The Democratic Senator from Massachusetts, Elizabeth Warren, has made a name for herself as one of the loudest anti-crypto voices in Washington and now she’s bringing some of her Democratic colleagues around to her way of thinking.
In a series of letters sent to heads of financial regulators including the Securities and Exchange Commission, the Commodities Futures Trading Commission and the Treasury Department, Warren along with New York Congresswoman Alexandra Ocasio-Cortez and three other Democratic lawmakers took issue with the number of federal employees taking up roles in the crypto industry after leaving government.
The group voiced concern over the so-called “revolving door” between government and crypto, referring to the rapid rate at which employees move from influential government positions to similar roles in the private sector, and vice versa.
The letter, which calls for regulators to clarify their ethics guidelines around revolving door hires, notes that 31 former officials from the Treasury Department, 28 from the SEC and 15 from the CFTC are currently serving in advisory or lobbying roles within the crypto industry. Employees from the Federal Reserve, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corporation (FDIC) were also noted.
“We are concerned that the crypto revolving door risks corrupting the policymaking process and undermining the public’s trust in our financial regulators,” the letter said.
Warren also used the opportunity to take a jab at the industry at large, questioning its authenticity by making the point that hiring former government officials provides the space with “a sense of legitimacy” that gives it the confidence to skirt around government regulations. Warren has become a frequent critic of cryptocurrency in recent years, calling for stricter oversight on bitcoin mining and preventing the use of crypto and blockchain for money laundering purposes.
While Warren’s criticism of crypto is relatively new, the government’s revolving door issue is something she’s been pushing back on for years. Last October, Warren sent similar letters to leaders of five top accounting firms after a New York Times report revealed how those firms send lawyers into high-ranking government positions to create tax loopholes for clients. Those same lawyers are then rewarded with higher pay and promotions upon their return to private practice.
During her presidential bid in 2019, Warren ran on the promise of enforcing antitrust laws among big tech firms like Facebook and defense contractors like Lockheed Martin and Boeing, vowing to stop them from using their vast budgets to attract top government officials onto their payrolls in the hopes of winning favorable regulatory treatment.
Now that crypto has solidified its place in the financial world, calls for Congress to provide a comprehensive regulatory framework are becoming more persistent and crypto lobbying is reaching a fever pitch in Washington as lawmakers quibble over various avenues for regulation.
Warren’s letter referred to the substantial increase in spending by crypto lobbyists that has quadrupled over the past three years.
“Just as powerful Wall Street interests have long exercised their influence over financial regulation by hiring former officials with knowledge of government’s inner workings, crypto firms appear to be pursuing the same strategy in order to secure a regulatory system to the industry’s exact specifications,” the letter noted.
Indeed, heads of major crypto firms like FTX’s Sam Bankman-Fried have been making frequent appearances on Capitol Hill in the past few months as the 2022 midterm elections draw nearer. The outcome of the elections will have a direct impact on who ends up writing the framework to regulate the trillion-dollar industry.
Warren’s letter says the American public should feel confident that their regulators are working on their behalf and not merely catering to industry giants in the hopes of getting a high-paying job when they leave government.
Crypto has garnered a reputation for being a very lucrative industry that’s growing at a rapid pace. The global crypto market cap exploded from just $400 billion in 2018 to topping $3 trillion in 2021. Following this year’s “crypto winter”, it’s now sitting just below the $1 trillion mark.
A large salary and the prospect of pioneering the most influential financial technology of our time has been the driving factor for many government officials to take up jobs in crypto upon departure.
Former Chairman of the Securities and Exchange Commission Jay Clayton who brought no fewer than 87 crypto-related enforcement actions now serves in an advisory role to a handful of crypto-related firms. Former SEC Director of Corporation Finance, Bill Hinman, who was involved in crafting an early regulatory framework for crypto currently serves as an advisor to Andreessen Horowitz’s $2 billion crypto fund. Former CFTC Chairman Chris Giancarlo and former U.S. Acting Comptroller of the Currency Brian Brooks are top investors in crypto startup Solidus Labs. Brooks currently holds the position of CEO at bitcoin mining company Bitfury and served briefly as CEO of crypto exchange Binance.US. Giancarlo, who is fondly referred to as “Crypto Dad” in homage to his early advocacy of crypto and stable coins, served on lender BlockFi’s board of directors and currently advises three crypto companies and a crypto trade association. Former senior Treasury Department official Ari Redbord currently serves as Head of Legal and Government Affairs at blockchain company TRM Labs.
As Warren and her colleagues have observed, the rise of the crypto industry is only propelling the trajectory of Washington’s revolving door.