The Honorable Tim Scott, Chair
The Honorable Elizabeth Warren, Ranking Member
Honorable Members
U.S. Senate Banking Committee
Washington, D.C. 20510

Re: Digital Asset Market Structure Request for Information

Dear Chair, Ranking Member, and Members of the Committee,

On behalf of more than 500,000 members and supporters of Public Citizen from across the country, we offer the following comment in response to the “Digital Asset Market Structure Request for Information” (RFI).

Chair Tim Scott (R-S.C.) issued this request July 22 setting August 5 as the deadline, a two week period. When agencies submit such requests, 30 days is considered brief; 60 days is more common; 90 days is also frequent. Such an abrupt schedule invites speculation that the committee leadership may be insincere in seeking comment that might adjust the provisions.

Because Public Citizen believes crypto represents perhaps the greatest Ponzi scheme in history, and because President Trump’s massive grift demands reform, we attempt here to provide useful comment, despite the time constraints.

The RFI at its core asks how crypto should be governed. Current law already provides regulation for assets sold to the public, including crypto assets, under the so-called Howey test. As such, securities registration and disclosure rules exist. Decades of SEC rulemaking on investor protection for the securities provides a robust regime. This position effectively answers all 35 questions.

In addition, the RFI asks whether the bill should preempt state laws, and Section 102 (d)(3) of the bill, regulating ancillary asset disclosures, would state that rules adopted under this section preempt state registration requirements. We urge you not to include this provision in the bill and, further, to make clear in the text that the bill does not preempt state law. Today, every state has securities laws, which work in tandem with federal law to protect consumers from fraud and other unfair practices in connection with the offer, purchase, or sale of securities. This dual system of federal and state regulation has worked for nearly a century, as some state laws precede the enactment of the federal laws. Consumers and investors in crypto warrant this same level of dual protection. Indeed, given that digital assets are far newer than traditional securities and the abundant evidence of scams, see, e.g., FTC, What to Know about Cryptocurrency and Scams, preempting the extra protection that can be provided by state laws would be particularly unwise.

We attach a series of documents that we believe will address the 35 questions contained in the RFI with more specificity.

Absent from these 35 questions, however, glares the most important issue, namely President Trump’s sprawling, flagrant, corrupt involvement with cryptocurrency. No responsible committee can advance any legislation in this arena without taking the necessary steps to terminate his violations of conflict-of-interest laws. We attach a letter signed by the nation’s leading ethics experts and organizations exploring this point. We also attach Public Citizen’s testimony before the U.S. House Financial Services Committee expanding on these conflicts.

Please see the following attachments:

Digital Asset Market Structure bill analysis by Prof. Lee Reiners
Letter from leading ethics experts on Trump crypto corruption
Public Citizen testimony before the House Financial Services Committee regarding Trump’s crypto ventures
Citation Needed issue, by Molly White
Public Citizen testimony before the New York state legislature
Public Citizen comment on the House CLARITY Act
Public Citizen reports on crypto political spending.
Report on mandatory arbitration

For questions, please contact Bartlett Naylor at bnaylor@citizen.org, or Martha Perez-Pedimonti if the issue involves access to courts.

Sincerely,

Public Citizen

Public Citizen leads group letter from honest government organizations and individuals

Honorable Members of Congress

Dear Member,

We, the undersigned organizations and individuals committed to honest government, believe President Donald J. Trump’s sprawling personal cryptocurrency ventures may constitute flagrant violations of anti-conflict statutes. As such, we urge you to accord special scrutiny as you consider legislation involving stablecoins. Voting to approve this bill will serve to ratify what may be perhaps the most conspicuous corruption in presidential history.

Trump once dismissed bitcoin, the most popular crypto, as “based on thin air.” It is a “scam.” It can facilitate unlawful behavior, including drug trade and other illegal activity.” Now, he’s the self-proclaimed crypto president.

Last week, the Trump family announced an agreement with a fund backed by Abu Dhabi that “would be making a $2 billion business deal using the Trump firm’s digital coins,” according to the New York Times. This deal involves a forthcoming stablecoin. The Constitution (Article 1, Section 9) forbids accepting money (specifically a “present” or “emolument”) or anything of value from any “king, prince, or foreign state.”

Before this, Trump promised a presidential dinner to the largest new buyers of his crypto “meme,” called “Trump.” He restated this “gala” opportunity May 5. Federal law strictly regulates payments to government officials, including gifts. Although the president may receive gifts, he may not “solicit” gifts. These prohibitions begin with the Constitution’s Emoluments Clause and are reiterated in the anti-bribery statute, 18 U.S.C. § 201, and federal regulations, 5 C.F.R. § 2635. Although section 2635.205 lists several exemptions from the prohibition, none exempts soliciting purchases for personal gain.

As to why the public might be interested in sending money, the website explains: “This Trump Meme celebrates a leader who doesn’t back down, no matter the odds.” Under the Trump meme website’s question, “What is a meme?” the website explains: “Merriam-Webster’s meme noun: 1: an idea, behavior, style, or usage that spreads from person to person within a culture.”

The website states that “Trump Memes . . . are not intended to be, or to be the subject of, an investment opportunity, investment contract, or security of any type.” Trump’s Securities and Exchange Commission also stated that meme coins have “no use.” Other cryptocurrency observers deride memes generally as without value. Former aide Anthony Scaramucci said Trump’s effort demeans broader cryptocurrency efforts, calling it “Idi Amin level corruption.” Another commenter said that the Trump meme “is effectively a ‘for sale’ sign on the White House.” Some, including an author in the Washington Post, characterized this token as a “sh—coin.”

In short, it appears Trump is not soliciting money in exchange for an investment or tangible product (such as a Bible, sports shoes, or a guitar), but soliciting money in exchange for nothing—that is, asking for a gift that will benefit him personally.

Already, Trump has profited millions from the meme and other ventures. His initial sale generated nearly $100 million. The latest salvo in April brought in roughly $100 million more. Some new buyers come through the Binance exchange, legally barred for US investors, meaning that Trump may well be violating the emoluments clause with this venture as well.

The dangers inherent in the Trump meme portend ominously. Should the president be allowed to enrich himself in this way, other politician might follow this path, rendering the prohibition on solicitation in 18 U.S.C. § 201 and the prohibitions on receipt of gifts by officials other than the president meaningless.

Paradoxically, while this Trump meme is worthless (by his own estimation) Trump managed to create an earlier crypto that is worth less. In October, 2024, he became the “chief crypto advocate” for World Liberty Financial, a nascent cryptocurrency firm. The World Liberty Trump crypto is worse because it cannot be resold. This Trump crypto buys only “governance,” but only a minority share. Trump controls the majority of the governance tokens.

Now, Congress considers twin bills on stablecoins. Perhaps not coincidental for a president who calls himself a “stable genius,” one bill is called the STABLE Act, and the other, the GENIUS Act. Stablecoins typically tie to the US dollar—one dollar buys one token.

Further, Congress should approve an amendment that restates conflict laws that already apply to the president. Namely, he may not solicit gifts; he may not accept gifts from a foreign sovereign; he may not sell political favors.

Sincerely,

Accountable.US/Accountable.NOW

Virginia Canter

Center for Biological Diversity

Consumer Federation of America

Ambassador Norman Eisen (RET), former White House Ethics Czar

End Citizens United

Free Speech for People

Prof. Richard W. Painter

Project on Government Oversight (POGO)

Public Citizen

State Democracy Defenders Action

Prof. James A. Thurber

20/20 Vision

Testimony

Bartlett Collins Naylor

Financial Policy Advocate, Economist

Public Citizen

Before the

House Financial Services Committee

Hearing on

“American Innovation and the Future of Digital Assets:

From Blueprint to a Functional Framework”

Friday, June 6, 2025, at 9:00 AM ET, Room 2220 Rayburn House Office Building

Introduction

On behalf of more than 500,000 members and supporters of Public Citizen, it is my solemn honor to provide testimony at what may be one of, if not the first congressional hearing that explores what we believe to be the greatest, most flagrant violation of conflict-of-interest statutes in United States presidential history.

I serve as financial policy advocate for Public Citizen’s Congress Watch division. Public Citizen is a nonprofit consumer advocacy organization with members in all fifty states. Public Citizen regularly appears before Congress, administrative agencies, and courts to support the enactment and enforcement of laws protecting consumers, workers, and the general public.

Public Citizen Efforts to Hold Trump Accountable and Defend Government

Since the beginning of the Trump administration, Public Citizen has worked assiduously to hold the president accountable for misconduct.

Drawing on our historic strengths and our work in the first Trump term, Public Citizen has prioritized tracking Trump corruption. We publish a tracker for the massive number of corporate conflicts of interest among Trump’s appointees. To date, the Trump administration has dismissed or withdrawn enforcement against 18 crypto corporations, and frozen enforcement against 3 (total of 20 corporations, with Binance benefiting from both categories). Trump signed the first-ever presidential pardon for a corporation – the crypto corporation BitMEX – which now will never have to pay its $100 million fine.

In addition to the overall documentation, we publish longer reports into the K street conflicts of important actors in the administration such as Attorney General Pam Bondi and White House Chief of Staff Susie Wiles. Our work on Pam Bondi led to Public Citizen testifying on the AG’s conflicts of interest as the only outside group opposition witness in Bondi’s confirmation hearing.

The examples of corruption and conflict-ridden decision-making on the part of this President are sulphurously legion. From his Tesla car show on the White House lawn to benefit Elon Musk, to his recently accepted jumbo jet gift from Qatar, to the fact that he never issued an executive order on ethics (breaking 30 years of precedent), to the firing of the head of the OGE and numerous inspectors generals, and much more. Public Citizen has issued reports, filed complaints and endeavored to make sure that this corruption doesn’t simply become background news.

In late May, Public Citizen Co-President Lisa Gilbert spoke at a press conference with members of Congress including Rep. Sam Liccardo (D-Ca.) of this committee to highlight the disgusting corruption of the memecoin advertising and associated presidential profits. Co-President Robert Weissman spoke at a protest Public Citizen organized with Our Revolution in front of the memecoin reward dinner at the Trump National Golf Course in Virginia.

To defend government operations, Public Citizen has filed 15 lawsuits to date since Trump returned to power. We believe the Trump regime is unilaterally, unconstitutionally, and unlawfully dismantling the federal government, from Cabinet-level departments to lesser-known sub-agencies that perform the routine, unheralded work that makes for a functioning country. Attached below is a summary of that litigation.

Summary of Trump’s Crypto Grift and Pending Legislation

Both houses of Congress now consider legislation addressing cryptocurrency. At the same time, President Donald Trump, in his self-described role as a private citizen, promotes not one, not two, but multiple for-profit crypto projects. He personally already profited hundreds of millions of dollars. Legislation legitimizing crypto will surely fatten those profits. Before Congress approves any legislation in this sector, responsible lawmakers must force Trump to divest from all such crypto ventures.

Joining Public Citizen in this characterization of Trump’s historic grift and demand that Congress force termination before any legislation proceeds include the nation’s leading government ethics organizations and individuals, including Accountable.US, the Project on Government Oversight, and former White House Republican and Democratic ethics counsels.

Further, we ask the committee to direct the Government Accountability Office (GAO) to declare that one of Trump’s crypto projects, namely what he calls his “meme,” qualifies as a solicitation of a gift. While Trump controls other federal ethics and law enforcement authorities, he does not control the GAO. Without such a determination, any lawmaker could offer a “meme” as a vehicle for legalized bribery.

Trump’s Crypto Devolution

Recently, the Trump family announced an agreement with a fund backed by Abu Dhabi that “would be making a $2 billion business deal using the Trump firm’s digital coins,” according to the New York Times. This deal involves a stablecoin. The Constitution (Article 1, Section 9) forbids accepting money (specifically a “present” or “emolument”) or anything of value from any “king, prince, or foreign state.”

Before this, Trump promised a presidential dinner to the largest new buyers of his crypto “meme,” called “Trump.” He restated this “gala” solicitation May 5. He hosted this gala on May 22 at his golf course near Sterling, Va.. Public Citizen led a protest at this live violation of federal conflict-of-interest statutes, which drew a large turnout and considerable media attention, as noted above.

Federal law strictly regulates payments to government officials, including gifts. Although the president may receive gifts, he may not “solicit” gifts. These prohibitions begin with the Constitution’s Emoluments Clause and are reiterated in the anti-bribery statute, 18 U.S.C. § 201, and federal regulations, 5 C.F.R. § 2635. Although section 2635.205 lists several exemptions from the prohibition, none exempts soliciting purchases for personal gain.

As to why the public might be interested in sending money, the Trump meme website explains: “This Trump Meme celebrates a leader who doesn’t back down, no matter the odds.” Under the Trump meme website’s question, “What is a meme?” the website explains: “Merriam-Webster’s meme noun: 1: an idea, behavior, style, or usage that spreads from person to person within a culture.”

Already, Trump has profited millions of dollars from the meme and other ventures. His initial sale generated nearly $100 million. The latest salvo in April brought in roughly $100 million more. Some new buyers come through the Binance exchange, legally barred for US investors, meaning that Trump may well be violating the emoluments clause with this venture as well.

Paradoxically, while this Trump meme is worthless (by his own estimation) Trump managed to create an earlier crypto that is worth even less. In October, 2024, he became the “chief crypto advocate” for World Liberty Financial, a nascent cryptocurrency firm. The World Liberty Trump crypto is worse because it cannot be resold. This Trump crypto buys “governance,” but only a minority share. Trump controls the majority of the governance tokens.

Now, Congress considers twin bills on stablecoins. Perhaps not coincidental for a president who calls himself a “stable genius,” one bill is called the STABLE Act, and the other, (originally) the GENIUS Act. Stablecoins typically tie to the US dollar—one dollar buys one token.

Public Citizen views crypto dimly, largely as a Ponzi scheme whose victims disproportionately include vulnerable populations. We view stablecoins as financing vehicles for illicit activity, including human, drugs and arms trafficking. We attach below our analysis of the STABLE Act. But the deficiencies we highlight pale compared with the unprecedented grift perpetrated by Trump.

At the very least, Congress must bar the president along with all elected officials and their families from owning, buying or otherwise trafficking in stablecoins. Americans must be assured that policy won’t be fashioned by those profiting from the shape of the legislation. We support legislation introduced by Ranking Member Maxine Waters and that of other lawmaker to address Trump’s conflict of interest grift

Finally, federal ethics officials must declare that promotion of a meme constitutes a solicitation of a gift, in violation of conflicts and anti-bribery statutes. Public Citizen has appealed to the Department of Justice and the Office of Government Ethics for such a determination. (Letters attached below, and linked.) We do not expect these Trump-controlled offices to respond to our letters or take action. However, the Government Accountability Office (GAO) operates independently. We ask responsible lawmakers to request a GAO determination.

Pro-crypto lawmakers apologize that Trump corruption will persist whether or not Congress approves crypto legislation. We reject this defeatist position. Congress must not abdicate any powers to hold Trump accountable. Without conflict-of-interest guardrails, approving these bills effectively endorses Trump’s conflicts. The bills will integrate crypto into mainstream banking, serving to fatten his grift.

In conclusion, Trump may not face felony prosecution under his administration. But his millions in crypto grift might lead to accountability under a subsequent independent federal prosecutor. His immunity only applies to presidential acts and he and his representatives themselves emphasize that his crypto efforts are personal. Shilling crypto falls outside this immunity. We welcome this committee’s early and urgent interest. Ideally, accountability will come sooner than a change in administration.

Thank you.

Summary of Public Citizen Litigation v Trump Administration

Suing to Maintain an Independent Consumer Product Safety Commission
The Consumer Product Safety Commission (CPSC) does pretty much what its name suggests. It conducts product-safety research, sets standards, and issues recalls. Under federal law, the agency has five commissioners who serve staggered seven-year terms. To ensure the CPSC’s independence, Congress stipulated that commissioners can be removed by the president prior to the end of their terms only “for neglect of duty or malfeasance in office but for no other cause.”

However — with no explanation and no suggestion of neglect of duty or malfeasance — Trump has illegally attempted to terminate three CPSC commissioners whose terms are not complete. On May 21 — representing those commissioners — Public Citizen filed suit in federal court challenging the terminations as unlawful and outside the president’s constitutional and statutory authority.

We are seeking an expedited ruling in the case to have the commissioners restored to their roles so they can continue their critical work on behalf of American consumers.

14. Suing to Preserve the National Institute for Occupational Safety and Health

Somewhat under the radar, the regime has been dismantling the National Institute for Occupational Safety and Health (NIOSH). Housed within the Department of Health and Human Services — now under the “leadership” of MAGA convert Robert F. Kennedy Jr. — NIOSH is the country’s premier authority on occupational safety and health, protecting workers in high-risk industries like mining, firefighting, construction, and healthcare.

Among other things, NIOSH screens miners for black lung disease, provides medical monitoring to September 11 first responders, and evaluates the safety of worksite protective gear (including certifying respirators like the N95 masks that were so essential throughout the COVID-19 pandemic).

Since Trump’s inauguration, roughly 85% of NIOSH’s staff has been fired, slated for termination, or otherwise forced out. With NIOSH so weakened, workers throughout the country who otherwise would have been safe will get sick, hurt, and killed on the job. (Following coverage of these cuts, a small portion of the employees have been called back to work.)

On May 14 — in partnership with AFL-CIO attorneys and representing numerous unions — Public Citizen filed suit in federal court to block the Trump regime’s illegal shutdown of NIOSH. Our lawsuit seeks an order for the administration to immediately resume the many activities the law requires NIOSH to perform.

13. Suing to Defend Oversight Offices at the Department of Homeland Security

When Congress created the Department of Homeland Security (DHS) in 2002, it established within the new department an Office for Civil Rights and Civil Liberties (CRCL) to make sure DHS respected those foundational freedoms. Congress also established an Office of the Citizenship and Immigration Services Ombudsman (CISOMB) within DHS to help immigrants who experienced problems dealing with department bureaucracy. And, in response to abuses reported during the first Trump administration, Congress established an Office of the Immigration Detention Ombudsman (OIDO) within DHS to monitor conditions in detention facilities.

On March 21, DHS announced its intention to close all three of these oversight offices and fire nearly all of the employees. On April 24, Public Citizen — representing several organizations that work with immigrants and people living near the US-Mexico border — sued DHS and Trump’s Homeland Security Secretary Kristi Noem (self-professed dog killer) over the unlawful attempt to shutter the three oversight offices created and funded by Congress.

After several court hearings, the judge denied our motion for a temporary restraining order in light of the administration promising to post public notices indicating that the offices remained open and would continue performing their statutory functions. Our motion for a preliminary injunction is still pending.

12. Suing to Block “DOGE” from Ending International Labor Rights Programs

For decades, Congress has authorized funding for the Bureau of International Labor Affairs (ILAB) within the Department of Labor. ILAB protects workers and businesses in the United States from unfair competition on the part of companies and governments that violate workers’ rights to free association and collective bargaining, that use forced labor or child labor, or that otherwise violate labor rights to gain an unfair advantage in the global marketplace.

In March, the Trump administration terminated all of ILAB’s cooperative agreements in one fell swoop. The so-called Department of Government Efficiency (DOGE) being run by Elon Musk made clear that the regime would not spend the funds that Congress specifically appropriated to combat unfair labor practices and to support workers’ rights abroad.

On April 15 — representing several impacted organizations — Public Citizen filed suit in federal court to block the administration’s abrupt and unlawful bulk termination of ILAB’s programs. We then filed a motion for a preliminary injunction and are now waiting for the judge’s decision.

11. Suing to Restore Environmental Tools Scrubbed from Federal Websites

Shortly after the Trump regime took over in January, it started removing essential information about climate change and environmental justice from the websites of various agencies — including the Department of Energy, the Department of Transportation, the Environmental Protection Agency, and the Federal Emergency Management Agency.

The deleted pages were key to explaining how communities around the country are harmed by or benefit from energy, environmental, and transportation policies. The pages supported work examining how pollution affects disadvantaged communities, supplied a means by which community advocates can explain environmental harms, and provided the foundation for public participation in regulatory and legislative processes.

On April 14 — on behalf of the Sierra Club, the Union of Concerned Scientists, and others — Public Citizen filed suit in federal court challenging the removal of numerous interactive pages related to climate change and environmental justice from publicly accessible, and taxpayer-funded, government websites. On May 16, we filed a motion for a preliminary injunction.

10. Suing to Stop Project 2025 Architect from Hiding How Administration Allocates Funds

Trump put a man named Russell Vought — a self-avowed “Christian nationalist” and one of the primary architects of the Project 2025 manifesto that is essentially an authoritarian playbook for the Trump regime — in charge of the federal government’s Office of Management and Budget (OMB).

One of the many things OMB is responsible for is “apportionment” decisions — legally binding budget decisions that specify the federal funds that an agency may spend and any conditions on the agency’s expenditure of those funds. By law, OMB is required to post information about its apportionments on a publicly accessible website. But, in late March, OMB took down its Public Apportionments Database and told Congress that it will stop maintaining the database altogether.

On April 8 — representing Citizens for Responsibility and Ethics in Washington (CREW) — Public Citizen filed suit in federal court challenging OMB’s removal of the Public Apportionments Database from its website. On April 18, we moved for a preliminary injunction and partial summary judgment in the case. The court promptly held a hearing, and we are now waiting for its decision.

9. Suing to Save the Institute of Education Sciences

In 2002, Congress established the Institute of Education Sciences (IES), a semi-independent division of the Department of Education. By conducting, supporting, and disseminating high-quality, evidence-based research, IES has been the cornerstone of research on education in America for over 20 years.

In February, the Department of Education — now being run by billionaire former professional wrestling magnate and MAGA extremist Linda McMahon — began dismantling IES by cancelling dozens of contracts for research studies and support services vital to the agency’s functioning. In March, roughly 90% of IES employees were notified that they would be terminated.

On April 4 — representing education researchers, practitioners, and organizations — Public Citizen filed suit in federal court challenging the administration’s illegal attempt to shut down IES. On May 16, the court held a hearing on our motion for a preliminary injunction.

8. Suing to Prevent the IRS from Illegally Sharing Taxpayer Data with DHS and ICE

Like other workers, undocumented workers are required to pay income taxes. The Internal Revenue Service (IRS) is legally required to treat their tax records, like those of every other taxpayer, as private and confidential — unless disclosure is specifically allowed by law. No law permits the IRS to disclose tax records for immigration enforcement purposes. But the Trump regime wants to access tax data — including names, current addresses, and information about dependents — to support its mass deportation agenda.

This is not just about the rights of undocumented workers. Congress enacted taxpayer privacy laws in response to misuse of IRS records during the presidency of Richard Nixon. If the Trump regime is allowed to carry out this particular invasion of taxpayer privacy — in flagrant violation of the law — it won’t stop there. Before you know it, millions and millions of Americans could be subject to illegal invasions of privacy and government surveillance. It’s a page right out of the authoritarian playbook.

On March 7 — with co-counsel and on behalf of immigrant rights organizations — Public Citizen filed suit in federal court to prevent the IRS from engaging in the unauthorized disclosure of taxpayer information for purposes of immigration enforcement. On March 14, we filed a motion for a temporary restraining order. And on March 31, we filed a motion for preliminary injunction to prevent the IRS from sharing taxpayer information with DHS and U.S. Immigration and Customs Enforcement (ICE).

Our motion for a preliminary injunction was denied. The court held that the law allows the IRS to share some taxpayer information with ICE solely to support criminal investigations and that the IRS said that was all it was doing. The court also indicated that sharing information for civil immigration enforcement would not be permissible. We then appealed the denial of the motion.

7. Suing to Protect the Consumer Financial Protection Bureau

In 2008, Wall Street’s reckless greed set off a worldwide financial crisis. In response, Congress — exercising its constitutional authority to regulate commerce — established a new federal agency, the Consumer Financial Protection Bureau (CFPB), to protect the American people from wrong or unfair conduct by Big Banks and other giant financial institutions. Public Citizen played a major role in the creation of the CFPB, which has recovered billions for everyday Americans and helped create a fairer, more transparent financial marketplace.

While Trump has openly declared his intent to “totally eliminate” the CFPB, the administration cannot lawfully dismantle a federal agency created by statute. Any attempt to do so is in defiance of the Constitution’s separation of powers.

On February 13, Public Citizen and co-counsel filed suit in federal court to block the administration’s illegal and unconstitutional attempt to dismantle the CFPB. On February 14, the judge barred the administration from firing employees or sending out reduction in force notices, from destroying CFPB data or records, and from defunding the agency while the case proceeds.

At a March hearing, lawyers were able to cross-examine current and former CFPB officials and employees, who made plain that the administration had planned, illegally, to eliminate the agency altogether. In a 115-page decision, the court granted our motion for a preliminary injunction, barring the administration from taking steps to destroy the agency. We are now waiting for the court of appeals to rule.

6. Suing to Block Trump’s Illegal and Inhumane Foreign Aid Freeze

On his very first day back in office, Trump issued an executive order directing agencies to freeze foreign assistance that supports humanitarian efforts worldwide.

On February 10, Public Citizen filed suit in federal court on behalf of two organizations — AIDS Vaccine Advocacy Coalition and Journalism Development Network — that receive federal grants for humanitarian work. On February 12, we filed a motion for a temporary restraining order requiring the administration to allow aid groups funded by the U.S. to resume work while the case proceeds. The judge issued a temporary restraining order on February 13.

On February 26, with the administration so far having failed to comply with the order, the judge ordered it to release funds by midnight that day for work performed before the freeze went into effect. Instead, the administration asked the Supreme Court to overturn the judge’s order and excuse its noncompliance.

On March 5, the Supreme Court rejected the administration’s request to excuse its noncompliance with the judge’s order requiring payment of completed work. On March 6, Public Citizen lawyers were back in court arguing for a preliminary injunction requiring the administration to allow work, and funding for that work, to resume while the case proceeds. The court granted our motion for a preliminary injunction in part.

On May 2, we amended the lawsuit to include an additional plaintiff, the Center for Victims of Torture. And we asked the court to order reinstatement of the over 80% of foreign assistance funding that had been cancelled. Meanwhile, the administration’s appeal of the preliminary injunction order is pending.

One other point worth making in relation to this case: Polls reveal that Americans tend to think foreign aid accounts for 25% or even 50% of all federal spending and that they would prefer it to be something like 10% instead. In reality, only about 1% of the federal budget — just one penny out of every dollar — goes to foreign aid. With that relatively modest expenditure, American aid helps millions and millions of people all across the world who are facing disease, famine, illness, malnutrition, and oppression.

5. Suing to Keep “DOGE” out of the Department of Education

DOGE operatives infiltrated Department of Education databases that include financial information of thousands of student-loan applicants and their families.

On February 7, Public Citizen filed suit in federal court to block DOGE from accessing these databases. On February 18, the judge denied our motion for a temporary restraining order. We later dismissed the case.

4. Suing to Preserve the U.S. Agency for International Development

Shortly after returning to power, Trump tried to dissolve the U.S. Agency for International Development (USAID) — in clear disregard for the law and the Constitution. Elon Musk later bragged that he had spent a weekend “feeding USAID into the wood chipper.”

Established by Congress in 1961 — when John F. Kennedy was president — USAID provides life-saving food, medicine, and support to much of the rest of the world. In January, though, Trump’s Secretary of State Marco Rubio illegally ordered USAID workers to stop doing their jobs, froze the agency’s funding, and prepared to lay off or fire nearly all employees. With USAID in disarray, medical clinics, soup kitchens, refugee assistance programs, and countless other critical projects across the globe could not operate.

On February 6 — with co-counsel at Democracy Forward and representing two federal worker unions — Public Citizen filed suit in federal court to stop Trump from carrying out this global humanitarian nightmare. We initially got a temporary restraining order, but the judge later lifted it, allowing the administration to terminate the majority of USAID’s employees. We subsequently added Oxfam America as an additional plaintiff and filed a motion for summary judgment, which is still pending.

3. Suing to Restore Critical Health Information Deleted from Government Websites

Under the “leadership” of MAGA sycophants installed by Trump, many federal agencies — including essential public health agencies like the Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA) — recklessly removed important information and data from their websites.

The CDC and FDA wiped from their websites vital information that doctors and researchers all across the country were using to treat patients, monitor diseases, advance medical discoveries, and save lives. For example, the CDC scrubbed information about school bullying, contraception, and preventing the spread of HIV. The FDA deleted pages about increasing female enrollment in clinical trials. In some instances, information that had been publicly available going back to the 1990s had vanished.

On February 4 — on behalf of Doctors for America — Public Citizen filed suit in federal court to reverse the unlawful deletion of critical health information from government websites. Two days later, we filed a motion for a temporary restraining order, which the court granted on February 11, requiring the administration to restore the deleted webpages and datasets while the case proceeds.

On March 11, we filed a motion for a preliminary injunction and summary judgment in the case. That motion is still pending before the judge.

2. Suing to Limit “DOGE” Infiltration of the Treasury Department

The U.S. Treasury Department possesses sensitive personal and financial information for millions and millions of Americans who send money to or receive money from the federal government. Federal laws protect such information from improper disclosure and misuse — including by barring disclosure to individuals who lack a lawful and legitimate need for it. But instead of protecting Americans’ private information as required by law, Scott Bessent — Trump’s jillionaire Treasury Secretary — allowed DOGE access to the data.

On February 3 — representing the Alliance for Retired Americans, the American Federation of Government Employees, and the Service Employees International Union, with co-counsel at Democracy Defenders Fund — Public Citizen filed suit in federal court to stop Trump’s Treasury Department from illegally sharing Americans’ information with DOGE in violation of the federal Privacy Act.

We filed a motion for a temporary restraining order on February 5. The next day, the court issued an interim order preventing Elon Musk and any of his DOGE operatives from accessing the Treasury data while the case proceeds. On March 7, the court denied our motion for a preliminary injunction, relying on administration promises not to engage in the misconduct we warned about. We have since filed a motion for summary judgment in the case.

1. Suing over Failure of “DOGE” to Comply with the Federal Advisory Committee Act

Within minutes of Trump taking office on January 20, Public Citizen — joined by the American Federation of Government Employees and Democracy Defenders Fund — filed suit in federal court alleging that Trump’s so-called Department of Government Efficiency (DOGE) was not complying with the Federal Advisory Committee Act. That law requires federal advisory committees to consist of members with a fair balance of viewpoints, to make meetings open to the public, and to make records and work product available to the public.

The case was later consolidated with two similar cases that were filed soon afterward. With DOGE mutating into something much more than an advisory committee, we voluntarily dismissed the case in early March.

March 5, 2025

Douglas A. Collins, Acting Director

U.S. Office of Government Ethics
250 E Street, SW., Suite 750
Washington, DC 20024

Dear Acting Director Collins,

Further to our letter of February 5, 2025 regarding President Donald Trump’s personal cryptocurrency venture, the Securities and Exchange Commission (SEC) recently declared new policy about so-called “meme coins.”

On February 27, 2025, the SEC stated, “Meme coins typically are purchased for entertainment, social interaction, and cultural purposes. . . . Meme coins . . . typically have limited or no use or functionality. . . . [The meme coin] does not generate a yield or convey rights to future income, profits, or assets of a business.” [Emphasis added.]

We highlight this new statement for two reasons. First, this SEC statement constitutes the official policy of President Trump and the Trump administration. In a previously dated executive order, President Trump asserted that all agency policies must reflect those of the president. “It shall be the policy of the executive branch to ensure Presidential . . . control of the entire executive branch.” That is, it is official policy of President Trump that the Trump meme may have “no use.”

Second, the SEC statement buttresses our claim that those who purchase the meme are rendering President Trump a “gift.” In the Trump meme website, we noted that President Trump emphasized that those who sent money for the meme were simply celebrating strong leadership. “This Trump Meme celebrates a leader who doesn’t back down, no matter the odds. Join the Trump Community – we’re all about fighting for what matters.”

Precisely what is a meme? Under the Trump meme website’s question, “What is a meme?” the website explains: “Merriam-Webster’s meme noun: 1: an idea, behavior, style, or usage that spreads from person to person within a culture.”

As with the recent SEC policy statement, the Trump website states that “Trump Memes . . . are not intended to be, or to be the subject of, an investment opportunity, investment contract, or security of any type.”

As we noted in our February 5 letter, a person sending money for a Trump meme is not purchasing a tangible product. Instead, the person receives only a digital receipt (in a blockchain), which is similar to a donor sending a check and receiving digital confirmation that the check was received.

Beyond Trump’s own declaration that the Trump meme is not an investment and the new Trump SEC declaration that the meme may have “no use,” we have noted that other cryptocurrency observers deride memes generally as without value. Former Trump aide Anthony Scaramucci said Trump’s effort demeans broader cryptocurrency efforts, calling it “Idi Amin level corruption.” Another commenter said that the Trump meme “is effectively a ‘for sale’ sign on the White House.” Some, including an author in the Washington Post, characterized this token as a “sh—coin.”

Again, we ask you to investigate whether President Trump has violated 18 U.S.C. § 201, as implemented in 5 C.F.R. §2635, barring the president from soliciting gifts.

To restate our February 5 claim, federal law strictly regulates payments to government officials, including gifts. Although the president may receive gifts, he may not “solicit” gifts. These prohibitions begin with the Constitution’s Emoluments Clause and are reiterated in the anti-bribery statute, 18 U.S.C. § 201, and federal regulations, 5 C.F.R. § 2635. Although section 2635.205 lists several exemptions from the prohibition, none exempts soliciting purchases for personal gain.

As the Congressional Research Service has explained:

Under these regulations, the President is expressly exempt from the broad restrictions on receiving or accepting gifts from prohibited sources or gifts given because of his official position, and thus may accept gifts from the general public, even from “prohibited sources,” or gifts given because of his official position, as long as the President does not “solicit or coerce” the offering of gifts from such sources, nor accept a gift in return for an official act. [Emphasis added.]

President Trump’s promotion of a Trump meme appears to violate this prohibition. As president, he has solicited. In a January 17 tweet, also apparently retweeted after January 20, Trump stated: “My NEW Official Trump Meme is HERE! It’s time to celebrate everything we stand for: WINNING! Join my very special Trump Community. GET YOUR $TRUMP NOW. Go to http://gettrumpmemes.com — Have Fun!” On Truth Social, he posted the same content, on January 21, at 6:19 PM.

Trump is the principal owner of the Trump Meme. The website explains that the memes are largely (80 percent) owned by CIC Digital LLC, “an affiliate of The Trump Organization.” CIC Digital is 100% owned by the Donald J Trump Revocable Trust. Donald Trump is the “sole beneficiary” of the revocable trust. Under the question on the website: “Is this an official Trump product?” the website answers: “Yes, this is the only Official Trump Meme, by President Donald J. Trump.”

Beyond the issue of solicitation, the Constitution (Article 1, Section 9) forbids accepting money (specifically a “present” or “emolument”) or anything of value from any “king, prince, or foreign state.” Because of the nature of a cryptocurrency exchange, it is difficult to know whether foreign state actors are gifting the president by way of purchasing a Trump meme.

We urge you to investigate this issue, as well.

In light of the new SEC policy, we reiterate our request that the Office of Government Ethics investigate this arrangement to determine whether it constitutes an impermissible gift solicitation. If the OGE finds in the affirmative, we ask that they make appropriate recommendations, including termination of the meme sale, return of monies, and any other available remedies.

For questions, please contact Bartlett Naylor at bnaylor@citizen.org; and/or Dr. Craig Holman at cholman@citizen.org,

Sincerely

Bartlett Naylor Dr. Craig Holman
Public Citizen Public Citizen

March 31, 2025

The Honorable French Hill, Chair

The Honorable Maxine Waters, Ranking Member

Honorable Members

House Financial Services Committee

Washington, DC 20515

Dear Committee members,

On behalf of more than 500,000 members and supporters of Public Citizen, we offer the following comments on bills slated for mark-up before the House Financial Services Committee on April 2, 2025. Several misguided bills serve only to buttress cryptocurrency, a sector riddled with grifters. Other bills reduce bank safeguards, or reverse consumer protections. Such lawmaking ill serves the American public.

What inescapably explains this Committee’s and Congress’ unreasonable attention to crypto is the flood of political spending by a handful of crypto financiers in the 2024 election cycle, and the threat of more in the next cycle. Lawmakers must not allow political spending by an inherently harmful sector to shape important policy.

President Donald Trump now figures as the face of cryptocurrency, replacing Sam Bankman-Fried. The latter serves a prison term after looting billions of customer dollars. The former promotes numerous crypto projects, enriching himself perhaps more through this effortless half-year-old grift than from his decades-long career with six bankruptcies, failed casinos, a grounded airline, a short-lived non-accredited university, unsold steaks and vodka, and more.

Generally, Americans don’t care much for crypto. According to the Federal Reserve, 93 percent of Americans neither own nor use crypto. According to Pew, 88 percent of Americans who report they are familiar with crypto declare they don’t trust it. Arguably, that’s because crypto scams abound. One that deserves this Committee’s scrutiny: President Trump’s meme coin scheme. By his own estimation, this meme instrument holds no value, an observation recently affirmed by Trump’s own Securities and Exchange Commission. Public Citizen believes President Trump may be in violation of federal law that prohibits the president from soliciting gifts.

Yet in service of Trump’s latest crypto ventures and the tsunami of crypto politico spending, this committee insists that Congress must act urgently. Bill sponsors insist that this precious innovation deserves promotion.

In our comment, we begin with discussion of the Stablecoin Transparency and Accountability for a Better Ledger Economy Act, or STABLE Act, which includes a description of stablecoins, an outline for responsible legislation, and a critique of the STABLE Act. We then we turn to a discussion of the other bills.

Stablecoins

Prevailing cryptocurrencies gyrate wildly in price, often in a single day. In the last five years, Bitcoin traded as high as $110,000 per token and as low as $10,000. These swings undermine the case for digital assets as a means of exchange: A customer who believed that Bitcoin would rise in value would not rationally use one for a purchase on that day since they would be over-paying. They would only use the coin if they thought the price would fall. Conversely, a vendor who believed Bitcoin would fall would not accept the coin, since it would be an underpayment, and would only accept the token if they believed the price would rise. In other words, a fluctuating price stifles the use of Bitcoin as a vehicle of market exchange.

Stablecoins promised to answer the problem of volatility in pricing by pegging each token to a specific value, such as the U.S. dollar, held in a reserve. However, many sponsors failed to fully back these tokens with legitimate reserves. The New York Attorney General fined Tether and Bitfinex for such failures. Celsius promised high yields to those who purchased its stablecoin, but allegedly paid those yields with newer investors’ money, a basic Ponzi scheme.

In less dramatic cases, many stable coins have not been “stable” according to a review by Moodys, with many failing to hold to a $1 value per token.

Meanwhile, other stablecoins may be used in illicit finance.

Public Citizen welcomes responsible legislation that addresses these problems. We believe any stablecoin bill should contain the following assurances:

Assets are backed on a 1-1 basis.
The assets must be safe and highly liquid, restricted to U.S. Treasury securities.
The sponsor must maintain capital of 5 percent. (Sponsors must maintain assets that are 5 percent greater than the value of outstanding stablecoins.)
Sponsors must not be affiliated with any commercial firm, that is, a firm that is not a bank. (This includes firms such as Facebook or Walmart.)
Sponsors must comply with anti-money laundering and know-your-customer laws.
Sponsors must disclose their climate footprint.

Sponsors must register with the Securities and Exchange Commission (SEC).

Registration must include:

A list of any criminal conviction, deferred prosecution agreement, and pending criminal proceeding in any jurisdiction against all of the following: (i) The applicant; (ii) Any executive officer of the applicant; (iii) Any responsible individual of the applicant; (iv) Any person that has control over the applicant; (v) Any person over which the applicant has control.
A list of any litigation, arbitration, or administrative proceeding in any jurisdiction in which the applicant or an executive officer or a responsible individual of the applicant has been a party for the 10 years before the application is submitted determined to be material in accordance with generally accepted accounting principles and, to the extent the applicant would be required to disclose the litigation, arbitration, or administrative proceeding in the applicant’s audited financial statements, reports to equity owners and similar statements or reports.
A list of any bankruptcy or receivership proceeding in any jurisdiction for the 10 years before the application is submitted in which any of the following was a debtor: (i) The applicant; (ii) An executive officer of the applicant; (iii) A responsible individual of the applicant; (iv) A person that has control over the applicant; (v) A person over which the applicant has control.
A set of fingerprints for each executive officer and responsible individual of the applicant.

Sponsors must publicly disclose monthly their assets, liabilities, capital, income, and expenses of the licensee, and secure and publish an independent audit of this financial data quarterly.
Sponsors shall maintain a surety bond or trust account in United States dollars in a form and amount as determined by the SEC for the protection of those who engage in digital financial asset business activity with the registrant.
Banks that hold stablecoins must post 1250 percent risk capital, as described by the Basel Committee.
Penalties for infraction of any of these terms shall be one percent of the outstanding value of the stablecoin on the first infraction, and termination of the stablecoin on the second.
Legislation should include a resolution framework in the case of failure as standard bankruptcy proceedings typically take years before customers can recover funds.

2392, the STABLE Act

The STABLE Act focuses on essentially one element of what’s necessary to govern stablecoins: namely the integrity of their reserves. It requires that the sponsor buy safe securities, such as U.S. treasuries. Even here, however, the STABLE Act falls short because it also allows the sponsor to include uninsured demand deposits. While cash might seem safe, if held in a bank, accounts beyond $250,000 would not enjoy FDIC coverage. The episode of Silicon Valley Bank’s failure demonstrated this vulnerability. Further, the bill relies on sponsor certification (or attestation) as to the components of the reserve. Instead, responsible legislation should require an audit by a firm overseen by the Public Company Accounting Oversight Board (PCAOB). (Some stablecoins have sought audits from firms outside this recognized regime.)

Generally, the STABLE Act includes several foundational flaws. First, it invites major commercial firms such as Amazon, Walmart, Twitter/X and/or Facebook/Meta to enter the banking sector because it lacks provisions under the Banking Holding Company Act that otherwise prohibit non-financial firms from entering the banking business. The nation’s centuries old policy separating banking and commerce stems from concerns about concentration in power. Creditors should not face the moral hazard of competing with the borrower. Viability of a credit facility should not hinge on the viability of a commercial venture. For example, an automobile manufacturer that also sponsored a stablecoin might raid the reserve should car sales begin to falter. Or a major online aggregating retailer might disfavor a subcontractor if it failed to use the aggregator’s stablecoin. History illustrates that when banks have entered commerce, such as financiers did in the late 19^th century during the construction of railroads, manipulations led to frequent economic shocks. Any stablecoin legislation should obligate issuers to abide by robust Bank Holding Company Act provisions that guard against these harms by restricting sponsorship to existing banks.

Second, the STABLE Act provides a dual oversight structure, permitting stablecoins to register under individual states. This allows a race to the bottom, where unscrupulous sponsors would seek the state with the most convenient rules. The bill calls on the states to establish safety standards, but these will inevitably be worked out between industry and lawmakers with little consumer protection given the scant interest by average Americans in this sector.

The bill also fails to establish clear safeguards for those stablecoins that seek federal oversight, with the same vague injunctions to regulators. As implementation of the 2010 Wall Street Reform Act demonstrates, regulators were slow to implement rules, and those rules reflected intense Wall Street lobbying. With the U.S. Supreme Court decision eliminating Chevron deference, rules that industry finds inconvenient now may perish at the whim of cherry-picked courts.

Third, the bill fails to provide speedy resolution for customers in case of failure of a stablecoin. Bankruptcy does not suit a firm that custodies savings that should be available within days of a failure, as is the case with banks that are resolved by the Federal Deposit Insurance Corp. Bankruptcy triggers an automatic stay on payments that could take years before the relief of funds, according to Georgetown Prof. Arthur Wilmarth, which renders “priority” little relief in actuality. Related to this, the bill includes adequate custodial rules. The STABLE Act declares that stablecoins are the property of the investor and must be segregated from sponsor funds. But this doesn’t direct the bankruptcy court to pay the investor immediately.

Lastly, the bill lacks a fair redemption regime. It simply requires the stablecoin sponsor to establish a policy. It fails to prohibit a firm from establishing exorbitant fees, or setting an unreasonable time to honor a redemption, or favoring some customers over others. A sponsor could establish long waiting periods; a sponsor could even change policies, such as advertising a low fee one month, then raising it the next, and setting different fees for different customers. In a money market mutual fund, all customers receive the same prevailing interest rate and enjoy equal redemption rules.

Sponsors of this bill will not admit that they’re serving the business interests of President Trump. Instead, proponents insist that Congress must urgently approve crypto-friendly legislation to protect American innovation leadership in what they mislabel as a promising technology sector. But this claim misunderstands the very nature of decentralized finance. Cryptocurrency and its developers live digitally on the internet that respects no state or national borders. There are no sprawling Silicon Valley office campuses, no Detroit factories, and certainly no country that’s luring innovators in the way that cheap labor invites American manufacturers to relocate oversees.

Binance, the world’s largest crypto exchange, began in China, then moved to Japan after China banned crypto trading in 2017, and then to Malta. It has no formal corporate headquarters. It notes, “Binance, one of the largest remote companies in the world, is setting the standard for the future of work with its global, decentralized workforce. “ Binance employment reached 3,000 before a one-third staff reduction in 2023. It now lists 5,000 employees “from more than 50 countries and working from nearly 100.”
Coinbase, the largest crypto exchange based in the United States, counts 3,700 employees. Most of these work remotely. Coinbase originally drew most employees from the San Francisco Bay Area, but that has changed, and it now longer maintains a headquarters. Some Coinbase employees live outside the United States.
Bitcoin, the largest cryptocurrency by capitalization, famously claims no ownership or control. A group of five coders reportedly maintain the related software.
Ethereum, or more precisely, Ether, the second largest cryptocurrency, emerged from the efforts of Russian-born Canadian Vitalik Buterin and a number of associates in 2013.Unlike a conventional company, a volunteer community maintains the system, akin to contributors to Wikipedia. The Ethereum Foundation lists 21 employees. It maintains an office in Zug, Switzerland.
Tether, the world’s largest stablecoin, as measured by the amount of currency invested in the token, lists El Salvador as it’s country of registration. It moved there from the British Virgin Islands. Tether Chief Executive Paolo Ardoino said the El Salvador relocation marked the first time it would maintain a dedicated office. Tether employs roughly 100 staff, and most work remotely, according to news reports.

Few policy makers can rationally fear El Salvador or Malta as threats to American innovation. Of note, a number of crypto fraudsters prefer countries with difficult extradition treaties with the United States, also hardly the nations that should worry American policy makers as innovation usurpers.

Remote crypto “innovators” might choose location based on urban amenities, or natural attractions. To lure them, American policy makers might need to concentrate more on urban planning, or the creation of a new Riviera and Alpine range, improvements only feasible in science fiction.

Members of Congress who naturally promote employment in their districts won’t find cryptocurrency innovation a fecund sector. A 2023 report identified 190,000 total employees working worldwide in the crypto industry (down from 210,000 in 2021). Roughly a third of these work for exchanges (such as Binance), another 26 percent work in crypto financial services, and about 15 percent in blockchain protocols and mining (which is verification of transactions). U.S. nationals account for about 29 percent of the total workforce, or about 55,000. This scattered workforce would be better served with retraining in a productive sector.

In sum, this committee should not be guided by Trump’s business goals, must not succumb to political spending, and should not hide behind specious arguments about American primacy in crypto innovation. Without foundational amendments, we ask the Committee to reject this bill.

Conclusion

President Trump’s actions imperil our nation’s economy along with an ominous swath of other arenas, from human rights, to health, international relations, education and more. This Committee should conduct rigorous oversight over these actions. Instead, the primary legislation it chooses to advance in this mark-up shamefully enhances his personal business. History will not record this charitably.

For questions, please contract Bartlett Naylor at bnaylor@citizen.org

Sincerely,

Public Citizen

Digital Assets Market Structure bill analysis

By Prof. Lee Reiners

(submitted with permission)

Definitions and Section 101

The Lummis-Gillibrand bill 1.0 introduced the term “ancillary asset,” which is functionally equivalent to the “investment contract asset” defined in CLARITY. Under Lummis-Gillibrand 2.0, an ancillary asset is defined as an “intangible, commercially fungible asset, including a digital commodity, that is offered, sold, or otherwise distributed to a person in connection with the purchase and sale of a security through an arrangement that constitutes an investment contract, as that term is used in section 2(a)(1) and as further clarified by the Commission.” This definition is slightly modified from LG 1.0 and includes the term “digital commodity,” although the term is not defined elsewhere in the bill. This suggests that the final Senate bill will include CLARITY’s definition of digital commodity. Assets that provide their holder with economic rights are disqualified from being ancillary assets.

LG 2.0 defines ‘ancillary asset originator’ and if the originator did not receive the largest amount of ancillary assets distributed in the 12-month period following their initial distribution, then the entity that received the largest amount is jointly and severally considered to be the originator for purposes of the bill’s disclosure requirements.

The bill also broadly defines ‘foreign originator’ to include originators organized outside the US as well as US-based originators that satisfy certain requirements. This includes instances when the ancillary asset originator— “(I) does not have shareholders, members, or other equity owners; and “(II)(aa) the formation of the ancillary asset originator was directed or caused by 1 or more citizens or residents of the United States, or entities formed under the laws of a State or Indian Tribe; or “(bb) the business of the ancillary asset originator is principally administered in the United States. This suggests that common DeFi entities, like DAOs, will be ‘foreign originators’. This is relevant because foreign originators are exempt from disclosure requirements.

Unlike CLARITY’s definition, which is limited to assets recorded on a blockchain, the ancillary asset definition is technology-agnostic. As a result, it potentially covers a broader range of instruments and may open the door for non-crypto assets to sidestep SEC registration—though it remains unclear to what extent “intangible, fungible” assets exist outside of blockchain-based systems.

The bill clarifies that ancillary assets are not securities and that secondary transactions in ancillary assets are not securities transactions. The bill also preempts the application of state securities laws to ancillary assets unless state law treats ancillary assets as commodities under the laws of that state. The bill also defines “gratuitous distribution,” which covers air drops, and stipulates that gratuitous distributions shall not be considered to be a transaction in securities.

The bill also includes a self-certification provision whereby an ancillary asset originator may submit to the SEC a written self-certification, supported by reasonable evidence, that such ancillary asset does not provide the owner of the asset with economic rights. It is not clear how relevant or useful this self-certification regime will be given that originators are not required to obtain SEC approval before distributing ancillary assets – although ancillary assets are distributed as part of an investment contract, which will either be registered with the SEC or qualify for an exemption – and because there is a different self-certification regime governing the release from disclosure obligations

Ancillary asset issuers are subject to bi-annual disclosure requirements unless the aggregate amount raised during the 12-month period following the initial sale is less than $5 million or the average daily trading volume is less than $5 million. I don’t know why small-cap tokens should be exempted from disclosure requirements. Foreign originators are exempt from disclosure requirements.

Disclosures must be “furnished” to the SEC, which is a lower legal threshold than “filing” with the SEC. Disclosures cover basic corporate information regarding the ancillary asset originator and the ancillary asset activities of the ancillary asset originator and economic information relating to the ancillary asset. The SEC is given the authority to write rules governing the form of disclosure, but these rules must be “tailored based on the size of the applicable ancillary asset originator.” It is unusual to tailor disclosure rules based on the size of the issuer.

Disclosure obligations are terminated once the ancillary asset originator certifies to the SEC “that, during the 1-year period preceding the date on which the ancillary asset originator submits the certification, the ancillary asset originator (including a subsidiary of the ancillary asset originator or any entity that directly or indirectly controls or is controlled by a common entity with the ancillary asset originator) did not engage in more than a nominal level of entrepreneurial or managerial efforts that primarily determined the value of the related ancillary asset, including that the essential promises made by the ancillary asset originator have been fulfilled, except that providing administrative services shall not alone be considered entrepreneurial or managerial efforts for the purposes of this clause.”

This is akin to the “mature blockchain system” in CLARITY and suffers from similar ambiguities. How do you determine what constitutes a “nominal” level of entrepreneurial or managerial efforts? Unless the SEC approves the certification, in writing, the certification becomes effective 60-days after submittal, unless the SEC issues a notice of rebuttal. However, the SEC must provide the originator 10 days notice of their intent to rebut the certification, after which the SEC must hold a hearing and hold a final vote. All of this must happen within 60-days, which gives the SEC relatively little time to review the certification and decide if they want to reject it. Concerningly, the bill states that the SEC can only reject a certification if they find “clear and convincing evidence, that the applicable ancillary asset provides the owner of the asset” with economic rights. Note that this is a different standard than what the originator must meet to submit the certification. This means you could have a token issuer free themselves from disclosure obligations by certifying that they are providing only “nominal” efforts even if the SEC finds that they are still providing essential efforts, provided the token offers no economic rights. This process will be gamed, and the drafters know it. Finally, the bill bans the SEC from requiring ancillary asset originators to provide financial statements or “any information purporting to have been prepared on the authority of an expert.”

Falso or misleading statements in these disclosures are subject to liability under Section 17 of the ’33 Act, which does not include a private right of action, and the bill goes even further by explicitly stating there is no private right of action. The bill also provides a safe harbor for forward-looking statements. Taken together, there will be little consequence for ancillary asset originators that lie in their disclosures. Finally, the bill leaves it up to the SEC to write rules governing the disposition of ancillary assets by related persons.

Section 102

Section 102 includes a new exemption to registration called “Regulation DA,” which closely mirrors the exemption in CLARITY. It is important to note that LG 1.0 did not include a new exemption from registration requirements. This includes the ability to raise $75 million per year for four years. LG 2.0 also allows fundraising up to “10 percent of the total dollar value of those ancillary assets that are outstanding, as of the date of that offer or sale.” This means an originator can raise even more than CLARITY’s limits if they mint a lot of tokens and hold on to most of them. For instance, an issuer can mint 1 billion tokens and sell 100 million of them for $1, thereby allowing them to raise $100 million in one offering. The bill requires an inflation adjustment to these thresholds every two years and even allows the SEC to increase the thresholds provided it is “in the public interest and consistent with the protection of investors.”

Offers or sales under Reg DA are subject to initial disclosure requirements that must be “furnished” to the SEC. And “if the applicable ancillary asset is reliant on a digital network that is subject to common control by related persons…the applicable ancillary asset originator shall take reasonable steps, … for that digital network to become certified as not subject to such common control, as of the date that is 4 years after the date of the first offer or sale of that ancillary asset in reliance” on Reg DA. While this is an improvement over CLARITY, it does not actually require the funds raised to go towards achieving decentralization and there is no punishment for failing to escape “common control.” The bill also preempts Reg DA registration statements from state securities laws and provides a safe harbor for forward-looking statements.

Section 103

This section mandates that the SEC write rules “to define the circumstances under which a digital network is considered to be under common control by related persons.” In promulgating these rules, the bill instructs the SEC to consider:

The ability of a person or group of persons to unilaterally alter, restrict, or direct the operation or governance of the digital network.
The distribution of voting power of governance rights among participants in the digital network.
The presence or absence of open-source code and permission-less access on the digital network.
The degree of economic or technical influence that any person or group of persons may exercise over the digital network.
Any other factor that the Commission determines relevant to assessing control and independence with respect to the digital network.

For ancillary assets sold pursuant to the new Reg DA exemption, the bill imposes lock-up provisions for related persons that are similar to CLARITY, with the restrictions being less stringent after the digital network is certified as not being under common control.

For ancillary assets sold pursuant to the new Reg DA exemption the originator can furnish the Commission with a written self-certification stating that the digital network is not under common control. Note that this certification is only relevant to the related person lock up provisions. The same disclosure obligations as laid out in section 101 still apply to ancillary asset issuers who utilize the new Reg DA exemption.

Section 105

This section contains the most concerning aspect of the bill because it requires the SEC to “adopt a final rule specifying clear criteria and definitions governing the term “investment contract”, which shall apply to the term “investment contract.” In short, this provision holds the potential to completely undermine Howey.

The bill stipulates that “a contract shall be considered an investment contract only if the contract meets the following elements:

An investment of money by an investor, which shall include more than a de minimis amount of cash (or its equivalent) or services.

Most ICOs involve the investors sending tokens (BTC, ETH) to the issuer. These tokens are not cash “equivalents.”

An investment described in paragraph (1) is made in a business entity, whether incorporated, unincorporated, organized, or unorganized.

This is an accommodation for DeFi because the industry argues that many issuers are not “entities.”

An express or implied agreement is required whereby the issuer makes, directly or indirectly, certain promises to perform essential managerial efforts on behalf of the enterprise.

In numerous court filings, the crypto industry has argued that an investment contract requires the presence of privity between the investor and issuer. EVERY court has rejected this argument. This is a huge loophole and would allow many assets to evade securities laws.

The investor reasonably expects profits based on the terms of the agreement itself and statements by the counterparty and its agents, when it is clear from the context that such statements are made by or authorized by the enterprise; and (B) are accessible to the investor.
Profits under paragraph (4) are derived from the entrepreneurial or managerial efforts of the counterparty or its agents on behalf of the enterprise, where such efforts are post-sale and essential to the operation or success of the enterprise; and (B) do not include ministerial, technical, or administrative activities.

How do you separate “ministerial, technical, or administrative activities” from essential activities?

Further Requirements.—The rule adopted under subsection (a) shall provide that an investment contract shall require an investment in an enterprise but does not require commonality.

This is another DeFi giveaway.

Section 107

This section needlessly gives the SEC an innovation mandate.

Section 109

This section orders the SEC to review all regulations that apply to digital asset activity and amend, or delete, them so that they are “no longer outdated, unnecessary, or unduly burdensome in light of the unique technological characteristics of digital assets.” This is deregulatory and unnecessary. The SEC already has the authority to update their rulebook if they want to. This provision will be interpreted by the SEC, especially under Trump, to roll back most/all rules applicable to crypto.

Title II

Title II includes several sections pertaining to AML/CFT. These are better than anything in CLARITY.

Title III

Title III completely opens the door for banks to fully engage in crypto activity. Specifically, it states that a “financial holding company may use a digital asset or blockchain system to perform, provide, or deliver any activity, function, product, or service that the financial holding company is otherwise authorized by law to perform, provide, or deliver.”

The bill explicitly allows all state and national banks to engage in the following:

1) providing custodial, fiduciary, or safekeeping services for digital assets;

(2) providing related custodial services for digital assets and distributed ledgers, including staking, facilitating digital asset lending, distributed ledger governance services, and advancing funds for the purchase of digital assets or in respect of distributions on digital assets, whether as principal or agent;

(3) facilitating customer purchases and sales of digital assets;

(4) making loans collateralized by digital assets;

(5) engaging in payment activities involving digital assets;

(6) holding digital assets as principal or agent for any investment or trading purpose, including to make a market in digital assets;

(7) operating a node on a distributed ledger;

(8) providing self-custodial wallet software;

(9) engaging in derivatives transactions, including related hedging activities, in a manner consistent with section 7.1030 of title 12, Code of Federal Regulations, as in effect as of the date of enactment of this Act;

(10) providing brokerage services, including clearing and execution services, whether alone or in combination with other incidental activities;

(11) facilitating transactions in the secondary market for all types of digital assets on the order of customers as a riskless principal to the extent of engaging in a transaction in which a company, after receiving an order to buy or sell a digital asset from a customer, purchases or sells the digital asset for its own account to offset a contemporaneous sale to or purchase from the customer;

(12) holding as principal digital assets to the extent incidental to an otherwise permissible activity, which shall include, without limitation, holding digital assets as principal in order to pay fees arising from interactions with a distributed ledger system; and

(13) underwriting, dealing in, or making a market in digital assets.

Allowing banks to engage in all of these activities is insane, and it removes necessary discretion from the federal banking agencies. At a bare minimum, banks should not be allowed to hold crypto on their balance sheet.

Title IV

Title IV includes a number of provisions that have been circulating for a while. Section 401 creates an SEC-administered innovation sandbox that would let firms identify which regulations they don’t want to comply with. This is yet another way to undermine existing SEC regulations.

Section 402 adopts Rep. Emmer’s Blockchain Regulatory Certainty Act. This bill stipulates that non-controlling DLT developers cannot be treated as money transmitters or engaged in money transmitting.

Section 403 prohibits any rule that restricts a user’s ability to self-custody digital assets. This ensures that unhosted wallets will continue to be the nexus for all sorts of AML/CFT violations.

Other

This bill is incomplete, and I assume it is intentional. It says nothing about the CFTC’s authority or the rules governing secondary market activity. Many existing cryptocurrencies would likely qualify as ancillary assets and while ancillary assets are not securities, they are still subject to SEC disclosure obligations until their originator certifies that they are no longer providing more than a nominal level of entrepreneurial or managerial efforts. After they are certified, presumably they become commodities. But for tokens like Bitcoin, that were not sold as part of an investment contract, the bill is silent on their status.

July 14, 2025

Honorable Members

United States House of Representatives

Washington, DC 20515

Re: House consideration of cryptocurrency bills

Dear Representative,

On behalf of more than 500,000 members and supporters of Public Citizen across the country, we ask you to please vote NO on three cryptocurrency bills slated for full House consideration this week. These include the GENIUS Act (recently approved by the Senate); the CLARITY Act; and the CBDC Anti-Surveillance Act. These dangerous bills legitimize the cryptocurrency Ponzi scheme that will undoubtedly leave more Americans scammed and will enable criminal behavior.

Trump’s Massive Crypto Grift

Regardless of a Member’s position on whether the many risks of harm posed by cryptocurrency outweigh its supporters’ inflated promises of innovation through blockchain-based payment systems, no responsible lawmaker can support these measures because they ratify the greatest corruption in presidential history: Donald Trump’s crypto ventures, which astound in the scope of the grift and flagrancy of commitment. Leading ethicists agree, including the White House ethics “czars” for each president since Clinton (except for Trump’s).

In May, the Trump family announced an agreement with a fund backed by Abu Dhabi that “would be making a $2 billion business deal using the Trump firm’s digital coins,” according to the New York Times. That deal involved a stablecoin. The Constitution (Article 1, Section 9) forbids accepting money (specifically a “present” or “emolument”) or anything of value from any “king, prince, or foreign state.”

Previously, Trump hosted a presidential dinner for the largest new buyers of his crypto “meme,” called “$Trump.” Federal law strictly regulates payments to government officials, including gifts. Although the president may receive gifts, he or she may not “solicit” gifts. These prohibitions begin with the Constitution’s Emoluments Clause and are reiterated in the U.S.’s anti-bribery statute, 18 U.S.C. § 201, and federal regulations, 5 C.F.R. § 2635. Although section 2635.205 lists several exemptions from the prohibition, none exempts soliciting purchases for personal gain.

The website states that “Trump Memes . . . are not intended to be, or to be the subject of, an investment opportunity, investment contract, or security of any type.” Additionally, the Securities and Exchange Commission (SEC) stated that meme coins have “no use.” Other cryptocurrency observers deride memes generally as without value. Former aide Anthony Scaramucci said Trump’s effort demeans broader cryptocurrency efforts, calling it “Idi Amin level corruption.” Another commenter said that the Trump meme “is effectively a ‘for sale’ sign on the White House.” Some, including an author in the Washington Post, characterized this token as a “sh—coin.”

Now, the House considers a trio of bills regarding cryptocurrencies. At the very least, Congress must bar the president along with all elected officials and their families from owning, buying or otherwise trafficking in stablecoins. Americans must be assured that policy won’t be fashioned by those profiting from the shape of the legislation.

At the same time, we believe each bill fails to protect investors while facilitating the funding of illicit activities, which we explain in detail below.

H.R. 3633, the Digital Asset Market CLARITY Act of 2025

This measure succeeds the “Fit 21 Act” of the last Congress, approved with bipartisan support, a result we believe reflects profligate political spending by the crypto sector in 2024. Now that the crypto political spenders brazenly threaten to recycle even more of their ill-gotten gains into future elections, Congress is speeding through more pro-crypto bills.

The CLARITY Act falls so short of necessary investor protections as to invite mockery. Putting a sign on the keg at a frat party that says “Over 21 only” would achieve better results at tamping down harmful behavior. Fundamentally, the CLARITY Act accords the imprimatur of federal government approval for crypto by awarding official SEC-approved status for qualified firms.

To qualify for approved status, a firm might actually register. Exemptions, however, abound. Sections 309 and 409 of the legislation would exempt firms if they relate to “the operation of a blockchain system.” Crypto projects may win exemption for contracts that trade and settle on a blockchain. The bill exempts tokens with “value, utility or significance,” a designation that the sponsor itself can claim. And all existing tokens enjoy a grandfather protection, legal amnesty for any reporting requirements.

In effect, the bill claims to establish a speed limit and then provides what amount to exceptions for drivers with red cars, fast cars, or if they’re in a hurry.

Further, the bill offers a means for non-crypto companies to bypass securities law and use the blockchain to raise funds. This threatens to upend a near century of securities law- and rule-making that established American markets as the envied, disciplined, safe, and largest in the world. Once the crypto craze dissolves and/or crashes, this element of the bill, if it becomes law, will constitute one of the greatest deteriorations of sound securities law ever. The Securities Industry and Financial Markets Association, the lobby that represents firms that underwrite and help investors trade stocks, shares this concern. Recently the association wrote to the Securities and Exchange Commission with a warning about the potential pitfalls of allowing firms to put stocks on the same blockchain technology that underpins digital assets without following the same rules that apply to the equities market. Doing so, SIFMA said, raises questions about whether investors would be getting the best prices when trading such tokenized stocks and if that trading could hamper capital formation in the U.S.

The CLARITY Act fails to provide adequate compliance requirements to deter money laundering. Drug, arms and human traffickers use crypto to avoid detection. If crypto promoters simply required every participant to register–just as a driver secures a driver’s license– much of this problem would abate. That the bill sponsors resist this simple policy speaks grimly about whom they are serving with this legislation.

Finally, bill sponsors claim they promote this bill to keep crypto innovation American and provide long needed regulation. But not all “innovation” advances an economy. Crafty cyberthieves deserve no trophy, nor do romance scammers, but both varieties of scammers frequently use crypto to bilk their marks. Moreover, current securities law provides a rubric for crypto. The Biden administration asked crypto to register and comply; some did. Most, however, prefer to grift outside any barriers. Congress must not plant the US flag on this rogue industry through this bill.

The GENIUS Act

The GENIUS Act focuses on essentially one element of what’s necessary to govern stablecoins: namely the integrity of their reserves. It requires that the sponsor buy safe securities, such as U.S. treasuries. Even here, however, the GENIUS Act falls short because it also allows a coin’s sponsor to include uninsured demand deposits. While cash might seem safe, if held in a bank, accounts beyond $250,000 would not enjoy FDIC coverage. The episode of Silicon Valley Bank’s failure demonstrated this vulnerability. Further, the bill relies on sponsor certification (or attestation) as to the components of the reserve. Instead, responsible legislation should require an audit by a firm overseen by the Public Company Accounting Oversight Board (PCAOB). (Some stablecoins have sought audits from firms outside this recognized regime.)

Generally, the GENIUS Act includes several foundational flaws. First, it invites major commercial firms such as Amazon, Walmart, Twitter/X and/or Facebook/Meta to enter the banking sector because it lacks provisions under the Banking Holding Company Act that otherwise prohibit non-financial firms from entering the banking business. The nation’s centuries old policy separating banking and commerce stems from concerns about concentration in power. Creditors should not face the moral hazard of competing with the borrower. Viability of a credit facility should not hinge on the viability of a commercial venture. For example, an automobile manufacturer that also sponsored a stablecoin might raid the reserve should car sales begin to falter. Or a major online aggregating retailer might disfavor a subcontractor if it failed to use the aggregator’s stablecoin. History illustrates that when banks have entered commerce, such as financiers did in the late 19^th century during the construction of railroads, manipulations led to frequent economic shocks. Any stablecoin legislation should obligate issuers to abide by robust Bank Holding Company Act provisions that guard against these harms by restricting sponsorship to existing banks.

Second, the GENIUS Act provides a dual oversight structure, permitting stablecoins under a certain value ($10 billion) to register under individual states. This allows a race to the bottom, where unscrupulous sponsors would seek the state with the most convenient rules. The bill calls on the states to establish safety standards, but these will inevitably be worked out between industry and lawmakers with little consumer protection given the scant interest by average Americans in this sector. Further, a bad actor could game the $10 billion limit by organizing multiple funds, beginning a new one once the last one reaches this figure.

The bill also fails to establish clear safeguards for those stablecoins that seek federal oversight, with the same vague injunctions to regulators. As implementation of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act demonstrates, regulators were slow to implement rules, and those rules reflected intense Wall Street lobbying. With the U.S. Supreme Court decision eliminating Chevron deference, rules that industry finds inconvenient now may perish at the whim of cherry-picked courts.

Third, the bill fails to provide speedy resolution for customers in case of failure of a stablecoin. Bankruptcy does not suit a firm that custodies savings that should be available within days of a failure, as is the case with banks that are resolved by the Federal Deposit Insurance Corp. Section 9 of the GENIUS Act references sections of Chapter 11 of the Bankruptcy Code, affording holders of payment stablecoins “priority.” But bankruptcy triggers an automatic stay on payments that could take years before the relief of funds, according to Georgetown Prof. Arthur Wilmarth, which renders “priority” little relief in actuality. Related to this, the bill includes inadequate custodial rules. The GENIUS Act declares that stablecoins are property of the investor and must be segregated from sponsor funds. But this doesn’t direct the bankruptcy court to pay the investor immediately.

Central Bank Digital Currency

The CBDC Anti-Surveillance State Act oddly places its specious talking point in the bill’s title. The bill would bar the government from establishing a central bank digital currency on the argument that it would invade personal financial privacy.

In reality, the sponsors of this bill serve the interests of private sector cryptocurrency promoters that we believe do not want to be displaced by a better, government-sponsored digital currency. It is revealing that so-called innovators in the free market fear they might be outdone by federal technocrats. Public Citizen believes these self-described crypto innovators are craven fraudsters looting the vulnerable with a Ponzi scheme.

Public Citizen does support exploration of a Central Bank Digital Currency (CBDC). This federal digital coin, in one form dubbed a FedAccount, holds the promise to address some of the problems with the payment system.

Conceived by Lev Menand of Columbia Law School in June 2018, the CBDC would be a Federal Reserve account. It would be available to “any U.S. resident or business in digital wallets operated by the Federal Reserve, the Post Office, or one of the country’s several thousand community banks,” he explains. “The digital wallets would charge no fees and have no minimum balances. They would come with debit cards, direct deposit, and bill pay. They would have customer service, privacy safeguards, and fraud protection—if, for example, one lost their password. And these accounts would earn interest at the same rate that the Fed pays to banks.”

Lack of profitability for the banks represents one of the reasons that banks fail to service roughly six percent of the population. The FedAccount would be available to those whom banks have failed to serve regardless of their balance. They would be streamlined to provide access with immediate payment clearing. There would be no fees charged. With such an account, delivery of federal payments would be immediate.

We believe the Menand idea deserves attention. Searching for a talking point, the bill’s sponsors claim the idea would lead to a surveillance state. They seem unaware that credit card firms, major banks, and other financial institutions already own personal financial data. By the bill’s logic, they should be banned as well.

In conclusion, we believe the House should reject these bills because they ratify Trump’s grift. Separate from this grift, we oppose these bills as insufficient to counter the Ponzi nature of cryptocurrency.

For questions, please contact Bartlett Naylor at bnaylor@citizen.org.

Sincerely,

Public Citizen

Issue 85 – All the President’s tokens

As Trump’s web of crypto projects gets tangled up in itself, a regulator warns of “regulatory Jenga” in the crypto sector that echoes the 2008 financial crisis

Molly White

June 5th 2025, 3:23 pm — 23 min read

Issue 85 – All the President’s tokens

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After I broke the news that Magic Eden and the $TRUMP memecoin project would be announcing an “Official $TRUMP Wallet by President Trump”, things exploded into chaos — and not just because the President of the United States continues to demolish his own records for self-dealing.

Magic Eden pushed out their announcement quickly after I published my story, only for all three of the Trump sons to repudiate the project within hours. “I run [the Trump Organization] and I know nothing about this project!” tweeted Eric Trump. Donald Trump Jr. made a similar post, reiterating that the World Liberty Financial project was working on their own version of a Trump wallet. Even Barron Trump, who is normally fairly absent from social media, posted that “our family has zero involvement with this wallet”.

This potential conflict with the World Liberty Financial project, which is more closely affiliated with the Trump sons, was something I noted in my original post. I wrote that there seemed to me to be “questions as to whether these various Trump-affiliated crypto projects, some of which are managed by separate entities, might wind up competing with one another.” Evidently such questions never even occurred to the Magic Eden team or the $TRUMP memecoin team while they were working on this announcement, because they seemed caught completely off guard.

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Confusion quickly spread throughout the crypto world, with many questioning if Magic Eden’s social media accounts had been hacked to announce a fake project. A Twitter account associated with the new Trump wallet, which had been verified with a badge associating it to the Magic Eden company, was briefly suspended, and announcement tweets were annotated with Twitter Community Notes highlighting the Trump family’s disavowal. Others wondered if Magic Eden — a fairly large player in the crypto world, as they go — had been so brazen as to completely fabricate a partnership with the Trumps or Trump-affiliated entities.

Neither is the case. The Magic Eden announcements legitimately came from the company, and the $TRUMP memecoin project confirmed its involvement with the wallet project. This leaves the most likely explanation, in my opinion, that Trump has sold his likeness to so many separate projects led by separate entities, while his sons also actively exploit the “Trump” branding, that no one really knows what’s going on in aggregate. I have mapped out all of the people, LLCs, and crypto projects associated with the Trump family, and the tangled web illustrates the chaos. (I should also note that the diagram is limited to what’s publicly known, and there are many missing links and entities whose operators are partially or completely unknown.)

(full-resolution image)

The distance between the memecoin end of the business, run by entities affiliated with businessman Bill Zanker,¹ and the World Liberty Financial project, which is more closely tied to Trump’s sons, is the likely culprit for the communications breakdown. However, it’s still not fully clear to me how the memecoin business could legitimately sign off on a wallet project using Trump’s name and likeness without the sons’ knowledge or sign-off from the Trump Organization, unless the original licensing agreement for the memecoin was exceptionally broad.

On June 5, two days after the original announcement, Bloomberg reported that the Trump sons had sent a cease-and-desist order via World Liberty Financial to the Trump memecoin project and to Magic Eden.² Shortly after this story was published, the TrumpWallet.com site hosting the waitlist signup went offline, though it’s not clear if this is a direct result of the threat of legal action or an unrelated outage. Since Tuesday’s announcement, Magic Eden, the $TRUMP memecoin project, and the Trump family have otherwise maintained complete radio silence about the wallet project, deepening the confusion around its status. Even Trump himself, usually quick to promote projects bearing his name, has remained uncharacteristically quiet. Behind the scenes, Magic Eden is likely scrambling to salvage what has become an embarrassing public relations disaster.

In the courts

SafeMoon CEO John Karony was convicted on all three charges [I83, 43, W3IGG] after a jury found that he had committed fraud by diverting funds from the supposedly “locked” liquidity pool for his own personal use. He faces up to 45 years in prison.³

A committee representing creditors in the Genesis bankruptcy has filed two lawsuits against Barry Silbert, the founder and CEO of Genesis’ parent company, Digital Currency Group. Digital Currency Group is also named in the suit, as are several other executives and entities. The lawsuits, one filed in bankruptcy court and one in Delaware Chancery Court, allege misconduct by Silbert and others that led to Genesis’ collapse, and accuse them of covering up Genesis’ insolvency and falsely reassuring creditors that Genesis was in strong financial condition.⁴ Among their claims are allegations that Silbert, his brother, and other company executives took millions of dollars in loans from the foundering company as they simultaneously tried to convince investors not to call back loans or withdraw funds. The creditors seek $2.3 billion in restitution. DCG has refuted the allegations in the lawsuits, which it says “recycles the same tired, two-year old claims in an opportunistic attempt by sophisticated investors to extract additional value from DCG”.⁵

Avraham Eisenberg, who was just sentenced to over four years in prison on a charge of possessing child sexual abuse materials, just caught something of a break when the judge in his case overturned his April 2024 crypto fraud conviction on the basis that prosecutors had failed to prove that Eisenberg made false representations to Mango Markets in the course of his $110 million maneuver (which one might classify as either a “theft” or a “trade”, depending on whose side they’re on).⁶ This has some potentially interesting ramifications for the crypto world, as it lends some weight to the “code is law” arguments Eisenberg made throughout his case. However, as the judge had previously said, the CSAM sentence is likely to be the bulk of his prison term regardless, so this may not have much of a practical difference for Eisenberg [W3IGG, I6, 43, 55, 56, 67, 81, 83].

Coinbase has moved to remove the Oregon Attorney General’s securities case against them to federal court, arguing that the case is a “regulatory land grab” by an AG “dissatisfied with the federal government’s recent enforcement decisions” [I82].⁷

Trump crypto projects

When the Financial Times reported on May 26 that Trump Media & Technology Group planned to raise billions of dollars to buy bitcoin, TMTG slammed the publication as “dumb writers listening to even dumber sources”.⁸ The following day, TMTG issued a press release announcing that they would be raising billions of dollars to buy bitcoin.⁹

TMTG has also filed a registration statement for a “Truth Social Bitcoin ETF”. As previously announced, the ETF will be created via a partnership with the Singapore-based Crypto.com [I80]. Crypto.com had been facing an investigation from the SEC, until the company announced three days after its partnership with TMTG that the agency had dropped their investigation.

Memecoin dinner

Trump held his memecoin dinner on May 22, drawing a crowd of crypto elite who spent anywhere from $55,000 to nearly $38 million to secure a seat at the dinner table, with the event driving almost $150 million in token sales. Some of the attendees I’d previously identified indeed were there, including the leaderboard-topping Justin Sun, at least one delegate from MemeCore (who wore a mask throughout), and someone from LuckyFuture, an embryonic company that plans to launch an “AI-based ETF”.

Attending the dinner, crypto billionaire Justin Sun and a masked individual associated with a Singapore-based project called MemeCore

Crypto executives were also in attendance, including Magic Eden’s Jack Lu, Wintermute’s Evgeny Gaevoy, Axie Infinity’s Jeffrey Zirlin, and Unstoppable Domains’ Sandy Carter. There was also former NBA player Lamar Odom, who just launched an “anti-addiction themed memecoin” where 5% of the token is allocated to supporting drug rehabilitation centers and mental health education (but only once the token hits $10 billion market cap). 20% goes to a “special allocation for the ‘Trump Dinner Program’”.¹⁰

Trump’s own attendance at the dinner was brief: precisely 23 minutes, according to one attendee.¹¹ Trump disembarked from the Marine One helicopter; gave a characteristically rambling speech about transgender athletes, autopens, Joe Biden, and, eventually, his favors to the crypto industry; shuffled and pumped his fists to the beat of “Y.M.C.A.”; and then left without taking any pictures or speaking even to VIP attendees.¹² ¹³ Attendees were served mediocre food and presented with “Fight Fight Fight” ballcaps and collectible plastic-sheathed trading cards.

Standing in the rain outside the dinner, about 100 protesters held large coin-like signs with Trump’s face that read “Stop Crypto Corruption”; others had handmade signs with slogans like “America is not for sale” and “Release the guest list”. Congressman Jeff Merkley (D-OR) made an appearance, describing the event as the “crypto corruption club”.¹⁴

There’s been a push for Trump to disclose the list of guests, though Press Secretary statements dodging the question suggest he’s not likely to do so by choice. The Wall Street Journal editorial board published an op-ed ahead of the event urging the president to cancel the dinner or, barring that, to “at least disclose his crypto contest’s winners so Americans know who may be trying to buy access to the President”.¹⁵ A letter by House Judiciary Committee Ranking Member Raskin (D-MD) demanded Trump release by June 4 the names of attendees and information on the source of the money used to purchase Trump tokens. (Raskin, I will note, cited this newsletter twice in his letter).¹⁶

In Congress

The GENIUS Act stablecoin bill has yet to go to a full vote, but stablecoin giant Circle (which issues the USDC stablecoin) nevertheless just filed to go public, targeting a massive valuation that would rival the likes of Visa.¹⁷ It’s kind of weird timing, given that it means they have to include statements in their prospectus like “we are hopeful that a comprehensive U.S. federal-level regulatory framework for stablecoins will emerge in the near term”.¹⁸ My sense is that they’re anticipating major competition, likely from huge financial or tech companies, once such a framework exists, and so they’re rushing to go public fast.

This anticipation seems justified, given Wall Street Journal reporting that major banks — JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo — are considering launching a joint stablecoin venture.¹⁹ Does anyone else remember when crypto was supposed to be the antidote to banks, not their next product line? Ah, well.

Someone (read: the crypto industry) also lit a fire under the ass of Congresspeople working on the crypto market structure bill, which has since received one of those kitschy acronyms Congress can’t seem to resist. Now known as the CLARITY Act, the bill seeks to establish a joint regulatory environment between the SEC and CFTC, carving out something called an “investment contract asset” to exempt some kinds of crypto assets from securities regulations. It’s a complex and convoluted bill, and it’s pretty clear to me from reading it that it was written by industry lobbyists. I don’t actually think, at least as drafted, that it’s likely to introduce that much in the way of “clarity” to crypto regulation: there are still weird and vague definitions that would still seem to require the same kinds of securities analyses that the industry has been trying to sidestep. However, the bill’s authors may be relying on the fact that, at least for now, the SEC doesn’t seem terribly interested in crypto enforcement.

The CLARITY Act also introduces a poorly defined concept of a “mature blockchain system”, which seems to be the evolution of FIT21’s “decentralized system” evaluations. However, under the bill, blockchain system developers need merely state that they “intend” to become a mature blockchain and they’re granted four years and allowed to raise up to $75 million without significant scrutiny. One need only take the briefest glance at Web3 is Going Just Great to see how many scams people can pull off in much less than four years, and to the tune of less than $75 million, while nevertheless doing substantial damage.

As for consumer protections, the bill’s authors devote very little attention to it, leaving much of it for the CFTC to figure out later. The same CFTC, as I explain in a moment, that may well have one single Commissioner out of its usual five. The bill’s clear purpose is deregulation, and it carves out significant areas of activity (such as all of decentralized finance) from both securities and commodities regulations without specifying anything to fill the vacuum.

The bill is on a rocket schedule, with a hearing already held on June 4 and markup scheduled for June 10. The June 4 hearing featured as witnesses two crypto-friendly former regulators, and two members of the crypto industry.²⁰ Ranking Member of the House Financial Services Committee Maxine Waters subsequently requested a Minority Day Hearing with a panel of witnesses selected by Democrats, which she said would discuss “President Trump’s crypto conflicts of interest and corruption…; the effects of H.R. 3633, the Digital Asset Market Clarity (CLARITY) Act of 2025, on consumer and investor protection, national security, and existing securities and commodity futures regulation; and the potential effects of the proposed legislation on the digital asset industry and broader financial system.”²¹

The speed at which this bill is being pushed through is perhaps not surprising given the attention to crypto industry desires from the top echelons of government, and concern that changes need to happen fast while there’s enough concentration of power to force them through. JD Vance, speaking at the Bitcoin 2025 conference on May 28, was blunt: “I hope that our party is in charge for a long time, but nothing is ever guaranteed in politics. So the best way to ensure that crypto is part of the mainstream economy is through a market structure bill that champions and doesn’t restrict the extraordinary value that bitcoin and other digital assets represent.”²² Voices from the crypto lobby have expressed similar sentiments, that crypto bills need to happen rapidly before there’s any chance for crypto advocates to lose their dominance in Congress after the midterms [I84].

In regulators

Last recap issue, I wrote that only one current CFTC Commissioner would likely remain after the confirmation of a new CFTC Chair [I84]. Well, the one holdout is planning to leave, too.²³ If Trump nominee Brian Quintenz [I77] is confirmed by the Senate, he may end up with unilateral authority over the agency. This is particularly concerning as crypto legislation underway in Congress seeks to delegate a substantial portion of crypto industry oversight to the CFTC, and directs the Commission to engage in substantial crypto-related rulemaking. It also means that Trump will have the ability to nominate an entirely new slate of Commissioners, which will not likely include anyone cautious about cryptocurrency.

The Department of Labor has rescinded guidance from 2022 that instructed 401(k) plan fiduciaries to exercise “extreme caution” before providing any cryptocurrency options to plan participants. In a statement, the Labor Department justifies the change by saying that they historically take a neutral approach to investment types and strategies, and that the rescission should not be interpreted as either an endorsement or disapproval of the choice to offer crypto options in retirement plans.²⁴ Some have interpreted the rescission as a “green light” for crypto in 401(k)s by the Trump administration; others have expressed skepticism that plan managers will widely incorporate these types of assets given their fiduciary duty to manage risk and prioritize the best interests of plan participants.²⁵

SEC

The SEC has also done a 180 on a previous stance, now issuing a staff statement that crypto staking does not fall within their jurisdiction.²⁶ The agency had previously brought enforcement actions against Binance and Coinbase involving crypto staking programs, and in 2023, Kraken paid a $30 million settlement and shut down its staking-as-a-service program after being charged by the SEC [W3IGG]. State securities regulators have also taken enforcement actions against crypto staking services, such as a group of ten state securities regulators who all sued Coinbase in 2023 [I33]. Interestingly, within days of Trump’s inauguration in January, Kraken had relaunched the staking program they’d shut down as part of the settlement agreement [I76] — seemingly confident of not only the regulator’s new general stance on staking, but also that they would not enforce the permanent injunction on such activities imposed by the settlement agreement.

Commissioner Crenshaw issued her own statement on the SEC’s about-face, writing that it was “yet another example of the SEC’s ongoing ‘fake it till we make it’ approach to crypto.” Those remarks echo her speech earlier in the month, where she warned:

My remarks today offer a word of caution as the agency chips away at decades of our own work – and, at the same time, as we stare down alarming market volatility, emerging risks, and calls for deregulatory action in all corners of our markets.

As we careen down this path full speed, it almost feels like we’re playing a game of regulatory Jenga. Our proverbial Jenga tower is made up of a set of discrete but interrelated rules and laws, deeply and carefully developed over the years, and implemented by a strong agency of experts, skilled in overseeing and regulating our increasingly complex markets.

Of course, in Jenga, the tower remains standing when you pull out a block or two here and there. But, how many blocks can you pull before the tower gives way? When it comes to the stability of our markets, how far are we willing to take our dangerous game? Who would ultimately be the loser when the foundation gives way? I worry, as we all should, that those losing the most won’t be the influential, monied interests; rather, it will be the Main Street Americans – the investors and small business owners who can least afford the greatest loss.

She then went on to outline the agency’s recent actions to push out experienced staff, statements that “dilute or effectively rescind” securities laws, failures to enforce securities laws, and choices to ignore significant risks in crypto and other portions of the market. She concludes: “This is a dangerous game. We are pulling apart our own regulatory foundation – block by block, case by case, and rule by rule. It feels all too familiar to those of who have lived through 2008.”²⁷

Crenshaw’s concerns certainly haven’t slowed down the agency any, though. After submitting a joint filing quickly after Trump’s inauguration to stay the ongoing enforcement case against Binance [I77], the SEC has now submitted a joint stipulation to dismiss the case with prejudice.²⁸ The SEC says they have decided as an “exercise of its discretion and as a policy matter” to dismiss the case, which features a written statement from a Binance Chief Compliance Officer that “we are operating as a fking unlicensed securities exchange in the USA bro” and evidence that Binance was not just violating securities laws pertaining to registration but was also committing fraud. A week before the dismissal, Binance listed World Liberty Financial’s USD1 stablecoin for trading on their platform. Trump owns a 60% stake in World Liberty, and receives a substantial share of token and protocol revenues. The stablecoin has also been used to facilitate a $2 billion investment from the Emirati MGX investment firm into Binance — a huge boon for World Liberty and, by extension, for Trump personally.²⁹

Crypto kidnappings, and Coinbase

The slew of physical attacks against wealthy cryptocurrency holders has continued [I84, 75]. Two cryptocurrency investors and entrepreneurs have been arrested in New York after allegedly kidnapping and brutally torturing an Italian man for nearly three weeks, hoping to steal millions of dollars in bitcoin holdings. The victim was a former partner in an investment fund with one of the attackers.³⁰ The men reportedly tortured their victim with electrocution and beatings, urinated on him, forced him to smoke drugs, threatened his family, and dangled him off a five-story building and threatened to drop him. When he finally agreed to hand over his bitcoin to his torturers, they went to get a laptop, and the victim was able to escape the Manhattan townhouse where he was being held captive and alert police. One of the alleged captors, 32-year-old William Duplessie, co-founded a cryptocurrency investment fund; the other, 37-year-old John Woeltz, works in cryptocurrency mining. Both men have pleaded not guilty.³¹ ³² A 24-year-old actress was also initially charged in connection to the kidnapping, but her prosecution was deferred. The case has grown somewhat messier as two detectives with the New York Police Department were found to have provided security at the Manhattan apartment, and one of them — who also serves on Mayor Eric Adams’ personal security detail — allegedly drove the victim from the airport to the apartment where he was later tortured. Both policemen were placed on “modified desk duty” as the department investigates their possible connection.³³

All of this has made the victims of the recent Coinbase data breach, which exposed identification information, physical addresses, and account balances, all the more concerned. Thanks to a data breach disclosure filed in Maine, we now know that Coinbase thinks precisely 69,461 customers were affected by the data breach.³⁴ Some Coinbase customers have indicated they think the scale of the breach is much wider than that, citing a noticeable uptick in phishing attempts since the approximate time of the data theft despite no notification from Coinbase that their account data was compromised in this breach. However, it can be challenging to distinguish phishing attempts likely tied to this breach from wide-scale phishing attacks by scammers merely targeting a list of phone numbers or who are using old leaked credentials from other platform data breaches in hopes of finding reused passwords.

Many have begun seeking recourse in the courts, where Coinbase is now facing at least fourteen separate customer class actions³⁵ and one shareholder class action.³⁶ Another class action lawsuit was also filed against TaskUs, an outsourcing company plaintiffs believe Coinbase used to hire the customer service agents who were bribed to share sensitive data.³⁷ One of the plaintiffs behind one of the customer class actions has also filed a motion to transfer the whole pile of lawsuits to the Judicial Panel on Multidistrict Litigation, which consolidates multiple cases across multiple districts that involve common underlying issues.³⁸

The class action lawsuits against Coinbase are likely to face challenges, thanks to Coinbase’s class action waiver that seeks to force aggrieved customers into arbitration. New customer terms of service that went into effect almost simultaneously with the breach announcement also seek to force plaintiffs to sue in New York [I84], which could pose additional challenges to the nine of the lawsuits that were filed in other states.

Elsewhere in government

When he’s not rubbing elbows with detectives who moonlight as chauffeurs for crypto kidnappers, New York Mayor Eric Adams has been busy getting back to his crypto boosterism. He’s been a crypto guy for a while — in November 2021, shortly after his election, he announced a stunt in which he opted to take his first three paychecks in bitcoin.^a Now, he’s reappeared onstage at Bitcoin 2025, wearing a t-shirt emblazoned with the logo of David Bailey’s new bitcoin treasury company, Nakamoto [I84], and dubbing himself “the Bitcoin mayor”.

Eric Adams onstage at Bitcoin 2025

There, he called for the end of the New York Department of Financial Services’ fairly strict BitLicense cryptocurrency regulatory regime. He also proposed the idea of issuing “BitBonds”, which would evidently be some kind of bitcoin-backed municipal bonds.³⁹ This idea was quickly smacked down by the New York City Comptroller Brad Lander, who is also hoping to challenge Adams in the upcoming mayoral race, and who described the idea as “legally dubious and fiscally irresponsible”.⁴⁰ Elsewhere, Adams has proposed creating a crypto advisory council for the city, using crypto to pay city taxes, and issuing birth and death certificates on the blockchain.⁴¹

Coinbase’s crypto lobbying group Stand With Crypto apparently forgot to vet its choice of entertainers, and had to awkwardly cancel a scheduled performance by Soulja Boy at a get-out-the-vote event for the New Jersey governor race after Politico pointed out that he was found liable a month ago for abusing and sexually assaulting a former assistant.⁴² Oopsie.

While Stand With Crypto has previously focused its lobbying mostly at the federal level, they have suddenly grown very interested in the New Jersey gubernatorial race. In addition to the upcoming event, both of the state’s Republican and Democratic primary debates were sponsored by Stand With Crypto.⁴³ ⁴⁴ New Jersey gubernatorial candidate and current Congressman Josh Gottheimer has been a strong ally to the crypto industry, which may be what’s drawing the group’s interest.

Outside the US

The International Monetary Fund has published its first regular report on a funding agreement with El Salvador [I72, 76]. Despite Salvadoran President Bukele’s promises after the original deal was made that he would continue to buy more bitcoin on behalf of the country, the IMF says that “efforts will continue to ensure that the total amount of Bitcoin held across all government-owned wallets remains unchanged, consistent with program commitments, while also securing the unwinding of the public sector’s participation in the Chivo [bitcoin] wallet by end-July.”⁴⁵

In Argentina, President Milei has disbanded the unit that was supposed to investigate the $LIBRA memecoin scandal in which he was implicated [I77, 79, 82]. The committee did not publish a report on their findings or communicate any result. Some Argentinian lawmakers have pushed for continuing investigations, but they have so far been blocked by members of Milei’s party.⁴⁶ However, there’s been some progress in the States, where a district judge overseeing a lawsuit against Kelsier Ventures, KIP Protocol, Hayden Davis, and others involved in launching the token granted a temporary restraining order and preliminary injunction to freeze $LIBRA tokens, $110 million in $LIBRA proceeds belonging to Hayden Davis, and another $57.7 million in USDC plus any additional $LIBRA proceeds in two other wallets.⁴⁷

In the Czech Republic, Justice Minister Pavel Blažek has resigned amid a scandal in which the ministry accepted a donation in bitcoin from a person previously convicted of drug dealing and other crimes in connection to his operation of a darkweb marketplace. The ministry then sold the donated tokens for more than $45 million earlier this year. Despite his resignation, the former Justice Minister has defended his behavior as “so ultra-legal that it couldn’t be more legal”. Ah, well, in that case.⁴⁸ ⁴⁹

Police have arrested a Vietnamese woman wanted by Interpol in connection to a $300 million scam operation that solicited thousands of investors with promises of 20–30% returns on a forex and crypto trading platform.⁵⁰

Australia’s securities regulator has finally filed suit against a former director of the collapsed ACX/Blockchain Global, after previously failing to investigate the massive collapse and allegations of wrongdoing [I46, 48, 50, 53].

The Web3 is Going Just Great recap

There were three entries between May 21 and June 5, averaging 0.2 entries per day. $83.5 million was added to the grift counter.

Cetus Protocol exploited for $223 million

[link]

The Cetus Protocol, a decentralized exchange on the Sui blockchain, was exploited for $223 million by an attacker who manipulated vulnerabilities in the project smart contracts.

Shortly after the theft, validators on the Sui blockchain collaborated to blocklist addresses associated with the theft, effectively freezing approximately $163 million of the stolen funds. While this was successful in mitigating the damage, it drew criticism from decentralization advocates who noted that the ability for validators to censor transactions in such a way proved that the network was not truly decentralized.

A week after the theft, validators on the Sui network passed a governance vote to return the stolen assets to Cetus. The remaining $60 million in stolen funds will also be repaid to customers through a combination of project treasuries and a loan from the Sui Foundation.

Everything else

Cork Protocol exploited for $12 million
Taiwanese BitoPro exchange belatedly disclosed $11.5 million hack

Worth a read

Credit Slips. “Forcing Bank Deposits to Subsidize Stablecoins: the GENIUS Act”.

Adam Levitin, a law professor and blogger at Credit Slips whose excellent piece on the crypto industry’s debanking story I’ve previously featured in this newsletter, has recently published an analysis of the insolvency provisions in the GENIUS Act, which is the stablecoin legislation currently under consideration in the Senate.

404 Media. “Teachers Are Not OK”.

Jason Koebler at 404 Media put out a call for letters from teachers who have experienced changes in how they teach as a result of generative AI. “One thing is clear: teachers are not OK,” he writes.

In the news

The New York Times, Wired, CNN, Fortune, and The Verge cited my reporting on the Trump crypto wallet.

NBC, ABC, Fast Company, The Dispatch, and The American Prospect quoted me or cited my work in connection to Trump’s memecoin dinner. The American Prospect article, “Three Coin Monte”, is by Jacob Silverman, and it’s particularly good.

The Lever, DL News, and CoinDesk cited my reporting about Coinbase’s data breach and the timing of their terms of service change.

Business Insider and Vice wrote stories based on my reporting about OpenAI’s incel chatbot, and The Verge shared my story. OpenAI has since taken down the GPT, after initially refusing to act on moderation reports.

I joined the Electronic Frontier Foundation’s “How to Fix the Internet” podcast for a wide-ranging conversation about tech criticism, loving the web, decentralized social media, and Wikipedia.

That’s all for now, folks. Until next time,

– Molly White

Have information? Send tips (no PR) to molly0xfff.07 on Signal or molly@mollywhite.net (PGP).

I have disclosures for my work and writing pertaining to cryptocurrencies.

References

“Behind Trump’s ‘Most Exclusive’ Dinner, a Partner Sells Access”, Bloomberg.
“Trump Crypto Feud Heats Up With Cease-And-Desist Letter”, Bloomberg.
“Chief Executive Officer of Digital Asset Company Found Guilty in Multi-Million Dollar Crypto-Fraud Scheme”, US Attorney’s Office, Eastern District of New York.
“Genesis LOC’s Two Major Lawsuits Against DCG, Barry Silbert, and a Network of Insiders Now Available to the Public”, press release by the Genesis Litigation Oversight Committee.
“Crypto Billionaire Accused of Defrauding Creditors, Propelling Industry’s 2022 Collapse”, The Wall Street Journal.
“Judge Overturns Convictions in Mango Markets Exploiter’s Crypto Fraud Case”, CoinDesk.
Notice of removal of action filed on June 2, 2025. Document #1 in The State of Oregon, ex. rel. Dan Rayfield, Attorney General for the State of Oregon v. Coinbase, Inc.
“Trump media group plans to raise $3bn to spend on cryptocurrencies”, Financial Times.
“Trump Media Announces Approximately $2.5 Billion Bitcoin Treasury Deal”, press release by Trump Media & Technology Group.
“NBA Champion Lamar Odom Launches Anti-Addiction Meme Coin, Sparking Disruptive Innovation in Web3”, press release by $ODOM.
“At Trump’s $148 million meme coin dinner, ‘the food sucked’ and security was lax, attendee says”, CNBC.
“Inside the room at Trump’s meme coin dinner”, CNN.
“A Helicopter, Halibut, and ‘Y.M.C.A’: Inside Donald Trump’s Memecoin Dinner”, Wired.
Tweet by Our Revolution.
“Disclose the Trump Crypto Dinner Guests”, The Wall Street Journal.
Letter by Representative Raskin to President Trump, May 28, 2025.
“Beware Stablecoin Hype in Circle’s $6 Billion IPO”, Bloomberg.
Form S-1, Amendment No. 3 filed by Circle Internet Group, Inc. with the Securities and Exchange Commission on May 27, 2025.
“Big Banks Explore Venturing Into Crypto World Together With Joint Stablecoin”, The Wall Street Journal.
“Hearing Entitled: American Innovation and the Future of Digital Assets: From Blueprint to a Functional Framework”, House Financial Services Committee.
“Ranking Member Waters and Committee Democratic Caucus Request Minority Day Hearing to Properly Explore Trump’s Crypto Crimes and Analyze Republican Market Structure Bill,” House Committee on Financial Services Democrats.
“JD Vance Calls Crypto Market Structure Bill a ‘Priority’ for Trump Administration”, CoinDesk.
“Statement of Commissioner Kristin N. Johnson on Her Departure from the CFTC”, CFTC.
“Compliance Assistance Release No. 2025-01”, U.S. Department of Labor Employee Benefits Security Administration.
“Trump administration axes Biden-era barrier for crypto in 401(k) plans”, CNBC.
“Statement on Certain Protocol Staking Activities”, US Securities and Exchange Commission.
“A Reckless Game of Regulatory Jenga”, remarks by Caroline Crenshaw at SEC Speaks.
Joint stipulation to dismiss and releases filed on May 29, 2025. Document #301 in SEC v. Binance.
“How to make millions from a deal that does not involve you”, The Context by Protos.
“Third Arrest Made in Manhattan Bitcoin Kidnapping, Torture Case”, CoinDesk.
“Suspects in Manhattan Crypto Kidnapping, Torture Case Plead Not Guilty as Investigation Widens”, CoinDesk.
“He Was Urinated On, Cut with a Saw and Forced to Smoke Crack: What Police Say Happened to Tourist Lured to N.Y.C. — and Why”, People.
“Police Investigate Detectives Who Worked at House in Crypto Torture Case”, The New York Times.
Coinbase Data Breach Notification, Office of the Maine Attorney General.
Panthaki v. Coinbase (SDNY), Belian v. Coinbase (ND Cal), Shakib v. Coinbase (ND Cal), Scheuber v. Coinbase (SDNY), McAfee v. Coinbase (SDNY), Quito v. Coinbase (WD Wash), Ortiz v. Coinbase (ND Cal), Bender v. Coinbase (SDNY), Edlin v. Coinbase (CD Cal), Squeo v. Coinbase (ND Cal), Neu v. Coinbase (ND Cal), Eisenberg v. Coinbase (CD Cal), Rahman v. Coinbase (SDNY), McGuire v. Coinbase (ND Cal).
Nessler v. Coinbase (ED Pa).
Estrada v. TaskUs (SNDY).
In re: Coinbase Customer Data Security Breach Litigation (MDL No. 3153).
“NYC Mayor Eric Adams Calls for the End of NYDFS’ BitLicense, Proposes ‘BitBond’”, CoinDesk.
“Comptroller Brad Lander Pours Cold Water on Mayor Adams’ BitBonds Proposal”, Office of the New York City Comptroller.
“Death certificates on the blockchain? New York Mayor Eric Adams touts new crypto initiative”, DL News.
“Stand With Crypto Removes Soulja Boy From NJ Governor Rally After Discovering Sexual Assault Fine”, CoinDesk.
Tweet by Stand With Crypto.
Tweet by Stand With Crypto.
“IMF Reaches Staff-Level Agreement on the First Review under El Salvador’s Extended Fund Facility Arrangement”, International Monetary Fund.
“Milei cierra la unidad especial que había creado para investigar el ‘caso $Libra’”, El País (in Spanish).
Order on Motion for Preliminary Injunction AND Order on Motion for TRO filed on May 29, 2025. Document #19 in Hurlock v. Kelsier Ventures.
“Czech justice minister resigns over a donated bitcoin scandal”, AP News.
“Drug dealer bitcoin scandal risks upending Czech election”, Politico.
“Vietnamese Woman Arrested in Thailand Over Alleged $300M Crypto Scam”, CoinDesk.

Footnotes

He later discovered this was not permitted by Department of Labor regulation, which prohibit the city from paying its employees in crypto, but announced he would receive the paychecks as normal and then convert them.

Testimony

Bartlett Naylor

Financial Policy Advocate/Economist at

Congress Watch, a division of Public Citizen

Before the New York General Assembly Banks and Consumer Protection Committees

Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act

May 25, 2023

Honorable members of the committees, on behalf of more than 500,000 members and supporters of Public Citizen, we offer the following comments in support of the recently introduced bill authored by the New York Attorney General titled the “Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act.” My name is Bartlett Naylor, financial policy advocate of Public Citizen’s Congress Watch division. Formerly, I was chief of investigations for the U.S. Senate Banking Committee (where I led probes into the S&L crisis and private equity), and then director of Corporate Affairs for the Teamsters (where I worked with the collective $100 billion union pension plans). Public Citizen generally works to protect consumers from corporate excess. As financial policy advocate, I focus specifically on financial sector harms, both in consumer and housing credit as well as systemic risk issues. For many years, Public Citizen has sought to protect consumers from scams connected to cryptocurrencies. To better inform myself about this sector, I audited an MIT class on blockchain and cryptocurrency; traded in two tokens; and created my own crypto token. Based on this and additional research, Public Citizen has provided testimony on crypto issues before numerous bodies, including the U.S. House Financial Services Committee, the U.S. Senate Banking Committee, the U.S. Department of Treasury, the Federal Deposit Insurance Corp., and the Consumer Financial Protection Bureau.

Review of Cryptocurrency Issues

The problems addressed by the CRPTO Act begin with a foundational question: “What explains the fascination with digital assets?” The popularity of cryptocurrency has exploded in recent years. From the adoption of the first cryptocurrency, Bitcoin, which was introduced in 2008[1] and could initially be purchased for pennies, the market capitalization of all cryptocurrencies rose to a peak in 2022 at $3 trillion, before falling back to around $1 trillion during the latest so-called “crypto winter.”[2]

The crypto boom came with a proliferation of projects trying to draw in new investors with exited promises of riches, democratized finance, and transformational technologies. No doubt, real problems make the current U.S. payment system inefficient and expensive, and many understandably hold major banks in low regard. For many, the current economy truly is rigged against them. That said, crypto is not the answer to the problems with our banking system. The recent crypto crash reinforces the reality that many crypto projects are thinly veiled Ponzi schemes that use huge quantities of energy with few actual benefits or protections for retail investors or users. The failures of FTX, Celsius (now in bankruptcy), Luna and TerraUSD attest to the false claims and Ponzi characteristics of this market.[3] The projects have grown only in the cracks created by regulatory inattentiveness, and regulators and legislators must now step in to fill the void.

Cryptocurrency has failed in its initial promise of a decentralized, efficient, less costly, and more equitable financial system especially for those with less access to traditional banking. This failure follows more than a decade of efforts by thousands of experts exploring the potential of blockchain and Bitcoin, which was described in the 2008 white paper by the pseudonymous Satoshi Nakamoto as an alternative payment system.[4] Instead, cryptocurrencies have served mainly as a source of speculation, a vehicle for funding illegal activity including tax evasion, and a massive use of energy that exacerbates climate change. Cryptocurrency’s problems and clear and present dangers.

First, in addition to failing to solve problems in the banking system, the prevailing cryptocurrencies also cause market problems, often gyrating wildly in price in a single day. In the last year, Bitcoin traded as high as $60,000 per token and as low as $19,000.[5] These swings undermine the case for digital assets as a means of exchange: A customer who believed that Bitcoin would rise in value would not rationally use one for a purchase on that day since they would be over-paying. They would only use the coin if they thought the price would fall. Conversely, a vendor who believed Bitcoin would fall would not accept the coin, since it would be an underpayment, and would only accept the token if they believed the price would rise. In other words, a fluctuating price stifles the use of Bitcoin as a vehicle of market exchange.

Stablecoins promised to answer the problem of volatility in pricing by pegging each token to a specific value, such as the U.S. dollar. However, many sponsors failed to fully back these tokens. The New York Attorney General fined Tether and Bitfinex for such failures.[6] Celsius promised high yields to those who purchased its stablecoin, but allegedly paid those yields with newer investors’ money, a basic Ponzi scheme. Its bankruptcy filing noted it owed $4.7 billion to some 1.7 million investors, and only had $167 million in assets.[7] Voyager allegedly claimed its stablecoin was backed by FDIC insurance, according to the federal agencies.[8] Voyager declared bankruptcy.[9]

Second, the promise of cost-free transactions has also proven illusory. The cost of transactions for Bitcoin are substantial and vary greatly. In the last year, they have reached $300 for each transaction.[10] This is hardly democratizing finance. Related to this, the same population that lacks a bank account, and who are most sensitive to financial fees, may also lack the technology to interact with digital currencies.

Third, investment scams involving cryptocurrencies abound. During a recent five-month period, the Federal Trade Commission reported 7,000 cryptocurrency scams covering some $80 million in reported losses. That is 12 times the number of scams reported during the same period a year earlier, with a 1000 percent greater estimated loss.[11] One review found some malicious actors created digital coins that can be purchased but not sold, while others promised enormous returns and then failed to deliver.[12] Highlighting these scams is perhaps one of the greatest thefts in history, namely, the alleged heist by Sam Bankman-Fried and his co-conspirators of more than $8 billion in customer accounts at his crypto exchange FTX. That’s roughly half of the total of $16 billion in customer accounts at FTX.[13] Some of these stolen funds went to a sister company also controlled by Bankman-Fried called Alameda Research. An FTX co-founder and the former CEO at Alameda Research have already plead guilty to fraud.[14] Other funds went to sports celebrities who endorsed cryptocurrency, charities and politicians.[15] These alleged conspirators counted among the largest donors of political funds in the last election cycle. While they deployed but a few percent of the $8 billion to campaigns and dark money super PACs, the enthusiastic, vocal support Bankman-Fried and colleagues received from Capitol Hill was palpable.[16] Again, while the FTX theft may be the most outstanding, it is inescapable that fraud may be endemic to the business model of cryptocurrency.

Fourth, the number of cryptocurrencies is staggering, and growing. In 2021, there were more than 10,000 different cryptocurrencies.[17] In the summer of 2022, that number nearly doubled to 19,000, according to one estimate.[18] Commodity Futures Trading Commission Chair Rostin Behnam testified before Congress that “there are now hundreds of thousands of unique digital assets in circulation.”[19] That is a greater than the number of banks in the United States. Dogecoin, the 10^th largest cryptocurrency by value, was created as a “joke,” according to its founders.[20] Even if one or a few cryptocurrencies are adopted as common tender, it is inconceivable that the number accepted would be greater than 10, or 100, and certainly not 19,000. Thus, their utility as a tender for goods and services seems limited, at best.

A few retailers have experimented with accepting Bitcoin for payment, but many have stopped.[21] Facebook (now called Meta) applied its prodigious muscle to launch a digital currency. In a test of remittances, however, the blockchain validation costs proved exorbitant.[22] [23]

Fifth, the claim that cryptocurrency cannot be stolen has been proven untrue. While it may not be as vulnerable to street theft as cash, or to cyber criminals hacking a bank account, a cyber-criminal might be able to hack into a personal computer where Bitcoin codes are kept. In 2021, a ransom paid in digital assets by Colonial Pipeline to hackers that took over their system (which led to a temporary decline in gasoline supplies on the East Coast), was traced and recovered by the FBI. “Crypto experts say it is at times easier to track than hard currencies such as U.S. dollars,” according to the Wall Street Journal.[24]

Many experts question the value of cryptocurrency. Berkshire Hathaway CEO Warren Buffett called cryptocurrency “rat poison squared.” His associate Charlie Munger labeled trading in this market as “dementia.”^[25] Investor Mark Cuban said he’d prefer bananas to Bitcoin, “Because at least as food, bananas have intrinsic value.”^[26] Bill Gates says cryptocurrencies are “100% based on greater fool theory,” or reliance on a rational assumption of one speculator finding another speculator willing to pay a higher price.[27] JPMorgan CEO Jamie Dimon said he’d fire any employee he found investing in Bitcoin. European Central Bank President Christine Lagarde says cryptocurrency is worth “nothing.”[28] Other skeptics include Allianz economist Mohamad El-Erian, economist Paul Krugman, and Oaktree Capital Management founder Howard Marks.^[29] Nassim Taleb, who once considered Bitcoin promising, now says its ultimate worth is “zero.”[30] Outspoken critics include the indefatigable Molly White, an independent observer,^[31] as well as John Reed Stark (former chief of the SEC’s Office of Internet Enforcement).

Finally, many experts question the utility of the underlying blockchain technology. In June 2022, 1,500 computer scientists, software engineers, and technologists sent an open letter urging Washington policy makers to “take a critical, skeptical approach toward industry claims that crypto assets (sometimes called cryptocurrencies, crypto tokens, or web3) are an innovative technology that is unreservedly good.” The experts take direct issue with blockchain, which they argue, “by its very design . . . is poorly suited for just about every purpose currently touted as a present or potential source of public benefit.” Further, they write, blockchain technologies facilitate few, if any, real economy uses.”[32] Among the signatories are employees of IBM, Netscape, Google, Microsoft, Apple, MIT, Meta, Columbia, eBay and Amazon.

If cryptocurrency does not seem useful as a currency, why did the market capitalization reach $3 trillion? We believe, simply, perhaps obviously, that those who buy cryptocurrency hope to make money—they are speculators. (We leave aside for now those using cryptocurrency for illicit activities.) Presumably, most investors who might purchase stock in a jet manufacturer or pharmaceutical firm may have little personal expertise in aerospace technology or biochemistry. Similarly, few who purchase cryptocurrencies are likely familiar with Merkle Trees, nonces, or other technical features of blockchain. But these speculators can see that some who purchase stock in a jet maker have made money, and that’s been the case with cryptocurrency as well.

The sad reality is that about 46 million Americans now own Bitcoin alone.[33] Why do so many people invest in Bitcoin and other cryptocurrencies? We assume, as with a stock or other traditional asset, these speculators believe the price will rise and that they will profit. To date, that has been the case. Bitcoin’s market capitalization has occasionally exceeded four times that of JP Morgan Chase.[34] Speculators who purchased at lower prices are, indeed, sitting on a profit. Bitcoin sold for $1,000 in 2017, before peaking at $60,000 in 2021.[35] Would-be speculators saw these winnings and likely were attracted to the arena.

Bolstering the stories of success, mainstream institutions and public influencers are affirming the legitimacy of cryptocurrencies as investments. Cryptocurrency sponsors have spent extravagantly on advertising, relying conspicuously on influencers. Crypto.com spent $15 million in advertising in November 2021.^[36] CoinDesk reportedly mounted a $100 million advertising campaign in 2021.^[37] The cryptocurrency balloon has been inflated by influencers, many surreptitiously paid;^[38] ^[39] massive advertising campaigns that we now know were funded, in part, through crypto firms’ misuse or theft of customer funds, such as FTX;^[40] and a rogue’s gallery of online crypto enthusiasts, some of whom may have a self-interest in elevating the price of tokens.

Well known brokers, including large firms catering to small investors such as Schwab, now offer cryptocurrencies. [41] Wells Fargo offers the product to is elite clients.[42] Fidelity Investments announced it would provide cryptocurrency options for sponsors of 401(k) plans.[43] Cryptocurrencies legitimized by large institutions naturally invites otherwise rational people to consider allocating at least some of their portfolio to this sector.

For those who believe there is little future as a currency, and that blockchain holds little promise, speculation may be based on the “greater fool” theory.[44] Such sponsors are effectively promoting a Ponzi scheme, with new investors paying a higher price than previous investors. (A sponsor is an individual or firm that creates and promotes cryptocurrency. Bitcoin has no sponsor.)

Some cryptocurrency sponsors may be exploiting this “greater fool” theory with those who believe they’ve been shut out of the traditional financial system. We are especially dismayed by reports that of the U.S. individuals who own cryptocurrencies, 40 percent of people of color. According to one report, the average cryptocurrency trader is under 40 (mean age is 38) and does not have a college degree (55 percent). Forty-one percent are women. More than one-third (35 percent) have household incomes under $60k annually.[45] After centuries of exploitation of people of color, after nefarious bankers targeted Black borrowers with abusive mortgages leading to the 2008 financial crisis,[46] it is tragic that predatory cryptocurrency sponsors may have targeted the Black community with this Ponzi scheme. Derrick Hamilton of the New School noted, that crypto has a “low barrier to entry with a promise of high returns. , , , [The industry] preys on people’s desire to make something of themselves.”[47]

Digital asset markets are rife with scams and other manipulative financial practices. Several federal regulators, including the Consumer Financial Protection Bureau (CFPB), Securities and Exchange Commission (SEC), and Federal Trade Commission (FTC), among others, have issued regular alerts warning consumers and investors about the prevalence of scams, hacks and manipulative activities found within the digital asset markets, and have collected data to back up these warnings. Numerous media articles, academic studies and even industry reports have documented the large sums of money lost through these scams and exploitative practices. For example, a recent study by crypto analytics firm Chainanalysis found there were $14 billion in losses in 2021 alone due to malfeasance, and that there had been a 79% increase in crypto related crime during that same year.^[48]

These scam-related losses may be the tip of the iceberg; a Better Business Bureau report profiling crypto schemes noted that the FTC claims that only about 5% of fraud victims end up reporting their losses or victimization. [49] Tellingly, the FTC has also historically found that Black and Hispanic or Latino Americans are more likely than white Americans to be victims of scams or fraud and are more likely to under-report such experiences as well. [50] This suggests that, even as digital assets are being promoted (via sophisticated marketing campaigns) as vehicles for financial inclusion for communities traditionally excluded from or exploited by traditional financial actors, these same communities may be bearing the brunt of the losses generated by fraud and scams.

Cryptocurrencies also serve as a medium of payment for illicit activities. One study found that “approximately one-quarter of Bitcoin users are involved in illegal activity” and that an estimated $76 billion in illegal activity per year involve Bitcoin (46% of Bitcoin transactions),“ which is close to the scale of the U.S. and European markets for illegal drugs.”[51] Many avoid paying taxes on cryptocurrency profits.[52]

The New York CRPTO Bill

In the context of these sweeping problems, we heartily welcome New York’s proposed CRPTO bill. Importantly, the legislation goes to the inherent conflict of sellers of what we believe to be “fake” money who themselves actually do not want to hold the tokens, but instead secure the dollar currency from unwitting victims. Specifically, the bill would reign in conflicts of interest in the industry by:

Preventing common ownership of crypto issuers, marketplaces, brokers, and investment advisers and preventing any participant from engaging in more than one of those activities;
Preventing crypto brokers and marketplaces from trading for their own accounts;
Prohibiting marketplaces and investment advisers from keeping custody of customer funds, the problem highlighted by FTX;
Prohibiting brokers from borrowing or lending customer assets; and
Prohibiting referrals from marketplaces to investment services for compensation, a core issue with influencers.

Understanding that crypto relies on the appearance of market interest and the integrity of reserves, the bill takes several steps to uphold the integrity of public statements. Specifically, the bill requires firms to:

Undergo mandatory independent auditing and publish audited financial statements;
Provide investors with material information about issuers, including risks and conflict-of-interest disclosures;
Require marketplaces to establish and publish listing standards; and
Require cryptocurrency promoters to register and report their interest in any issuer whose crypto assets they promote.

To protect consumes and reduce the use of crypto for illicit activities, the bill would:

Establish “know-your-customer” provisions, meaning brokers would have to know essential facts about their customers, and requiring crypto brokers and marketplaces to only conduct business with firms that comply with KYC provisions;

Ban the use of the term “stablecoin” to describe or market digital assets unless they are backed 1:1 with U.S. currency or high-quality liquid assets as defined in federal regulations; and
Requiring platforms to reimburse customers who are the victims of unauthorized asset transfers and transfers resulting from fraud.

Public Citizen endorses all these principles and urges the New York legislature to approve this legislation which would create robust investor and public protections as they deal with the crypto sector.

Federal Legislation

We also urge New York leaders to support federal legislation and encourage a model based on the CRPTO bill. While New Yorkers may be protected through this legislation from New York-based operators, the internet knows no political boundaries.

Federal regulators must prevent crypto firms from engaging in fraud on their customers and must not allow crypto infrastructure to be used to perpetuate fraud. The people who digitally mint and promote the coins need to be liable for fraudulent statements, fraudulent transactions, rug pulls, abandoned projects, and self-dealing.[53] (In a “rug pull,” predators lure investors into a project, then abandon the project and take the money.) We welcome announcements of greater staffing at the Securities and Exchange Commission (SEC) and urge the Federal Trade Commission (FTC) to increase its enforcement efforts as well. We also welcome the enforcement efforts of the Commodity Futures Trading Commission (CFTC). This agency polices fraud, false reporting, and manipulation over commodity cash markets in interstate commerce. Since 2014, the CFTC has brought 50 enforcement actions involving digital assets. In 2021, it brought 20 enforcement actions alleging digital asset-related misconduct.^[54] Authorities are prosecuting “rug pulls” in several non-fungible token (NFT) cases. ^[55] ^[56] In one rug pull case, the durable wire fraud law proved reliable in arresting two suspects.^[57] The FTC signaled it will better scrutinize “gatekeepers,” where rug pulls are prominent. ^[58]We welcome the Department of Justice’s decision to establish a National Cryptocurrency Enforcement Team.^[59]

The SEC should regulate cryptocurrency as a security. The SEC defines a security with the Howey Test. The Howey Test consists of four prongs, all of which must be satisfied for the SEC to classify a transaction as a security. The four elements are as follows: [1] An investment of money [2] in a common enterprise [3] with expectations of a profit [4] to be derived from the efforts of others.[60] (The “effort of others” derives from the promotion by the sponsor.) Given that sponsored cryptocurrencies satisfy all these elements, they should be regulated by the SEC. The has SEC declared several cryptocurrencies as “unregistered securities.” [61] Since its creation in 2017, SEC’s Crypto Assets and Cyber Unit has brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling more than $2 billion. The expanded Crypto Assets and Cyber Unit will leverage the agency’s expertise to ensure investors are protected in the crypto markets, with a focus on investigating securities law violations related to:

Crypto asset offerings;
Crypto asset exchanges;
Crypto asset lending and staking products;
Decentralized finance (“DeFi”) platforms;
Non-fungible tokens (“NFTs”); and
Stablecoins.[62]

Once cryptocurrencies status as securities is clarified, the SEC’s pending climate disclosure rule, if adopted, could provide a comprehensive, verified view of the emissions generated by digital assets and trading, especially if the rule requires registrants to disclose the emissions released in their value chain, also known as Scope 3 emissions. Along with the immediate benefits to investors, such disclosures would also provide important inputs to systemic financial risk monitoring conducted by the Office of Financial Research and the Financial Stability Oversight Council, which has highlighted both climate and digital assets as emerging risk areas. To realize these benefits, it’s important that the SEC clarify the reach of its proposed Scope 3 reporting requirement, which currently only requires disclosure if those emissions are “material.” Ideally, the SEC would recognize the importance of Scope 3 emissions disclosure for all companies. But, at a minimum, it should clarify that for large firms that own or trade significant quantities of cryptocurrency, their Scope 3 emissions would be material and subject to disclosure for the reasons discussed above. Due to their importance, those emissions should also be subject to the level of assurance required for Scope 1 and 2 emissions.

Stablecoins should be regulated along the lines established recently by the European Markets in Crypto Assets (MiCA).[63] When implemented, European authorities will require stablecoin sponsors to hold liquid assets on a 1-1 basis with the tokens and provide for refunds with no charge. (Because stablecoin transactions require decentralized “miners” for verification, and they are paid in that stablecoin, then stablecoin sponsorship may be inherently unprofitable.[64]) Sponsors will also need to disclose their climate footprint. Crypto asset service providers must register with the European Securities and Markets Authority. We believe U.S. stablecoin sponsors should publish audits of their reserve monthly. Exchanges need margin requirements and stress tests; stablecoins need a liquid assets requirement and money market mutual fund-style protections to prevent runs and death spirals; banks and other traditional financial institutions must hold adequate capital to reflect the riskiness and volatility of crypto assets. Banks that hold crypto should post 1250 percent risk capital, as described by the Basel Committee.[65]

Specifically, Public Citizen believes any stablecoin bill should contain the following:

Assets backed on a 1-1 basis.
The assets must be safe and highly liquid, restricted to U.S. Treasury securities.
The sponsor must maintain capital of 5 percent. (Sponsors must maintain assets that are 5 percent greater than the value of outstanding stablecoins.)
Sponsors may not be affiliated with any commercial firm, or that is not a bank. (This means that firms such as Facebook or WalMart could be sponsors.)
Sponsors must disclose their climate footprint.
Sponsors must register with the Securities and Exchange Commission (SEC).
Registration must include:
- A list of any criminal conviction, deferred prosecution agreement, and pending criminal proceeding in any jurisdiction against all the following: (i) The applicant; (ii) Any executive officer of the applicant; (iii) Any responsible individual of the applicant; (iv) Any person that has control over the applicant; (v) Any person over which the applicant has control.
- A list of any litigation, arbitration, or administrative proceeding in any jurisdiction in which the applicant or an executive officer or a responsible individual of the applicant has been a party for the 10 years before the application is submitted determined to be material in accordance with generally accepted accounting principles and, to the extent the applicant would be required to disclose the litigation, arbitration, or administrative proceeding in the applicant’s audited financial statements, reports to equity owners and similar statements or reports.
- A list of any bankruptcy or receivership proceeding in any jurisdiction for the 10 years before the application is submitted in which any of the following was a debtor: (i) The applicant; (ii) An executive officer of the applicant; (iii) A responsible individual of the applicant; (iv) A person that has control over the applicant; (v) A person over which the applicant has control.
- A set of fingerprints for each executive officer and responsible individual of the applicant.

Sponsors must publicly disclose monthly their assets, liabilities, capital, income, and expenses of the licensee, and an independent audit of this financial data quarterly.
Sponsors shall maintain a surety bond or trust account in United States dollars in a form and amount as determined by the SEC for the protection of those who engage in digital financial asset business activity with the registrant.
Banks that hold stablecoins must post 1250 percent risk capital, as described by the Basel Committee.[66]
Penalties for infraction of any of these terms shall be one percent of the outstanding value of the stablecoin on the first infraction, and termination of the stablecoin on the second.

In addition, we believe that the Financial Stability Oversight Council (FSOC) should use its authority (under Dodd-Frank Section 120) to recommend that primary financial regulatory agencies move quickly to address these issues.

Regulators must look at the impacts of crypto operations and financial footprint on groups who have been excluded from financial markets because of racial discrimination. Crypto purportedly permits access to the financial system for those groups, but those claims rarely amount to more than marketing.

The Department of Labor (DOL) should instruct fiduciaries that crypto is not a responsible investment. We welcome DOL guidance that notes that “Fiduciaries may not shift responsibility to plan participants to identify and avoid imprudent investment options, but rather must evaluate the designated investment alternatives made available to participants and take appropriate measures to ensure that they are prudent.” The DOL notes a U.S. Supreme Court explanation that “even in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options.” The failure to remove imprudent investment options is a breach of duty, the DOL states.[67]

Regulators must account for the energy and emissions impacts of crypto, particularly given the lack of underlying economic value of the assets. Both the direct emissions from mining and the broader effects of a mining ecosystem can have serious consequences for energy prices, the environment, and the climate. Crypto firms must adopt practices and protocols that mitigate these impacts in line with science-based targets for emissions and waste reduction.

Crypto’s anonymity must not enable avoidance of legal obligations or illicit behavior. Regulators must make crypto firms comply with Know Your Customer rules, not facilitate sanctions avoidance, and issue tax docs for sale of coins (including swaps into other cryptocurrencies). Agencies must better ensure that gains from the sales of cryptocurrencies are properly taxed, including an increased focus on this issue by enforcement officials at the IRS. We support greatly increased funding to the agency to help tackle this type of enforcement.

In addition to cryptocurrencies, other digital assets such as NFTs may require no additional regulation. We are astounded at some of the prices, such as the $69 million paid for a digital collage called “Everyday: the First 5000 Days,” by an illustrator known as Beeple.[68] The bidding, conducted by Christies, started at $100, suggesting that this expert auction house itself had no accurate understanding of what the market value might be. The purchaser owns this digital asset, but not the copyright. Anyone can enjoy the identical digital image as the purchaser by searching for it on the internet. We are aware that NFT promotions may involve scams to exploit a consumer’s digital wallet. But these take place outside the question of whether NFT has value that any reasonable investor would assign. [69]

Improving the Payment System

As noted, the cryptocurrency promised to improve the payment system. We welcome efforts to broadly make the payment system more efficient and less costly for consumers and businesses alike.

Many U.S. residents are underbanked. More than six percent of American households, or some 33 million citizens are without a traditional bank account. Some do not trust banks, while others lack the funds that financial institutions require to open and maintain an account.^[70]

Even for those lucky people with deposit accounts, the payment system is slow. Overdraft fees can be substantial. Checks and credit card payments can take two days or more to clear, meaning that vendors are without these funds during that time. It is also costly. Checks and particularly wire transfers can include substantial fees. Banks charge interchange fees for credit cards, a substantial burden for retailers.^[71] And it is complex, with thousands of banks with idiosyncratic ledger systems communicating with one another and the Federal Reserve.

We note the apparent success of the Pix payment system in Brazil, sponsored by the Central Bank of Brazil.[72] This uses QR codes (or two-dimensional bar codes, formally known as a quick response code) that appear in the customers’ cell phones. After a year of operation, this electronic system, free of fees to customers, represented some 6 percent of electronic commerce in the country.[73] During the pandemic, adoption of Pix led to a 73 percent decline in the unbanked population.[74] The Brazilian Central Bank requires Brazilian banks to participate. Banks reportedly discovered that while they lost some revenue from fees, they saved money from the reduced use of checks.[75]

The 28 countries of the European Union, along with several others, are experimenting with Single Euro Payments Area, an electronic transfer system that promises transaction completion within 10 seconds. (European regulators, however, do not require banks to participate.[76])

At the same time, Public Citizen does support exploration of a Central Bank Digital Currency (CBDC). This federal digital coin, in one form dubbed a FedAccount, holds the promise to address some of the problems with the payment system reviewed above. Currently, depository institutions maintain accounts with the Federal Reserve.

Conceived by Lev Menand of Columbia Law School in June 2018, the CBDC would be a Federal Reserve account. It would be available to “any U.S. resident or business in digital wallets operated by the Federal Reserve, the Post Office, or one of the country’s several thousand community banks,” he explains.^[77] “The digital wallets would charge no fees and have no minimum balances. They would come with debit cards, direct deposit, and bill pay. They would have customer service, privacy safeguards, and fraud protection—if for example one lost their password. And these accounts would earn interest at the same rate that the Fed pays to banks.”

Lack of profitability for the banks represents one of the reasons that banks fail to service roughly six percent of the population. The FedAccount would be available regardless of any balance and would be streamlined with immediate clearing. There would be no fees. With such an account, delivery of federal payments such as Covid relief or other government benefits would be immediate.

Noting though that before such a system is implemented, important questions must be answered. For example, many bank account holders are subject to garnishments because of unpaid debt. Debt collectors would have a simple way to garnish funds through the CBDC. That also means the Federal Reserve would need to engage with debt collectors in addition to individual Federal Reserve account holders. There may be political issues. For example, the CARES Act might have more effectively delivered needed rescue funds to needy Americans via a FedAccount system. However, some of the individuals who received relief may have been subject to garnishment, meaning the Federal Reserve would be in a position of deciding whether, in times of extraordinary need, it would protect or release these funds.

Conclusion

From a non-existent market in 2008 to a recent market capitalization of $3 trillion, cryptocurrency has mushroomed to the point where it now threatens to become a source of systemic risk. If New York leaders worried that more forceful intervention in this giant Ponzi scheme might concuss through broader markets, such concerns should be allayed by the recent collapse, where the market value has now declined by about $2 trillion in a matter of months. If erasing two thirds of market capitalization has not caused tremors, we believe the final $1 trillion will not either.

We urge New York and other leaders to adopt the robust regulatory scheme they have proposed without fear of sparking systemic risk, and with support from consumer protection advocates when it comes to protections for consumers contemplating an investment in assets without true value.

For questions, Bartlett Naylor at bnaylor@citizen.org.

Thank you.

CryptoBros United

Cryptocurrency Super PACs Amass Over $100 Million to Influence 2024 Congressional Elections

By Rick Claypool

May 6, 2024

ACKNOWLEDGMENTS

This report was written by Rick Claypool, a research director in Public Citizen’s president’s office.

Thank you to all who provided feedback and editorial contributions, including Public Citizen’s Paul Alan Levy, Bart Naylor, Robert Weissman, and Alan Zibel.

Unless otherwise specified, all campaign finance data cited in this report is derived from Public Citizen analysis of U.S. Federal Election Commission data obtained from Opensecrets.org.

ABOUT PUBLIC CITIZEN

Public Citizen is a national non-profit organization with more than 500,000 members and supporters. We represent consumer interests through lobbying, litigation, administrative advocacy, research, and public education on a broad range of issues including consumer rights in the marketplace, product safety, financial regulation, worker safety, safe and affordable health care, campaign finance reform and government ethics, fair trade, climate change, and corporate and government accountability.

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For more information, please visit www.citizen.org.

Key Findings

Super PACs backed by the cryptocurrency sector have raised more than $102 million, the third-most of all super PACs engaged in the 2024 election, according data from Opensecrets.org. Only the super PAC backing Ron DeSantis’ failed presidential campaign and the super PAC backing Democratic Senate candidates have raised more money so far.
More than half of the crypto super PACs’ political war chests – about $54 million – comes from direct corporate expenditures, primarily Coinbase and Ripple Labs, showing the sector is taking full advantage of Citizens United-enabled unlimited corporate political spending.
Four of the eight corporate crypto super PAC donors have settled or are facing charges by the U.S. Securities and Exchange Commission (SEC) for alleged violations of securities laws. Ripple Labs alone is reportedly facing nearly $2 billion in penalties. Beating back regulations is among the super PAC backers’ stated goals.
The rest of the crypto super PACs’ political war chest comes from billionaire crypto executives and venture capitalists, including $11 million each from the founders of venture capital firm Andreessen Horowitz, $5 million from the Winklevoss twins, and $1 million from Coinbase CEO Brian Armstrong.
Out of the six 2024 primary races where the crypto super PACs intervened and which are now over, only one crypto-backed candidate has lost. Eleven primary races that include crypto-backed candidates remain.
The crypto super PACs have pledged to spend in general election Senate races in the battleground states of Ohio and Montana, which are seen as essential for securing a Senate majority. Democratic incumbents in both races have been critical of the crypto sector.

Introduction

According to Pew Research Center, about 17% of Americans have ever dabbled in cryptocurrencies and an overwhelming majority who are aware of cryptocurrencies (75%) do not trust their safety and reliability.

Nevertheless, crypto corporations and executives are poised to spend more than $102 million elevating crypto-friendly candidates, who are expected to craft loose regulations, and attacking their opponents, who often have been more skeptical of the sector.

Corporations can’t vote, but, because of the 2010 U.S. Supreme Court ruling in Citizens United v. Federal Election Commission and related rulings, corporations and the ultra-rich can create super PACs to spend as much as they want to tilt elections toward their favored candidates.

The result is an unfair advantage in electoral races when it comes to the for-profit priorities of corporations and billionaires over priceless priorities such as protecting consumers and the environment.

During the 2022 midterm elections, then-FTX CEO (and now-convicted felon) Sam Bankman-Fried personified the cryptocurrency sector’s attempt to use campaign spending to maximize its political influence.

Now a fresh crop of crypto corporations, executives, and their allies are back in the political fray, spending millions attempting to tilt elections toward pro-crypto candidates.

Despite cryptocurrency marketing claims that digital assets herald a future financial system that promises to be decentralized, efficient, fairer, and more affordable, the Ponzi-like schemes and whipsaw volatility that have characterized the crypto sector have shown these experiments in artificial currency to be of dubious value.

Available records show that “SBF” – now just beginning to serve a 25-year sentence for his $8 billion crypto fraud – spent more than $40 million ahead of Election Day in 2022, primarily supporting Democrats. After the election, Bankman-Fried claimed he spent about the same amount backing Republicans, stating in an interview, “all my Republican donations were dark” and estimating he might have been the “second or third biggest” donor to Republicans in the cycle.^[78]

The “dark” donations Bankman-Fried mentioned are a reference to dark money groups – i.e., some organized under section 501(c)(6) of the tax code as business associations and 501(c)(4) as social welfare nonprofit groups. These groups can raise and spend unlimited sums on behalf of corporate donors without publicly disclosing the donors’ identities, as super PACs are required to do.

Such groups have raised and spent more than $2.8 billion to influence elections since the 2010 Citizens United ruling. Because of their secretive nature, it is not possible to know how much came from corporations or any particular interest group. According to analysis by Opensecrets, $162 million in dark money has already surged into the 2024 elections, putting this election cycle on track to surpass previous all elections in terms of dark money.

This means the disclosed super PAC contributions it is possible to attribute to particular corporations, individuals, and business sectors are inevitably an undercount.

Prosecutors alleged Bankman-Fried’s prolific campaign spending included illegal expenditures “to try to purchase influence over cryptocurrency regulation in Washington, D.C. by steering tens of millions of dollars of illegal campaign contributions to both Democrats and Republicans.” The campaign finance charge was ultimately dropped.

Fairshake Political Action Committee, the super PAC serving as the crypto sector’s primary political influence vehicle for 2024, has amassed a comparable war chest – and is similarly poised to purchase influence (albeit through legal means). Fairshake also has two affiliated PACs – the Republican-focused Defend American Jobs PAC and the Democrat-focused Protect Progress PAC. Together, the three crypto PACs have so far raised over $102 million, according to OpenSecrets.

“Money moves the needle,” Coinbase’s billionaire CEO Brian Armstrong told Axios. “For better or worse, that’s how our system works.” So far, Armstrong has contributed $1 million to Fairshake and Coinbase has contributed $23 million to Fairshake and its affiliates.

Table 1: Top ten super PACs in the 2024 federal elections by funds raised

Group	Supports	Total Raised
Never Back Down Inc	Ron DeSantis presidential campaign	$145 million
Senate Majority PAC	Democratic Senate campaigns	$123 million
Fairshake PAC and affiliates	Crypto sector interests	$102 million
Make America Great Again Inc	Trump presidential campaign	$97 million
Senate Leadership Fund	Republican Senate campaigns	$64 million
Democracy PAC	Democratic candidates	$60 million
United Democracy Project	American Israel Public Affairs Committee (AIPAC) interests	$49 million
Club for Growth Action	Republican candidates	$45 million
Best of America PAC	Doug Burgum presidential campaign	$24 million
Keystone Renewal PAC	Dave McCormick Senate campaign (Pennsylvania)	$21 million

Data Source: OpenSecrets.com

Just like fossil fuel corporations engaging in politics to thwart climate regulations or insurance companies engaging in politics to thwart health care reforms, the cryptocurrency sector’s political spending is part of the businesses’ strategy of combatting enforcement crackdowns and designing a regulatory system that meets the industry’s specifications.

“We need to make sure the [U.S. Securities and Exchange Commission] does not get weaponized with a political agenda,” Armstrong said in an interview. “To do that, the crypto industry is going to have to get a bit more sophisticated and powerful in terms of our lobbying efforts and our political power that we can bring to bear for the 2024 election.” This rhetoric echoes claims by Republican members of Congress, who in early 2024 created a “Select Subcommittee on the Weaponization of the Federal Government” to focus on familiar grievances of the right, especially the perceived unfairness in federal investigations into the alleged criminal misconduct of former President Donald Trump.

The crypto sector’s long-running frustration with the SEC is repeatedly echoed by crypto executives on social media, and in legal challenges to the SEC’s authority. Top contributors to crypto super PACs include several corporations that the agency has charged with violating securities laws, including Coinbase (which contributed $23.5 million), Ripple Labs (which contributed $23 million), and Kraken (which contributed $1 million).

Republicans are sometimes perceived as more friendly than Democrats to the crypto sector. The reality, however, is more complicated, with partisans on either side of the aisle numbered among both crypto advocates and skeptics, especially in the aftermath of FTX’s collapse and mounting evidence of rampant crypto crime. The SEC brought notable enforcement actions against cryptocurrency companies under both Trump and President Joe Biden.

With political volatility the only certainty ahead in the 2024 elections, the crypto sector’s attempt to exploit the lack of restrictions on corporations and billionaires influencing U.S. elections should come as no surprise.

Table 2: Top contributors (of $1 million or more) to Fairshake and affiliated super PACs

Contributor	Amount	Contributor Type	Contributor Category
Coinbase	$23,500,000	Corporation	Crypto Business
Ripple Labs	$23,000,000	Corporation	Crypto Business
Marc Andreessen	$11,000,000	Individual	VC executive
Ben Horowitz	$11,000,000	Individual	VC executive
Jump Crypto	$5,000,000	Corporation	Crypto Business
Cameron Winklevoss	$2,500,000	Individual	VC executive
Tyler Winklevoss	$2,500,000	Individual	VC executive
Phil Potter	$1,995,942	Individual	Crypto Executive
Fred Wilson	$1,047,540	Individual	VC executive
Circle	$1,000,000	Corporation	Crypto Business
Brian David Armstrong	$1,000,000	Individual	Crypto Executive
Payward Inc (Kraken)	$1,000,000	Corporation	Crypto Business

Data Source: OpenSecrets.com

Top Crypto Spenders

Coinbase

Coinbase is a leading cryptocurrency exchange offering users a platform for buying and selling digital financial products. In 2021 it became the first major cryptocurrency business to become publicly traded on the U.S. stock market.

Coinbase and affiliated individuals make up a disproportionate portion of contributions to Fairshake and its affiliated super PACs – more than $37 million. This sum includes $23.5 million from the corporation itself, $1 million from billionaire CEO Brian Armstrong, and $11 million from board member Marc Andreessen. Additional board members, investors, and an executive contributed $1.8 million.

Coinbase spends millions annually lobbying the federal government. The Commodity Futures Trading Commission fined the company $6.5 million for “reckless false, misleading, or inaccurate reporting as well as wash trading,” a form of illegal market manipulation. The company, which also was fined $50 million for compliance failures by New York state authorities, has been fighting SEC charges since 2023.

Ripple Labs

Ripple Labs is a financial technology company that, according to CEO Brad Garlinghouse, aspires to become “the Amazon of payments.”

The company contributed $20 million to Fairshake and $1.5 million each to its affiliated super PACs. Ripple and its executives have been fighting SEC charges of selling unregistered securities since the final days of the Trump administration.

Recent court filings show the agency is seeking nearly $2 billion in penalties for alleged violations of securities laws, while Ripple argues its penalty should be no more than $10 million. The corporation also resolved allegations of a criminal violation of anti-money laundering law with the Department of Justice in 2015 with a leniency agreement and a penalty of $700,000.

Andreessen Horowitz

Andreessen Horowitz is a Silicon Valley-based multibillion-dollar venture capital firm that invests in technology startups, including fellow Fairshake contributors Coinbase, Ripple, and Lightspark. Billionaire co-founders Marc Andreessen and Ben Horowitz each contributed $11 million to Fairshake.

Horowitz announced the firm’s foray into electoral politics with a blog post in late 2023 declaring “We believe that advancing technology is critical for humanity’s future, so we will, for the first time, get involved with politics by supporting candidates who align with our vision and values specifically for technology.” The post goes on to declare, “We are non-partisan, one issue voters: If a candidate supports an optimistic technology-enabled future, we are for them. If they want to choke off important technologies, we are against them … Every penny we donate will go to support like-minded candidates and oppose candidates who aim to kill America’s advanced technological future.”

What Horowitz appears to mean when referring to candidates who want to “kill America’s advanced technological future” is those who favor regulations that prioritize the public interest over the interests of those seeking to profit from the technology. Horowitz says “misguided regulatory policy” is the “primary thing” that can undermine America’s future and claims “we risk harming far more people than we save with our ‘safety’ measures.”

At a private dinner party in Andreesen’s Silicon Valley mansion, American Prospect reporter Rick Perlstein characterized his billionaire host as joking, “I’m glad there’s OxyContin and video games to keep those people quiet,” referring to citizens of rural America.

Other Crypto Businesses

Other crypto businesses contributing large sums to Fairshake and its affiliates include Jump Crypto, which contributed $5 million; Circle Financial, which contributed $1 million; and Kraken, which contributed $1 million.

Jump Crypto is a division of Jump Trading, a business engaged in algorithmic high-frequency trading. Circle Financial is a crypto business behind the digital “stablecoin” USDC, which is designed to maintain a value pegged to the value of actual U.S. dollars, and is currently in the process of trying to become a publicly traded corporation. The SEC fined its former subsidiary $10 million for operating an unregistered digital asset exchange. Kraken (formally Payward Inc. and Payward Ventures) is a cryptocurrency exchange that was fined $30 million for SEC violations and has been charged with making “hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities.”

Additionally, Phil Potter, formerly an executive with Tether and Bitfinex, a “stablecoin” and cryptocurrency exchange, which together were fined $42.5 million by the CFTC for misleading claims and profiting from illegal transactions, contributed nearly $2 million to the crypto super PACs.

Other Venture Capitalists

Other venture capitalists contributing significant amounts to Fairshake and its affiliates include Cameron and Tyler Winklevoss, twin billionaire executives behind Winklevoss Capital Management, who together gave $5 million; Avichal Garg and Curtis Spencer, Electric Capital executives who together gave $500,000; Tushar Jain and Kyle Samani of Multicoin Capital who together gave $250,000 and Matt Huang, of Paradigm who gave $250,000. Paradigm, co-founded by Huang and Coinbase co-founder Fred Ehrsam, has a substantial Washington .D.C. presence, hiring both Republican and Democratic staffers and aggressively criticizing SEC regulation.

Crypto Targets

The narrow Democratic majority in the Senate and Republican majority in the House mean the crypto sector’s outsized influence in a small number of races has the potential to tip control of Congress toward one party or the other.

Fairshake spokesman Josh Vlasto, a former chief of staff for New York Gov. Andrew Cuomo and a top aide to Sen. Chuck Schumer (D-N.Y.), understands this. “We’ll have the resources to affect races and the makeup of institutions at every level,” Vlasto said. “And we’ll leverage those assets strategically to maximize their impact in order to build a sustainable, bipartisan crypto and blockchain coalition.”

Two statewide Senate races Fairshake PAC intends to target in the general election – Ohio and Montana – are particularly high stakes, as incumbent Democrats in both are defending seats in states that Trump won in 2020. Winning both is seen as essential to Democrats retaining their Senate majority.

So far, Fairshake’s greatest expenditure was $10 million against Rep. Katie Porter in the California primary race between candidates seeking the Senate seat filled for decades by Sen. Dianne Feinstein, who died in office in 2023.

Following Rep. Porter’s loss, the congresswoman criticiz ed the “onslaught of billionaires spending millions to rig this election” and later clarified she was referring specifically to “A few billionaires” who “spent $10 million+ on attack ads against me.”

Fairshake’s Vlasto’s response: “Thank you, Katie Porter, for giving Fairshake credit for your loss.”

While cryptocurrency policy is Fairshake’s the central issue, the advertisements that the super PAC ran against Porter (which can still be viewed on YouTube) do not mention cryptocurrencies, regulation, or technology policy. The group’s backers may be “one issue voters,” as billionaire venture capitalist Ben Horowitz said, but their strategy shows Fairshake is uninterested in being forthright about its political priorities with the voters it seeks to influence. The campaign instead deployed a strategy of carefully worded attacks seeking to paint their target as an untrustworthy politician.

In Alabama, Fairshake affiliate Protect Progress intervened in the Democratic primary for the state’s 2nd district. According to OpenSecrets data, Protect Progress spent $2.4 million backing Shomari Figures, who pledged on his campaign website to “embrace the new landscape around digital assets, like cryptocurrency, to stimulate innovation and technological advancement.” The super PAC also spent nearly $240,000 against Figures’ primary opponent, Anthony Daniels. Figures prevailed in the primary.

In Texas, Protect Progress spent nearly $962,000 backing Julie Johnson in the Democratic primary for the state’s 32nd district. A section marked “Innovation” on the issues page of Johnson’s campaign website reads in part, “Americans can benefit from crypto innovation. We must establish clear rules of the road for the crypto industry to build technology that benefits everyday Americans, while protecting consumers and ensuring equitable outcomes for all.” Johnson won her primary as well.

Out of the six 2024 primary races where the crypto super PACs intervened and which are now over, only one crypto-supported candidate has lost so far, John R. Bradford III (R-N.C.).

Table 3: Completed primary races where crypto super PACs intervened

Candidate	Party	State	Office	For	Against	Outcome
Katie Porter	D	Calif.	Senate	$0	$10,044,813	Lost Primary
Young Kim	R	Calif.	House	$110,414	$0	Won Primary
John R Bradford III	R	N.C.	House	$530,839	$0	Lost Primary
Tim Moore	R	N.C.	House	$506,553	$0	Won Primary
Shomari Figures	D	Ala.	House	$2,392,393	$0	Won Primary
Julie Johnson	D	Texas	House	$961,800	$0	Won Primary
Anthony Daniels	D	Ala.	House	$0	$239,713	Lost Primary

Data Source: OpenSecrets.com

In the months ahead, 11 more candidates backed by Fairshake and its affiliates will compete in their party primaries, including Republican Senate candidates Jim Justice in West Virginia and Jim Banks in Indiana, each of which has received over $3 million in support from Defend American Jobs, the Republican crypto super PAC. Like the ad attacking Rep. Porter, the super PAC’s ad for Jim Justice makes no mention of cryptocurrency.

Table 4: Upcoming primary races where crypto super PACs have intervened

Candidate	Party	State	Office	Amount	Primary Date
Jim Banks	R	Ind.	Senate	$3,009,467	May 7
Jim Justice	R	W.V.	Senate	$3,017,414	May 15
Dusty Johnson	R	S.D.	House	$124,736	June 4
Josh Gottheimer	D	N.J.	House	$122,688	June 4
Zach Nunn	R	Iowa	House	$71,865	June 4
Steven Horsford	D	Nev.	House	$110,654	June 11
Brittany Pettersen	D	Co.	House	$88,256	June 25
Yadira Caraveo	D	Co.	House	$75,515	June 25
Ritchie Torres	D	N.Y.	House	$63,084	June 25
Gregory Meeks	D	N.Y.	House	$46,160	June 25
Tom Emmer	R	Minn.	House	$118,034	Aug 13

Data Source: OpenSecrets.com

Fairshake also has pledged to engage in Senate Democratic primaries in Maryland, which will be held on May 14, and in Michigan, which will be held on August 6.

Rep. Elissa Slotkin, the Democratic Senate candidate in Michigan with the fundraising lead, has introduced legislation to strengthen oversight in Congress over lawmakers’ crypto holdings.

In Maryland, both leading Democratic Senate candidates – Rep. David Trone and Angela Alsobrooks – apparently felt compelled to express their “pro-crypto” views following Fairshake’s pledge to spend in their race. According to Politico, neither previously posted about crypto on Twitter or expressed much in the way of policy views about cryptocurrencies – until Fairshake showed up.

The prospect of the crypto corporation and billionaire-backed super PAC spending millions in the general election in the battleground states of Ohio and Montana looms especially large.

In Ohio, incumbent Sen. Sherrod Brown (D) is seeking reelection, and in Montana, incumbent Sen. Jon Tester (D) is seeking reelection. Sen. Brown is Chair of the Senate Banking Committee, and Sen. Tester is a member of the committee. While Fairshake’s Vlasto told the New York Times the super PAC has not decided whether to support or oppose either candidate, both senators have been outspoken about their cryptocurrency skepticism.

Sen. Brown’s many statements on the issue do not mince words. Before a hearing on crypto after the collapse of FTX, a statement Brown’s office released read in part, “[C]rypto catastrophes have exposed what many of us already knew: digital assets – cryptocurrencies, stablecoins, and investment tokens – are speculative products run by reckless companies that put Americans’ hard-earned money at risk. Not surprising from an industry that was created to skirt the rules.”

Protecting the public from scams and preventing the misuse of cryptocurrencies to facilitate financial crimes are Brown’s top priorities – and prioritizing safety puts Brown at odds with those who claim loose rules are good for innovation (to say nothing of the sector’s profits).

Sen. Tester’s crypto criticism has been even more blunt. “It’s all bullshit,” Tester told Semafor, and later elaborated on NBC’s Meet the Press, “[T]he problem is if we regulate it, and I pointed this out to some of the regulators here a week or two ago, if we regulated it, it may give it the ability of people to think it’s real. I think it’s — truth be known, my personal thought, and I’m not a regulator and I’m not a financial person that does regulation, but I see no reason why this stuff should exist. I really don’t.”

In other words, Tester sees a risk in passing new crypto-specific regulations tailored to the sector’s preferences in ways that could exempt the industry from strong, pre-existing financial safeguards.

“I wouldn’t say that there’s a target on their backs,” the head of US Policy at Coinbase told the New York Times regarding Sens. Brown and Tester. “What I would say is, there is, I think, an opportunity, and there is an important time period between now and the election where there are a lot of policymakers that have to make some decision: Do they want to be for clear rules and consumer protections? Or do they not?”

Tester’s general election opponent will be determined in a June 4 Republican primary, which is reportedly competitive.

Brown’s general election opponent, Bernie Moreno, has been described as a “crypto fan” and “blockchain businessman.” Unlike Fairshake, Moreno has made explicit statements seeking to contrast his crypto views with Brown’s. “A career politician like Sherrod Brown has absolutely no idea how digital currencies work and is the least qualified person possible to regulate the industry,” Moreno said. “Innovation is what built America into the greatest country on earth. Sadly, left-wing extremists like Brown want more government control to restrict the ability of Americans to invest freely in cryptocurrencies.” Moreno, who formerly owned a car dealership business, has launched a business that aims to digitize car-title transactions via blockchain technology.

Separately, Fairshake donors have given over $512,000 to federal candidates, according to OpenSecrets data. These contributions are relatively evenly split between Democratic and Republican candidates, including about more than $80,000 contributed toward candidates in the Republican presidential primaries who ultimately were defeated by former President Trump.

Table 5: Candidates whose official campaigns have received $10,000 or more from crypto super PAC donors.

Candidate	Sum of Amount	Highest Office Sought
Ritchie Torres (D)	$56,800	Representative
Ro Khanna (D)	$52,000	Representative
Vivek Ramaswamy (R)	$41,205	President
Tom Emmer (R)	$37,000	Representative
Patrick McHenry (R)	$33,000	Representative
Kirsten Gillibrand (D)	$22,200	Senator
Steven Horsford (D)	$19,800	Representative
Jake Auchincloss (D)	$19,800	Representative
Tim Scott (R)	$19,800	President
Josh Gottheimer (D)	$19,800	Representative
Joe Manchin (D)	$11,600	Senator
Nikki Haley (R)	$11,600	President
Ron DeSantis (R)	$10,035	President

Data Source: OpenSecrets.com

Additionally, some in the crypto sector are backing what is seen as a long-shot campaign by crypto fan and Republican John Deaton against Massachusetts Sen. Elizabeth Warren (D). Deaton, a personal injury lawyer by trade, is seen as a hero among crypto enthusiasts for his role defending holders of Ripple’s cryptocurrency against the SEC’s accusations of securities violations, leading the judge in the case to rule the digital assets should not be considered securities. Top contributors to Deaton’s campaign include Fairshake backers such as Ripple Labs executives and Cameron and Tyler Winklevoss, and Anthony Scaramucci, who became a crypto booster following his brief stint as the communications director for the Trump White House.

Conclusion

The cryptocurrency sector is the latest in a long line of corporate interests seeking to distort our democracy by converting their financial power into political power.

While crypto super PACs are required by law to disclose their donors, they are not required to disclose in their negative campaign ads or any other political messaging the true intentions behind their efforts. Fairshake has already run ads that do not mention cryptocurrencies at all. Therefore, the crypto super PACs should be expected to continue the sleight-of-hand tactic of pushing messages fine-tuned toward their intended outcome – defeating or electing candidates who will prioritize the sector’s interests – while distracting voters from their true purpose.

Corporate special interests cynically manipulating the electorate – in order to cynically manipulate the makeup of our federal legislature – is deeply contrary to America’s democratic values. Elected officials should prioritize the interests of the public – their constituents – not businesses and billionaires whose fortunes empower them to abuse our electoral system, perverting the process toward their personal, private gains.

Big Crypto,

BIG SPENDING

Cryptocurrency Corporations Are Exploiting Citizens United, Spending an Unprecedented $119 Million on Federal Elections

By Rick Claypool

August 21, 2024

ACKNOWLEDGMENTS

This report was written by Rick Claypool, a research director in Public Citizen’s president’s office.

Thank you to all who provided feedback and editorial contributions, including Public Citizen’s Lisa Gilbert, Paul Alan Levy, Robert Weissman, and Alan Zibel and Americans for Financial Reform’s Mark Hays.

All campaign finance data cited in this report is derived from Public Citizen analysis of U.S. Federal Election Commission data obtained from Opensecrets.org.

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For more information, please visit www.citizen.org.

Key Findings

In 2024, crypto corporations have poured over $119 million directly into influencing federal elections, primarily into a non-partisan super PAC dedicated to electing pro-crypto candidates and defeating crypto skeptics.
Crypto corporations are by far the dominant corporate political spenders in 2024 as nearly half (44%) of all corporate money contributed during this year’s elections ($274 million so far) came from crypto backers.
Koch Industries is a distant second place in 2024. The privately held conglomerate owned by Charles and, formerly, the late David Koch, contributed $25 million to its Koch-controlled Americans for Prosperity Action and $3.25 million toward electing Republicans to Congress.
Direct corporate election spending at this scale is unprecedented. Crypto corporations’ total spending in the past three election cycles – $129 million – already amounts to 15% of all known corporate contributions since the Supreme Court’s 2010 ruling in Citizens United, which total $884 million. 92% of the corporate crypto spending is from 2024.
Since Citizens United, the crypto corporations are now second in total election-related spending, trailing only fossil fuel corporations, which have spent $176 million over the past 14 years, including $73 million from Koch Industries.
The crypto sector’s Fairshake PAC and its affiliates have received nearly $114 million directly from corporate backers, far more than any other outside spender this cycle. Koch-backed Americans for Prosperity Action, a hybrid PAC, is a distant second, having received nearly $26 million, primarily from Koch Industries.
Fairshake’s corporate backing is unprecedented. Though unlimited corporate contributions have been enabled since 2010 by Citizens United, this newcomer is already second only to the super PAC dedicated to electing Republicans to the U.S. Senate in terms of corporate money received. That super PAC, the Senate Leadership Fund, has received nearly $119 million directly from corporations over the past 14 years, largely from fossil fuel corporations but including many other sectors, including crypto, tobacco, and for-profit prisons.

Note: Findings are based on Public Citizen analysis of data provided by OpenSecrets showing all contributions of $5,000 or more by for-profit corporations to super PACs and hybrid PACs.

Introduction

Cryptocurrency corporations are spending big to make crypto regulation a top issue for candidates in the 2024 elections.

Crypto-sector corporations – primarily Coinbase and Ripple – have dumped over $119 million in real dollars into the 2024 elections so far, almost entirely into super PACs dedicated to elevating pro-crypto candidates and attacking crypto skeptics (see Table 1).

The primary beneficiary of the corporate crypto cash is Fairshake PAC, a super PAC that has raised $202.9 million. More than half of Fairshake’s funding – $107.9 million, or 53% – came directly from corporations that stand to profit from the PAC’s efforts, mostly Coinbase and Ripple. The rest of the PAC’s funds mostly comes from billionaire crypto executives and venture capitalists, including $44 million from the founders of venture capital firm Andreessen Horowitz, $5 million from the Winklevoss twins, and $1 million from Coinbase CEO Brian Armstrong.

This tsunami of corporate crypto cash is a brazen and unprecedented attempt by for-profit businesses to force their private, pecuniary priorities ahead of the public interest. “Money moves the needle,” Coinbase’s billionaire CEO Brian Armstrong told Axios. “For better or worse, that’s how our system works.”

For Americans hopeful the federal government will prioritize their interest in a stable economy and crack down on Ponzi-like schemes and scams, crypto’s corporate influence corrupting our political process can only be for worse.

Table 1: Crypto sector corporation contributions to influence the 2024 elections.

Crypto Sector Corporation	Total 2024 Contributions	Recipients	Amount
Coinbase	$50,499,995	Fairshake PAC	$45,499,995
		Protect Progress (Fairshake affiliate)	$1,500,000
		Defend American Jobs (Fairshake affiliate)	$1,500,000
		Senate Leadership Fund (Republican PAC)	$500,000
		Senate Majority PAC (Democratic PAC)	$500,000
		Congressional Leadership Fund (Republican PAC)	$500,000
		House Majority PAC (Democratic PAC)	$500,000
Ripple	$49,000,000	Fairshake PAC	$45,000,000
		Protect Progress (Fairshake affiliate)	$1,500,000
		Defend American Jobs (Fairshake affiliate)	$1,500,000
		Commonwealth Unity Fund (John Deaton super PAC)	$1,000,000
Jump Crypto	$15,000,000	Fairshake PAC	$15,000,000
Andreessen Horowitz	$1,750,000	Senate Majority PAC (Democratic PAC)	$750,000
		Congressional Leadership Fund (Republican PAC)	$500,000
		Senate Leadership Fund (Republican PAC)	$250,000
		House Majority PAC (Democratic PAC)	$250,000
Payward Inc	$1,000,000	Fairshake PAC	$1,000,000
Circle Internet Financial	$1,000,000	Fairshake PAC	$1,000,000
Paradigm Operations Lp	$1,000,000	Sentinel Action Fund (conservative crypto PAC)	$500,000
		Congressional Leadership Fund (Republican PAC)	$250,000
		Senate Majority PAC (Democratic PAC)	$250,000

Data Source: OpenSecrets.org

Because of the 2010 U.S. Supreme Court ruling in Citizens United v. Federal Election Commission, corporations can spend as much as they want to tilt elections toward their favored candidates. There are, however, some limits on corporate political spending. Corporations cannot contribute directly to campaigns, but they can contribute unlimited funds to super PACs and other types of outside groups if those groups do not coordinate directly with candidates’ official campaign operations. Longstanding anti-“pay-to-play” laws prohibit corporations that have contracts with the federal government from contributing to electoral campaigns. (Public Citizen joined a complaint filed with the FEC alleging Coinbase’s $25 million contribution to Fairshake and $500,000 contribution to the Congressional Leadership Fund were made in violation of this law, as Coinbase is a federal contractor with the US Marshals service and the contributions were made when the corporation was legally prohibited from doing so.)

The decade after the Citizens United ruling led to a massive surge of contributions from super PACs. Contributions to super PACs were dominated by billionaires, with just 25 wealthy individuals contributing about $1.4 billion, over that period – nearly half of super PAC contributions. Direct corporate contributions totaled just $313 million between 2010 and 2020.

Crypto corporations’ total spending in the past three election cycles – $129 million – already amounts to 15% of all known corporate contributions since 2010, which now total $884 million. Direct corporate election spending at this scale is unprecedented (see Chart 1).

Crypto corporations are already second in total election-related spending, trailing only fossil fuel corporations, which have spent $176 million over the past 14 years, including $73 million from Koch Industries, a notoriously prolific corporate contributor to Americans for Prosperity, a particularly active backer of “Tea Party” Republicans during the Obama administration.

Chart 1: Corporate contributions to influence federal election after Citizens United highlighting contributions by crypto corporations

Data Source: OpenSecrets.org

This analysis is by necessity limited only to corporate contributions to super PACs and hybrid PACs, which are disclosed to the Federal Election Commission. A hybrid PAC has one bank account that can make direct expenditures to back candidates, operating with all the limits of a traditional PAC, and a separate bank account that operates as a super PAC, raising and spending unlimited sums from corporations and wealthy donors as long as there is no direct coordination with candidates. Corporations can and do also contribute to Dark Money groups organized as 501(c)(4) nonprofits or 501(c)(6) business groups, which are not required to disclose their backers. A pro-crypto Dark Money group, the Cedar Innovation Foundation, is already running online ads targeting Senators Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass.), who are seen as crypto skeptics.

Big Crypto’s Big Spending Strategy

So far, Big Crypto’s big spending strategy appears to be paying off:

Big Crypto pledged to spend in the Montana senate race – without saying which candidate would be supported or opposed – and Sen. Jon Tester (D-Mont.), who has been skeptical of the sector, voted to pass pro-crypto legislation.
Out of 42 primary races where crypto-backed super PACs intervened, the crypto sector won its preferred outcome in 36.
When House Republicans brought crypto-backed legislation to shift regulatory responsibility from the SEC to the Commodity Futures Trading Commission for a vote in May, 71 Democratic House members defied the Biden administration by voting to pass the bill. Titled the Financial Innovation and Technology for the 21st Century Act, the bill, if it becomes law, is widely seen as legitimizing crypto.
Donald Trump, who previously expressed skepticism toward the sector and whose Securities and Exchange Commission initiated tough enforcement against alleged crypto misconduct, has rebranded himself as the pro-crypto presidential candidate. Speaking at the Bitcoin Conference in July, Trump vowed to make the U.S. the “crypto capital of the planet and the bitcoin superpower of the world” and proposed the federal government hold a “strategic bitcoin reserve.”
Trump’s running mate selection of Sen. J.D. Vance (R-Ohio), whose background in venture capital and crypto-friendly policies, is seen as another pro-crypto signal.
Kamala Harris advisers, meanwhile, have reportedly reached out to crypto corporations to “reset”
Senate Majority Leader Chuck Schumer (D-N.Y.) spoke at a “Crypto4Harris” virtual fundraiser in August, declaring, “Crypto is here to stay no matter what. So Congress must get it right … we all believe in the future of crypto.” Sens. Kirsten Gillibrand (D-N.Y.) and Debbie Stabenow (D-Mich.) also participated.

It was just two years ago, during the 2022 midterm elections, when FTX CEO (and now-convicted felon) Sam Bankman-Fried personified the cryptocurrency sector’s attempt to use campaign spending to maximize its political influence. Bankman-Fried spent more than $40 million in disclosed contributions, primarily supporting Democrats. After the election, Bankman-Fried claimed he also spent about the same amount backing Republicans, stating in an interview, “all my Republican donations were dark” and estimating he might have been the “second or third biggest” donor to Republicans in the cycle.

Now the even partisan split in both houses of Congress means the crypto sector’s outsized influence in competitive races has the potential to tip control of Congress one way or the other.

If crypto corporations are successful in directly leveraging their financial power into political power, more corporations and business sectors may follow the same playbook.

To be fair, crypto did not invent the corporate political influence strategy of rewarding candidates who agree to do an industry’s bidding while threatening those who resist corporate power. But no industry has ever before has so wholeheartedly embraced raising as much directly from corporations and openly using that political war chest as a looming threat (or reward) to discipline lawmakers toward adopting an industry’s preferred policies.

Crypto sector spokespersons claim to represent a vast voting bloc, but the claim has little credibility. The sector itself offers skewed statistics that exaggerate the number of Americans who dabble in digital money, but a survey by the Federal Reserve finds only about 7% of Americans held or used crypto in 2023.

Crypto has its enthusiasts, to be sure. But if the hype was no more consequential than a handful of hobbyists collecting digital coins the way others might collect postage stamps or baseball cards, there would be little harm in letting crypto fans have their fun.

However, crypto enthusiasts treat cryptocurrencies as speculative assets – a use that is encouraged by crypto corporations and an ecosystem of crypto media. But it is worth emphasizing over and over again that, unlike commodities, corporate securities, or real “fiat” currency that has the backing of the federal government, there is nothing with any intrinsic value underlying crypto. Crypto’s volatility and risk remain extreme.

As the massive fraud perpetrated by Sam Bankman-Fried’s fallen crypto exchange FTX showed, untrustworthy insiders can abuse consumers, using their payments of real cash for personal purposes. It may be understandable why some technology-curious insiders with money to burn might find experimenting with crypto to be worth the risk, but pushing everyday investors with student debts and retirement savings into risky digital assets is a disaster waiting to happen.

Additionally, crypto has been found to be particularly useful for criminal enterprises that exploit the blockchain as an alternative to the regulated financial system, where sophisticated systems are in place for detecting tax evasion, money laundering, ransom payments, and the like.

Both Coinbase and Ripple have been fighting securities fraud charges from the U.S. Securities and Exchange Commission.

If a widespread grassroots constituency supporting the crypto political agenda existed, one might expect that Fairshake would be tapping into it and touting in its advertisements that it is fighting for the constituency’s interests. That’s not what Fairshake is doing.

On the contrary, when Fairshake and its affiliates spend money to influence races, either by attacking crypto skeptics or boosting crypto supporters, the ads don’t mention crypto at all. The super PAC spent $10 million on ads against Rep. Katie Porter in California’s Senate primary and $2 million against Rep. Jamaal Bowman in a primary contest in New York. Rather than criticizing candidates for not sufficiently supporting crypto, both attack campaigns smeared the candidates’ using unflattering claims having nothing to do with crypto policy.

Similarly, the $3 million campaign by Defend American Jobs PAC, Fairshake’s affiliate for intervening in Republican primaries, features an ad supporting Gov. Jim Justice for the Senate that makes no mention of cryptocurrency.

The super PAC recently pledged to spend $25 million backing 18 House candidates – nine Democrats and nine Republicans – in the general election. Fairshake also announced that it would spend $18 million on three Senate races. The Senate race spending includes $12 million pledged to back Ohio Republican Bernie Moreno, who been described as a “crypto fan” and “blockchain businessman,” against incumbent Democrat and Senate Banking Chairman Sen. Sherrod Brown, as well as $3 million backing Arizona Democratic Senate candidate Rep. Ruben Gallego and $3 million backing Michigan Democratic Senate candidate Rep. Elisa Slotkin. Gallego and Slotkin both voted in defiance of the Biden administration for the legislation transferring authority over crypto from the SEC to the CFTC.

It will be interesting to see if Fairshake’s pattern of concealing its crypto agenda when attempting to influence voters, even as it makes its policy priorities extremely clear to candidates.

Fairshake spokesman Josh Vlasto, a former chief of staff for New York Gov. Andrew Cuomo and a top aide to Sen. Chuck Schumer (D-N.Y.), said “We’ll have the resources to affect races and the makeup of institutions at every level. And we’ll leverage those assets strategically to maximize their impact in order to build a sustainable, bipartisan crypto and blockchain coalition.”

In Ohio, incumbent Sen. Sherrod Brown (D) is seeking reelection, and in Montana, incumbent Sen. Jon Tester (D) is seeking reelection. Both incumbent Democrats are seen as vulnerable, as both are running in states where Trump’s presidential campaign won in 2020. Fairshake’s Vlasto told the New York Times in March that the super PAC has not decided whether to support or oppose either candidate, though both senators are seen as crypto skeptics. Only in August did Fairshake announce its plans to spend against Brown – and, after Tester’s crypto-friendly vote, has yet to announce further plans for Montana.

The super PAC appears to be adopting a strategy of amassing the biggest political war chest that it can, and to use that war chest itself as an unspecified threat. Fairshake’s lack of clear political affiliation means its spending could be deployed against either Republicans or Democrats. There appears to be an implicit promise the super PAC will stand down in races where both Democrats and Republicans demonstrate willingness to pander to Big Crypto. This Big Crypto threat in many districts combined with targeted deployments has already changed dynamics in races and in Congress. It is akin to a corporate Death Star hovering over elections, poised to annihilate individual candidates in order to instill a discipline – acquiescence to corporate demands – among all candidates.

The crypto sector strategy seems to be: give crypto corporations what they want, or your political career gets it. Or, as former Coinbase CTO Balaji Srinivasan posted on X (formerly Twitter), “Attacking crypto means risking your seat.”

The strategy, however, is not without risk. After Fairshake announced its bipartisan political spending intentions, Republicans accused Fairshake of betrayal for backing Democratic senate candidates in Arizona and Michigan, while Democratic megadonor Ron Conway disavowed Fairshake after the super PAC announced it would back the Republican senate candidate in Ohio. “Because of your selfish hidden agendas it is time for us to separate,” Conway wrote. “This is a wake up call to myself that I have been working too long with people who [do] not share common values and that is unacceptable. … I will I [sic] no longer compromise myself by associating or helping.”

Big Crypto’s Campaign Strategy in Context

Crypto’s strategy is different from how corporations usually influence elections with their political contributions, and not just in the scale of contributions made.

Typically, disclosed corporate political contributions go to partisan outside groups, usually Republican affiliated (see Table 2). Aside from crypto, the other corporate contributors of 2024 follow this pattern. Republican-backing groups have a nearly four-to-one advantage in corporate funding, with $122.9 million in contributions from corporations going to right-leaning groups with $32.6 million going to groups that support Democrats.

In 2024, half of corporate contributions to Republican-backing groups ($69 million) went to just three groups: the Kochs’ Americans for Prosperity Action ($25.9 million), the Senate Leadership Fund ($22.4 million), and the Congressional Leadership Fund ($20.7 million). Similarly, about a third of corporate contributions toward Democrat-backing groups ($9.6 million) went to two groups dedicated to electing Democrats to the Senate and House, respectively: Senate Majority PAC ($5.8 million) and House Majority PAC ($3.8 million).

The top corporation among the crypto political spenders, Coinbase, is also contributing to partisan PACs in the 2024 cycle. But Coinbase’s strategy of withholding full commitment to either political party again stands out, as the corporation made four $500,000 donations – one to elect Republicans to the Senate, one to elect Democrats to the Senate, one to elect Republicans to the House, and one to elect Democrats to the House.

The vast majority of Coinbase and Ripple’s contributions have gone to the nonpartisan FairShake Super PAC.

Table 2: Top ten corporate campaign funders of 2024 and the political leanings of their funding recipients.

Corporation	Contribution	Top Recipient	Political Lean
Coinbase	$50,499,995	Fairshake	Non-specified
Ripple	$48,000,000	Fairshake	Non-specified
Koch Industries	$28,250,000	Americans for Prosperity Action	Republican
Jump Crypto	$15,000,000	Fairshake	Non-specified
Pivotal Ventures (Melinda Gates)	$7,475,000	Campaign for a Family Friendly Economy PAC	Democratic
Chevron Corp	$5,975,000	Senate Leadership Fund	Republican
RAI Services Co (Reynolds American, a British American Tobacco subsidiary)	$5,500,000	Make America Great Again Inc	Republican
Occidental Petroleum	$5,000,000	Senate Leadership Fund	Republican
Hillwood Development	$4,900,000	Senate Leadership Fund and Congressional Leadership Fund	Republican
Planeta Management LLC (Nicole Shanahan)	$4,500,000	American Values 2024	Independent (Robert Kennedy, Jr.)

Data Source: OpenSecrets.org

The pattern of corporate contributions aside from crypto benefiting partisan groups is even more pronounced when corporate contributions since 2010 are examined (see Table 3).

Since 2010, Republican-backing groups have a four-to-one advantage, with $609.1 million in contributions from corporations going to right-leaning groups while $144.6 million is going to groups that support Democrats.

Over half of the corporate contributions toward Republican-backing groups (310.2 million) went to just four groups: the Senate Leadership Fund ($118.9 million), Congressional Leadership Fund ($93.2 million), Americans for Prosperity Action ($59 million) and Karl Rove’s American Crossroads ($39 million). Similarly, about 40% of the corporate contributions toward Democrat-backing groups ($60.3 million) went to two groups dedicated to electing Democrats to the Senate and House, respectively: Senate Majority PAC ($46.1 million) and House Majority PAC ($14.3 million).

Considering all corporate contributions since 2010 also highlights the magnitude of the crypto sector’s 2024 spending. The sector did not start intervening in elections until 2020, when Sam Bankman-Fried’s Alameda Research contributed $5.2 million to Future Forward, a hybrid PAC that supported the Biden-Harris campaign. Four years later, Coinbase is second only Koch Industries in terms of its spending to influence federal elections.

Table 3: Top ten corporate campaign funders since 2010 and political leanings of funding recipients.

Corporation	Contributions	Top Recipient	Political Lean
Koch Industries	$69,335,000	Americans for Prosperity Action	Republican
Coinbase	$50,499,995	Fairshake	Non-specified
Ripple	$48,500,000	Fairshake	Non-specified
Chevron Corp	$28,952,500	Senate Leadership Fund	Republican
Amalgamated Bank	$25,739,195	Senate Majority PAC	Democratic
Hillwood Development	$19,818,980	Senate Leadership Fund	Republican
CV Starr & Co	$16,267,500	Right to Rise USA	Republican
RAI Services Co (Reynolds American, a British American Tobacco subsidiary)	$15,107,500	Senate Leadership Fund	Republican
Jump Crypto	$15,000,000	Fairshake	Non-specified
Occidental Petroleum	$13,610,000	Senate Leadership Fund	Republican

Data Source: OpenSecrets.org

Crypto corporations’ total spending in the past three election cycles – $129 million – already amounts to 15% of all known corporate contributions since the Supreme Court’s 2010 ruling in Citizens United, which total $884 million. In terms of corporate money in politics since 2010, the crypto corporations are second only to fossil fuel corporations, which have spent $162 million over the past 14 years, including $73 million from Koch Industries (see Table 4). But crypto corporations made 92% of their record-breaking contributions in 2024 alone – and, of course, may still contribute more.

Table 4: Contributions by top corporate sectors giving $1 million or more since 2010

Sector	Amount	Top Donors
Fossil Fuels	$176,053,160	Koch Industries, Chevron, Occidental Petroleum
Cryptocurrency	$128,039,995	Coinbase, Ripple, Jump Crypto
Political / Personal Purpose*	$41,405,250	Specialty Group Inc (William S. Rose), Planeta Management LLC (Nicole Shanahan), Besilu Stables (Benjamin Leon, Jr.)
Real Estate	$38,459,334	Hillwood Development, Crow Holdings, Klein Financial
Private Holding Company	$31,051,880	TRT Holdings, Access Industries, Contran Corp
Finance	$26,317,500	CV Starr & Co. and Starr International USA, Stephens Inc., Allied Wallet
Finance / Labor	$25,739,195	Amalgamated Bank**
Tobacco	$23,080,430	Reynolds American (British American Tobacco subsidiary), Altria Client Servies (Philip Morris affiliate)
Food and Agriculture	$20,709,350	Mountaire Corp., Weaver Popcorn, Dixie Rice Agricultural Corp. and Southwest Louisiana Land (Harold Simmons)
Energy	$13,259,900	Alliance Resource Partners, NextEra Energy, Pinnacle West Capital

Data Source: OpenSecrets.org

*Political / Personal Purpose refers to contributions made by corporate entities that appear to have been created primarily to advance the interests of their individual owners.

**Amalgamated Bank, a union-owned financial institution whose political engagement often differs from that of other financial institutions.

In many cases, contributions by corporations appear to be used as extensions of their wealthy owners’ political activities. This is particularly true of privately held entities and LLCs. An extreme example of this is Planeta Management, which is controlled by Robert F. Kennedy, Jr.’s running mate, Nicole Shanahan, and gave $4 million to American Values 2024, a super PAC backing Kennedy’s presidential campaign. Similarly, Amalgamated Bank’s spending to support Democrats is an expression of the bank’s labor ownership. Republicans, nevertheless, have overwhelmingly benefitted from corporate contributions, having received $609 million in contributions since 2010, or 69% of the total (see Table 5).

Table 5: Contributions since 2010 by recipient viewpoint

Recipient Viewpoint	Amount Received
Backs Republicans	$ 609,107,746
Backs Democrats	$ 144,581,694
Non-Specified / Independent	$ 130,771,468
Total	$ 884,460,908

Data Source: OpenSecrets.org

Conclusion

The threat of Big Crypto’s big spending looms large in 2024, especially in contested races such as the Ohio and Montana Senate contests, where incumbent Democrats are defending vulnerable seats that would cost them control of the chamber. The cryptocurrency sector is not the first corporate interest to seek to distort our democracy by converting its financial power into political power, but the magnitude of its corporate spending and its strategy of withholding partisan support is unusual. The strategy has been effective so far. Candidates are clamoring to demonstrate their willingness to pander to crypto corporations, and sitting lawmakers are backing off tough policy stances. It is a clear indication that the Supreme Court’s 2010 ruling in Citizens United is a serious factor in the 2024 elections – and a threat to our democracy.

This makes crypto’s influence even more dangerous. Crypto-influenced lawmakers bending over backwards to benefit Big Crypto means weaker protections preventing individual consumers from being defrauded by reckless crypto scams – and softened regulations protecting our financial system from destructive innovations that exploit consumers while enriching insiders.

There’s one other great danger from this trend: With the crypto companies shattering the norm of corporate reticence to make large-scale contributions to affect election outcomes, there’s grave danger that other corporations will follow suit.

We’ve already had enough of elected officials looking the other way because influential billionaires and Big Businesses told them to. Regulators and lawmakers should be free to carry out their public interest missions without fear of political attacks from corporate interests.

The influence of Big Crypto is more evidence a constitutional amendment is needed to overturn Citizens United – and restore our democracy to one where people call the shots, not corporations.

January 31, 2024

The Honorable Gary Gensler

Chair

U.S. Securities and Exchange Commission

Washington, DC

Re: Critical Need for Rulemaking to Prohibit Forced Arbitration

Dear Chair Gary Gensler

The undersigned organizations call upon the Securities and Exchange Commission (SEC) to adopt rules, pursuant to Section 921 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), to ban the use of mandatory pre-dispute arbitration agreements in investment adviser and broker-dealer contracts.^[79] Broker-dealers and investment advisers commonly include mandatory pre-dispute arbitration provisions in their investor agreements. The provisions are poorly understood by investors, however, and, if a dispute later arises, they force investors out of court and into arbitration forums that are often unfair, opaque, and expensive, often resulting in lower recovery for investors who have suffered fraud or abuse.^[80]

Investors should have the ability to choose, after a dispute arises, whether to opt for arbitration. They should not be forced to sign pre-dispute arbitration agreements as a condition of obtaining the services of an investment adviser or broker-dealer. Enacting a rule under Section 921 of the Dodd-Frank Act to prohibit the inclusion of mandatory pre-dispute arbitration provisions in investment adviser and broker-dealer contracts would strike a fair and equitable balance between protecting investors from being unfairly forced into arbitration on the one hand, while preserving their freedom to pursue arbitration after a dispute arises on the other. Such a rule would place parties in investment adviser and broker-dealer relationships on the fair footing necessary to facilitate equitable dispute resolution.^[81]

The Commission has the clear authority to restrict the use of mandatory pre-dispute arbitration agreements in investment adviser and broker-dealer contracts.

Section 921 of the Dodd-Frank Act expressly empowers the SEC to take the requested action.^[82] That section authorizes the Commission to prohibit or limit the use of pre-dispute mandatory arbitration clauses in contracts that investors enter into with broker-dealers and investment advisors, if doing so is in the public interest and for the protection of investors. Section 921(a) provides:

The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.^[83]

Section 921(b) provides:

The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any investment adviser to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.^[84]

These provisions give the SEC clear authority to restrict mandatory pre-dispute arbitration clauses in broker-dealer and investment adviser contracts.

Mandatory pre-dispute arbitration agreements are pervasive in the financial services industry, incomprehensible to many investors, and forced on them through lack of bargaining power.

The use of mandatory pre-dispute arbitration agreements is pervasive. “An overwhelming majority of retail brokerage and many investment advisory agreements include language requiring all disputes between the customer and broker-dealer/investment adviser be resolved through arbitration.”^[85] The SEC’s recent report on the use and abuse of mandatory pre-dispute arbitration agreements by registered investment advisers found that “approximately 61% of SEC-registered advisers that serve retail investors incorporated mandatory arbitration clauses into their investment advisory agreements.”^[86] Thus, “only in rare instances can an investor open a brokerage or investment advisory account without agreeing to submit to mandatory pre-dispute arbitration.”^[87]

As a result, “unknowing, relatively powerless citizens enter into mandatory arbitration provisions routinely in order to conduct commonplace transactions in our consumer society.”^[88] Yet despite their pervasiveness, the evidence shows that few people read the arbitration clauses tucked away in fine-print contracts.^[89] Among those who do, few understand their implications.^[90]

A variety of sources confirm the point.^[91] For example, the Consumer Financial Protection Bureau (CFPB) analyzed the complexity of arbitration clauses found in credit card contracts by measuring the clauses’ length, readability, and grade level.^[92] The CFPB found that the average arbitration clause comprised 14.1% of the words in the contract and consisted of 1,108.8 words.^[93] The average grade level (which translates total words, total sentences, and total syllables into the level of education required to understand the text) for the arbitration clauses averaged 15.6,^[94] indicating that the text is best understood by those with some college education. In contrast, the average grade level for the remainder of the contract was 11.6, which roughly corresponds to a high school-level education.^[95]

The pervasive use of mandatory pre-dispute arbitration provisions in investment adviser and broker-dealer contracts, exacerbated by people’s difficultly understanding them, is especially troubling because the provisions are written by and for the benefit of investment advisers and broker-dealers, at the expense of investors.^[96] Because of their “extreme inequality of bargaining power,”^[97] along with the difficulties in understanding these clauses, investors lack the ability to meaningfully consent to the arbitration provisions. And once investors become bound, the contracts typically do not allow the investor to opt out of the arbitration provisions or provide a limited opportunity to do so.

Mandatory pre-dispute arbitration agreements, especially those imposed by registered investment advisers, harm investors in multiple ways: through class action waivers, biased arbitrators, high costs, and limits on recovery.

Mandatory arbitration inflicts a variety of harms on investors. Although FINRA has improved the process in many respects for arbitration with broker-dealers, serious concerns remain in both the broker-dealer and investment adviser space. The problems are especially acute with respect to arbitration involving registered investment advisers.

The arbitration process is a private dispute resolution mechanism, typically run by or favoring the industry. Arbitrators serving on panels are often industry friendly; the governing rules provide for limited discovery, even though much of the evidence is in the hands of the broker or adviser; there is typically no decision explaining the findings; and rights of appeal, no matter how egregious the misapplication of the law may have been, are extremely limited. Indeed, “[a] June 2007 study of more than 14,000 FINRA arbitration awards over a ten-year period (1995–2004) found that investors with significant claims suing major brokerage firms could expect to recover only twelve percent of the amount claimed.”^[98] While a number of factors may contribute to these outcomes, we highlight some special concerns below.

Class action waivers impose special burdens on investors in complex cases or those involving small claims shared by many people.

Many mandatory pre-dispute arbitration clauses both deprive investors of the right to seek relief in court and, often, foreclose investors’ right to pursue their claims collectively, as in class actions. Class actions are often a vital tool for seeking relief from wrongdoing that affected a large number of investors. “Where it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages, aggrieved persons may be without any effective redress unless they employ the class action device.”^[99] Individual investors often lack the resources to bring complex securities claims on their own. As a result, “the effectiveness of the securities laws may depend in large measure on the application of the class action device.”^[100]

Nonetheless, firms routinely use arbitration provisions containing class-action waivers to force their clients to pursue claims individually if a dispute arises. Class-action waivers disempower would-be litigants from bringing claims, thereby insulating firms from accountability to investors. While FINRA does not allow broker-dealer members to impose class-action waivers,^[101] investment advisors continue to use them. In those cases, class-action waivers foreclose a key means of seeking relief for wronged investors, while also eliminating “the deterrent effect of class actions . . . in accomplishing the objectives of the securities laws.”^[102] Where an arbitration provision incorporates a waiver of class actions and class arbitration, the “only redress of the relatively powerless is often an economically irrational option to proceed with sole arbitration for de minimis individual wrongs that, in the aggregate, may yield tens or hundreds of millions of dollars for the wrongdoer.”^[103] In that circumstance, “the aggregate check on large scale wrongdoing affecting individuals in minimal ways, yet reaping quite sizeable unjust rewards, is dead.”^[104]

Arbitration also inflicts harm on investors through the designated venue for the arbitration, the selection of the arbitrator, and the lack of written opinions.

The arbitrations that result from mandatory pre-dispute arbitration agreements disadvantage investors in a variety of other ways.^[105] For example, the recent SEC Staff Study on arbitration among investment advisers found that, when designating a forum for dispute resolution, “97 percent designated a location that does not consider the client’s location or place of business. To the contrary, many of these agreements designed venue locations ‘of the adviser’s choosing’ or ‘wherever the adviser is located.’”^[106] These venue provisions can impose huge and potentially insurmountable financial burdens on investors with claims against advisers in distant locations.

Firms also “hold an informational advantage over consumers in selecting arbitrators, resulting in industry-friendly arbitration outcomes.”^[107] An arbitrator’s background has a significant impact on arbitration outcomes,^[108] and many arbitrators come from an industry-friendly background.^[109] Investors often may not appreciate the significance of an arbitrator’s industry connection. These facts reinforce the growing public perception that arbitration forums are fundamentally unfair to consumers and investors.^[110]

The process through which arbitrators issue decisions also harms investors. Arbitrators are not required to issue written opinions explaining their decisions.^[111] This lack of transparency prevents parties and the public from understanding how the arbitrator made its decision, makes it harder to seek judicial review of an adverse arbitration award, and renders awards unpredictable and inconsistent since arbitrators lack of a body of precedent to guide their decisions.^[112]

Mandatory pre-dispute arbitration agreements harm investors because arbitration is costly and limits investors’ ability to recover damages.

Arbitration can be very costly, especially in disputes with registered investment advisers (RIAs). Indeed, the fees paid by plaintiffs in arbitrations against investment advisers can be so exorbitantly high as to effectively prevent plaintiffs from bringing a claim in the first place:

Unlike brokerage firms, which must designate FINRA as the arbitration forum, RIAs often require clients to file arbitration claims with privately run dispute resolution forums such as the American Arbitration Association or JAMS, where arbitrators set their own fees. It is not uncommon for an arbitrator to charge $8,000 or more for a day’s work. Arbitration costs can easily exceed $64,000 for five days of hearings and three days of pre-hearing and post-hearing work. Triple that amount if there are three arbitrators hearing the dispute. Unlike FINRA, the privately run forums require the expected fees to be deposited prior to the case proceeding. This means that an investor may have to deposit tens of thousands of dollars just to have their claim move forward. RIAs, knowing the forum fees are cost-prohibitive for most clients use these types of arbitration clauses to shield themselves from liability for their misconduct.^[113]

In addition, mandatory pre-dispute arbitration agreements often include “loser pays” provisions that create a significant disincentive for an individual to bring a claim out of fear that they will be on the hook for the firm’s attorney’s fees if they do not prevail.^[114] Those fees may be substantial. Furthermore, those potential fees come on top of the fees that the investor must pay their own attorneys. Although originally “intended to be a less costly, less time-consuming, less complex, just alternative to civil litigation, present-day arbitration in the big versus small context of employment, consumer finance, and investment contracts is largely a failure.”^[115] “It has become ever more expensive, more time-consuming, and more like the civil litigation it was intended to avoid.”^[116]

In addition, arbitration limits investors’ ability to recover damages in several ways. For instance, “[o]ftentimes, arbitration clauses preclude the award of punitive damages or consequential damages, or both. Alternatively, they may specify strict guidelines for the arbitrator to follow in calculating the award.”^[117] As the SEC found in its 2023 report to Congress, “eleven percent of agreements with mandatory arbitration clauses limited the types of damages available to the investor—such as punitive, exemplary, treble and consequential damages.”^[118] These damages limitations insulate firms from liability and limit investors’ ability to be made whole from the arbitration process.^[119] According to FINRA’s 2022 statistics, claimants were awarded damages in only 36% of cases.^[120]

Conclusion and Recommendations

For the reasons discussed above, investors experience unfairness and dissatisfaction in arbitration.^[121] Indeed, a 2008 survey of over 3,000 individuals who participated in an arbitration found that “seventy-one percent of investors were dissatisfied with the outcome of the arbitration.”^[122]

As the Department of the Treasury stated in its 2009 report Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation, “[a]lthough arbitration may be a reasonable option for many consumers to accept after a dispute arises, mandating a particular venue and up-front method of adjudicating disputes — and eliminating access to courts — may unjustifiably undermine investor interests.”^[123] Importantly, the issue is not that investors may choose to arbitrate their claims after a dispute arises. Where arbitration provisions are forced upon investors at the outset, however, before any dispute arises, as a condition of establishing an investment adviser or broker-dealer relationship, those provisions effectively deprive investors of meaningful choice, in contravention of Congress’s concerns reflected in the Dodd-Frank Act. And although FINRA has partially addressed some of arbitration’s shortcomings, its forum remains problematic on a number of levels.^[124]

We therefore urge the Commission to exercise its authority under Section 921 of the Dodd-Frank Act to prohibit the inclusion of mandatory pre-dispute arbitration provisions in investment adviser and broker-dealer contracts. This prohibition, limited to pre-dispute arbitration provisions, would preserve investors’ and firms’ ability to choose arbitration post-dispute, while preserving all parties’ right to access the civil justice system. “If [investors] are given the choice between arbitration or litigation, this competition could have the effect of correcting some of what [they] feel are shortcomings in the arbitration process.”^[125]

In addition, we urge the Commission to prohibit investment adviser and broker-dealer contracts from restricting investors’ ability to pursue class or collective actions. The prohibition should apply irrespective of whether the claims are pursued in court or in arbitration.

Thank you for your prompt consideration of our petition. If you have any questions or comments regarding this petition, please contact Brady Williams at bwilliams@bettermarkets.org or Martha Perez-Pedemonti at mperezpedemonti@citizen.org.

Respectfully,

American Federation of State, County and Municipal Employees (AFSCME)

Americans for Financial Reform

Better Markets

Center for Justice & Democracy

Consumer Action

Consumers for Auto Reliability and Safety

Consumer Watchdog

Earthjustice

Essential Information

Impact Fund

National Association of Consumer Advocates

National Consumer Law Center (on behalf of its low income clients)

National Employment Law Project

People’s Parity Project

Public Citizen

Public Justice

Revolving Door Project

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[74] A Year of PIX in Brazil: What Does the Future of Real-Time Fraud Look Like? ACI Worldwide (Dec. 10, 2021) https://www.aciworldwide.com/blog/a-year-of-pix-in-brazil-what-does-the-future-of-real-time-fraud-look-like

[75] Maxnaun Gutierrez, Why Pix is the Revolution of Consumer Experience in Brazil Payments Journal (Feb. 24, 2021) https://www.paymentsjournal.com/why-pix-is-the-revolution-of-consumer-experience-in-brazil/

[76] Andrew Singer, Brazil’s PIX Payments System Has the Same Spirit, but Not a Blockchain Structure Cointelegraph (Feb 28, 2020) https://cointelegraph.com/news/brazils-pix-payments-system-has-the-same-spirit-but-not-a-blockchain-structure

[77] Lev Menand, Testimony, U.S. Senate Banking Committee (June 9, 2021) https://www.banking.senate.gov/imo/media/doc/Menand%20Testimony%206-9-21.pdf

^[78] According to OpenSecrets data, the third biggest Republican donors in the 2022 cycle were Jeffrey and Janine Yass, who spent $56 million.

[79] Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), 124 Stat. 1376.

[80] See generally Better Markets, Forced Arbitration: Taking Away Your Rights and Your Money (June 11, 2019) (detailing Better Markets advocacy surrounding arbitration), https://bettermarkets.org/newsroom/forced-arbitration-taking-away-your-rights-and-your-money/; Consumer Advocates Letter to The Honorable Rohit Chopra, Director, Consumer Financial Protection Bureau, Re. Critical Need for Action to Limit Forced Arbitration (Sept. 13, 2022), https://www.consumeradvocates.org/wp-content/uploads/2022/09/ConsumerCltntoCFPB_September_2022.pdf; Petition For Rulemaking: To Require Meaningful Consumer Consent Regarding the Use of Arbitration to Resolve Disputes Involving Consumer Financial Products and Services (Sept. 13, 2023), https://www.consumeradvocates.org/wp-content/uploads/2023/09/Petition_CFPB_1028Rulemaking092023.pdf.

[81] See Jean R. Sternlight, Creeping Mandatory Arbitration: Is It Just?, 57 Stan. L. Rev. 1631, 1631-32 (2005) (“While arbitration has been used as a dispute resolution technique for thousands of years, in the past it has been agreed to knowingly and voluntarily, typically by two or more businesses. The involuntary imposition of arbitration in lieu of open court procedures is a new and most controversial phenomenon.”).

[82] 15 U.S.C. § 78o(o), Authority to restriction mandatory pre-dispute arbitration; see also Barbara Black, How To Improve Retail Investor Protection After The Dodd-Frank Wall Street Reform And Consumer Protection Act, 13 U. Pa. J. Bus. L. 59, 59 (2010) (“[S]ection 921 grants the SEC authority to prohibit the use of predispute arbitration agreements that would require investors to arbitrate future disputes arising under the federal securities laws and regulations or the rules of a self-regulatory organization.”).

[83] 15 U.S.C. § 78o(o).

[84] 15 U.S.C. § 80b-5(f).

[85] William Alan Nelson II, Take It or Leave It: Unconscionability of Mandatory Pre-Dispute Arbitration Agreements in the Securities Industry, 17 U. Pa. J. Bus. L. 573, 574 (2015).

[86] Response To Congress: Mandatory Arbitration Among SEC-Registered Investment Advisers, As Directed By The House Committee On Appropriations H.R. Rept. No. 117-393, at 4 (2023).

[87] Nelson, 17 U. Pa. J. Bus. L. at 575.

[88] Thomas M. Madden, Mandatory Pre-Dispute Arbitration: An Alternative Approach, 2019 Mich. St. L. Rev. 1033, 1058 (2019).

[89] See Ian Ayres & Alan Schwartz, The No-Reading Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014); Florencia Marotta-Wurgler et al., Does Anyone Read the Fine Print? Consumer Attention to Standard-Form Contracts, 43 J. Leg. Stud. 1, 2 (2014) (conducting an empirical study to find that “only one or two in 1,000 shoppers access a product’s EULA [End User License Agreement] for at least 1 second.”); Jonathan A. Obar & Anne Oeldorf-Hirsch, The Biggest Lie on the Internet: Ignoring the Privacy Policies and Terms of Service Policies of Social Networking Services, Info., Comm. & Soc’y (2018) (describing an empirical study in which 93% of consumers agreed to a contract without noticing a “child assignment clause” that would have provided the consumer’s first-born child as payment); Yannis Bakos et al., Does Anybody Read the Fine Print? Consumer Attention to Standard Form Contracts, 43 J. Legal Stud. 1, 2–3 (2014); Florencia Marotta-Wurgler, Does Contract Disclosure Matter?, 168 J. Institutional & Theoretical Econ. 94, 100–106 (2012).

[90] See Roseanna Sommers, What Do Consumers Understand About Predispute Arbitration Agreements? An Empirical Investigation (forthcoming) (“[M]ost consumers misperceive the consequences of signing a predispute arbitration agreement. Most mistakenly believe that, after agreeing to terms and conditions mandating binding arbitration, they can still: choose to settle their dispute in court, have a jury decide their case, join a class action, and appeal a decision made based on a legal error. … Indeed, less than 1% of respondents correctly understood the full significance of the arbitration agreement, as indicated by their responses to questions about whether they retained the rights to sue, have a jury decide their case, access the public courts, and appeal a decision based on a legal error.”); Mark L. Egan, Gregor Matvos & Amit Seru, Arbitration with Uninformed Consumers, National Bureau of Economic Research, Working Paper 25150 (Oct. 2018) (“This paper studies the impact of the arbitrator selection process on consumer outcomes by examining roughly 9,000 consumer arbitration cases in the securities industry. … We establish several facts that suggest that firms hold an informational advantage over consumers in selecting arbitrators, resulting in industry-friendly arbitration outcomes.”).

[91] See Roseanna Sommers, What Do Consumers Understand About Predispute Arbitration Agreements? An Empirical Investigation (July 25, 2023), https://ssrn.com/abstract=4521064 or http://dx.doi.org/10.2139/ssrn.4521064.

[92] CFPB, Arbitration Study, Report to Congress 2015, at 27–29, https://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf.

[93] Id.

[94] Id.

[95] Id.

[96] See generally Barbara Black, How To Improve Retail Investor Protection After The Dodd-Frank Wall Street Reform And Consumer Protection Act, 13 U. Pa. J. Bus. L. 59 (2010); Suzanne Barlyn, Do Arbitration Pacts Go Against Clients’ Best Interests?, Chicago Tribune (Feb. 13, 2013), https://www.chicagotribune.com/news/ct-xpm-2013-02-13-sns-rt-us-arbitration-advisersbre91c1fj-20130213-story.html.

[97] Madden, 2019 Mich. St. L. Rev. at 1058.

[98] Nelson, 17 U. Pa. J. Bus. L. at 575 (emphasis in original); see also American Association for Justice, The Truth About Forced Arbitration 6 (Sept. 2019), https://facesofforcedarbitration.com/wp-content/uploads/2019/09/Forced-Arbitration-2019-FINAL.pdf (reviewing 30,000 consumer arbitrations conducted by AAA and JAMS between 2014–2018 and finding that only 6.3% resulted in consumers winning a monetary award); CFPB, Arbitration Study: Report to Congress 2015, supra note 92, at 11–12 (finding that in business-initiated cases in which arbitrators reached a decision on the merits, companies won relief in 93% of cases and were awarded 98¢ for every dollar claimed; by contrast, arbitrators sided with consumers in only 27% of cases and awarded them an average of 13¢ for every dollar claimed). By contrast, the CFPB’s 2015 report on arbitration found that between 2008 and 2012, 422 consumer class action settlements returned over $440 million (after deducting attorneys’ fees and court costs) to an average of 6.8 million consumers each year, on average. CFPB, Arbitration Study: Report to Congress 2015, supra note 92, at 16.

[99] Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 339 (1980).

[100] Eisenberg v. Gagnon, 766 F.2d 770 (3d Cir. 1985) (quoting Kahan v. Rosenstiel, 424 F.2d 161, 169 (3d Cir. 1970)).

[101] FINRA, Regulatory Notice 21-16, Predispute Arbitration Agreements in Customer Agreements (Apr. 21, 2023) (“FINRA rules do not allow class action claims in FINRA arbitration. Accordingly, FINRA rules prohibit member firms from incorporating provisions that would prevent customers from bringing or participating in judicial class actions by adding waiver language into customer agreements (class action waivers) and prohibit member firms from enforcing arbitration agreements against members of a certified or putative class action.”), https://www.finra.org/sites/default/files/2021-04/Regulatory-Notice-21-16.pdf.

[102] Blackie v. Barrack, 524 F.2d 891, 903 (9th Cir. 1975).

[103] Madden, 2019 Mich. St. L. Rev. at 1058.

[104] Id.

[105] See generally Michael S. Barr, Mandatory Arbitration in Consumer Finance and Investor Contracts, 11 NYU J. L. & Bus. 793 (2015); Catherine Moore, The Effect of the Dodd-Frank Act on Arbitration Agreements: A Proposal for Consumer Choice, 12 Pepp. Disp. Resol. L.J. 503 (2012).

[106] SEC 2023 Arbitration Report, at 17.

[107] Edward S. O’Neal & Daniel R. Solin, Mandatory Arbitration of Securities Disputes-A Statistical Analysis of How Claimants Fare (2007), http://www.slcg.com/pdf/workingpapers/Mandatory%20Arbitration%20Study.pdf.

[108] See Stephen J. Choi et al., The Influence of Arbitrator Background and Representation on Arbitration Outcomes, 9 Va. L. & Bus. Rev. 43 (2014).

[109] See Barr, 11 NYU J. L. & Bus. at 802 (“There has long been some concern about the process by which FINRA selects its arbitrators. . . . Generally speaking, the pool of arbitrators has close ties to the financial industry, lacks diversity, and is infrequently updated.”); Moore, 12 Pepp. Disp. Resol. L.J. at 511 (noting the alleged bias of FINRA arbitration panels because at least one member of those three-member panels is a FINRA member and therefore part of the securities industry because FINRA members are securities traders and brokers).

[110] See Jill I. Gross & Barbara Black, When Perception Changes Reality: An Empirical Study of Investors’ Views of the Fairness of Securities Arbitration, 2 J. Disp. Resol. 349, 389–91 (2008); Jill Gross, The End of Mandatory Securities Arbitration?, 30 Pace L. Rev. 1174, 1177–78 (2010); Cheryl Nichols, Arbitrator Selection at the NASD: Investor Perception of a Pro-Securities Industry Bias, 15 Ohio St. J. on Disp. Resol. 63 (1999); see also Moore, 12 Pepp. Disp. Resol. L.J. at 511 (“It is significant that FINRA is the only arbitration provider for consumer-broker disputes given the nature of FINRA arbitration and what some consumers feel is a biased system that favors the interests of industry defendants over the interests of consumers.”). FINRA has established some requirements surrounding the participation of “public” arbitrators, see FINRA Rule 12000, Code of Arbitration Procedure for Customer Disputes, but that hasn’t solved the problem of industry bias, on the face of the rule or as a result of some practices in the arbitration arena.

[111] See O.R. Sec., Inc. v. Prof’l Planning Assocs., 857 F.2d 742, 747 (11th Cir. 1988) (citing Wilko v. Swan, 346 U.S. 427 (1953), overruled on other grounds by Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989)); Lynn Katzler, Comment, Should Mandatory Written Opinions Be Required in All Securities Arbitrations?: The Practical and Legal Implications to the Securities Industry, 45 Am. U. L. Rev. 151, 193–94 (1995). Under FINRA rules, parties can jointly request an explained decision, which the arbitrator must provide, though this rule only applies when all parties join in the request. See FINRA Rules 12904(g) & 13904(g). Arbitrators may also exercise discretion to issue an explanation of the decision on their own, even absent such a request. See FINRA Rule 12904(f) (“The award may contain a rationale underlying the award.”) (emphasis added).

[112] Barr, 11 NYU J. L. & Bus. at 809–10; see also Moore, 12 Pepp. Disp. Resol. L.J. at 515 (“Should the SEC limit the enforcement of arbitration agreements, investors will have greater access to the court system which, unlike arbitration, allows for robust discovery, use of juries, precedent, and judicial review.”).

[113] Christine Lazaro & Michael S. Edmiston, Costly forced arbitration against RIAs harms investors, PIABA (Jan. 14, 2022), https://piaba.org/piaba-newsroom/oped-costly-forced-arbitration-against-rias-harms-investors-christine-lazaro-and; see also Press Release, PIABA, “It’s A Broken System”: Investment Fraud Victims Speak Out About Industry-Favored System of RIA-Forced Arbitration (July 25, 2023), https://piaba.org/piaba-newsroom/press-release-its-broken-system-investment-fraud-victims-speak-out-about-industry.

[114] See Jerry W. Markham & Thomas Lee Hazen, Broker-Dealer Operations under Securities and Commodities Law § 12:30 (“Arbitration agreements may authorize the award of attorney fees to the prevailing party.”).

[115] Madden, 2019 Mich. St. L. Rev. at 1056.

[116] Id.

[117] Barr, 11 NYU J. L. & Bus. at 811.

[118] SEC 2023 Arbitration Study, at 18.

[119] We recognize that FINRA has partially restricted firms’ ability to limit the types of relief available under FINRA arbitration. See FINRA Regulatory Notice 21-16 (Apr. 21, 2021) (noting several restrictions upons firms’ ability to limit the authority of arbitrators to issue an award), https://www.finra.org/rules-guidance/notices/21-16; FINRA Rule 2268(d) (“No predispute arbitration agreement shall include any condition that . . . limits the ability of arbitrators to make any award.”); FINRA Notice to Members 95-16 (Mar. 01, 1995), https://www.finra.org/rules-guidance/notices/95-16; FINRA Notice to Members 95-85 (Oct. 01, 1995), https://www.finra.org/rules-guidance/notices/95-85.

[120] FINRA, Dispute Resolution Statistics, Results of Customer Claimant Arbitration Award Cases, FINRA.org, https://www.finra.org/arbitration-mediation/dispute-resolution-statistics#howcasesclose.

[121] See Madden, 2019 Mich. St. L. Rev at 1042-43 (2019).

[122] Nelson, 17 U. Pa. J. Bus. L. at 576 (citing Jill I. Gross & Barbara Black, When Perception Changes Reality: An Empirical Study of Investors’ Views of the Fairness of Securities Arbitration, 2008 J. Disp. Resol. 349, 386 (2008).

[123] Dep’t of Treas., Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation 72 (2009) (emphasis added), https://fraser.stlouisfed.org/title/financial-regulatory-reform-5123.

[124] We note that while FINRA has addressed some of the concerns about arbitration in the broker-dealer context, FINRA arbitration still suffers from a number of features that disadvantage investors, including, for example, the absence of transparency, juries, reliance on precedent, and meaningful rights of appeal.

[125] Moore, 12 Pepp. Disp. Resol. L.J. at 523.

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