The House Financial Services Committee will host a hearing next month on Sam Bankman-Fried and his collapsed cryptocurrency companies, FTX and Alameda Research.
FTX filed for bankruptcy on Friday after users discovered that both firms, which are controlled by Bankman-Fried and his associates, were allegedly fraudulently intertwined, triggering a liquidity crisis as customers rushed to withdraw funds. A number of individual and institutional clients still have as much as $8 billion remaining in frozen accounts while Bankman-Fried asks investors to help compensate users.
House Financial Services Chairwoman Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC) announced that the bipartisan hearing will involve the testimonies of Bankman-Fried and those involved in related entities, including competitor Binance, which nearly purchased FTX. “Oversight is one of Congress’ most critical functions and we must get to the bottom of this for FTX’s customers and the American people,” McHenry said in a press release. “It’s essential that we hold bad actors accountable so responsible players can harness technology to build a more inclusive financial system.”
Bankman-Fried donated nearly $39 million during the recent midterm elections, with nearly all of his contributions benefiting Democratic candidates or political action committees, according to data from Open Secrets, which listed him as the nation’s sixth-largest individual midterm donor. FTX Co-CEO Ryan Salame, however, donated heavily to organizations supportive of Republicans, according to more data from Open Secrets.
“The fall of FTX has posed tremendous harm to over one million users, many of whom were everyday people who invested their hard-earned savings into the FTX cryptocurrency exchange, only to watch it all disappear within a matter of seconds,” Waters added. “Unfortunately, this event is just one out of many examples of cryptocurrency platforms that have collapsed just this past year… we need legislative action to ensure that digital assets entities cannot operate in the shadows outside of robust federal oversight and clear rules of the road.”
Beyond members of Congress, officials in the Biden administration have revealed a willingness to implement more regulations on cryptocurrencies. Treasury Secretary Janet Yellen remarked during a Tuesday interview with CBS News that the nascent sector requires “appropriate supervision and regulation,” noting that the administration has identified “regulatory holes that need to be filled for this to be a space where Americans can feel safe doing business.”
Indeed, an executive order from President Joe Biden earlier this year directed federal agencies to identify risks and benefits of cryptocurrencies, which are a form of decentralized digital money that users can transfer between their virtual wallets. The administration concluded that the assets “pose meaningful risk” in the form of highly volatile markets, as well as “outright fraud, scams, and theft.”
The Federal Reserve Bank of New York launched a simulated digital currency initiative on Tuesday, four days after FTX filed for bankruptcy, in which major financial institutions such as Citi, Mastercard, and BNY Mellon will experiment with a financial market infrastructure that would facilitate “digital asset transactions that connect deposits held at regulated financial institutions using distributed ledger technology.” Federal Reserve Chair Jerome Powell and other policymakers have previously expressed interest in a digital dollar managed by the central bank, provided that the public offers enough support.