WASHINGTON – U.S. Senator Debbie Stabenow (D-Mich.), Chairwoman of the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, today released the following opening statement at a hearing titled “Why Congress Needs to Act: Lessons Learned from the FTX Collapse.” A live video of the hearing is available here.
Stabenow’s statement, as prepared for delivery, follows:
One month ago, the crypto market was rocked by reports that Alameda Research, a trading firm affiliated with crypto exchange FTX, was in financial trouble. Alameda’s balance sheet was propped up by a crypto token that FTX had created. In a matter of days, FTX and most of its affiliated companies collapsed into bankruptcy. At best, these events uncovered an alarming lack of internal controls and egregious governance failures. At worst, Sam Bankman-Fried and his inner circle lied to and stole from over one million customers—some of whom have lost their life savings.
Meanwhile, the fallout continues across the crypto ecosystem. For over a year, this Committee has been examining the risks posed by the lack of Federal oversight of the crypto industry. The Chairman of the Commodity Futures Trading Commission, Russ Behnam, spoke about this issue at his confirmation hearing last October. At that hearing, Mr. Behnam discussed the agency’s enforcement actions against crypto firms but warned that they were just “the tip of the iceberg.” Since that time, members of this Committee have been working on a bipartisan basis to advance legislation that would give the CFTC regulatory authority over the trading of crypto tokens that are not securities.
To be clear: there currently is no Federal market regulation of spot crypto assets that are not securities. These include Bitcoin and Ether, the two most heavily traded crypto assets. The White House and the Financial Stability Oversight Council have urged Congress to close this gap. The Digital Commodities Consumer Protection Act does exactly that. I’ve said this before and I’ll say it again: the DCCPA does not take authority away from other financial regulators. Nor does it make the CFTC the “primary” crypto regulator. 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.
We continue to work with our colleagues on the Senate Banking Committee, and at the Securities and Exchange Commission and other financial regulators, to bring greater protections to this market, regardless of whether the asset is a security or a commodity. The crisis created by FTX further confirms the need for a whole-of-government approach to regulating this market. The risks of trading crypto have come into sharp focus in the past few weeks, but we have known about them for years. The lack of clear, consistent rules has allowed crypto to flourish, despite harmful conflicts of interest, an absence of responsible governance and risk management, and a failure to safeguard customer assets. This is the very conduct the DCCPA was designed to prevent.
And where Federal regulators, including the SEC, already have authority to register and oversee crypto firms, they must use that authority. Fraud prosecutions are a critical tool, but far too often, they are brought after customers’ money has been lost, with little recourse for those affected. Senator Boozman and I have called today’s hearing to do two things. First, to understand what went wrong at FTX. We won’t have all the answers today because the story is just beginning to unfold, but the Committee will hear from Chairman Behnam about what may have triggered such a staggering collapse in such a short period of time.
Second, we want to ensure that the DCCPA sufficiently addresses those risks. One thing is already apparent: the crypto industry lacks the customer protections that Americans expect and deserve when trading in U.S. markets. When exchanges accept customer funds for trading, they must not be allowed to gamble with those funds. They must not be allowed to invent products that have little to no intrinsic value and accept them as collateral for loans. And they must not be allowed to self-deal.
FTX did all of those things, emboldened by a lack of federal oversight. One exception is LedgerX, a derivatives exchange and clearinghouse purchased by FTX and registered with the CFTC. John Ray, the CEO appointed to navigate the FTX companies through bankruptcy, said that LedgerX has a “solvent balance sheet” and “responsible management.” Customer money was safeguarded and is accounted for. The DCCPA replicates these protections for digital commodity markets. If our bill had been law, FTX’s conduct would have been illegal and could have been prevented.
Congress must act to pass legislation that will hold this industry to the same rules as traditional financial institutions and close gaping holes in our regulations. If we fail to meet this responsibility, consumers will continue to be harmed. And hardworking Americans will continue to lose billions of dollars at the hands of bad actors, like FTX.
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