Coinbase, FTX, and Binance receive inquiries as Congress seeks crackdown on $1 billion crypto fraud

In its first foray into the crypto sector, the House Committee on Oversight and Reform is ratcheting up pressure on federal agencies and crypto exchanges to protect Americans from fraudsters.

In a series of letters sent Tuesday morning, the commission asked four agencies, including the Treasury, the Federal Trade Commission, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, as well as five digital asset exchanges — Coinbase, FTX and Binance.US and Kraken and KuCoin – for information and documentation on what, if any, they do to protect consumers from scams and combat crypto-related fraud.

More than $1 billion worth of cryptocurrency has been lost to fraud since the beginning of 2021, according to research from the FTC.

“As stories of skyrocketing prices and overnight fortunes have drawn in professional and amateur investors alike, fraudsters have taken advantage of them,” wrote Rep. Raja Krishnamurthy, D-Illinois, chair of the Subcommittee on Consumer Policy and Economics. “The lack of a central authority to report suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding many consumers and investors have of the underlying technology make cryptocurrency a preferred transaction method for fraudsters.”

The letters are asking federal agencies and cryptocurrency exchanges to respond by September 12 with information about what they are doing to protect consumers. The committee says that these responses can be used to formulate legislative solutions.

In particular, the letters ask exchanges to produce documents dating back to January 1, 2009, that showcase efforts to combat crypto fraud and fraud, as well as show attempts made to “identify, investigate, remove, report, or otherwise remove potentially fraudulent digital assets.” accounts”, in addition to highlighting discussions about “whether stricter policies should be adopted”.

In a letter addressed to Sam Bankman-Fried, CEO and founder of FTX, the committee notes that “while some exchanges audit cryptocurrencies prior to listing, others allow digital assets to be listed with little or no auditing.”

Blockchain analytics firm Chainalysis found that 37% of revenue from crypto scams last year went to “rug pulls,” a type of scheme that involves developers listing a token on an exchange, increasing its volume, and then disappearing it with funds.

Binance.US, which also received an inquiry from the commission on Tuesday, was accused in a class action lawsuit of misleading consumers about the safety of investing in a stablecoin pegged to the US dollar known as terraUSD (or UST, for short) and its sister token, Luna. At its height, Luna and UST combined were worth about $60 billion. Now, they are basically worthless.

Concern about the safety of crypto funds parked on centralized platforms is also gaining momentum after the recent collapse of Voyager Digital and Celsius, both apps popular among retailers due to the two companies’ one-time double-digit annual returns. The subsequent bankruptcies of these two platforms shed light on the question of who owns crypto assets when the custodial business sways. In the bankruptcy proceedings of both Voyager and Celsius, customers are considered unsecured creditors, rather than federally insured bank depositors, meaning there is no guarantee that they will ever get any of their money back.

As for the relationship between an investor and a cryptocurrency exchange, the terms and conditions are different. In a financial filing released in May, Coinbase said its users would be treated as “generally unsecured creditors” in the event of bankruptcy.

Krishnamurthy also noted that agencies often appear to act for conflicting purposes and provide inconsistent guidance to private players. “Without clear definitions and guidelines, agencies will continue their internal fight and will not be able to effectively protect consumers and investors in relation to cryptocurrencies and the exchanges they are traded on.”

#Coinbase #FTX #Binance #receive #inquiries #Congress #seeks #crackdown #billion #crypto #fraud

Leave a Comment

Your email address will not be published.