Whether increased regulation would have prevented the of cryptocurrency exchange FTX was fiercely debated at a hearing of the Senate鈥檚 banking committee Wednesday. However, new legislation is potentially on the way.
Sen. Elizabeth Warren announced at the hearing bipartisan legislation aimed at cracking down on cryptocurrencies being used in money laundering. The legislation, co-sponsored by Republican Sen. Roger Marshall of Kansas, would require cryptocurrency exchanges to verify customer identities like banks and other financial institutions do.
鈥淐rypto has become the preferred tool for terrorists, for ransomware gangs, for drug dealers and for rogue states that want to launder money,鈥� said Warren, the Massachusetts Democrat, adding that 鈥渃rypto doesn鈥檛 get a pass to help the world鈥檚 worst criminals 鈥� no matter how many television ads they run or how many political contributions they make.鈥�
Republican Sen. Cynthia Lummis, of Wyoming, said she and Democratic Sen. Kirsten Gillibrand, of New York, would reintroduce their bipartisan legislation, the Responsible Financial Innovation Act, next year. That act would require disclosures and consumer protection obligations from cryptocurrency issuers.
Lummis, like several other Republicans on the banking committee, said the alleged financial crimes of former FTX CEO Sam Bankman-Fried should not be used to target cryptocurrency more generally.
鈥淟et鈥檚 separate digital assets from corrupt organizations,鈥� she said. 鈥淔TX is good old-fashioned fraud.鈥�
However, Democratic Sen. Sherrod Brown, chairman of the Senate Committee on Banking, Housing and Urban Affairs, asked the hearing鈥檚 four witnesses 鈥� two crypto proponents and two critics 鈥� whether fraud was systemic at other firms in the industry. They all indicated that it was 鈥� one of the few points of agreement in the entire hearing.
Hilary J. Allen, professor of law at the American University Washington College of Law, testified that the current environment cryptocurrency operates in is highly conducive to fraud.
鈥淪am Bankman-Fried may have engaged in good old-fashioned embezzlement,鈥� she said, 鈥渂ut the embezzlement was able to reach such a scale and go undetected for so long because it was crypto 鈥� shrouded in opacity, complexity, and mystique.鈥�
Entrepreneur Kevin O鈥橪eary, best known as Mr. Wonderful on the TV show 鈥淪hark Tank,鈥� disagreed with the characterization, even though the $15 million he earned as a paid spokesman for FTX is now essentially worthless.
鈥淚 am of the opinion that crypto, blockchain technology and digital payment systems will be the 12th sector of the S&P within a decade,鈥� he said, referring to the S&P 500, a well-known benchmark for stocks.
O鈥橪eary also testified that Bankman-Fried told him that the collapse of FTX was due to its battle with crypto competitor Binance, which also held a stake in FTX.
鈥淭hese two behemoths that owned the unregulated market together鈥� were at war with each other,鈥� O鈥橪eary said. 鈥淎nd one put the other out of business.鈥�
Federal prosecutors say Bankman-Fried defrauded FTX customers and investors starting in 2019 and illegally diverted their money to cover expenses, debts and risky trades at the crypto hedge fund he started in 2017, Alameda Research. Bankman-Fried, 30, was in the Bahamas at the request of the U.S. government, and remains in custody after being denied bail.
Pennsylvania Republican Sen. Pat Toomey, the ranking member of the banking committee, said FTX鈥檚 actions do not reflect the business of cryptocurrency as a whole.
鈥淭here鈥檚 nothing intrinsically good or evil about software 鈥� it鈥檚 about what people do with it,鈥� he said. 鈥淐ode committed no crime.鈥�
However, actor and author Ben McKenzie Schenkkan, best known for his role as Jim Gordon on 鈥淕otham,鈥� said his research shows cryptocurrency is built on 鈥渕isinformation, hype and fraud鈥� and that the estimated 40 million Americans who have invested in it were lied to.
鈥淚n my opinion, the cryptocurrency industry represents the largest Ponzi scheme in history,鈥� he said. 鈥淭he fact that it has roped in tens of millions of Americans from all walks of life, as well as hundreds of millions of people worldwide, should be of concern to us all.鈥�
Glenn Gamboa, The Associated Press
