Today, Congresswoman Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, took to the House floor to oppose the “Not Fit For Purpose Act,” which is a bill that would significantly restrict the regulatory authority of the Securities and Exchange Commission and eliminate all rules for the crypto industry.

I rise in strong opposition to H.R. 4763, which I am calling the “Not Fit for Purpose Act.” This bill would deregulate a substantial portion of the crypto industry, taking them out of the purview of the Securities and Exchange Commission, or SEC, and allowing them to operate either under a lighter touch regulatory regime under the Commodity Futures Trading Commission, OR in what I have called a regulatory no-man’s-land, with NO primary regulator and virtually NO regulations. For crypto that would remain under the SEC’s purview, this bill still provides major exemptions from critical securities laws.

And if this wasn’t bad enough, this bill is not just about crypto. Language was added to the bill after it was marked up by the committees of jurisdiction, that would allow even some traditional securities to also exist in this regulatory no-man’s-land. Specifically, I am referring to Title Two of the bill that defines the term “investment contract asset.” Assets that fall under this definition are explicitly deemed not to be securities, and therefore not under the SEC’s purview, but the bill doesn’t provide an alternative legal framework for these assets. This represents an extreme MAGA, libertarian approach where companies can operate without regulatory scrutiny, and consumers and investors are on their own in detecting and avoiding fraudulent schemes.

While Republican defenders of this bill have argued that this definition of investment contract asset is limited to digital assets under the bill, this is disputed by legal experts, and SEC Chair Gary Gensler himself, who confirmed in a recent statement regarding this bill that it would have a broader impact on traditional securities. Interestingly, I didn’t hear any arguments from the Republicans at the Rules Committee hearing, disputing that this would in fact be a regulatory no-man’s-land even if they insist it’s just for crypto.

Even for crypto that would be transferred over to the CFTC, I have serious concerns about the loss of protections for consumers and investors. The CFTC is generally designed to deal with sophisticated institutional investors and traders. It doesn’t have the same kind of protections that the SEC has for retail investors and consumers.

Under all three avenues provided for crypto under the bill: the CFTC’s lighter-touch regulatory regime, SEC’s weaker regulatory regime for “restricted digital assets,” or the regulatory no-man’s land, these are just a few examples of protections that would be stripped away:

The right of an investor to sue – GONE;
Protections against conflicts of interest – GONE;
The right to critical disclosures that help investors make informed choices – GONE;
Enforcement by states against fraud; and,
Enforcement by the SEC for all of the above protections, including anti-fraud.

H.R 4763 would also upend more than 170 enforcement cases the SEC has brought related to crypto violations. These actions have been brought by both Democratic and Republican Administrations to protect investors against crypto bad actors.

The SEC is the federal agency on the front lines of enforcing our existing securities laws on crypto firms that have willfully chosen to ignore the law and defrauded customers out of billions of dollars with “get rich quick” schemes. Giving this industry a free pass to avoid most or all regulations cannot be the answer to the serious concerns that Members have raised about crypto fraud.

I have seen many efforts by Republicans, acting at the behest of the industry to pass deregulatory regulation, but this is perhaps the worst, most harmful proposal I have seen in a long time. This bill would deregulate crypto and certain traditional securities to the extent that I, and other experts, have expressed serious concerns about this bill causing a potential market crash and recession.

I am also reminded of how—over the warnings of regulators – Congress moved to deregulate the over-the-counter derivatives market in 2000. The resulting financial crisis triggered the implosion of financial institutions, a wave of foreclosures, and trillions of dollars in lost wealth. I urge my colleagues not to repeat history with this bill.

I want to highlight that the Biden administration has released a statement of administration policy, opposing this bill. The bill is also opposed by a long list of investors and consumer advocates, state securities administrators concerned about state pre-emption, labor organizations worried about the retirement funds of their members, environmentalist groups concerned about the undisclosed risks of crypto mining, civic organizations worried about the undue influence of financial and crypto industry over Congress’s actions, academics, legal experts, and technologists.

So, I urge my colleagues to stand up. Don’t be afraid of Big Crypto and stand for everyday investors and consumers. I urge my colleagues to vote NO on this bill, and I reserve the balance of my time.

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