Members of Congress Tried to Stop SEC Investigation into FTX

Members of Congress Tried to Stop SEC Investigation into FTX

Earlier this year, the Securities and Exchange Commission requested information from the collapsed cryptocurrency exchange FTX. Avenue confirmed, taking a fresh look at the efforts of a bipartisan group of members of Congress to slow down this investigation.

A March letter from eight members of the House of Representatives—four Democrats and four Republicans—questions the SEC’s right to make unofficial requests to crypto and blockchain companies, and states that the requests violate federal law.

Rep. Tom Emmer (R-MN), who was just elected by the Republican caucus as majority whip, position number three in the House GOP leadership, led the letter. In modern Thread on TwitterEmmer wrote: “My office has received a lot of advice from crypto and blockchain firms that the SEC chairman @GaryGenslerinformation reports “requests” to the crypto community are burdensome, don’t seem particularly… voluntary… and stifle innovation.”

We now know that FTX was one of the firms that received requests from the Securities and Exchange Commission for information about the very activities that led to the collapse of the firm. This raises the question of whether Emmer and other members of Congress acted on behalf of FTX (which is credibly accused of stealing customer money to make risky bets) to try to stop an independent regulatory and law enforcement investigation.

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Some of the G8 Blockchain, like Avenue called them in March, capitalized on the crypto bounty. Five of the eight participants received campaign donations from FTX employees ranging from $2,900 to $11,600. Rep. Ted Budd (R-NC), one of the signatories, received half a million dollars in support from the Super PAC, created by FTX co-CEO Ryan Salame.

What’s more, this year, Emmer was chairman of the Congressional Republican National Committee, the Republican campaign headquarters in the House of Representatives. The NRCC-affiliated super PAC, the Congressional Leadership Fund, received $2.75 million from FTX in the 2022 cycle; $2 million from Salame at the end of September and $750,000 from the company’s political action committee.

The money helped Republicans in the House of Representatives win a majority in 2022. Although FTX is portrayed as a Democratic firm, thanks to the high profile of former co-CEO Sam Bankman-Fried, the company has distributed campaign donations fairly evenly, with a tinge of over 50 percent going directly to Republicans in Congress and a tinge of less than 50 percent going to Democrats this cycle. .

In an email, the SEC declined to comment. Six out of eight members of Congress have not yet responded to Avenuerequests.

Rep. Byron Donalds (R-FL) said through a representative that the congressman did not attempt to influence ongoing SEC investigations or exchange any communications with FTX. He was simply concerned about the SEC’s procedure and guidance on crypto firms, which some are calling “regulation by enforcement.” Donalds was not one of the participants who received donations from FTX.

Matt Corridoni, spokesman for Rep. Jake Auchincloss (D-MA), another signatory, said Avenue“The congressman made it clear from day one that crypto needs strong and clear congressional laws. The SEC will have to explain to Congress why, despite saying it doesn’t need new laws for exchanges, it failed to foresee this crash.” He added that FTX never directly lobbied the office of Rep. Auchincloss to join the letter.

A source familiar with the situation confirmed Avenue that FTX and Coinbase were the two firms that received SEC inquiries.

REUTERS REPORTED LAST FRIDAY on an internal FTX document showing that the SEC sent informal inquiries to FTX and other firms earlier this year about how they handle customer deposits. As we now know, FTX funneled client funds to its affiliated trading firm, Alameda Research. FTX’s newly appointed CEO, John Wray, testified in bankruptcy court last week about the company’s “complete lack of corporate control.”

The Securities and Exchange Commission also asked FTX about a rewards program that gives depositors interest on their crypto assets, which could make them securities. SEC Chairman Gary Gensler has been adamant that crypto platforms trade and issue securities, and that these securities must be registered with the agency. Cryptocurrency firms generally do not register anything.

Upon enquiry, FTX stated that the rewards program is non-lending and fair. The SEC then responded that it did not need more information “at this time.”

A source familiar with the situation confirmed Avenue that FTX and Coinbase, a US-based cryptocurrency exchange, were the two firms that received SEC inquiries.

Emmer and colleagues questioned the SEC investigation in March. The letter denounced the “recent trend to use … investigative functions to collect information from unregulated participants in the cryptocurrency and blockchain industry in a manner that is inconsistent with the standards of the Commission for Initiating Investigations,” and stated that the requests violated the Paperwork Reduction Act, even though this law is not applies to coercive investigations. He asked the SEC detailed questions about the information requests.

The eight participants included representatives Emmer, Donalds, Auchincloss, Warren Davidson (R-OH), Ted Budd (R-NC), Darren Soto (D-FL), Josh Gotteimer (D-NJ), and Richie Torres (D-NJ). ). New York). Budd was elected this year to the US Senate.

Emmer made it clear in his march Thread on Twitter that the letter was based on complaints from crypto firms, and that its intent was to prevent the SEC from conducting those investigations. “Cryptocurrency startups should not be weighed down by extra-jurisdictional and onerous reporting requirements,” Emmer wrote. “We’ll make sure our regulators don’t kill American innovation and opportunity.”

On the other hand, Emmer immediately praised Bankman-Fried for his integrity and upholding 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 Blockchain Eight in donations from FTX, each receiving $11,600. FTX was among the top 15 Emmer donors in the 2022 cycle. Auchincloss received $6,800 and Budd and Torres received $2,900.

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

Budd received about $517,000 in expenses from Super PAC co-CEO Salameh, American Dream Federal Action.

But the millions of funds from FTX PAC and Salame to the House Republican Congressional Leaders Fund dwarf spending on individual candidates. As a lead signer of the letter and a member who said he received “tips” from the crypto firms that reported the letter, and as head of the Republican campaign arm in the House of Representatives, Emmer has benefited most from a large donation to help the Republican Party gain majority. “We delivered,” Emmer said after the majority was received.

Salame gave $23.6 million exclusively to Republican candidates and organizations in the 2022 cycle, as opposed to Bankman-Freed, whose $40 million went to the Democrats. Several members, including Representatives Chuy Garcia (D-IL) and Kevin Hearn (R-OK), have returned donations to FTX, and Senators Dick Durbin (D-IL) and Kirsten Gillibrand (D-NY) have donated contributions to charity. No one from Blockchain Eight has yet said what they will do with their own FTX donations.

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

NON-ORTHODOX LETTER ANALOGUE before the 1987 Keating Five scandal. Then five senators (including a young Republican from Arizona named John McCain) pressured the Federal Home Loan Bank Board (FHLBB) to stop investigating Lincoln Savings and Loan and its chairman, Charles Keating Jr. Keating has been a donor to all five senators, donating $1.3 million over the years.

The FHLBB did close its Keating and Lincoln Savings and Loan investigation right before it failed, costing the federal government $3.4 billion as part of the $125 billion S&L bailout program. Keating was found guilty of fraud and served a prison sentence. The Senate Ethics Committee found that three members interfered improperly in a federal investigation; McCain was acquitted as he was found to have been “short-sighted”.

The aftermath of the letter also reflected the situation of the Keating Five. Although the SEC conducted an informal investigation, it did not uncover potential fraudulent activity at FTX. At the very least, it’s possible that pressure from members of Congress kept the SEC from investigating further. Then, like Lincoln Savings, FTX collapsed, leaving savers with nothing.

But the FTX disaster did not stop Emmer from continuing to develop the cryptocurrency. At an event with crypto trading group Blockchain Association last week, Emmer told the assembled crypto bigwigs, “You are here to stay,” and that no one should “rush in and cover this industry with a huge wet blanket of regulation just because something went wrong.” “.

In March Blockchain Association applauded bipartisan letter stating that “champions” like Emmer make America the “leader of crypto innovation.” Blockchain Association Director of Government Affairs Ron Hammond previously led financial services policy for Rep. Davidson, one of the signatories of the letter.

After the collapse of Emmer hinted that Gensler and FTX of the Securities and Exchange Commission were “working[ing] on legal loopholes for obtaining a regulatory monopoly”. With such comments, Emmer plays up conspiracy theories that Gensler was connected to the firm and acted on its behalf.

These claims are bogus. One “six degrees of separation” theory suggests that Gensler briefly worked at MIT with the father of Caroline Ellison, Bankman-Fried’s former girlfriend and CEO of Alameda Research. Another notes that Mark Wetjen, 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 disagreed with the CFTC, and FTX actively tried to get legislation to remove Gensler and the SEC from cryptocurrencies.

Other Blockchain Eight Republicans have also criticized Gensler. “At this point, it’s hard to believe @SECgov wasn’t involved in selective enforcement,” Rep. Davidson. tweeted last week.

Given that FTX was under investigation by the SEC in March, with Davidson and Emmer actively working publicly to close that investigation, alleging that the SEC was unlawfully investigating crypto firms, their subsequent claims that the SEC can’t do its job are certainly interesting. The Securities and Exchange Commission was ordered not to investigate and is now being told it was doing a selective investigation.

The House Financial Services Committee announced the hearing during a meeting on the collapse of FTX. Emmer, Torres, Gotheimer, Auchincloss, Davidson and Budd are all members of this committee. Unfortunately, they will not be forced to answer questions.

Written by khirou

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