Elizabeth Warren joins chorus of lawmakers hammering FTX after stunning meltdown

Senators Elizabeth Warren (D-MA) and Dick Durbin (D-IL) on Thursday sent a letter to former FTX CEO Sam Bankman-Fried and John Jay Ray III, FTX’s newly appointed CEO, requesting information on the reported misuse of billions of dollars in customer funds and other emerging allegations of improper business practices.

“Billions of dollars worth of investor funds appear to have vanished into the ether,” lawmakers wrote. “These massive losses raise questions about the behavior of former FTX CEO Sam Bankman-Fried and other company executives, the apparent lack of diligence by venture capital and other large investment funds looking to make crypto rich, and risk a broader contagion in the crypto market.”

In the letter, lawmakers are asking for an explanation of how FTX’s liquidity crisis came about, an accounting of all client funds transferred from FTX, copies of internal policies and procedures related to the relationship between FTX and Alameda, and how much $1.7 billion of client assets have gone missing.

Senators’ call for transparency comes after the House Financial Services Committee Earlier this week announced it would hold a hearing on the matter in December. The committee expects to hear from the companies and individuals involved, including Bankman-Fried, Alameda Research, Binance, FTX and others.

Rankings member Patrick McHenry (R-NC) called FTX’s collapse “a dumpster fire” during Wednesday’s hearing with the country’s top banking regulators, saying: “FTX users have been let down. The digital asset ecosystem is in limbo. And add to the mix an SEC chairman more interested in chasing headlines than bad actors. We are just beginning to learn the breadth and scope of what happened here.”

Ranking member Patrick McHenry's US representative listens to testimony during a US House Financial Services Committee hearing entitled

Leader U.S. Representative Patrick McHenry listens to testimony during a U.S. House of Representatives Financial Services Committee on Capitol Hill in Washington, U.S., September 21, 2022. REUTERS/Elizabeth Frantz

During Wednesday’s hearing, lawmakers took the opportunity to confront banking regulators about FTX and its failure to contain its bankruptcy, despite it being a pre-scheduled hearing to monitor the health of the banking system.

“I am dismayed at what I have heard from you gentlemen,” said Congressman Brad Sherman (D-CA). “Guard rails, safe and sound ways to deal with crypto. You sound like Sam Bankman-Fried. Only you wear long pants instead of shorts. In Basel, they proposed strict real-world standards… Please raise your hand if you are willing to commit to standards at least as strict for crypto as those published in Basil.”

All regulators’ hands went up.

Some lawmakers are using the FTX crisis to take a second look at proposed or pending legislation. Senator Cynthia Lummis (R-WY), who along with Senator Kirstin Gillibrand (D-NY) introduced a sweeping crypto oversight bill in June, Yahoo Finance Live said this week She would comb through the bill again to ensure consumers’ assets are protected and not commingled during a bankruptcy.

But even after FTX’s collapse, Lummis says she doesn’t want to rush the law, instead reviewing it carefully to make sure it filled the loopholes that enabled FTX’s behavior.

“I don’t think we need to be knee-jerk, do it right away during the session that started this week,” Lummis told Yahoo Finance. “I think we have time in 2023 to be very careful and considered.”

Meanwhile, Sen. Gillibrand says she and Sen. Lummis, along with Sen. Pat Toomey (R-PA), are trying to introduce a stablecoin regulation bill in the lame duck session, hoping to capitalize on the crypto turmoil hit.

Back in the House of Representatives, Financial Services Committee Chair Maxine Waters (D-CA) asked Federal Reserve Vice Chair Michael Barr during Wednesday’s hearing if he supported the approach she and ranking member McHenry were taking to the upcoming legislation to regulate stablecoins.

Barr said he was deeply encouraged by the bipartisan legislation and warned that private money has historically been vulnerable to risk and financial stability risks if left unregulated.

“I think it’s really important that we have stablecoin legislation that recognizes that… [stablecoins] are backed by the dollar and are really borrowing the confidence of the Federal Reserve and the public,” Barr said. “So it’s crucial that we have proper controls in place.”

This as Circle CEO Jeremy Allaire wrote a letter to Waters, McHenry and the heads of the Senate Banking Committee on Wednesday Pushing for urgent action to regulate stablecoins.

“The events of the past few days are a painful reminder that a lack of regulatory clarity is driving offshore activity in ways that can harm U.S. consumers, investors, businesses and the country as a whole,” Allaire wrote. “Congress should act now.”

Jennifer covers the Federal Reserve, cryptocurrencies and the intersection of business and government. Follow her on Twitter @Jenniferism.

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