In its first foray into the crypto industry, the House Committee on Oversight and Reform is stepping up pressure on federal agencies and crypto exchanges to protect Americans from scammers.
In a series of letters sent Tuesday morning, the committee asked four agencies, including the Treasury Department, the Federal Trade Commission, Commodity Futures Trading Commissionand the Securities and Exchange Commissionas well as five digital asset exchanges – Coinbase, FTX, Binance.FR, krakenand KuCoin – to obtain information and documents on what they are doing, if any, to protect consumers from scams and combat cryptocurrency fraud.
Over $1 billion worth of crypto has been lost to fraud since the start of 2021, according to FTC research.
“While stories of skyrocketing prices and overnight riches lured professional and amateur investors alike to cryptocurrencies, scammers cashed in,” Rep. Raja Krishnamoorthi, D.-Ill., wrote. Chairman of the Sub-Committee on Economic and Consumer Policy. “The lack of a central authority to report suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding that many consumers and investors have of the underlying technology make cryptocurrency a method of transaction favorite of scammers.”
The letters ask federal agencies and crypto exchanges to respond by September 12 with information about what they are doing to protect consumers. The committee says these responses could be used to develop legislative solutions.
In particular, the letters request that the exchanges produce documents dating back to January 1, 2009, which display efforts to combat crypto scams and fraud, as well as attempts to “identify, investigate, and remove or report potential digital assets.” fraudulent”. or accounts”, as well as to highlight the discussions on “the advisability of adopting stricter policies”.
In a letter, addressed to Sam Bankman-Fried, CEO and Founder of FTX, the committee notes that “while some exchanges review cryptocurrencies before listing them, others allow digital assets to be listed with little or no verification”.
Blockchain analytics firm Chainalysis found that 37% of crypto scam revenue last year went to “rug shots,” a type of scheme that involves developers listing a token on an exchange, inflate it, then disappear with the funds.
Binance.US, which also received a committee investigation on Tuesday, was accused in a class action lawsuit of misleading consumers about the safety of investing in the US dollar-pegged stablecoin known as terraUSD ( or UST, for short) and its sister token, luna. at their height, luna and UST had a combined market value of nearly $60 billion. Now they are essentially worthless.
Concerns about the security of crypto funds parked on centralized platforms have also gained traction following the recent collapse of Voyager Digital and Celsius, two popular apps among retail traders due to the double-digit annual percentage yield once offered. by both companies. The subsequent bankruptcies of these two platforms have highlighted the question of who owns the cryptocurrency assets when a custodial firm fails. In the Voyager and Celsius bankruptcy proceedings, customers are treated as unsecured creditors, rather than federally insured bank depositors, meaning there is no guarantee that they will recover any part of their money.
When it comes to the relationship between the investor and the crypto exchange, the terms and conditions vary. In a financial deposit released in May Coinbase said its users would be treated as “general unsecured creditors” in the event of bankruptcy.
Krishnamoorthi also noted that agencies often seem to act at cross purposes and give inconsistent advice to private sector actors. “Without clear definitions and guidance, agencies will continue their infighting and be unable to effectively implement consumer and investor protections related to cryptocurrencies and the exchanges they are traded on.”