Wall Street Journal: Crypto firms are boosting influence by hiring ex-government officials

The cryptocurrency industry has taken its place at the revolving door of Washington, employing dozens of former government officials and regulators as it tries to create policies to govern a largely unregulated market.

Those working for or advising cryptocurrency companies or investment funds include three former U.S. Securities and Exchange Commission (SEC) chairmen, three former Commodity Futures Trading Commission (CFTC) chairpersons, three former U.S. senators, and at least one former White House chief of staff, former Treasury secretary and former chairman of the Federal Deposit Insurance Corporation. 

Watchdog group Tech Transparency Project has identified more than 200 former staff members of federal agencies, congressional offices and national political campaigns who have worked in the crypto space. They went to companies like Coinbase, Circle, and FTX, venture capital funds like 16z, law firms representing crypto clients, and crypto-focused trading associations.

The trend comes as regulators scramble to create rules to protect investors in the cryptocurrency market and prevent illegal activity or financial instability. On Wednesday, President Biden signed an executive order requiring federal agencies to conduct extensive scrutiny of cryptocurrencies.

“In Washington, this nascent industry typically doesn’t accumulate so much hard and soft power,” said Jeff Hauser, executive director of the Revolving Door Project, a progressive group. He pointed to a surge in lobbying and political spending by crypto firms as ex-government officials are recruited.

Recruiters span a variety of roles, including alumni in both Republican and Democratic administrations. Industry representatives say former government officials can help companies comply with the law and understand regulatory expectations. 

Former SEC Chairman Mary Jo White, now an attorney with Debevoise & Plimpton LLP, is defending cryptocurrency issuer Ripple Labs Inc. against the SEC’s enforcement action. Ms. White ran the SEC during the Obama administration.

Former Treasury Secretary Lawrence Summers advises crypto investment firm Digital Currency Group Inc. and sits on the board of Block Inc. , a fintech company investing in cryptocurrency payment systems. Meanwhile, former acting comptroller of the currency Brian Brooks is the CEO of bitcoin mining firm Bitfury Group and briefly served as CEO of Binance.US, the U.S. subsidiary of the major global exchange. 

A person familiar with several hiring arrangements said total compensation for former officials in the cryptocurrency industry can reach seven figures, with regulators topping out at around $250,000. Former officials of a cryptocurrency-focused company or investment fund can also negotiate potentially valuable long-term incentives, such as stock options or a portion of profits known as carried interest. 

Two recent events have driven hiring.

The first is that after the 2020 election, the industry realized that cryptocurrencies may not be unregulated forever. While the Trump administration includes some outspoken cryptocurrency proponents, most senior officials in the Biden administration are skeptical of the asset class.

This was followed by a provision in last year’s bipartisan infrastructure package that would require cryptocurrency brokers to file tax returns with the IRS. The cryptocurrency industry said the provision was too broad, but failed to remove it from the bill.

“This is a watershed moment in ‘Oh my God, we need these people,'” said Julian Ha, a Washington-based partner at executive search firm Heidrick & Struggles, who recruits on behalf of crypto firms and others.

The surge in the value of digital tokens last year has provided the cryptocurrency industry with funding to compete for talent in Washington. According to CoinMarketCap, the total value of the cryptocurrency market was about $1.73 trillion recently, up from $200 billion two years ago. 

 The industry and its lobbying firms have long recruited former government officials to help shape policy. What is unique about cryptocurrencies is that the ground rules of the road are unwritten. Existing financial regulations, if applied to the crypto market, could impose heavy costs on today’s highly profitable companies. At the same time, the industry is pushing for new rules that are more appropriate and easier to follow. 

“A lot of times we’re talking about how the industry spends all this money on political influence, and they get a huge payoff from tweaking some small regulatory policies,” said Dan Auble, a lobbyist at OpenSecrets, which tracks politics in Money flows. “But it’s really a case of what the government does over the next few years that could make or break the industry.”

In Washington, the industry is at loggerheads with the Securities and Exchange Commission and lobbying Congress for new laws that it says will better suit how its technology works. In the eyes of some policymakers, a roster of seasoned former regulators could add credibility to firms that often describe traditional finance as mediocre and elitist.

Former government law enforcement officers have become attractive hires for crypto companies in need of regulatory or law enforcement scrutiny help. 

Former New York SEC litigator Dugan Bliss quit the agency in May 2021 to join BlockFi, a cryptocurrency company that allows users to earn money by lending bitcoin or similar tokens. BlockFi last month agreed to pay the SEC and several states $100 million to settle allegations that its interest-bearing accounts violated investor protection laws. A company spokesman said Mr. Bliss was not involved in the BlockFi investigation while serving at the SEC.

Mr. Bliss was part of a team of SEC attorneys working on a court battle against cryptocurrency company Ripple and its two most senior executives. The SEC argued in a December 2020 lawsuit that Ripple violated investor protection rules by raising nearly $1.4 billion by selling its digital currency XRP, while its co-founder and CEO earned hundreds of millions of dollars in trading proceeds . Ripple countered that XRP was used for international payments, not investments regulated by the agency.

Ms. White represented Ripple against the SEC. Her law enforcement director, Andrew Ceresney, was also on the defense team. In an April court filing, the SEC alleges that Ms. White and Mr. Ceresney’s legal tactics involved “harassing” the SEC by making evidentiary demands that both litigators knew they had worked at the SEC were irrelevant. A federal magistrate judge said in January that Ripple and its executives were entitled to some SEC records but allowed the agency to keep most of the records private.

Christopher Giancarlo, who stepped down as CFTC chairman in 2019, argued in a June 2020 article that XRP should not be subject to SEC oversight. His law firm has represented Ripple, and Mr. Giancarlo relied on information provided by Ripple to write this article. In an interview, he declined to say whether he knew Ripple was being investigated by the SEC at the time of the article’s publication.

Mr. Giancarlo, who ran the CFTC when it approved bitcoin futures contracts, said the move brought the cryptocurrency “into the regulated realm.” Since then, he has been helping the company because he believes the technology underpinning cryptocurrencies will change the way finance works for the better.

“So I came out,” he said, “and I advised companies on how to keep the law correct and how I believe the law will evolve.”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/wall-street-journal-crypto-firms-are-boosting-influence-by-hiring-ex-government-officials/
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