January 25, 2023

ICYMI: In Speech, Warren Warns About Need for Robust Crypto Regulation by SEC, Federal Regulators, and Congress

“Crypto fraud is a big problem, but it’s one we can fix. The solution starts with the SEC.”

“No financial industry should get to write its own playbook – you either comply with the law or you face tough consequences for violating it. Crypto is no different. Our regulatory systems work to protect Americans only when the principle of ‘same activity, same risk, same regulation’ is applied across the board.”

Video of Speech (YouTube)

Washington, D.C. – In a keynote speech at a virtual event with the American Economic Liberties Project, Confronting the Crypto Challenge: Learning From a Meltdown, U.S. Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee, spoke about the importance of strong rules and enforcement in the crypto market to prevent fraud, protect investors, and root out illicit financial activity. Senator Warren highlighted the important actions that the SEC and other regulators have taken to bring the crypto ecosystem into compliance with the law, and called on Congress to ensure that regulators have the resources and authority they need to double down on the fight to protect consumers, investors, and national security.  

Full text of Senator Warren’s speech, as prepared for delivery, below: 

Keynote Speech from Senator Elizabeth Warren
Confronting the Crypto Challenge: Learning From a Meltdown 
January 25, 2023
Remarks as prepared for delivery

Senator Elizabeth Warren: Thank you, Sarah, for that thoughtful introduction. I am grateful to you and to the American Economic Liberties Project for hosting this event and for inviting me to be a part of it.

Every day that goes by, the importance of conversations like these becomes even clearer. For all their talk of innovation and financial inclusion, crypto industry giants – from FTX to Celsius to Voyager – are collapsing under the weight of their own fraud, deceit, and gross mismanagement. And when they sink, they take down a lot of honest investors down with them. 

The CFPB and FTC have received reports of billions of dollars in crypto fraud and scam losses for American consumers. Think about it this way. Those who purchased crypto near its peak, who were lured in by a celebrity hype machine, have witnessed its total value fall by over $2 trillion. These losses have been devastating, especially for Black investors and for people from underbanked communities – the very people crypto boosters said that crypto would help most.

Crypto fraud is a big problem, but it’s one we can fix. The solution starts with the SEC.  

The SEC has a long history of fighting exactly the battles that we now face. From the time of the Commission’s creation, its job has been to protect consumers by making sure that investors have access to the whole truth about investment risks, that they’re treated fairly in the market, and that wrongdoers face meaningful consequences. Consumer protection is built into the SEC’s DNA.

Of course, different leadership at the SEC makes a big difference.  During the Trump administration, regulators had essentially given the green light to open up a crypto market full of junk tokens and unregistered securities, rug pulls and Ponzi schemes, pump-and-dumps, money laundering and sanctions evasion.

The banking regulators even invited US banks to get into the crypto business.

The consequences of Trump regulators’ weakness were no surprise. By 2017, nearly 80 percent of all initial coin offerings were scams. 

The following year, investors lost about $9 million each day to crypto scams. 

As incoming SEC Chair, Gary Gensler faced a critical task: put the genie back in the bottle and bring the crypto ecosystem into regulatory compliance after Trump regulators allowed it to explode. 

In less than two years under Gary’s leadership, the SEC has made a good start. The SEC has helped to keep crypto volatility out of the banking system by holding banks and other public companies responsible for the risks of custodying crypto assets.

The Commission has worked to protect investors from crypto products especially prone to fraud and market manipulation by preventing Bitcoin exchange traded funds from hitting the market. 

The Commission has also taken legal action to halt the offering of dangerous and unregulated crypto lending products from platforms like BlockFi.

The SEC has brought enforcement actions against celebrity crypto promoters for not disclosing their compensation to the public.

It has gone after employees at exchanges like Coinbase for insider trading.

It has charged crypto crooks for defrauding ordinary investors out of millions of dollars. 

Most importantly, it appears that the Commission is still ramping up.

That’s why the industry is scared of a strong SEC, and that’s why it’s spending millions of dollars each year lobbying to escape SEC oversight. 

The Commission has been loud and clear that crypto doesn’t get a pass from long-standing securities laws that protect investors and ensure the integrity of our financial markets.

This is the right approach.  The SEC has the right rules and the right experience, and Gary Gensler is demonstrating that he is the right leader to get the job done.

That’s why, as I’ve said before, the SEC needs to do even more and use the full force of its regulatory powers across the entirety of the crypto market. 

Step one in crypto regulation should be to rein in the frauds inflicted on American consumers. The SEC should double down and use its tools to enforce the rules. And where the SEC needs more cops on the beat, then Congress needs to step up with the resources and new authorities needed to make sure the SEC can do its work at full strength, in every corner of the crypto market.

But the SEC isn’t the only regulator with a responsibility to rein in the industry’s worst tendencies and protect American families. Step two in the plan: all our regulators need to get in the game.

Consider our environmental regulators. Crypto mining firms are polluting communities, straining power grids, and driving up utility costs in communities from Texas to New York. Both the Department of Energy and the Environmental Protection Agency have the authority to require cryptominers to disclose their energy use and environmental impact.  Today I repeat my calls for them to use the tools they already have and force these companies to come clean.

Our banking regulators are also a part of this fight. Already, crypto-friendly banks like Silvergate have opened the banking system up to greater risk, raising the specter of a crypto collapse in which American taxpayers are left holding the bag. It’s the bank regulators’ job to insulate the banking system – and taxpayers – from the risk of crypto fraud. They have the tools and they need to use them.

Finally, step three: in the pockets of this market where regulators may not have all the authority they need, Congress should give the agencies the tools needed to get the job done. 

At no time is the need for strong, expanded regulatory authority more painfully clear than when we look at the burgeoning national security threats posed by crypto. 

We can see the risks the crypto market inflicts on retail investors, to the climate, and to financial stability. But in the dark recesses of cryptoworld, the threat to our national security is growing. In 2021 alone, at least $14 billion dollars in digital assets were sent to criminals and sanctions evaders. That means drug dealers, ransomware gangs, human traffickers, terrorists and countries like Iran, North Korea and Russia that are under international sanctions all headed to crypto to launder money. $14 billion to keep their drug operations afloat.  $14 billion to pay off corrupt officials.  $14 billion to make a thriving business out of holding companies hostage to ransomware.  $14 billion – and that’s just the tip of the iceberg.

The impact is felt everywhere. Crypto has been key to the rise of fentanyl sales in the United States. In 2020, a whopping 85 percent of the Postal Inspection Services’ seizures of digital assets involved drug trafficking. Studies suggest that 80 to 90 percent of Dark Web sales are related to illegal drugs – those purchases are all made in crypto.

Crypto actors continue to exploit loopholes and gaps in our anti-money laundering rules. Keep in mind that every financial institution from the biggest banks to your local Western Union is required to follow anti-money laundering rules to halt funding terrorists and rogue nations, to staunch the flow of illegal drugs, and to prevent the worst kinds of criminals from moving their dirty money around our financial system. 

This has to stop now. That’s why I’ve introduced bipartisan legislation to give regulators, including Treasury’s Financial Crimes Enforcement Network, the additional authority and resources they need to stitch the loopholes, root out illicit activity, and protect our national security.

I hear the crypto promoters tuning up. But I am not willing to trade the life savings of millions of retail investors, the integrity of our energy grids, the soundness of our banking system, or our national security for a bunch of hyped-up promises. 

With strong rules and enforcement from tough regulators, we can give the crypto industry a chance to prove whether it can deliver on its promises of innovation without robbing investors or laundering funds for drug traffickers and terrorists. 

No financial industry should get to write its own playbook – you either comply with the law or you face tough consequences for violating it. Crypto is no different.

Our regulatory systems work to protect Americans only when the principle of “same activity, same risk, same regulation” is applied across the board. No industry gets special treatment – especially not one with a track record of scams and financial crimes. 

Shady crypto players are lobbying hard in Washington.  They like a world where they can out run and out gun the regulators who are disrupting their schemes. I appreciate that you are in this fight, not so that you can rake in billions of dollars for yourselves but because you believe in honest and fair financial markets. I look forward to working with you to make sure our regulators have the tools they need to so that crypto markets are not a place where drug dealers are welcome and consumers get cheated.  

Thank you.