Elizabeth Warren joins chorus of lawmakers hammering FTX after mind-boggling meltdown

Elizabeth Warren joins chorus of lawmakers hammering FTX after mind-boggling meltdown

Senators Elizabeth Warren (D-MA) and Dick Durbin (D-IL) sent a letter Thursday to former FTX CEO Sam Bankman-Fried and John Jay Ray III, FTX’s new CEO, asking for information on the reported misuse of billions. dollars of customer funds and other emerging allegations of improper business practices.

“Billions of dollars in investor funds appear to have disappeared into the ether,” the lawmakers wrote. “These massive losses raise questions about the behavior of former FTX CEO Sam Bankman-Fried and other company executives, the apparent lack of due diligence by venture capital and other big funds. investors keen to get rich from crypto, and about the risk of wider contagion through the crypto market.

In the letter, lawmakers request an explanation of how FTX’s liquidity crisis occurred, an accounting of all client funds transferred out of FTX, copies of internal policies and procedures regarding the relationship between FTX and Alameda, and how $1.7 billion in client assets went missing.

The senators’ call for transparency comes after the House Financial Services Committee announced earlier this week that it would hold a hearing on the matter in December. The committee says it expects to hear from the companies and individuals involved, including Bankman-Fried, Alameda Research, Binance, FTX and others.

Ranking member Patrick McHenry (R-NC) called FTX’s collapse “a dumpster fire” during Wednesday’s hearing with the nation’s top banking regulators, saying: “FTX users have been left behind. The digital asset ecosystem is in limbo. And add to the mix an SEC Chairman who is more interested in making headlines than bad actors. We are only just beginning to understand the magnitude and the scope of what happened here.

US Representative Patrick McHenry, Ranking Member, listens to a witness testify during a US House Financial Services Committee hearing titled 'Holding Megabanks Accountable: Oversight of America's Largest Consumer Facing Banks' on Capitol Hill in Washington , U.S., September 21, 2022. REUTERS/Elizabeth Frantz

U.S. Representative Patrick McHenry, ranking member, listens to a witness testify during a U.S. House Financial Services Committee on Capitol Hill in Washington, U.S., September 21, 2022. REUTERS/Elizabeth Frantz

In Wednesday’s hearing, lawmakers took the opportunity to take banking regulators to task over FTX and failures to stem its bankruptcy, even though it was a pre-scheduled hearing on market surveillance. health of the banking system.

“I’m overwhelmed by what I heard from you gentlemen,” said Congressman Brad Sherman (D-CA). “Guardrails, safe and sound ways to manage crypto. You sound like Sam Bankman-Fried. Only you wear long pants instead of shorts. In Basel they came up with some real tough standards… Please raise your hand if you are willing to commit to standards at least as tough for crypto as the ones published in Basil.

All regulators hands went up.

Some lawmakers are using the FTX crisis to review legislation that has been proposed or in the works. Sen. Cynthia Lummis (R-WY), who along with Sen. Kirstin Gillibrand (D-NY) introduced a comprehensive crypto oversight bill in June, told Yahoo Finance Live this week that she would review the bill again to ensure consumer assets are protected in a bankruptcy, as well as from being intermingled.

Even after FTX’s collapse, however, Lummis says she’s not looking to rush through legislation, but to carefully assess it to make sure it’s closed the loopholes that allowed FTX’s behavior. .

“I don’t think we need to do some kind of knee-jerk reaction, do it immediately during the session that started this week,” Lummis told Yahoo Finance. “I think we have time to act very carefully and deliberately in 2023.”

Meanwhile, Sen. Gillibrand says she and Sen. Lummis, along with Sen. Pat Toomey (R-PA), are looking to introduce a bill during the lame duck session to regulate stablecoins, in the hoping to capitalize on the crypto turmoil.

Back in the House, Financial Services Committee Chair Maxine Waters (D-CA) asked Federal Reserve Vice Chairman for Oversight Michael Barr on Wednesday if he supports the approach she is pushing. and Ranking Member McHenry enact in upcoming legislation to regulate stablecoins.

Barr said he was deeply encouraged by the bipartisan legislation and warned that private money has historically been susceptible to risks and financial stability risks if left unregulated.

“I think it’s really important that we have stablecoin legislation that recognizes that… [stablecoins] are backed by the dollar and really borrow the confidence of the Federal Reserve and the confidence of the public,” Barr said. “It is therefore essential that we have appropriate controls in place.”

This comes as Circle CEO Jeremy Allaire penned a letter on Wednesday to Waters, McHenry and the heads of the Senate Banking Committee calling for urgent action on stablecoin regulation.

“Events of the past few days are a painful reminder that a lack of regulatory clarity drives business overseas in ways that can harm consumers, investors, businesses and the country as a whole,” Allaire wrote. . “Congress should act now.”

Jennifer covers the Federal Reserve, cryptocurrencies, and the intersection of business and politics. Follow her on Twitter @Jenniferisms.

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