Congress considers crypto consumer protection bill that Sam Bankman-Fried backed before FTX collapse

The shocking collapse of cryptocurrency exchange FTX has increased the urgency in Congress to understand what went wrong and pass legislation to try to prevent another debacle that would affect hundreds of thousands of investors.

One bill, the Digital Commodities Consumer Protection Act, introduced in August, gives the Commodity Futures Trading Commission more authority to regulate digital commodities like FTX.

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The bill arrived before FTX’s collapse ignited fresh debate over how to protect consumers in the relatively young and untamed crypto industry. It is among a handful of solutions lawmakers will consider as they begin to probe the implosion of FTX with high-stakes hearings this week — and try to implement safeguards across the industry.

New FTX CEO John J. Ray is scheduled to testify before the House on Tuesday. Former FTX CEO Sam Bankman-Fried was also set to testify at the House hearing — and had refused to testify in a Senate hearing set for Wednesday — before his arrest in the Bahamas Monday night.

Bankman-Fried was charged in a U.S. indictment with eight criminal counts: conspiracy to commit wire fraud and securities fraud, individual charges of securities fraud and wire fraud, money laundering and conspiracy to avoid campaign finance regulations.

The company filed for Chapter 11 bankruptcy in November after revelations that Alameda Research, a trading firm founded by Bankman-Fried, had secretly borrowed and traded billions of dollars from FTX customers.

“Stakeholders from all sides, providers, customers, and lawmakers, should be closely watching this space, because it is evident that Congress will not be able to ignore an increasingly dissatisfied public’s call to action, and there is a lot of potential to get this wrong,” Jenny Lee, a partner at law firm Reed Smith and a former bank regulator, told CNBC.

Sen. Debbie Stabenow, D-Mich., the DCCPA’s sponsor and chair of the Senate Committee on Agriculture, Nutrition and Forestry, which oversees commodities, said the bill will close the gap in federal regulation of spot crypto assets that are not considered securities. This applies to some digital currencies. Securities are regulated by the Securities and Exchange Commission.

“The DCCPA does not take authority away from other financial regulators. Nor does it make the CFTC the ‘primary’ crypto regulator,” Stabenow said during an agriculture committee hearing Dec. 1. “Because crypto assets can be used in many different ways, no single financial regulator has the expertise or the authority to regulate the entire industry.”

Joe Silvia, an attorney who advises financial institutions on corporate and regulatory matters, told CNBC that had the bill already been law, it may have helped to avoid the FTX debacle.

“I think the reality is if there was actual transparency that the legislation would be getting at … there wouldn’t be folks, I would hope, knowingly depositing their money with an exchange knowing that the exchange was taking that money and using it for proprietary trading with a sister company,” Silvia said.

But Lee said consumer advocates, crypto enthusiasts and lawmakers are “going to have plenty of reasons to take offense at the legislation.”

Article source: https://www.cnbc.com/2022/12/13/digital-commodities-consumer-protection-act-sam-bankman-fried-ftx-fail.html