reading “Digital Asset Democrats Designated; McHenry Critical Of SEC Chair Gensler”