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Member of Congress Demands Action to Prevent Cryptocurrency Fraud

By:
S.J. Steinhardt
Published Date:
Aug 31, 2022

Cryptocurrency-digital-assets

Citing more than $1 billion in losses to Americans as a result of fraudulent cryptocurrency schemes, U.S. Rep. Raja Krishnamoorthi (D-Ill.) wrote to several U.S. regulatory agencies, including Treasury and the Securities and Exchange Commission (SEC), and to some crypto trading exchanges to demand detailed information on actions they are taking to prevent abuse, the Washington Post reported.

“Without clear definitions and guidance, agencies will continue their infighting and will be unable effectively to implement consumer and investor protections related to cryptocurrencies and the exchanges on which they are traded,” Krishnamoorthi wrote to Treasury Secretary Janet Yellen, SEC Chair Gary Gensler, Federal Trade Commission (FTC) Chair Lina Khan and Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam on Tuesday.

Krishnamoorthi also wrote to Bianance.US, Coinbase, FTX, Kraken and KuCoin to request details on governing policies for buying and selling digital currencies, cybersecurity protocols, consumer protections and plans to take more stringent action to combat financial scams. 

“While some exchanges review cryptocurrencies before listing them, others allow digital assets to be listed with little or no vetting," he wrote to Coinbase CEO Brian Armstrong. "Potential vulnerabilities that could easily be identified through code audits are left undiscovered. Insufficient security measures likewise leave users exposed to the outright theft of assets stored on the exchange. Many exchanges have also failed to implement appropriate monitoring of accounts, which can flag illicit activity, notify investors and prevent transactions with addresses linked to scammers.”

Kristamoorthi noted in his correspondence to Yellen that “(t)he private sector has taken some steps to protect consumers and investors and curb cryptocurrency fraud. ... However, significant risk remains. Consumers are often unaware of the current patchwork of resources available to inform their investing decisions, and insurance companies are wary to provide insurance to individual consumers given the lack of regulation of digital assets.”

Writing in his capacity as chair of the House Committee on Oversight and Reform’s subcommittee on economic and consumer policy, Krishnamoorthi relied on data compiled by some of the same agencies to which he wrote, such as the FTC—which published a Consumer Protection Data Spotlight on the subject in June—and the CFTC, to raise many of his concerns. 

The cryptocurrency industry is lobbying in favor of a proposed bill in the U.S. Senate that would give the CFTC the authority to regulate its spot market, currently overseen by the SEC. The CFTC already regulates futures contracts for cryptocurrencies bitcoin and ethereum. The industry and its congressional allies are said to view Gensler as having “taken an aggressive posture toward crypto interests,” according to the Washington Post.

Kristamoorthi gave the regulators and companies until Sept. 12 to respond to his request for documents regarding their efforts to detect and investigate potential fraudulent activity, as well as answers to questions regarding the tools and mechanisms that they use or will use in the future to protect consumers. 

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