WASHINGTON — Congress was plunged into the crypto world this week, with lawmakers trying to grapple with the implosion of FTX, a leading cryptocurrency exchange, and the arrest of the company’s former CEO, Sam Bankman-Fried, on charges of fraud, money laundering and other financial crimes.
Lawmakers with authority over the nation’s financial services, including those from Minnesota, voiced very different views as to how to ensure what happened to FTX – which has lost billions of dollars in investor money – doesn’t happen again.
Since its founding in 2019, FTX grew to be a $32 billion company but declared bankruptcy last month along with its sister company, Alameda Research. About 130 affiliated companies followed suit as FTX’s meltdown triggered a crisis in the crypto market, tanking crypto values.
Congress was forced by the magnitude of FTX’s failures to focus on an industry that has escaped the full force of financial regulations because most of it is offshore, like Bahamas-based FTX.
“In this country, people are free to invest or bet their money however they want to. But they deserve to know that the market is fair and the rules protect them from bad actors, so they aren’t getting ripped off,” said Sen. Tina Smith, a member of the Senate Banking, Housing and Urban Affairs Committee, in a statement.
While some lawmakers portrayed the crypto world as a home to bad actors that’s tailor-made for fraud, some lawmakers continued their defense of crypto currency, saying the FTX meltdown was due to a unique case of fraud.
“I encourage my colleagues to understand Sam Bankman-Fried’s con for what it is: a failure of centralization, a failure of business ethics and a crime,” said Rep. Tom Emmer, R-6th District. “It is not a failure of technology.”
Emmer, co-chair of the Congressional Blockchain Caucus, made those comments during a House Financial Services Committee hearing on Tuesday on FTX’s collapse, during which the lawmaker repeated allegations that Securities and Exchange Commission Chair Gary Gensler is at fault for FTX’s failure. Bankman-Fried was to testify at that hearing but was arrested in the Bahamas the night before.
Smith, however, does not share Emmer’s enthusiasm for the crypto industry and has called for accountability and “protection from the blatant corruption that can happen in crypto.”
The Senate Banking, Housing and Urban Affairs Committee on Wednesday held a hearing on the “Crypto Crash: “Why the FTX Bubble Burst and the Harm to Consumers.”
A Democratic member of the banking panel, Smith said she was concerned that pension funds and 401(k) plans were investing in crypto and has written to Fidelity, a major financial services company, about its offering of crypto currency investments in 401(k) plans.
Smith said that besides FTX, other crypto companies have been “gambling” with customer money and that crypto lacked consumer protections offered by other investment vehicles. She also said banks and other financial institutions have a “duty” to disclose who their customers are, and Smith asked witness Hillary Allen, a professor at the American University Washington School of Law, if that’s the case with crypto.
“No. Generally speaking, there’s sort of a failure of gatekeepers all over the crypto industry,” Allen responded.
In concert with Sen. Elizabeth Warren, D-Massachusetts, Smith recently sent letters to federal regulators asking how they are assessing the U.S. banking system’s exposure to crypto risks.
“It appears that crypto firms may have closer ties to the banking system than previously understood,” the senators wrote. “Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system and highlight potential loopholes that crypto firms may try to exploit to gain further access.”
The senators said that “under a scheme coordinated by Sam Bankman-Fried and other FTX and Alameda executives,” an $11.5 million investment was made in Washington state-based Moonstone Bank – more than double the bank’s worth at the time – “which could be seen as a move to bypass the requirements of having a banking license.”
Who do you love?
President Biden signed the Respect for Marriage Act into law this week, legislation that grants federal protections to same-sex and interracial couples, at an event on the South Lawn of the White House attended by thousands of people.
“Marriage is a simple proposition. Who do you love? And will you be loyal to that person you love?” Biden asked. “It’s not more complicated than that.”
For Biden, the signing was a transformation from an earlier position he held on same-sex marriages. As a senator, Biden in 1996 voted for the Defense of Marriage Act, which defined marriage as the union between a man and a woman.
The Respect for Marriage Act repeals the Defense of Marriage Act. It also requires that people be considered married in any state as long as the marriage is valid in the state where it was performed. But the new law does not force any state to validate same-sex marriages.
Congress moved to pass the legislation after the Supreme Court in June ended the constitutional right to abortion after nearly 50 years, and Justice Clarence Thomas said the court should also reexamine cases that set precedent on LGBT rights and other rights established by rulings of the high court, including the right to contraceptives.
The Respect for Marriage Act was supported by all congressional Democrats and some Republicans. Rep. Tom Emmer, R-6th District, was the only Republican in the Minnesota congressional delegation to vote for the legislation.
Going big
This lame duck session of Congress is notable for several things, one of which is a surge in “grassroots” lobbying of Congress as a number of special interests – from the nation’s doctors to the nation’s climate activists – make last minute pitches to lawmakers to win support of their priorities.
Allison O’Toole, the CEO of Second Harvest Heartland, which feeds hungry people throughout Minnesota and in 18 counties in western Wisconsin from food collected in its Brooklyn Park warehouse, was on Capitol Hill this week to “focus like a laser” on policies that aim to reduce hunger.
“We have to be bold to reduce food insecurity, we have to go big,” O’Toole said.
She said the rising cost of food has strained her organization’s ability to provide food for all who need it through her organization’s 388 food shelves and needs more help from the federal government.
Her federal wish list includes more money for a U.S. Department of Agriculture program that provides food and administrative funds to states to give to organizations like food banks. Also on the agenda is the reintroduction of the $3,000 per child tax credit for low-income Americans, something that has a long-shot chance of approval by the lame duck Congress.
Negotiations over the food stamp program in the next farm bill is also a concern, O’Toole said, as well as the imposition of universal free school meals, something that was temporarily offered during the pandemic.
O’Toole, who met with Minnesota lawmakers or their staff during her short, two-day visit, said there is a “horrendous racial discrepancy” when it comes to food insecurity in the state.
She said one in four Black Minnesotans are food insecure, and one in five Latinos in the state are food insecure. But only one in 25 white Minnesotans are food insecure.
“We have to do better,” she said.
O’Toole said her meetings on Capitol Hill went well. “We have to make this nonpartisan,” she said.
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