Minnesota U.S. Rep. Tom Emmer, still a crypto booster, says Congress needs to step up oversight of regulators

The cryp­to indus­try’s melt­down – punc­tu­at­ed by the bank­rupt­cy of one of the indus­try’s most promi­nent firms — has not shak­en Min­neso­ta Con­gress­man Tom Emmer’s faith in pri­vate dig­i­tal currencies.

“I still think for dig­i­tal assets in gen­er­al, they are the future, and the future has arrived,” said the Delano Repub­li­can, one of Con­gress’ biggest cryp­to boost­ers and now the third-rank­ing House Republican.

But the col­lapse of FTX Trad­ing has sparked new ten­sions in Con­gress and in Wash­ing­ton about how to han­dle the indus­try — with­out clear agree­ment on a solution.

Dur­ing an inter­view with the Star Tri­bune, Emmer focused on Con­gress’ role in over­see­ing reg­u­la­tors, rather than in pass­ing leg­is­la­tion to reg­u­late crypto.

“Con­gress has to start doing its job in mak­ing sure by way of our over­sight func­tion that we make sure our reg­u­la­tors do the job,” he said.

Emmer has been high­ly crit­i­cal of the U.S. Secu­ri­ties and Exchange Com­mis­sion’s han­dling of the cryp­to indus­try, say­ing the agency has been inef­fec­tive and opaque — and demand­ing that its chair­man, Gary Gensler, appear before Congress.

Clash­es on Capi­tol Hill seem more like­ly than the pas­sage of sweep­ing leg­is­la­tion to address the many reg­u­la­to­ry uncer­tain­ties over cryp­tocur­ren­cy. What­ev­er plays out in Con­gress, Emmer will prob­a­bly have a strong say.

And after four years of run­ning the House GOP’s cam­paign arm, Emmer’s new lead­er­ship post as House major­i­ty whip gives the Min­nesotan far more vis­i­bil­i­ty on leg­is­la­tion. Rep. Patrick McHen­ry, R‑N.C., an Emmer ally, leads the House finan­cial ser­vices pan­el that Emmer is serv­ing on again this year.

The cryp­to cal­cu­lus is com­pli­cat­ed by stark polit­i­cal real­i­ties. Repub­li­cans nar­row­ly hold the U.S. House while Democ­rats run the U.S. Sen­ate and con­trol the White House. And the inher­ent­ly com­plex nature of cryp­tocur­ren­cy presents its own chal­lenges if Con­gress decides to take a hard look.

“There are not many mem­bers of Con­gress that have the exper­tise or under­stand­ing of the cryp­to mar­kets and those dynam­ics to effec­tive­ly do so, which makes them very sus­cep­ti­ble to lob­by­ists on the out­side,” said Rep. Dean Phillips, D‑Minn.

Cryp­tocur­ren­cy is dig­i­tal mon­ey that is cre­at­ed on a decen­tral­ized com­put­er net­work. As cryp­to’s val­ue grew, indus­try play­ers got big­ger and boost­ed their lob­by­ing efforts and cam­paign contributions.

The implo­sion of FTX, one of the largest cryp­to exchanges, raised par­tic­u­lar­ly awk­ward ques­tions for Con­gress. Co-founder Samuel Bankman-Fried and oth­ers with­in the FTX empire gave hefty polit­i­cal dona­tions before the collapse.

Young indus­try but growing

Spec­u­la­tors in cryp­tocur­ren­cy have mint­ed — and lost — for­tunes. But its use in every­day com­merce is still limited.

To its pro­po­nents, cryp­tocur­ren­cy pro­tects investors’ wealth through a decen­tral­ized finan­cial sys­tem, one free of inter­ven­tion from cen­tral banks and com­mer­cial banks.

At its core is “blockchain,” a dig­i­tal tech­nol­o­gy meant to ensure both secu­ri­ty and anonymi­ty for transactions.

To skep­tics, cryp­tocur­ren­cy is a finan­cial medi­um for inter­net crim­i­nals, and at worst akin to a Ponzi scheme. Plus, they note the indus­try con­sumes enor­mous amounts of elec­tric­i­ty to pow­er its com­put­er­ized coin-minting.

One thing is cer­tain: As a new finan­cial asset, cryp­tocur­ren­cy has spawned a host of ques­tions about how it should be regulated.

Con­gress began pay­ing more atten­tion in recent years as cryp­tocur­ren­cy’s mar­ket val­ue rose to $3 tril­lion and small investors jumped in, get­ting burned along with hedge funds when cryp­to prices crashed last year. A host of cryp­to com­pa­nies began fil­ing for bank­rupt­cy last sum­mer, cul­mi­nat­ing in Novem­ber with FTX.

FTX lacked even rudi­men­ta­ry inter­nal cor­po­rate con­trols and account­ing; its cus­tomers lost bil­lions of dol­lars, while Bankman-Fried faces fed­er­al fraud and mon­ey laun­der­ing charges.

Cryp­to leg­is­la­tion in Con­gress may be a tough sell after FTX’s col­lapse. Last year, bipar­ti­san bills that estab­lished a reg­u­la­to­ry frame­work — but ulti­mate­ly did not pass — were large­ly sup­port­ed by the cryp­to industry.

Hilary Allen, a finan­cial reg­u­la­tion pro­fes­sor at Amer­i­can Uni­ver­si­ty’s law school in Wash­ing­ton, D.C., and a cryp­to skep­tic, said she thinks that this year, it is “much less like­ly that Democ­rats will go along with cryp­to-friend­ly legislation.”

More like­ly than leg­is­la­tion, she said, “is a show­down in the [House] Finan­cial Ser­vices Com­mit­tee over the SEC being more aggressive.”

Last month, Emmer tweet­ed that Gensler “must tes­ti­fy before Con­gress and answer ques­tions about the costs of his reg­u­la­to­ry failures.”

Debate over reg­u­la­tion grows

Emmer has long been a crit­ic of the SEC’s reg­u­la­tion of the cryp­to indus­try. FTX’s fail­ure gave him more ammunition.

“We’ve got Gary Gensler run­ning the SEC that has the tools to pro­tect investors in cas­es like this [FTX] and they are choos­ing not to exer­cise them,” Emmer told the Star Tri­bune. “Gary Gensler’s reg­u­la­to­ry strat­e­gy has been entire­ly ineffective.”

The SEC, which declined to com­ment, has been cas­ti­gat­ed on many fronts since FTX’s collapse.

Still, while Allen said the SEC could have been more aggres­sive, it has been “one of the tough­est cryp­to regulators.”

“A lot of reg­u­la­tors and law­mak­ers have uncrit­i­cal­ly accept­ed the cryp­to indus­try’s claims of inno­va­tion, effi­cien­cy and finan­cial inclu­sion,” she said. “The SEC under Gensler has not just accept­ed these claims at face val­ue — it has pri­or­i­tized investor protection.”

Much to the cryp­to indus­try’s dis­ap­proval, Gensler has made it clear that he sees cryp­tocur­ren­cies as secu­ri­ties, with the excep­tion of Bit­coin. An arm of the SEC ded­i­cat­ed to cryp­to has lodged more than 90 enforce­ment actions against cryp­to com­pa­nies for alleged infrac­tions, accord­ing to the agen­cy’s website.

In March 2022, a bipar­ti­san group of eight House mem­bers — includ­ing Emmer — wrote a let­ter to Gensler ques­tion­ing an SEC inquiry into cryp­tocur­ren­cy and blockchain com­pa­nies, specif­i­cal­ly about infor­ma­tion that the agency requested.

The House mem­bers said the SEC’s solic­i­ta­tions may vio­late the Paper­work Reduc­tion Act, which reg­u­lates how fed­er­al agen­cies col­lect infor­ma­tion from the public.

Emmer, asked whether the let­ter is at odds with his crit­i­cism of the SEC as weak, said his posi­tion “is entire­ly consistent.”

Gensler has cho­sen an “opaque” method of reg­u­la­tion, Emmer said. That includes “hav­ing cer­tain indus­try par­tic­i­pants come into his office and nego­ti­ate for reg­u­la­to­ry advan­tages rather than rely on the open rule­mak­ing process,” he said, refer­ring to Gensler’s meet­ings with Bankman-Fried and oth­er FTX exec­u­tives in Octo­ber 2021 and March 2022.

Gensler, asked about the March meet­ing with Bankman-Fried in an inter­view with Yahoo Finance, said the SEC gen­er­al­ly meets with “mar­ket par­tic­i­pants,” and the “basic mes­sage” is to “come into compliance.”

Gensler isn’t alone among reg­u­la­tors who met with Bankman-Fried and FTX leaders.

Ros­tin Behnam, head of the U.S. Com­mod­i­ty Futures Trad­ing Com­mis­sion, told a Sen­ate com­mit­tee in Decem­ber that he and oth­er CFTC rep­re­sen­ta­tives met with Bankman-Fried 10 times over 14 months about LedgerX, a still sol­vent cryp­to deriv­a­tives sub­sidiary of FTX.

The CFTC has some reg­u­la­to­ry author­i­ty over cryp­to. Emmer has­n’t crit­i­cized Behnam’s meet­ings with Bankman-Fried, say­ing “the head of the CFTC was not nego­ti­at­ing reg­u­la­to­ry advan­tages for FTX.”

A com­pli­cat­ed Congress 

Emmer’s stance on cryp­to has put him at odds with some Democrats.

“Repub­li­cans in the House appear poised to try to blame Biden admin­is­tra­tion depart­ments for lax over­sight. But that’s fun­ny to me when they have also, on the oth­er hand, been argu­ing for a very, very light touch on reg­u­la­tion before the FTX decline,” Sen. Tina Smith, D‑Minn., said.

Before FTX’s col­lapse, some of Smith’s Demo­c­ra­t­ic col­leagues joined Repub­li­cans in sup­port­ing leg­is­la­tion that crit­ics described as a soft approach to regulation.

The cryp­to indus­try has giv­en cam­paign mon­ey to both par­ties. While Bankman-Fried was a pro­lif­ic Demo­c­ra­t­ic donor, he also donat­ed to the GOP, includ­ing the Nation­al Repub­li­can Con­gres­sion­al Com­mit­tee (NRCC) chaired by Emmer.

Min­neso­ta Demo­c­ra­t­ic Rep. Ang­ie Craig’s cam­paign received mon­ey from Bankman-Fried and FTX Direc­tor of Engi­neer­ing Nishad Singh, which a spokes­woman con­firmed will be giv­en to a bank­rupt­cy fund.

Smith’s spokesman said dona­tions the Demo­c­rat received from Bankman-Fried and Singh have been donat­ed, while a sep­a­rate con­tri­bu­tion from anoth­er promi­nent FTX fig­ure has been set aside in case it’s clawed back.

Emmer did not receive a dona­tion from Bankman-Fried, but his cam­paign got mon­ey from two oth­ers involved in the FTX empire, includ­ing Ryan Salame, co-CEO of FTX Dig­i­tal Mar­kets. Salame was a sig­nif­i­cant Repub­li­can donor who also gave mon­ey to the NRCC.

Emmer’s cam­paign did not com­ment on the FTX dona­tions. Repub­li­can Rep. Brad Fin­stad also received cam­paign mon­ey from Salame, but a fil­ing shows his cam­paign returned the dona­tion in late Novem­ber after the FTX collapse.

Emmer’s cam­paign and anoth­er arm of his polit­i­cal oper­a­tion also received thou­sands of dol­lars from a leader of the cryp­to lob­by­ing group Blockchain Asso­ci­a­tion, accord­ing to fed­er­al records. His cam­paign also got dona­tions from promi­nent peo­ple at com­pa­nies with sig­nif­i­cant cryp­to invest­ments: Dig­i­tal Cur­ren­cy Group, Andreessen Horowitz and Blockchain Capital.

“I’ve been a strong believ­er in cryp­to’s tech­nol­o­gy long before it was main­stream,” Emmer said in a state­ment to the Star Tri­bune. “This issue is far too impor­tant to me to let any per­cep­tion of self-inter­est get in the way, which is why I decid­ed years ago to not buy crypto.”

For Emmer, cryp­to is a cause. In a recent tweet, he said that “cryp­to is more than a finan­cial invest­ment: it’s about restor­ing lib­er­ty and choice to individuals.”