WASHINGTON – Rep. Tom Emmer, one of the biggest crypto boosters in Congress, on Tuesday continued to blame Securities and Exchange Commission Chair Gary Gensler for the collapse of FTX, a cryptocurrency exchange that’s in bankruptcy.
At a House Committee on Financial Services hearing on FTX’s collapse, Emmer, R-6th District, elicited the commitment of FTX CEO John Ray III to hand over internal communications between FTX and Gensler. Ray is an insolvency professional who was put in charge of FTX’s restructuring.
“We can work with your staff to get you what you need,” Ray said.
Emmer had complained that “Chair Gensler refused to answer our questions or appear before the committee” and has for weeks escalated his criticisms of the head of the SEC.
Former FTX CEO Sam Bankman-Fried was to be the star witness at Tuesday’s hearing but was arrested in the Bahamas Monday evening. The Justice Department, which sought Bankman-Fried’s detention, has charged the former FTX CEO with eight counts, including wire fraud, conspiracy to defraud the United States and violation of campaign finance laws.
Despite FTX’s stunning collapse last month resulting in nearly $8 billion of funds that are unaccounted for and the loss of countless investors’ fortunes, Emmer and other lawmakers continue to be crypto boosters.
“The future of crypto reflects American culture,” Emmer said during the hearing.
Emmer is the co-chair of the Congressional Blockchain Caucus. Blockchain is the technology that enables the existence of cryptocurrency, and the caucus’ mission statement says its members “understand that Congress has a role to play in its development.”
“As a Caucus, we have decided on a light touch regulatory approach,” the mission statement said.
Blockchain technology is decentralized. It is all about moving away from centralized authorities and toward a distributed network of participants, which supporters say is difficult to corrupt.
Emmer spokesman Michael McAdams said in a written statement that the congressman “has been a strong believer in the power of crypto’s technology from the start of his time in Congress and long before it was mainstream.”
Emmer is among a growing number of lawmakers who have urged donors to contribute crypto currency to his campaign. Emmer has also promoted crypto donations to the Republican National Congressional Committee while serving as its chairman.
Days after FTX’s collapse last month, Emmer spoke at a summit hosted by the Blockchain Association in Washington.
“We need to use the stage that is Congress to promote all of you beyond the walls of the Capitol,” Emmer said. “People need to understand more out there that they shouldn’t be afraid of this.”
On Tuesday, he again blamed Gensler for FTX’s implosion.
“Gensler knows that FTX was fraudulent from its inception. This is egregious considering he had more meetings with Bankman-Fried than anyone in the space to discuss a crypto regulatory framework designed to benefit FTX alone. He will be held accountable,” Emmer tweeted.
Yet in March, Emmer led some of his Blockchain Caucus colleagues in a letter to Gensler urging the SEC chief to refrain from imposing “extra-jurisdictional and burdensome reporting requirements” on crypto-related firms. The letter was sent after the SEC wrote FTX and other crypto companies asking questions about their business practices.
Gensler has been criticized for doing such a bad job providing regulatory guidance to U.S. crypto companies that they were forced to establish themselves overseas, in countries with loose regulations that invited fraud. But Emmer hasn’t provided evidence for his claim that Gensler was working in concert with Bankman-Fried.
FTX set up operations in the Bahamas but was very involved in trying to influence U.S. policymakers, as have other crypto companies.
Emmer received thousands of dollars in campaign contributions from that industry, including $8,700 from Ryan Salame, former co-CEO of FTX. Salame also donated $52,700 to the Emmer led-NRCC.
Emmer was not the only member of the Minnesota congressional delegation to receive FTX-connected contributions. Rep. Angie Craig, D-2nd District, received $5,000 from Bankman-Fried. And the former FTX CEO donated $780 to Minnesota’s Democratic Farmer Labor Party.
Open Secrets has identified more than $65 million in political contributions linked to FTX, donations that went to both Democratic and Republican lawmakers and organizations.
But it appears FTX has spread a lot more political cash around. In one of the many interviews he gave after his company’s collapse, Bankman-Fried said he funneled to GOP groups a great deal of “dark money” – money that’s contributed to certain nonprofit political organizations that do not have to disclose their donors.
Federal authorities on Tuesday charged Bankman-Fried with using what they said was millions of dollars of misappropriated customer funds to make illegal political donations to both Democratic and Republican candidates. They say he gave the money to influence regulation of the cryptocurrency industry.
Bankman-Fried supported designating the Commodities Futures Trading Commission, an independent agency, as the primary regulator of cryptocurrency spot markets.
‘Old fashioned embezzlement’
At Tuesday’s hearing, Ray – the new FTX CEO who specializes in restructuring troubled companies, including energy trading firm Enron – said he began on Nov. 11 to implement a plan to serve as a roadmap to find a final resolution for FTX’s customers and creditors.
“But never in my career have I seen such an utter failure of corporate controls at every level of an organization, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever,” Ray testified.
He said there was no firewall between FTX and Alameda, the crypto hedge fund within the FTX Group. Ray said there was also inadequate encryption and security and a lack of complete documentation for transactions involving nearly 500 investments made with FTX Group funds and assets. And he said FTX executives “went on a spending binge” with its customers’ money.
It was a case of “old-fashioned embezzlement,” he said.
Rep. Patrick McHenry, R-North Carolina, will chair the House Financial Services Committee when the GOP takes over the chamber in the next Congress. He has vowed to continue to use his panel to continue to investigate the collapse of FTX.
Yet McHenry said, despite the alleged fraud at FTX, he still believes “in the promise of digital assets and those around the world building on blockchain technologies.”
Emmer is likely to become a subcommittee chairman when the Financial Services Committee is restructured in January. He’ll also be the majority whip – the third-highest ranking House GOP leader – which will boost his influence when Congress considers crypto legislation.
Besides trying to determine all the reasons for FTX’s fall, the new Congress is likely to propose new crypto legislation.
“Like it or not, we are moving into a crypto asset, crypto world,” said Rep. Jim Himes, D-Connecticut.