Senate crypto hearing yields big claims, possible regulation

Dec 14, 2022, 12:38 PM | Updated: 12:51 pm

Actor Ben McKenzie testifies during a Senate Banking Committee hearing on cryptocurrency and the co...

Actor Ben McKenzie testifies during a Senate Banking Committee hearing on cryptocurrency and the collapse of the FTX crypto exchange and its founder Sam Bankman-Fried, at the Capitol in Washington, Wednesday, Dec. 14, 2022. He is joined at left by investor Kevin O'Leary, and Cato Institute Center for Monetary and Financial Alternatives Director of Financial Regulation Studies Jennifer Schulp. (AP Photo/J. Scott Applewhite)

(AP Photo/J. Scott Applewhite)

Whether increased regulation would have prevented the spectacular collapse of cryptocurrency exchange FTX was fiercely debated at a hearing of the Senate’s banking committee Wednesday. However, new legislation is potentially on the way.

Sen. Elizabeth Warren announced at the hearing bipartisan legislation aimed at cracking down on cryptocurrencies being used in money laundering. The legislation, co-sponsored by Republican Sen. Roger Marshall of Kansas, would require cryptocurrency exchanges to verify customer identities like banks and other financial institutions do.

“Crypto has become the preferred tool for terrorists, for ransomware gangs, for drug dealers and for rogue states that want to launder money,” said Warren, the Massachusetts Democrat, adding that “crypto doesn’t get a pass to help the world’s worst criminals – no matter how many television ads they run or how many political contributions they make.”

Republican Sen. Cynthia Lummis, of Wyoming, said she and Democratic Sen. Kirsten Gillibrand, of New York, would reintroduce their bipartisan legislation, the Responsible Financial Innovation Act, next year. That act would require disclosures and consumer protection obligations from cryptocurrency issuers.

Lummis, like several other Republicans on the banking committee, said the alleged financial crimes of former FTX CEO Sam Bankman-Fried should not be used to target cryptocurrency more generally.

“Let’s separate digital assets from corrupt organizations,” she said. “FTX is good old-fashioned fraud.”

However, Democratic Sen. Sherrod Brown, chairman of the Senate Committee on Banking, Housing and Urban Affairs, asked the hearing’s four witnesses – two crypto proponents and two critics – whether fraud was systemic at other firms in the industry. They all indicated that it was – one of the few points of agreement in the entire hearing.

Hilary J. Allen, professor of law at the American University Washington College of Law, testified that the current environment cryptocurrency operates in is highly conducive to fraud.

“Sam Bankman-Fried may have engaged in good old-fashioned embezzlement,” she said, “but the embezzlement was able to reach such a scale and go undetected for so long because it was crypto – shrouded in opacity, complexity, and mystique.”

Entrepreneur Kevin O’Leary, best known as Mr. Wonderful on the TV show “Shark Tank,” disagreed with the characterization, even though the $15 million he earned as a paid spokesman for FTX is now essentially worthless.

“I am of the opinion that crypto, blockchain technology and digital payment systems will be the 12th sector of the S&P within a decade,” he said, referring to the S&P 500, a well-known benchmark for stocks.

O’Leary also testified that Bankman-Fried told him that the collapse of FTX was due to its battle with crypto competitor Binance, which also held a stake in FTX.

“These two behemoths that owned the unregulated market together… were at war with each other,” O’Leary said. “And one put the other out of business.”

Federal prosecutors say Bankman-Fried defrauded FTX customers and investors starting in 2019 and illegally diverted their money to cover expenses, debts and risky trades at the crypto hedge fund he started in 2017, Alameda Research. Bankman-Fried, 30, was arrested Monday in the Bahamas at the request of the U.S. government, and remains in custody after being denied bail.

Pennsylvania Republican Sen. Pat Toomey, the ranking member of the banking committee, said FTX’s actions do not reflect the business of cryptocurrency as a whole.

“There’s nothing intrinsically good or evil about software – it’s about what people do with it,” he said. “Code committed no crime.”

However, actor and author Ben McKenzie Schenkkan, best known for his role as Jim Gordon on “Gotham,” said his research shows cryptocurrency is built on “misinformation, hype and fraud” and that the estimated 40 million Americans who have invested in it were lied to.

“In my opinion, the cryptocurrency industry represents the largest Ponzi scheme in history,” he said. “The fact that it has roped in tens of millions of Americans from all walks of life, as well as hundreds of millions of people worldwide, should be of concern to us all.”

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


This photo provided by Randy Shannon shows Mooney Falls on the Havasupai reservation outside the vi...

Associated Press

Dozens report illness after trips to waterfalls near Grand Canyon

Dozens of hikers say they fell ill during trips to a popular Arizona tourist destination that features towering blue-green waterfalls deep in a gorge neighboring Grand Canyon National Park.

17 hours ago

Mugshot of Rudy Giuliani, who was processed Monday, June 10, 2024, in the Arizona fake electors cas...

Associated Press

Rudy Giuliani posts $10K cash bond after being processed in Arizona fake electors case

Rudy Giuliani, a former New York City mayor and Donald Trump attorney, was processed Monday in the Arizona fake electors case.

3 days ago

FILE - White House former chief of staff Mark Meadows speaks with reporters at the White House, Wed...

Associated Press

Former Trump chief of staff Mark Meadows pleads not guilty in Arizona fake elector case

Former Donald Trump presidential chief of staff Mark Meadows and Trump 2020 Election Day operations director Michael Roman pleaded not guilty Friday in Phoenix to nine felony charges for their roles in an effort to overturn Trump's Arizona election loss to Joe Biden.

7 days ago

deadly heat wave last summer...

Associated Press

After a deadly heat wave last summer, metro Phoenix is changing tactics

Fresh memories of the deadly heat wave last summer have led Arizona authorities to launch new tactics ahead of summer 2024.

17 days ago

A Yuma man has been arrested for allegedly starting a wildfire in a national wildlife preserve near...

Associated Press

Man accused of starting wildfire in national wildlife preserve in Yuma

A Yuma man has been arrested for allegedly starting a wildfire in a national wildlife preserve near the California border.

18 days ago

Colorado River settlement center of new Navajo Nation push...

Associated Press

Tribes say their future is at stake as they push for Congress to consider Colorado River settlement

Navajo officials are celebrating the signing of legislation outlining a proposed Colorado River settlement that would ensure water rights.

21 days ago

Sponsored Articles


Midwestern University

Midwestern University Clinic visits boost student training & community health

Going to a Midwestern University Clinic can help make you feel good in more ways than one.


Sanderson Ford

3 new rides for 3 new road trips in Arizona

It's time for the Sanderson Ford Memorial Day sale with the Mighty Fine 69 Anniversary, as Sanderson Ford turned 69 years old in May.


Collins Comfort Masters

Here’s how to be worry-free when your A/C goes out in the middle of summer

PHOENIX -- As Arizona approaches another hot summer, Phoenix residents are likely to spend more time indoors.

Senate crypto hearing yields big claims, possible regulation