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US lawmakers argue SEC accounting policy places crypto customers at risk

While the bulletin was intended to provide clarity regarding the accounting treatment for digital assets, it has been criticized by both lawmakers and regulators.

Two United States lawmakers have criticized crypto accounting guidelines outlined by the national securities regulator, arguing they places crypto customers at greater risk of loss.

The guidelines came from the United States Securities and Exchange Commission and became effective in April last year.

The guidelines ask financial companies holding crypto for customers to recognize all digital assets they do not control as a liability. They also state that digital assets should be backed by a safeguarding asset.

However, Senator Cynthia Lummis and Representative Patrick McHenry argued on March 2 that these guidelines will “likely” discourage regulated entities from engaging in digital asset custody, which is the opposite effect of what the regulator should be doing. 

In a letter to ranking individuals with the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the National Credit Union Administration, the lawmakers argued that while Staff Accounting Bulletin (SAB) 121 was intended to provide clarity on accounting treatment for digital assets, it carried negative side effects. They wrote:

“SAB 121 places customer assets at greater risk of loss if a custodian becomes insolvent or enters receivership, violating the SEC’s fundamental mission to protect customers.”

The lawmakers argue the effect of SAB 121 will be to “deny millions of Americans access to safe and secure custodial arrangements for digital assets.”

The lawmakers also disagreed with the “breadth of the ‘digital asset’ definition in SAB 121,” arguing that “a more nuanced hierarchy for this asset class which considers the opportunities and risks of digital assets with different functions is necessary.”

Related: SEC chair implies crypto exchanges may not be ‘qualified custodians’ as new rule is drafted

Lawmakers including Lummis have kicked up a fuss over the SEC accounting bulletin in the past.

Last year, five Republican senators, including Lummis, sent a letter to the SEC on June 16, sharing their concern that the bulletin amounted to “regulation disguised as staff guidance” and did not adhere to the Administrative Procedure Act.

SEC commissioner Hester Peirce shared similar concerns on March 31, soon after the bulletin was released, noting it was “the way the change is being made” rather than the accounting determination itself she took issue with. She characterized the change as:

“Yet another manifestation of the Securities and Exchange Commission’s scattershot and inefficient approach to crypto.”

FEC probe demanded after SBF ‘admitted’ making dark money donations

Sam Bankman-Fried previously told crypto vlogger Tiffany Fong that all his Republican donations “were dark.”

A watchdog group has demanded an investigation into Sam Bankman-Fried’s political donations, claiming the former FTX CEO admitted to donating tens of millions of dollars to Republicans under the table, in violation of federal law.

The Citizens for Responsibility and Ethics in Washington (CREW) filed the complaint with the Federal Election Commission (FEC) on Dec. 8, citing comments made by Bankman-Fried in a Nov. 16 interview with cryptocurrency vlogger Tiffany Fong released via YouTube on Nov. 29.

CREW suggested in its complaint that wealthy donors often take advantage of the Citizen United ruling to evade federal disclosure laws by using intermediaries and claiming they were unaware of where the funds ended up, but that Bankman-Fried’s admission negates this plausible deniability. As CREW senior vice president and chief counsel Donald Sherman notes:

“Bankman-Fried said the quiet part out loud. He admitted that he violated federal laws designed to ensure Americans have transparency into those funding elections and now needs to be held accountable.”

CREW has asked the FEC to investigate the violation, and take any further action that is appropriate such as referring the matter to the Department of Justice for criminal prosecution.

The group accused Bankman-Fried of “direct and serious violations of the Federal Election Campaign Act,” which requires the disclosure of political donations of over $200 a year.

Related: FTX’s Bankman-Fried to face market manipulation probe, Do Kwon chimes in

In the Nov. 16 interview with Fong, Bankman-Fried claimed to have “donated about the same to both parties.” Given that he was the Democrats’ second largest donor, according to OpenSecrets, these “dark” donations appear to involve a substantial amount of money.

“All my Republican donations were dark,” SBF noted, before adding:

“The reason was not for regulatory reasons, it’s because reporters freak the fuck out if you donate to Republicans, they’re all super liberal. And I didn’t want to have that fight.”

Bankman-Fried has been on something of an apology tour since his fall from grace, making a variety of public appearances including interviews with The New York Times’ DealBook Summit, Good Morning America and plenty of Twitter Spaces.

He has repeatedly claimed that he is conducting these interviews against the advice of his lawyers, who have advised him to lay low and not say anything lest his comments land him in hot water.