Maxine Waters

Ms. WATERS

Ms. WATERS. Mr. Chairman, I yield 3 minutes to the gentleman from Massachusetts (Mr. Lynch), who is also the ranking member of the Subcommittee on Digital Assets, Financial Technology and Inclusion.

Ms. WATERS. Mr. Chairman, I yield 4 minutes to the gentleman from Illinois (Mr. Casten).

Ms. WATERS. Mr. Chair, I yield an additional 30 seconds to the gentleman from Illinois.

Ms. WATERS. Mr. Chair, I yield myself such time as I may consume. It is no mystery why the crypto industry prefers to be regulated by the CFTC rather than the SEC. Let's start with the substantial differences in funding and staff for the CFTC compared to SEC. In 2023, the CFTC employed roughly 680 full-time employees with an annual budget of $365 million. Wow. The Securities and Exchange Commission, the SEC, employed over 4,500 employees and had a budget of over $2 billion. Even with the limited funding provided to the CFTC under this bill, which is capped at $40 million and set to expire after 4 years, the CFTC's funding would be only one-fifth of the SEC's budget. Mr. Chair, $40 billion is not sufficient to oversee more than 16,000 cryptocurrencies. Let's not forget that the same Republicans who are bringing this bill to the floor are the same ones who proposed cutting CFTC's budget last year. Moreover, the CFTC is designed to deal mostly with sophisticated institutional investors and traders rather than retail investors and consumers. Therefore, the CFTC does not have the same level of protections for retail investors and consumers. Mr. Chair, I would simply say that we should look at this example. The CFTC has no mandate like the SEC that requires entities to act in the best interests of the investors or to put their clients' interests first. This is just another reason why I am very concerned about the light-touch regulatory regime under the CFTC. Mr. Chair, I yield 5 minutes to the gentleman from California (Mr. Sherman), who is also the ranking member of the Subcommittee on Capital Markets.

Ms. WATERS. Mr. Chair, I yield an additional 30 seconds to the gentleman from California.

Ms. WATERS. Mr. Chair, I yield 4 minutes to the gentleman from Illinois (Mr. Foster), who is the ranking member of the Subcommittee on Financial Institutions and Monetary Policy.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I continue to reserve the balance of my time.

Ms. WATERS. Mr. Chair, I include in the Record the following statements: The Statement of Administration Policy from the Biden administration opposing this bill; The statement from SEC Chair Gensler raising serious concerns about this bill; A letter from the Treasury Department to me, dated July 20, 2023, expressing serious concerns about this bill; A letter from the North American Securities Administrators Association opposing this bill; and A letter from 48 stakeholders opposing this bill. Statement of Administration Policy H.R. 4763--Financial Innovation and Technology for the 21st Century Act--Rep. Thompson, R-PA, and 11 cosponsors The Administration opposes passage of H.R. 4763, which would affect the regulatory structure for digital assets in the United States. The Administration is eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities, which will promote the responsible development of digital assets and payment innovation and help reinforce United States leadership in the global financial system. H.R. 4763 in its current form lacks sufficient protections for consumers and investors who engage in certain digital asset transactions. The Administration looks forward to continued collaboration with Congress on developing legislation for digital assets that includes adequate guardrails for consumers and investors while creating the conditions needed for innovation, and further time will be needed for such collaboration.

Ms. WATERS. Mr. Chair, I also include an excerpt from Coinbase's Form S-1 filing acknowledging the risk that Coinbase could be found to be illegally acting outside of securities laws, excerpts from the SEC's complaint against Coinbase alleging that Coinbase was illegally acting outside of securities laws; and a summary of, and key excerpt from, the decision in the case of SEC v. Coinbase, finding that Coinbase was indeed acting illegally by failing to comply with existing laws. SEC v. Coinbase Excerpt from Coinbase S-1 Filing on ``Risk Factors'' As indicated in the above complaint, in its Form S-1 filing with the SEC Coinbase acknowledged the risks that the crypto assets it makes available on its platform could be deemed securities, and therefore Coinbase could be found to be engaging in unregistered brokerage, exchange, and/or clearing-agency activity: ``A particular crypto asset's status as a ``security'' in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition. The SEC and its staff have taken the position that certain crypto assets fall within the definition of a ``security'' under the U.S. federal securities laws. The legal test for determining whether any given crypto asset is a security is a highly complex, fact- driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular crypto asset as a security. Furthermore, the SEC's views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff . . . With respect to all other crypto assets, there is currently no certainty under the applicable legal test that such assets are not securities, notwithstanding the conclusions we may draw based on our risk-based assessment regarding the likelihood that a particular crypto asset could be deemed a ``security'' under applicable laws. The classification of a crypto asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale, trading, and clearing of such assets. Persons that effect transactions in crypto assets that are securities in the United States may be subject to registration with the SEC as a ``broker'' or ``dealer.'' Platforms that bring together purchasers and sellers to trade crypto assets that are securities in the United States are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an alternative trading system, or ATS, in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Summary and excerpt from opinion of the judge from the US District Court for the Southern District of New York, denying Coinbase's Motion to Dismiss in the case of SEC v. Coinbase In March 2024, U.S. District Court Judge Katherine Polk Failla of the Southern District of New York made a preliminary ruling in the Coinbase case, holding that because at least some crypto trades on the Coinbase platform met the longstanding definition of an investment contract, the SEC can move ahead with claims that Coinbase improperly operated as a securities exchange, broker and clearing agency. She also said the SEC adequately alleged that Coinbase sold unregistered securities through its staking program. In an 84-page opinion, the judge asserted, among other things, that ``the `crypto' nomenclature may be of recent vintage, but the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years.'' excerpts from the sec's complaint filed against coinbase in june 2023 ``In September 2019, Coinbase released a framework for analyzing crypto assets that assigned to the crypto asset a score ranging from 1 to 5, with a score of 1 indicating that an ``asset has few or no characteristics consistent with treatment as an investment contract,'' and a score of 5 meaning that an ``asset has many characteristics strongly consistent with treatment as a security.'' Meanwhile, between 2019 and 2020, Coinbase more than doubled the number of crypto assets available for trading on its platform, and it more than doubled that number again in 2021. During this period, Coinbase made available on its platform crypto assets with high ``risk'' scores under the CRC framework it had adopted. In other words, to realize exponential growth of the Coinbase Platform and boost its own trading profits, Coinbase made the strategic business decision to add crypto assets to the Coinbase Platform even where it recognized the crypto assets had the characteristics of securities.'' Coinbase generates most of its revenue from transaction fees collected on crypto asset trades made through the Coinbase Platform, Prime, and Wallet. Fox example, in 2021, Coinbase generated $6.8 billion in ``transaction revenue,'' out of a total net revenue of $7.4 billion. Likewise, in 2022, Coinbase generated over $2.2 billion in transaction revenue out of a total net revenue of $3.1 billion. ``Coinbase also worked closely with issuers of crypto assets who sought to have their crypto assets listed on Coinbase. Coinbase's ``Listings Team'' engaged in a dialogue with issuers focused on identifying potential ``roadblocks'' under Howey. For example, on one occasion, Coinbase identified ``problematic statements'' by an issuer that described its crypto asset ``with language traditionally associated with securities,'' ``implying that the asset is an investment or way to earn profit,'' ``emphasizing the profitability of a project and/or the historic or potential appreciation of the value of the assets,'' and ``using terms referring to the assets that are commonly associated with securities such as `dividend,' `interest,' `investment' or `investors.' '' As ``possible mitigation,'' Coinbase suggested that the issuer ``remove any existing problematic statements, and refrain from making problematic statements in the future.'' Coinbase was thus aware of the risk that it could be making available for trading on the Coinbase Platform crypto assets that were being offered and sold as securities. Indeed, Coinbase touted to the investing public its familiarity with the relevant legal analysis governing the offer and sale of securities.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, if the gentleman has no more speakers, I am prepared to close.

Ms. WATERS. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I yield myself the balance of my time. Mr. Chair, as we have heard today, the entities that stand to benefit from this bill are not ordinary investors trying to build wealth but rather the crypto firms that have chosen not to register with the SEC or otherwise comply with the securities laws. They have already made billions of dollars unlawfully issuing or facilitating the buying and selling of crypto securities, and Republicans are now proposing to reward these illegal activities by making these activities legal. This is truly preposterous. Mr. Lynch, when he spoke, said this was one of the worst pieces of legislation he has experienced during his entire career. I understood why when I examined this bill and I saw that the Republicans created this new definition. This new definition is known as the investment contract assets. We have talked about this, but even in the Rules Committee, while they were talking about how this bill was going to protect consumers, they did not debate us about this investment contract asset because they know that it created a void. It created a no-man's-land. This was created basically so that the crypto companies could be in a space without regulation, but it goes further than that. It also covers traditional securities so they can be in a space without regulations. It is not enough to say this is a bad bill. This is not only a bad bill, this is a bill where the crypto companies decided they didn't like the SEC, they do not want to be regulated, and they were going to come to the Congress of the United States. They were going to use their power, they were going to use their influence to change the rules of the game, and they were going to now go to where the commodities are regulated, and they are going to take the securities over there. I explained to you that the CFTC is a small agency. I explained to you that they don't have a lot of money. I explained to you how much smaller they are than the SEC. The SEC are the experts. They have been developing regulations for this country for 90 years. The SEC is 90 years old, and it is respected all over the world. We are the envy of the world because we have an SEC. When I talk about this void that has been created, there is no way that the Members of this Congress can allow that to happen, to allow this no-man's-land to exist where the same crypto companies are now refusing to register, who are unlawful, that you are going to exonerate and then you are going to further give them the opportunity to operate without regulation. This is unbelievable. How can this happen in the Congress of the United States in the House of Representatives where we are supposed to represent the people? We have an SEC that is a cop on the block. We have an SEC that is expert in securities. The SEC goes into the courts, and they fight tough battles. These battles are long. These battles are hard because they are fought by the crypto companies. They don't give up because at least they have people who can begin to work on it. We try to give the SEC more money to do their work, but they are denied additional appropriations by the other side of the aisle.

Ms. WATERS. Mr. Chair, I thank the gentleman from Texas for attempting this amendment. As a matter of fact, there have been any number of Members from this side of the aisle who have been attempting to amend this bill to try and make it better. While I have great respect for all of those attempts, if my friends had listened, if they had accepted, perhaps they could have made this a better bill. Unfortunately, at this point in time, no, with all the work that this gentleman has done, Mr. Casar and others, my friends will not accept any amendments. They are not going to accept his amendment. They don't think that the bill can be made better, and unfortunately, the bill is so bad, I don't think it can be made better either.

Ms. WATERS. Mr. Chair, while I do not oppose this amendment, I will emphasize that the broad deregulatory nature of the not fit for purpose act is such that it would severely weaken our capital markets and make us more vulnerable to bad actors, both domestic and foreign. This amendment and the underlying bill do not protect consumers and investors. This amendment only requires a study on whether or not foreign adversaries are operating as digital asset registrants under the bill and collecting data on the U.S. consumer or investors. We should not just be studying this issue; we should be legislating strong data privacy protections that apply all across the board. Moreover, if TikTok was the inspiration for this bill, I will note that TikTok is not directly owned by the Chinese Government. The concern was that it was vulnerable to being unduly influenced by the Chinese Communist Party. If a China-based company was operating as a digital asset registrant under this bill, it would not fall within this study unless it was directly owned by the Chinese Communist Party. It would be easy for our adversaries to simply stand up proxy companies that appear to have no direct affiliation with them to evade the scrutiny of the study in the bill. While I plan to support this amendment, I don't think it provides any meaningful safeguards on consumer privacy and it certainly does nothing to fix the underlying problems of the not fit for purpose act. Mr. Chair, I reserve the balance of my time.

Ms. WATERS. Mr. Chair, I yield myself such time as I may consume. The bill's supporters have claimed that this bill is necessary to provide legal clarity as to when a digital asset is considered a security and when it is considered a commodity, but this bill is anything but clear. It is 253 pages of highly convoluted and poorly defined language. At the Rules Committee hearing yesterday, the Republicans testifying on the panel in defense of the bill could not answer a simple question from a fellow Republican as to whether dogecoin would qualify as a security or a commodity under this bill. They pointed to their five-part decentralization test in the bill, which is, again, anything but clear. The current test for determining whether something is a security is called the Howey Test. It has stood the test of time, with guidance from the SEC clarifying its application, in addition to decades of case law expounding on how it applies to a variety of different assets. Even the courts have agreed with SEC's interpretation of the Howey Test, classifying digital assets as securities in a strikingly consistent manner. The five-part decentralization test in this bill has not been tested, and it would create a slew of new litigation trying to decipher how it applies. Instead of a study, we should remember the fact that Members of Congress and legal experts struggling to agree on basic facts about what this bill would do foreshadows the mountains of litigation that this bill would result in to figure that out. This bill provides the opposite of legal clarity, as the bill supporters claim. Instead, it provides several more convoluted and untested definitions to replace the time-tested Howey Test in place today. The only thing clear about this 253-page bill is that it results in the substantial deregulation of crypto, just as the crypto industry has asked for. Mr. Chair, I yield to the gentleman from California (Mr. Sherman).