Custodia Bank CEO slams Washington’s ‘misguided crackdown’ on crypto

Custodia Bank CEO Caitlin Long has criticized regulators and lawmakers in Washington DC for their “misguided crackdown” on the crypto sector, and also for ignoring her warnings about larger “fraud” allegedly perpetrated by now-bankrupt entities.

In a Feb. 17 blog post titled “Shame on Washington, DC for firing a messenger who warned against the crypto debacle,” Long tore into the government for its approach to crypto regulation, failing to protect investors and alienating good players in the space:

“Washington’s misguided crackdown will only push risks into the shadows, leaving regulators to play dumb while risks continually pop up in unexpected places.”

Long emphasized that with her digital asset custody company, she has “called out the worst of crypto while trying to build a legal, compliant alternative that relegates fraud to the trash heap. But […] most of today’s decision-makers seem intent on killing the high-integrity innovators.”

The managing director of Custodia Bank claimed that her efforts to cooperate with government agencies eventually backfired as she recounted the spate of negative run-ins at her firm recently.

“Custodia was simultaneously attacked by the White House, the Federal Reserve Board of Governors, the Kansas City Fed and Senator Dick Durbin (who confused our unleveraged, 100 percent liquid and solvent bank with FTX in a Senate speech),” she said, adding to that:

“Custodia tried to be federally regulated—the very result that bipartisan policymakers claim to have. Yet Custodia has been denied and now scorned for daring to come through the front door.”

Her sentiments echo figures such as Coinbase CEO Brian Armstrong, who has suggested on several occasions that agencies such as the Securities and Exchange Commission (SEC) have reacted frostily to the firm’s efforts to maintain a dialogue in good faith.

Earlier this month, Armstrong also criticized the lack of regulatory clarity in the US and what appears to be a “regulation by enforcement” approach following the SEC’s move to shut down Kraken’s staking services on February 9.

“Today’s regulators and lawmakers in Washington are no doubt embarrassed by their failure to stop cryptocriminals. DC demands a scalp,” Long wrote in the blog post, adding that:

“Calls for action today come from many of the same politicians who were charmed by the fraudsters. In a 180-degree turn, they are now throwing the baby out with the bathwater.”

Inappropriate warnings

On Twitter, Long also suggested that long before the implosion of several crypto firms in 2022, she and many others had tried to warn Washington and “help law enforcement stop” major scams, but to no avail.

Related: SEC vs. Kraken: A one-off or opening salvo in an attack on crypto?

Long stated that she disclosed publicly for the first time that she had “turned over evidence to law enforcement of probable crimes” committed by an unnamed crypto firm “months before that company imploded and saddled its customers with millions of losses.”

Kraken co-founder and CEO Jesse Powell responded to Long’s Twitter thread, essentially confirming her statements by noting that: “I can’t tell you how annoying it is to have pointed out massive red flags and obviously illegal activity to regulators just to to have them ignore the problems for years.”