Kraken and Custodia Bank CEOs say regulators ignored their warnings about scams and fraud
Caitlin Long, founder and CEO of Custodia Bank, said in a Twitter thread that law enforcement had cleared evidence of cryptocurrency crimes months before the company went bankrupt, embezzling millions of customers. said to have provided it to the agency. she said:
“I have provided law enforcement with evidence of a crime that may have been committed by a large-scale cryptocurrency scam. It started a few months ago.”
She also added that she warned banking regulators of the imminent risk of a bank run at banks serving the cryptocurrency industry before the actual bank run happened. But Long believes her “warnings have been buried in the bowels of the bureaucracy.”
Jesse Powell, co-founder and CEO of crypto exchange Kraken, which recently settled with the Securities and Exchange Commission (SEC), said: share similar experience. Powell said he was “frustrated” by regulators’ ignoring the “massive red flags and clearly illegal activity” he has long pointed out.
He said regulators had taken note of the red flags and said they were “complicated” because the companies were offshore, but they were “looking at everyone.”
Powell and Long expressed frustration at being used as an example of fraud when their company has tried to do the right thing all along.
Long said the custodian bank was criticized on multiple fronts when the White House attacked the Federal Reserve, the Kansas City Fed and Senator Dick Durbin. rejected the bank’s application to become a member of the Federal Reserve System.
in the Senate speech, Long claims that Senator Durbin “implicitly” compared her and Fidelity CEO Abigail Johnson to FTX founder Sam Bankman-Fried. Fidelity angered regulators last year when it announced it would allow clients to invest some of their pension investments in bitcoin.
Long added to the blog post:
“Custodia tried to be federally regulated, and that is exactly what happened. bipartisan Policy makers claim they want. But custodia was denied and now accused of daring to come in through the front door. “
Approach to Crypto Regulation Needs Rethinking
Long said cryptocurrencies are now comparable to the mutual fund market in the 1930s, where bad actors and scams were rife. But instead of sabotaging the market outright, President Franklin D. Roosevelt came up with groundbreaking regulations that would help keep the bad guys out without undermining the potential of mutual funds. And the U.S. needs to do the same with cryptocurrencies, Long said.
The SEC has stepped up its enforcement actions since the demise of FTX, with many criticizing its “regulation by enforcement” approach. According to Long:
“Washington’s misguided crackdown will only push risk into the shadows, leaving regulators to whack-a-mole as risk continues to emerge in unexpected places.”
Countries and regulators therefore need to talk to credible people in the cryptocurrency industry to develop regulatory approaches that do not hinder the innovative potential of the industry, she said.
