US pols demand answers from ‘crypto’ exchanges

US policymakers want answers from both cryptocurrency exchanges and federal regulators about how they intend to protect consumers from fraud and other scams.

On 30 August, Rep. Raja Krishnamoorthi (D-IL), chairman of the House Subcommittee on Economic and Consumer Policy, virtually identical letters to five digital currency exchanges—Binance.US, Coinbase, FTX, Kraken and Kucoin—and other letters to four federal agencies—the Treasury Department, Securities and Exchange Commission, Commodity Futures Trading Commission and Federal Trade Commission – regarding the steps they are taking “to combat cryptocurrency-related fraud.”

Krishnamoorthi notes that cryptocurrencies “have become fraudsters’ preferred means of payment, as well as their preferred bait for unsuspecting victims.” Krishnamoorthi says this is partly due to “the lack of a central authority to flag suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding many consumers and investors have of the underlying technology.” However, Krishnamoorthi also said he was “concerned about the apparent lack of action” by exchanges to protect consumers transacting on their platforms.

The exchanges have been given until September 12 to produce documents detailing their (a) efforts to combat fraud/fraud and inform consumers of the risks they face; (b) processes to identify, investigate and remove or flag potentially fraudulent digital assets or accounts; (c) policies governing tokens, traders, buyers, sellers, investors, consumers or other persons or entities using their products; and (d) internal discussions on whether to adopt stricter guidelines for the above.

The exchanges are also asked to provide details of (a) what tools they have in place to reduce the risk of fraud/fraud; (b) what mechanisms they use to educate/inform consumers about these risks; (c) what mechanisms they use to compensate consumers who are harmed while using their services; (d) what mechanisms they are not currently using but have “concrete plans” to implement; and (e) what actions they believe the central bank can take to help exchanges combat fraud/fraud.

There is no doubt that exchanges have been far more focused on generating profit from consumers than protecting them from noise. Hardly a week goes by without another class action lawsuit being filed against an exchange for either failing to protect customer assets or for listing and promoting tokens that anyone who took more than a cursory glance knew was doomed to fail.

One can only hope that the answers the exchanges provide in response to this inquiry will eventually be made public, as it will be fascinating to see how they spin a mantra of “caveat emptor, code is law, do your own research, etc.” to what legislators may deem satisfactory.

SBF puts down the wallet

The letters sent to the federal agencies requested details of their (a) anti-fraud/fraud policies/guidance; (b) methods that identify and investigate potentially fraudulent digital assets or accounts on exchanges; (c) documentation indicating their specific regulatory authority over crypto; and (d) the existing framework for inter-agency cooperation on crypto issues.

The agencies were also asked to weigh in on the increasingly difficult question of whether crypto holdings should be treated as commodities, securities, or both. The battle over which agency should regulate crypto has long occupied the efforts of exchange CEOs like FTX’s Sam Bankman-Fried (SBF), who have lobbied hard to have the relatively understaffed CFTC take on this role rather than the more energetic/antagonistic enforcers of SEC.

SBF previously appeared on Capitol Hill to ensure that FTX’s preferred crypto-narrative was understood. SBF also stated plans to use his vast wealth to support crypto-friendly candidates, especially at the undergraduate level. SBF previously claimed that his Protect Our Future super political action committee (PAC) could spend up to $1 billion in the current US election cycle to support dark horse candidates that SBF believed supported his PAC’s pandemic preparedness narrative.

However, Protect Our Future’s $24 million in donations to date have largely gone to candidates who happen to express positive views of these newfangled digital assets along with their undoubtedly sincere interest in fighting viral pathogens. And with few of the PAC’s preferred candidates actually winning their primaries, Business Insider reported this week that Protect Our Future is now “winding down” its activities, at least temporarily.

There is still a possibility that this year’s bursting of the crypto bubble – and the highly performative bailouts of struggling crypto firms – has left SBF a little lighter in the pocket than he imagined he would be at this point. This month, SBF’s longtime ally Sam Trabucco upped his co-CEO position at Alameda Research, FTX’s not-at-all-arm’s-length market maker, which has long been suspected of being front-running FTX customers. Did the two Sami read the handwriting on the wall that told them that the current ‘crypto winter’ may actually be a crypto ice age?

SBF, which gave Biden’s 2020 presidential campaign 5 million dollars, is not necessarily finished playing politics. While that was happening back in May, newly released White House visit logs show that SBF and two senior FTX leaders — director of government relations Eloria Katz and director of policy Mark Wetjen — met with some of President Biden’s policy advisers. SBF’s brother Gabe, who fronts his own pandemic PAC, made his own appearance at the White House around the same time.

The question is, given that SBF has funded primary challenges to a number of incumbent Democratic members of Congress, what kind of impression is he making on those already in office, i.e., those capable of implementing policy decisions that either align with or contradict to SBF’s wishes? We are eagerly awaiting SBF’s launch of a new super PAC, Covering Our Asses.

See: BSV Global Blockchain Convention Panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets

New to Bitcoin? Check out CoinGeeks Bitcoin for beginners section, the ultimate resource guide for learning more about Bitcoin – as originally envisioned by Satoshi Nakamoto – and blockchain.