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America’s politicians want answers from both cryptocurrency exchanges and federal regulators regarding how they intend to protect consumers from fraud and other scams.

On August 30, Rep. Raja Krishnamoorthi (D-IL), chair of the House of Representatives’ Subcommittee on Economic and Consumer Policy, sent 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, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Federal Trade Commission—regarding the steps they’re taking “to combat cryptocurrency-related fraud.”

Krishnamoorthi notes that cryptocurrencies “have become scammers’ favored means of payment as well as their preferred bait for unsuspecting victims.” Krishnamoorthi says this is in part 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 by the apparent lack of action” by exchanges to protect consumers who conduct transactions on their platforms.

The exchanges have been given until September 12 to produce documents detailing their (a) efforts to combat fraud/scams 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 any other individual or entity using their products; and (d) internal discussions on whether to adopt more stringent policies re the above.

The exchanges are also asked to provide details on (a) what tools they have in place to mitigate fraud/scam risks; (b) what mechanisms they employ to educate/inform consumers on these risks; (c) what mechanisms they employ to compensate consumers harmed while using their services; (d) what mechanisms they currently don’t use but have ‘concrete plans’ to implement; and (e) what actions they think the feds can take to assist exchanges in combating fraud/scams.

There’s no question that exchanges have been far more focused on generating profits off their consumers than protecting them from chicanery. Hardly a week goes by without some new class action suit 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 straight off were 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 one spins a mantra of ‘caveat emptor, code is law, do your own research, etc.’ into something legislators might deem satisfactory.

SBF puts his wallet away

The letters sent to the federal agencies asked for details on their (a) policies/guidance in combating fraud/scams; (b) methods by which identify and investigate potentially fraudulent digital assets or accounts on exchanges; (c) documentation setting out their specific regulatory authority over crypto; and (d) the existing framework for interagency cooperation on crypto issues.

The agencies were also asked to weigh in on the ever-thorny question of whether crypto holdings should be treated as commodities, securities, or both. The fight over which agency should regulate crypto has long occupied the efforts of exchange bosses such as FTX’s Sam Bankman-Fried (SBF), who has lobbied hard on having the comparatively understaffed CFTC assume this role rather than the more vigorous/antagonistic enforcers at the SEC.

SBF previously made appearances on Capitol Hill to ensure FTX’s preferred crypto narrative was understood. SBF also stated plans to use his enormous wealth to support crypto-friendly candidates, particularly at the primary level. SBF previously claimed that his Protect Our Future super political action committee (PAC) might spend up to $1 billion in the current U.S. election cycle to back dark horse candidates that SBF believed supported his PAC’s pandemic preparedness narrative.

However, Protect Our Future’s $24 million donations to date have largely gone to candidates who’ve coincidentally expressed positive views of those newfangled digital assets alongside their undoubtedly sincere interest in combatting 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 remains the 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 himself to be at this point. This month saw SBF’s longtime ally Sam Trabucco resign his co-CEO position at Alameda Research, FTX’s not-at-all-arms-length-market-maker, which has long been suspected of front-running FTX retail clients. Have the Two Sams read the handwriting on the wall that told them the current ‘crypto winter’ may actually be a crypto ice age?

SBF, who gave Biden’s 2020 presidential campaign $5 million, may not necessarily be done playing politics. While it happened back in May, recently released White House visitor logs show that SBF and two senior FTX execs—government relations director Eloria Katz and head 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 this same period.

The question is, given that SBF has funded primary challenges to a number of incumbent Democratic members of Congress, what type of impression is he making with those already holding office, i.e., those in a position to implement policy decisions that either match or run contrary to SBF’s desires? We eagerly await SBF’s launch of a new super PAC, Covering Our Asses.

Watch: BSV Global Blockchain Convention panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets

https://www.youtube.com/watch?v=R58jiNcC5mA

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