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Crypto aims to increase its influence with the Washington Hires

WASHINGTON — The cryptocurrency industry has made its way into Washington’s revolving doors and has hired a number of former government officials and regulators as it seeks to shape largely unregulated market governance policies.

Three former chairmen of the Securities and Exchange Commission, three former chairmen of the Commodity Futures Trading Commission, three former U.S. senators and at least one former White House chief of staff are former secretaries. and former president of the Federal Deposit Insurance Corporation.

The Tech Transparency Project, a watchdog team, has identified more than 200 former employees of federal agencies working in cryptography, congressional offices, and country political campaigns. They have gone to companies like Coinbase,

Circle and FTX, venture capital funds such as Andreessen Horowitz, law firms representing cryptocurrency clients, and cryptocurrency trading center associations.

Regulatory momentum comes when they are working on rules to protect investors in the cryptocurrency market and to protect them from illegal activity or financial instability. President Biden on Wednesday signed an executive order for federal agencies to conduct a comprehensive review of cryptocurrencies.

“You don’t usually have an industry where this industry is accumulating hard, soft power in Washington,” said Jeff Hauser, executive director of the Revolving Door Project’s progressive team. He noted that the lobbying activity and political spending of crypto companies has increased along with the hiring of former government officials.

Recruitment plays a variety of roles and includes alumni from Republican and Democratic administrations. Industry officials say former government officials can help companies comply with the law and understand regulatory expectations.

A group of about 6,000 crypto-investors known as CityDAOs bought 40 acres of land in Wyoming. Paul Vigna of the WSJ explains how this decentralized autonomous organization, or DAO, came to own this land. Photo illustration: Josephine Chu

Former SEC President Mary Jo White, now a lawyer for Debevoise & Plimpton LLP, Ripple Labs Inc. is issuing a cryptocurrency against an SEC enforcement action. White headed the SEC in the Obama administration. Former Finance Secretary Lawrence Summers Digital Currency Group Inc. it is advised by the crypto-investment firm and is on the board of Block Inc..

, a financial technology company that is investing in cryptocurrency payment systems. Former Monetary Accountant Brian Brooks, meanwhile, is the CEO of the bitcoin mining company Bitfury Group, and worked as CEO of Binance.US, a U.S. affiliate of a giant global exchange.

The total compensation package for former officials in the cryptocurrency industry can reach seven figures, according to a person familiar with the various recruitment arrangements, while regulators meet around $ 250,000. Former civil servants who go to cryptocurrency-focused companies or investment funds can also trade valuable long-term incentives, such as stock options or a portion of the profit known as interest transferred.

The last two events have boosted recruitment.

The first was that the industry realized after the 2020 election that cryptocurrencies were unlikely to go unregulated forever. Although the Trump administration included a large number of cryptocurrency advocates, most senior Biden administration officials have expressed skepticism about the asset class.

Second, in last year’s bipartisan infrastructure package, cryptocurrency brokers had to submit tax forms to the Internal Revenue Service. The cryptocurrency industry said the supply was too extensive, but did not remove it from the bill.

“That was the realization:‘ Oh, we need these people, ’” said Julian Ha, a Washington Ha executive who partners with Heidrick & Struggles executive search companies, among others, on behalf of cryptocurrency companies.

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Last year’s rise in the value of digital tokens gave the cryptocurrency industry money to compete with Washington’s talent. According to KoinMarketCap, the entire cryptocurrency market was valued at about $ 1.73 trillion, up from $ 200 trillion two years ago.

Industries and their lobbyists have long hired former government officials to help shape policy. The most unique cryptocurrency is that the basic rules of the road are unwritten. Existing financial regulations, if applied in the crypto markets, could add high costs to today’s highly profitable companies. The industry, on the other hand, is pushing for new rules that would be more appropriate and easier to comply with.

“We’re often talking about how industries spend all that money on political influence, and they’re making a lot of money by shaping a few small regulations,” said Dan Auble, a lobbyist for OpenSecrets, a group. he monitors money in politics. “But this is really a situation where what the government does in the coming years can affect or break the industry.”

In Washington, the industry is struggling with the SEC and is lobbying Congress to write new laws that are better suited to how its technology works. A list of experienced former regulators may add credibility to the view that some policymakers believe that traditional finance is often portrayed as elitist.

Former government executives have become attractive recruiters for regulations or law enforcement control that require support for cryptographic companies.

Former New York-based SEC plaintiff Dugan Bliss left the agency in May 2021 to join BlockFi, a cryptocurrency company that allowed users to borrow bitcoin or similar tokens. BlockFi agreed last month to pay $ 100 million to the SEC and several states to resolve claims that violated its investor protection laws. Mr. Bliss did not work on the BlockFi investigation when he was in the SEC, a company spokesman said.

Mr. Bliss was part of a group of SEC lawyers working with the crypto company Ripple and two of its top executives in a court battle. The SEC argued in a December 2020 lawsuit that Ripple had raised nearly $ 1.4 billion by selling its digital currency, XRP, violating investor protection rules, and its founders and CEOs had earned hundreds of millions of dollars in commercial profits. Ripple says XRP is used for international payments and is not an investment that should be overseen by the agency.

Ms. White is representing Ripple against the SEC. Andrew Ceresney, also its chief executive officer, is on the defense team. In an April court filing, the SEC said Ms. White’s and Mr. Ceresney’s legal strategies included an offer to “prosecute” the SEC with requests for evidence that both of the plaintiffs knew had worked for the SEC. A federal judge in January said Ripple and his executives were entitled to some SEC records, but gave the agency permission to keep one of the most.

Christopher Giancarlo, who resigned as CFTC president in 2019, argued in a June 2020 article that XRP should not be under SEC oversight. His law firm replaced Ripple, and Mr. Giancarlo relied on information provided by Ripple to write the article. In an interview, he declined to say he knew he was investigating the Ripple SEC at the time the article was published.

Mr. Giancarlo, who led the CFTC when the agency approved bitcoin futures contracts, said a move had brought cryptocurrency into the “regulated realm”. Since then, he has helped businesses, believing that cryptocurrency-based technology will change the way finance works.

“So my sheet is out,” he said. “I’m advising companies on how to stay on the right side of the law, but also how I think the law will evolve.”

Write to Paul Kiernani at paul.kiernan@wsj.com and Dave Michaelsi at dave.michaels@wsj.com.

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Crypto aims to increase its influence with the Washington Hires

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