Lawmakers ask major crypto exchanges for documents on combating crypto fraud

Lawmakers, in an effort to improve consumer protection, are asking government agencies as well as major crypto exchanges for more information about what they are doing about cryptocurrency-related fraud.

Why it matters: The House Oversight Subcommittee for Economic and Consumer Policy has used the power of Washington to press companies for information on everything from metal toxicity in infant formula to advertising practices for e-cigarettes. The latest request – all documents related to crypto fraud dated January 1, 2009 (or the earliest date according to the firms’ respective founding dates), is due by September 12.

What’s up: “Given the growing popularity of cryptocurrencies both as a form of payment and as an investment, I am concerned about the rapid growth of fraud and consumer abuse,” Rep. Raja Krishnamoorthi (D-Ill.), chairman of the subcommittee, said in letters addressed to government agencies as well as major exchanges.

• The letters were sent on Tuesday to Treasury Secretary Janet Yellen, head of the US Securities and Exchange Commission Gary Gensler, Federal Trade Commission’s Lina Khan, Commodity Futures Trading Commission’s Rostin Behnam as well as heads of major crypto exchanges at Coinbase Global, FTX US, Binance, Kraken and KuCoin.

Details: Krishnamoorthi cited the FTC’s estimate that losses from crypto fraud are on track to exceed $1 billion this year.

• “I am also concerned about the apparent lack of action by cryptocurrency exchanges to protect consumers who transact through their platforms,” ​​he said.
• Coinbase, FTX US, Binance and Kraken did not immediately respond to requests for comment.

Of note: The congressman is a member of the Congressional Blockchain Caucus, a bipartisan group formed to bring together industry and lawmakers to study blockchain technology.

Context: The subcommittee’s fact-finding mission comes amid a list of reports soon to be published under President Joe Biden’s executive order in March, which among other things tasked top consumer watchdogs the FTC and the Consumer Financial Protection Bureau with how to police crypto transactions.

• The CFPB issued an enforcement memorandum in May, which addressed deceptive practices, including misusing the Federal Deposit Insurance Corporation logo or misrepresenting deposit insurance coverage.
• Meanwhile, the FTC has been cracking down on crypto scams and stepping up publishing crypto educational materials.

The other side: In turn, many of the largest crypto exchanges have been engaged in publishing educational materials in blog posts, tweets and entire websites dedicated to detailing the ins and outs of investing in digital assets.

• FTX launched “Get to Know Crypto” just this month.
• Coinbase Global just launched a voter registration tool that it said was part of a “broader education initiative” in a blog post last week and has an explanation of all the different ways fraudsters can target them.
• Binance also has a how-to to identify and avoid crypto scams and offers personalized financial tips.

The bottom line: “By implementing audit policies, requiring certain disclosures, delisting and adopting other security mechanisms, cryptocurrency exchanges can – and should – create safer environments for consumers,” Krishnamoorthi said.