• March 14, 2022

With new hires in Washington, crypto aims to boost its influence.

WASHINGTON, DC – As it works to establish policies to control the mostly unregulated market, the cryptocurrency business has carved out a seat at Washington's revolving door, recruiting a slew of former government officials and regulators.

Three former Securities and Exchange Commission chairs, three former Commodity Futures Trading Commission chairs, three former U.S. senators, and at least one former White House chief of staff, former Treasury secretary, and former chair of the Federal Deposit Insurance Corporation are among those working for or advising cryptocurrency firms or investment funds.

More than 200 former personnel of government agencies, congressional offices, and national political campaigns have worked in crypto, according to the Tech Transparency Project, a monitoring group. They've visited Coinbase, Circle, and FTX, as well as venture capital firms like Andreessen Horowitz, legal firms that represent cryptocurrency clients, and crypto-focused trade associations.

The move comes as regulators scramble to come up with laws to protect cryptocurrency investors and prevent illegal conduct or financial instability. President Biden issued an executive order on Wednesday directing government agencies to conduct a wide assessment of cryptocurrencies.

"You don't generally see industries this new accrue this much hard and soft power in Washington," said Jeff Hauser, executive director of the progressive group the Revolving Door Project. He highlighted that crypto businesses' lobbying and political spending had increased, along with the hiring of former government officials.

The new employees cover a wide range of positions and include former members of both Republican and Democratic administrations. Former government officials, according to industry representatives, can assist companies in complying with the law and understanding regulatory expectations.

Former SEC Chair Mary Jo White is defending cryptocurrency issuer Ripple Labs Inc. against an SEC enforcement action as a counsel at Debevoise & Plimpton LLP. During the Obama administration, Ms. White was the head of the SEC.

Former Treasury Secretary Lawrence Summers is on the boards of Digital Currency Group Inc., a crypto investment firm, and Block Inc., a financial technology corporation that invests in bitcoin payment systems. Former Comptroller of the Currency in Acting Capacity Meanwhile, Brian Brooks is the CEO of bitcoin mining company Bitfury Group, and formerly served as the CEO of Binance.US, the big global exchange's American affiliate.

Total remuneration packages for former officials in the cryptocurrency industry can go into the seven figures, a person familiar with several hiring arrangements said, while regulators are paid roughly $250,000. Former officials who join cryptocurrency-focused enterprises or investment funds can also negotiate potentially lucrative long-term incentives such stock options or a share of profits known as carried interest.

The hiring drive has been spurred by two recent incidents.

The first was the industry's recognition after the 2020 election that cryptocurrencies would not likely remain unregulated indefinitely. While there were a few prominent cryptocurrency enthusiasts in the Trump administration, most senior Biden administration officials have expressed distrust of the asset class.

The second was a provision in last year's bipartisan infrastructure bill that required cryptocurrency brokers to file tax returns with the IRS. The bitcoin industry argued that the provision was overbroad, but it was not removed from the bill.

"That was sort of the tipping point for understanding, 'My my, we need these folks,'" said Julian Ha, a Washington-based partner at executive search firm Heidrick & Struggles who works with cryptocurrency companies among others.

The rise in the value of digital tokens last year provided the cryptocurrency business with the funds it needed to compete for expertise in Washington. According to CoinMarketCap, the global cryptocurrency market is now worth roughly $1.73 trillion, up from $200 billion two years ago.

Former government officials have long been recruited by industries and their lobbying companies to assist change policy. The basic laws of the road are unwritten in cryptocurrency, which makes it unique. Existing banking laws, if applied to cryptocurrency marketplaces, might impose significant costs on businesses that are currently lucrative. Meanwhile, the sector is pressing for new laws that are more targeted and easier to comply with.

"A lot of the time, we're talking about how industries are spending all this money on political clout, and they're getting a large return from modifying some little law," she says "OpenSecrets, a nonprofit that analyses money in politics, has a lobbying expert, Dan Auble. "However, this is a circumstance in which the government's actions in the coming years could make or ruin the business.""

In Washington, the business is warring with the Securities and Exchange Commission and urging Congress to establish new regulations that would better match how its technology works, according to the industry. In the view of some policymakers, a list of experienced former regulators can lend credibility to organisations that portray traditional finance as stodgy and elitist.

Former government enforcers have become popular hiring for crypto companies that require assistance with regulatory or law-enforcement oversight.

Dugan Bliss, a former SEC litigator located in New York, left the agency in May 2021 to join BlockFi, a cryptocurrency firm that allowed users to earn a return on their bitcoin or comparable tokens by lending them. Last month, BlockFi agreed to pay the SEC and other states $100 million to settle charges that its interest-bearing accounts violated investor protection laws. According to a company spokeswoman, Mr. Bliss did not work on the BlockFi probe while at the SEC.

Mr. Bliss was part of a team of SEC lawyers working on the agency's legal battle with Ripple and two of its top executives. In a December 2020 complaint, the Securities and Exchange Commission claimed that Ripple raised about $1.4 billion by selling its digital token, XRP, in violation of investor-protection standards, while its co-founder and CEO earned hundreds of millions of dollars in trading gains. Ripple replies that XRP is used for international payments and is not a security that the agency should regulate.

Ripple is being represented by Ms. White against the SEC. Her former enforcement director, Andrew Ceresney, is also on the defence team. The SEC said in an April court filing that Ms. White and Mr. Ceresney's legal approach included an attempt to "harass" the SEC with evidentiary requests that the two litigators knew were irrelevant since they had previously worked for the SEC. In January, a federal magistrate judge ruled that Ripple and its executives were entitled to some SEC information, but that the agency may keep the majority of them secret.

In a June 2020 article, Christopher Giancarlo, who stepped down as chairman of the Commodity Futures Trading Commission in 2019, said that XRP should not be subject to SEC scrutiny. Mr. Giancarlo's legal firm had represented Ripple, and he wrote the piece based on information provided by Ripple. He refused to explain whether he was aware that Ripple was under SEC investigation at the time the piece was published in an interview.

Mr. Giancarlo was the head of the CFTC when it approved bitcoin futures contracts, bringing cryptocurrencies "within the regulated sphere," as he put it. Since then, he has aided businesses because he believes the technology that underpins cryptocurrencies will improve the way finance operates.

"Well, my shingle is up now," he said. "I advise businesses on how to stay on the right side of the law, as well as how I expect the law will change in the future."