Members of Congress tried to stop the SEC’s investigation of FTX

The Securities and Exchange Commission sought information from FTX, the cryptocurrency exchange that collapsed earlier this year Prospectus confirmed, bringing a new perspective to the bipartisan effort by members of Congress to slow down the investigation.

A March letter from eight members of the House of Representatives — four Democrats and four Republicans — questioned the SEC’s authority to make informal inquiries of cryptocurrency and blockchain companies, saying the inquiries violated federal law.

Rep. Tom Emmer (R-MN), the House Republican caucus’s choice as majority whip, the number three position in the House GOP leadership, led the letter. In a contemporary Twitter threadEmmer wrote: “My office has received many tips from cryptocurrency and blockchain firms that the SEC chairman @GaryGenslerThe ‘requests’ that inform the crypto community are overburdened, don’t feel particularly … voluntary … and stifle innovation.”

We now know that FTX was one of the firms that received requests for information from the SEC about the activities that brought the firm down. This raises the question of whether Emmer and other members of Congress are acting on behalf of FTX (credibly accused of stealing customer money to make risky bets) to try to cool the ongoing investigation by an independent regulator and law enforcement agency.

More than David Dayen

Like some of the “Blockchain Eight”. Prospectus In March, they benefited from the cryptocurrencies that named them. Five of the eight members received between $2,900 and $11,600 in campaign contributions from FTX employees. Rep. Ted Budd (R-NC), one of the signatories, received half a million dollars in support from a Super PAC created by FTX CEO Ryan Salame.

Rather, Emmer was this year head of the National Republican Congressional Committee, the campaign arm for House Republicans. NRCC’s affiliated super PAC, the Congressional Leadership Fund, received $2.75 million from FTX in 2022; $2 million from Salame and $750,000 from the company’s political action committee in late September.

That money helped House Republicans win a majority in 2022. Although FTX is described as a Democratic firm, the company has spread its campaign donations fairly evenly, over 50 shades of gray, thanks to the high profile of former CEO Sam Bankman-Fried. One hundred percent directly to the Republicans in Congress and a shade under 50 percent to the Democrats this time.

In an email, the SEC declined to comment. Six out of eight members of Congress have yet to answer this question Prospectusrequests.

Rep. Byron Donalds (R-FL) said through a spokesman that the congressman was not trying to influence ongoing SEC investigations and had no contact with the FTX. He was simply wondering about the SEC’s procedure and guidance on crypto firms, which some have described as “mandatory regulation.” Donalds was not one of the members who received donations from FTX.

In addition to the signatories, said Matt Corridoni, a spokesman for Rep. Jake Auchincloss (D-MA). Prospectus, “The congressman has been clear from day one that cryptocurrency needs strong and clear legislation from Congress. The SEC needs to explain to Congress that it failed to foresee this collapse even though it claimed that new rules were not needed for the exchanges.” He added that the FTX never directly lobbied Rep. Auchincloss’ office to join the letter.

A source familiar with the situation confirmed the information Prospectus FTX and Coinbase were two of the firms that received inquiries from the SEC.

Reuters REPORTED LAST FRIDAY In an internal FTX filing, the SEC says it made informal inquiries of FTX and other firms earlier this year about how they handle customer deposits. As we now know, FTX was transferring client funds to an affiliate trading firm, Alameda Research. FTX’s newly appointed CEO, John Ray, told the bankruptcy court last week of the company’s “total lack of corporate control.”

The SEC also asked FTX about a rewards program that would give depositors interest on crypto assets, potentially turning them into securities. SEC Chairman Gary Gensler insists that crypto platforms are securities trading and instruments and that these securities should be registered with the agency. Crypto firms failed to register anything at all.

In response to the inquiry, FTX claimed that the reward program does not involve giving out any loans and is above board. The SEC later responded that no additional information was needed “at this time.”

A source familiar with the situation confirmed the information Prospectus FTX and Coinbase, a US-based cryptocurrency exchange, were two of the firms that received an inquiry from the SEC.

Emmer and his colleagues questioned the SEC’s inquiries in March. The letter decries the “recent trend toward using … investigative functions to collect information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the commission’s standards to initiate investigations” and states that the requests are in violation of the Paperwork Reduction Act. although this law does not apply to enforcement investigations. Filed detailed questions to the SEC regarding information requests.

The eight members were Emmer, Donalds, Auchincloss, Warren Davidson (R-OH), Ted Budd (R-NC), Darren Soto (D-FL), Josh Gottheimer (D-NJ) and Ritchie Torres (D-NJ). NY). Budd was elected to the US Senate this year.

Emmer announced in March Twitter thread said the letter was based on complaints from crypto firms and that his intention was to stop the SEC from conducting those inquiries. “Crypto startups should not be weighed down by additional jurisdiction and burdensome reporting requirements,” Emmer wrote. “We will ensure that our regulators do not kill American innovation and opportunity.”

On the other hand, Emmer was quick to praise Bankman-Fried for his integrity and compliance with the law. In December 2021, Bankman-Fried testified before Congress and Emmer told him“You seem to be doing a lot to make sure there is no fraud or other manipulation.”

Emmer and Gottheimer led the Blockchain Eight in donations from FTX, each receiving $11,600. FTX was in the top 15 of Emmer’s biggest donors in the 2022 period. Auchincloss received $6,800 and Budd and Torres received $2,900.

Coinbase also contributed to members of the Blockchain Eight. Emmer received $2,900 from Coinbase’s PAC in 2022; Gottheimer received $2,900 from a Coinbase employee, and Auchincloss received $2,000.

Budd has benefited CEO Salame’s Super PAC, American Dream Federal Action, by spending nearly $517,000.

But the millions from FTX’s PAC and Salame to the House Republican Congressional Leadership Fund dwarf the amount spent on individual candidates. As the lead signer of the letter and the member and head of the House Republican campaign arm who said he received “tips” from the crypto firms that informed the letter, Emmer stood to gain the most from the large donation to help. GOP wins majority. “We delivered,” Emmer said after the majority was secured.

Salame gave only $23.6 million to Republican candidates and causes in the 2022 cycle, unlike Bankman-Fried, whose $40 million went to Democrats. Several members returned FTX donations, including Reps. Chuy García (D-IL) and Kevin Hearn (R-OK), and Sens. Dick Durbin (D-IL) and Kirsten Gillibrand (D-NY) gave. contributions to charity. None of the Blockchain Eight have yet said what they will do with their FTX donations.

The FTX disaster did not stop Emmer from continuing to grow the cryptocurrency.

A NON-LETTER IS ANALOGOUS In 1987, the “Keating Five” scandal. Then five senators (including a young Arizona Republican named John McCain) pressured the Federal Home Loan Bank Board (FHLBB) to close Lincoln Savings and Loan and its chairman, Charles Keating Jr. He stopped the investigation that Keating was a donor to all five senators. gave 1.3 million dollars over the years.

The FHLBB closed its investigation of Keating and Lincoln Savings and Loan just before it failed, costing the federal government $3.4 billion as part of a $125 billion S&L bailout. Keating was convicted of fraud and imprisoned. The Senate Ethics Committee found that three members had properly interfered in a federal investigation; McCain was cleared when he was found to have exercised “poor judgment.”

The outcome of the letter also reflected the situation of the Keating Five. Although the SEC conducted an informal investigation, it found no potential fraudulent activity at FTX. At the very least, it’s possible that pressure from members of Congress will deter the SEC from investigating further. Then, like Lincoln Savings, FTX imploded, leaving depositors high and dry.

But the FTX disaster did not stop Emmer from continuing to grow the cryptocurrency. At an event with crypto trade group Blockchain Association last week, Emmer told a crowd of crypto honchos that “You’re here to stay” and that no one “should rush in and put a big age-regulatory blanket over this industry. Something’s gone wrong.”

Blockchain Association in March applauded the bipartisan letter states that “champions” like Emmer make America a “crypto innovation leader.” Blockchain Association director of government affairs Ron Hammond was previously head of financial services policy at Davidson, one of the letter’s signatories.

After the collapse, there is Emmer intimate The SEC’s Gensler and FTX are “business[ing] on legal loopholes to achieve regulatory monopoly”. With such comments, Emmer plays on conspiracy theories that Gensler has ties to the firm and is acting in its interests.

These claims are far-fetched. The “six degrees of separation” theory involves Gensler’s brief stint at MIT with Bankman-Fried’s one-time girlfriend and father of Alameda Research CEO Caroline Ellison. Another notes that Mark Vetjen, a former member of the Commodity Futures Trading Commission when Gensler was chairman during the Obama years, was hired as FTX’s chief lobbyist and once met with Gensler.

But Gensler and Wetjen ignored the CFTC, and the FTX was actively trying to pass legislation to overturn Gensler and the SEC’s authority over cryptocurrency.

Other Blockchain Eight Republicans also criticized Gensler. “Hard to believe @SECgov is not engaged in selective enforcement right now,” Rep. Davidson said. He wrote on Twitter last week.

Given that FTX was investigated by the SEC in March, and that Davidson and Emmer have been actively working publicly to stop this investigation, claiming that it is illegal for the SEC to investigate cryptocurrency companies in this way, it is certainly interesting to see their subsequent claims that the SEC is not doing its own thing. They told the SEC not to investigate, now they say they selectively investigated.

The House Financial Services Committee has announced hearings during a lame-duck session on the FTX breakup. Emmer, Torres, Gottheimer, Auchincloss, Davidson and Budd are all members of that committee. Unfortunately, they will not be forced to answer the questions.

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