Ag Policy Blog

The chairwoman and ranking member of the Senate Agriculture Committee on Monday announced plans for the committee to hold a hearing Dec. 1 on the collapse of the cryptocurrency exchange FTX with the chairman of the Commodity Futures Trading Commission (CFTC) to testify.

Sen. Debbie Stabenow, D-Mich., chairwoman of the committee and Sen. John Boozman, R-Ark., ranking member of the committee, will ensure the Senate Agriculture Committee is the first out of the gate with a full hearing on the now-bankrupt cryptocurrency exchange. Stabenow and Boozman will seek to establish that their legislation giving the CFTC regulatory authority over cryptocurrencies is the needed regulatory vehicle.

Because of the historical tie between the agricultural commodities and oversight of commodity exchanges, the House and Senate Agriculture Committees have oversight over CFTC's regulatory authority. That has led the committees to have to look at the complexity of digital assets such as cryptocurrencies and their exchanges.

Rep. Maxine Waters, D-Calif., outgoing chairwoman of the House Committee on Financial Services, and Rep. Patrick McHenry, R-N.C., the committee ranking member, also vowed last week to convene hearing on the FTX failure sometime in December.

FTX Fall From Grace

FTX quickly went from a shining star slapping its name on arenas to a collapsed cryptocurrency exchange that filed bankruptcy and lost funds for more than a million creditors. FTX saw a run on deposits and could be looking at least a $3.1 billion shortfall in funds just to its 50 largest creditors, according to bankruptcy filings.

FTX's problems came to light after the company took billions of dollars of customer funds to support speculative trading by its sister firm, Alameda Research. FTX may have loaned roughly $8 billion to Alameda, according to the Wall Street Journal.

The WSJ on Monday reported a lot of small investors who put in $1,800, $4,000 or $10,000 in FTX were drawn by the 8% interest rate on deposits. Those people are now doubting they will ever see their money again.

John J. Ray III, an insolvency attorney who had once oversaw the Enron bankruptcy, took over last week as CEO of FTX. He noted in a bankruptcy filing that he has been trying to deal with multiple requests from the CFTC, the Securities and Exchange Commission, U.S. attorneys and others. He also noted in the court filing, "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here." That's saying a lot, considering Ray cleaned up the Enron mess.

This brings everything back to the former CEO, Sam Bankman-Fried, 30, founder of FTX and at one time reportedly considered to be worth $26 billion. Bankman-Fried is reportedly in the Bahamas.

Bankman-Fried was a major campaign donor this past election, donating heavily to Democrats, but giving to incumbents from both parties. He and FTX also took a lot of interest in the Senate Ag Committee's bill, the Digital Commodities Consumer Protection Act. Bankman-Fried reportedly wanted to see cryptocurrency fall under the smaller CFTC rather than the SEC, viewing the CFTC "would be more lenient toward the industry than other federal overseers," according to the Washington Post.

Politico asked Stabenow if Bankman-Fried helped write the bill. She said that, "we took input from everybody involved who was interested in having a transparent system that provides accountability and regulation -- so certainly we took his input."

Stabenow, Boozman and others say the FTX collapse explains why regulation of the industry is needed.

Bankman-Fried contributed $5,800 to Stabenow and Boozman, as well as Sen. John Thune, R-S.D., the third-ranking Republican in Congress and Rep. Glenn "GT" Thompson, R-Pa., the incoming House Agriculture Committee chairman. But they were just a few of the lawmakers that the FTX founder supported, according to Center for Responsive Politics, a group that tracks campaign donations.

On Monday, Stabenow's office issued a "rhetoric vs. reality," breakdown on the Digital Commodities Consumer Protection Act (DCCPA), stating that the bill "would have prohibited the misconduct and risky behavior undertaken by the FTX. It is clear that Congress needs to act."

The details of the news release cited the bi-partisan nature of the bill. The news release also stated the bill "applies time-tested rules of financial regulation to crypto firms, to protect customer assets and eliminate conflicts."

The Senate Ag Committee release also stated that "a whole of government approach is required to regulate the industry. No one financial regulator has the expertise to regulate this industry alone."

The bill, and the Senate Ag Committee's authority, would give the CFTC oversight of the spot market for crypto assets that are not securities. Right now, the CFTC has authority over exchanges that offer futures contracts, but no authority over the crypto-tokens themselves, the Senate Ag Committee release stated.

CFTC v SEC

The Senate Agriculture Committee bill could be viewed as part of a turf battle over exactly who should regulate cryptocurrencies and their exchanges.

Politico noted, "Leaders of the SEC and CFTC are vying for pieces of the crypto market, and the split is reflected in legislation that's starting to emerge from Capitol Hill."

Sen. Sherrod Brown, D-Ohio, is a member of the Ag Committee, but chairs the Senate Banking Committee as well. He issued a statement on Nov. 10 about the FTX collapse and the "cryptocurrency market's continued turmoil," saying that lawmakers much think carefully about how to regulate cryptocurrencies.

"It is crucial that our financial watchdogs look into what led to FTX's collapse so we can fully understand the misconduct and abuses that took place. I will continue to work with them to hold bad actors in crypto markets accountable. I'm committed to finding the best path forward to protect consumers and the stability of the U.S. markets and banking system," Brown said.

Brown called for Bankman-Fried to testify before Congress. Brown also told Fox News, "It's difficult when a whole lot of members here, particularly the more pro-bank, pro-corporate members, have taken money from crypto companies and have sung their praises in the halls of the Senate," Brown told Fox. "That's the fundamental problem. That's why I'm pushing, especially pushing, the (Securities) Exchange Commission (SEC) to crack down and make sure that they are held accountable for what they've done."

Gary Gensler, who chaired the CFTC from 2009-2014, now chairs the SEC. Roll Call reported Gensler criticized the Senate Agriculture Committee bill being promoted by "the same folks that failed" because the bill was too light.

WSJ: https://www.wsj.com/…

Politico: https://www.politico.com/…

Roll Call: https://rollcall.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

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