Crypto aims to foster influence with Washington employees

Those working for or advising cryptocurrency firms or investment funds include three former chairman of the Securities and Exchange Commission, three former chairman of the Commodity Futures Trading Commission, three former US senators, and at least one former White House chief of staff, former The Treasury Secretary is involved. and former chairman of the Federal Deposit Insurance Corporation.

The Tech Transparency Project, a watchdog group, has identified more than 200 former employees of federal agencies, congressional offices and national political campaigns who have worked in crypto. They have gone to companies like Coinbase, Circle and FTX, venture-capital funds like Andreessen Horowitz, law firms representing cryptocurrency clients, and crypto-focused trade associations.

The push comes as regulators are crafting regulations to protect investors and protect against illegal activity or financial instability in the cryptocurrency market. President Biden signed an executive order Wednesday tasking federal agencies to conduct a comprehensive review of cryptocurrencies.

“You don’t have industries in general, this new Washington accumulates so much hard and soft power,” said Jeff Hauser, executive director of the Revolving Door Project, a progressive group. He added that lobbying activity and political spending by crypto firms have led to a spurt in the recruitment of former government officials.

Hires serve a variety of roles and include alumni from both Republican and Democratic administrations. Industry representatives say former government officials can help companies comply with the law and understand regulatory requirements.

Former SEC Chair Mary Jo White, now an attorney at Debevoise & Plimpton LLP, has filed a lawsuit against cryptocurrency issuer Ripple Labs Inc. are defending. 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 financial-technology firm investing in cryptocurrency-payment systems. Meanwhile, Brian Brooks, the former executive controller of the currency, is the chief executive officer of bitcoin-mining firm Bitfury Group, and served for some time as CEO of Binance.US, a US affiliate of the giant global exchange. .

The total compensation package for former executives in the cryptocurrency industry could reach seven figures, said a person familiar with many of the hiring arrangements, while regulators top up around $250,000. Former executives who go to cryptocurrency-focused companies or investment funds may also be negotiating potentially valuable long-term incentives, such as stock options or a piece of profit known as interest.

Two recent events have fueled the hiring push.

The first was a realization in the industry after the 2020 election that cryptocurrencies might not remain unregulated forever. While the Trump administration included many outspoken cryptocurrency supporters, most senior officials in the Biden administration have cast doubt on the asset class.

The second was a provision in last year’s bipartisan infrastructure package that required cryptocurrency brokers to file tax forms with the Internal Revenue Service. The cryptocurrency industry said the provision was too broad, but failed to remove it from the bill.

“It was like a watershed to realize, ‘My god, we need these people,'” said Julian Ha, a Washington-based partner at executive-search firm Hedrick & Struggles, which recruits on behalf of cryptocurrency firms.

The increase in the value of digital tokens last year gave the crypto industry money to compete for talent in Washington. According to CoinMarketCap, the total cryptocurrency market was recently valued at approximately $1.73 trillion, up from $200 billion two years ago.

Industry and their lobbying firms have long recruited former government officials to help shape policy. The unique thing about cryptocurrency is that the basic rules of the road are unwritten. Existing financial regulations, if applied to the crypto markets, can add up to huge costs for companies that are highly profitable today. Meanwhile, the industry is pushing for new regulations that will be more compliant and easier to comply with.

“A lot of times we’re talking about how industries are spending all this money on political influence, and they’re getting huge returns from just changing a few small rules,” said Dan Auble, a lobbying expert at OpenSecrets. A group that tracks money in politics. “But this is really a situation where what the government does over the next few years can make or break the industry.”

In Washington, the industry is battling with the SEC and lobbying Congress to write new legislation that it says will improve how its technology works. A roster of experienced former regulators can add credibility to firms that often portray traditional finance as volatile and elitist in the eyes of some policymakers.

Former government promoters have become lucrative hires for crypto firms that need help with regulatory or law-enforcement investigations.

Former New York-based SEC plaintiff Dugan Bliss left the agency in May 2021 to join BlockFi, a cryptocurrency company that allowed users to earn yields by lending their bitcoins or similar tokens. BlockFi last month agreed to pay $100 million to the SEC and several states to settle claims that its interest-bearing accounts violated investor-protection laws. A spokesperson for the company said Mr. Bliss did not work on the BlockFi investigation while on the SEC.

Mr. Bliss was part of a team of SEC lawyers working on a court battle with crypto firm Ripple and two of its most senior executives. The SEC argued in a December 2020 lawsuit that Ripple raised nearly $1.4 billion by selling its digital coin, XRP, in violation of investor-protection regulations, while its co-founder and CEO made hundreds of millions of dollars in trading profits . Ripple counters that XRP is used for international payments and is not an investment overseen by the agency.

Ms. White is representing Ripple against the SEC. Andrew Ceresny, his director of enforcement, is also on the defense team. In an April court filing, the SEC claimed that Ms. White’s and Mr. Ceresney’s legal strategy included a bid to “harass” the SEC with requests for evidence that the two plaintiffs knew were irrelevant because they worked for the SEC. 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 them secret.

Christopher Giancarlo, who stepped down as chairman of the CFTC in 2019, argued in a June 2020 article that XRP should not be under the watch of the SEC. His law firm represented Ripple, and Mr. Giancarlo relied on information provided by Ripple to write the article. In an interview, he declined to say whether he was aware that Ripple was under SEC investigation at the time the article was published.

Mr. Giancarlo ran the CFTC when the agency approved bitcoin futures contracts, a move he said brought the cryptocurrency “into regulated territory.” Since then, he has helped companies as he believes the technology underpinning cryptocurrencies will change how finance works for the better.

“So my shingles is out,” he said. “I am advising companies on how to stay on the right side of the law, but also on how I believe the law will evolve.”