fbpx

congress

Our Well-Timed Warning on FTX, Bankman-Fried and Future Cryptocurrency Regulations

This letter was sent to Senators, Congressmen of relevant committees, and regulators in the Consumer Financial Protection Bureau, Securities and Exchange Commission, and Commodity Futures Trading Commission in the aftermath of the FTX collapse. The previous letter can be viewed here.

Referring to the previous letter we sent to lawmakers and regulators on October 26, 2022, warning of the influence and inherent financial risks posed by then FTX CEO Sam Bankman-Fried and his related companies, here we offer our thoughts on what you should consider for future regulation on digital assets, cryptocurrencies, and the platforms that use them.

As you will have read by now, the alleged criminal actions of Mr. Bankman-Fried and his affiliated companies (FTX International, FTX Europe, Alameda Research, etc.), have led to several bankruptcy filings, will likely lead to expensive lawsuits, and, without a doubt, will invite investigations and questions from your colleagues and committees in Congress. All of these are necessary and prudent.

The halting of withdrawals for billions of dollars of customer funds, the intermingling of company and customer assets, the collateralization of new crypto tokens backed by nothing, and the unsustainable leverage conspired to create one of the most calamitous events in recent financial history. It is a stain on the reputation of creative entrepreneurs and builders providing value in the cryptocurrency space. This is made all the more troubling by the influence of this company and its leaders in our nation’s capital.

The significant influence of Mr. Bankman-Fried and his companies among Congressional members and staff, donations to political campaigns, and the close relationship with regulators present a damning case of what happens when politically connected firms aim to control and shape legislation without input from consumers and citizens.

While decision-makers were eager to meet with Mr. Bankman-Fried and mirror his biased suggestions on cryptocurrency policy in legislation and enforcement actions, consumer groups like ours sounded the alarm about the conflicts of interest detrimental to sound and principled policy for the millions of Americans who use and invest in cryptocurrencies like Bitcoin.

The Consumer Choice Center began writing publicly about the conflicts of interest and risky financial dealings of these companies and Mr. Bankman-Fried in September 2022, and how they would pose a considerable risk both to the legitimate cryptocurrency industry and to the savings and investments of millions of consumers. We remain steadfast in our conviction.

That said, as consumer advocates, we remain optimistic about the promises of Bitcoin, its cryptocurrency offspring, and the innovative blockchains, decentralized technologies, and crypto services that have evolved around them.

Users of decentralized technologies, however, do not need an industry approach to regulation. Regulations exist to set the rules of the game, not to chart the leaders of the game. This previous approach gave cover to FTX and its affiliated companies and has led to the disaster we see today.

The main caution we invoke, therefore, is that many proposed regulations aim to cement existing industry players and lockout innovative upstarts, while at the same time requiring the same restrictive rules that caused many people to explore cryptocurrencies in the first place.

As we have stated, if rules on crypto and its customers help solidify the financial portfolios, positions, and stock prices of only a select few companies, this will drive innovation away from our shores.

The bad actions of this particular company, while shocking and injurious to many, reflect the mistakes and alleged crimes of those involved. They do not, in any certain terms, condemn the wonderful possibilities of a crypto future nor the millions of consumers who responsibly use these technologies.

The frauds allegedly perpetrated are not too far removed from those of regulated financial firms that have deservedly reaped the consequences of misbehavior, either by the market or law enforcement. That the end product was cryptocurrencies instead of credit default swaps or mortgages makes no difference.

Fraud is fraud and remains illegal no matter what product a company is selling.

This is a stark contrast to the system of fractional-reserve banking that now underlies much of the American financial system and creates the incentives of malfeasance aided by loose monetary policy.

We should not mistake the ills of the current system for those of cryptographically secure digital assets.

With that in mind, rather than the approaches of several self-interested industry leaders, consumers deserve regulation on cryptocurrencies and digital firms that enforce existing rules on fraud (known as “rug pulls”), remain technologically neutral, offer reasonable and minimal taxation, and provide legal transparency. Punishing fraud and abuse, insider trading, and self-dealing should remain the focus.

As consumer advocates, we promote the principle of “self-custody” for crypto consumers, holding private keys to digital assets. This is a cryptographically secure method of controlling cryptocurrencies as originally intended, and one that should be an industry standard. This is the strongest method by which exchanges, brokerages, and those who regulate them can protect consumers. 

The aim of cryptographic digital assets and decentralized digital cash, since the founding of Bitcoin in 2008 by Satoshi Nakamoto, has centered on creating permissionless, peer-to-peer transactions offering a final settlement in a decentralized manner. That should be the guiding principle rather than temporary self-interest.

The whims of a select few industry players, however successful they may be, cannot be the guiding light for the future of decentralized digital money, as the saga of FTX has proven.

The Consumer Choice Center created a policy primer on Principles for Smart Cryptocurrency Regulations in September 2021 to highlight these concerns and we hope you will apply them.

We remain at your disposal for any further exploration of how best to craft rules, guidance, and regulation on the future of cryptocurrencies in our country, so that all society may benefit.

Sincerely yours,

Yaël Ossowski

Deputy Director

Consumer Choice Center

Aleksandar Kokotovic

Crypto Fellow

Consumer Choice Center

The fight over Facebook’s content censor button will make all users lose

By Yaël Ossowski

Once the so-called Facebook whistleblower revealed her identity and story, it was clear the narrative about the future of one of the largest social networking sites would soon go off the rails.

What Haugen revealed in her initial leaks to the Wall Street Journal, which they dubbed the “Facebook Files,” were documents and research on how Facebook had made decisions on which accounts to censor, survey data on Instagram use among teens, and the status of the civic integrity team tasked with countering misinformation around political topics.

Many of the revelations are indeed fascinating —and some damning — but they generally point to a company constantly embattled with external and internal demands to censor and shut down accounts and pages that spread “misinformation” and “hateful” content. Who determines what that content is, and what classifies as such, is another point.

Among her allegations in her first public interview on 60 Minutes, she posited that the disbanding of the civic integrity team, of which she was a part, was directly responsible for the January 6th riot at the Capitol building. 

In the days since, Haugen has become a hero to critics of the social media giant on both the right and the left, animating these arguments before a Senate subcommittee on consumer protection on Tuesday. 

It created the perfect Two Minutes Hate session in Washington and on major media, allowing unchecked conjecture, hyperbole, and feverish contempt for a platform that allows ordinary people to post online and small businesses to run ads on their products.

Unusual for DC, Republicans and Democrats are united on confronting Facebook, though they are animated by different reasons. Generally, Democrats say the platform does not censor enough content and want it to do more, evoking the “interference” that led to Donald Trump’s victory in 2016. Republicans, on the other hand, believe the censorship is pointed in the wrong direction, often targeting conservative content creators, and would like to see more even-handedness.

The picture painted by all lawmakers, however, is of a company adding to general societal discord.

“Facebook has caused and aggravated a lot of pain and profited off the spreading of disinformation, misinformation, and sowing hate,” said committee chair Sen. Richard Blumenthal, who days before received ridicule for asking Instagram to ban the “Finsta” program (Finstas are fake Instagram accounts created by teens to avoid the prying eyes of parents).

The comments of Blumenthal and others were indeed hyperbolic, considering the vast majority of Facebook product users post images, videos, and text to their friends and family and can in no way be considered objectionable, but it helps lead to their ultimate aim.

But considering the premise of these hearings and investigations on Capitol Hill is to frame and inform future legislation, it is clear that regulation will soon be directly targeted at social media content and users, not the company itself, will be the ones to suffer.

As much as one would like to castigate the Silicon Valley firm with tens of thousands of employees and a stock ticker, it derives its power and influence as a platform for billions of individuals with something to say. A select number of the posts on Facebook may be atrocious or wrong, and they deserved to be called out, but they still are the posts of individuals and groups. Users have the option to flag posts for inappropriate content.

What makes many of the allegations leveled at Facebook interesting — albeit insincere (content designed to elicit an angry response, body image issues, unverified stories, etc.) — is that many of these can also be lobbed at traditional institutions: clickbait partisan journalism, Hollywood and the modeling industry, and tabloids that operate as rumor mills. In the age of social media, however, these are dying breeds.

The fact that many media outlets are openly advocating against social networks, technologies that directly compete with them, also makes this quite conflicted as we have seen in Australia.

When regulations do come to pass, and we can only assume they will, the only significant action will be to restrict what can and cannot be posted on the platform. Whether it is the mandatory hiring of a certain number of moderators, a veto process for third parties, or mandatory ID verification, which advertisers are already subject to, it will mean limiting and censoring the platform. This will harm users and consumers.

While there are many positive reforms that could be invoked in the wake of the Facebook moment — a national privacy and data law, for example — likely it will be the users of these platforms who will ultimately suffer.

The new Internet age has led most of the world to untold levels of growth and prosperity. Being able to connect with friends and family wherever they may be is a public good that we have only begun to understand and appreciate.

If we allow regulators to deploy content censorship buttons and restrict our ability to post and interact online, who is to say that only the “bad guys” will be caught up in the net?

If we believe in free speech and an open Internet, it is our responsibility to push for sane, smart, and effective rules, not those that only seek to punish and restrict what people can say online.

Yaël Ossowski is the deputy director of the Consumer Choice Center.

US capitol storming

The storming of the US Capitol fueled by demagoguery and a threat to republican democracy

On Wednesday, we saw the worst passions of the American Republic storm through the doors of the U.S. Capitol in Washington, D.C.

For hours, people around the world watched as marchers and protestors transformed into rioters who ransacked various congressional offices, posed for photos on the House floor, and terrorized hundreds of congressmen and women, senators, staff, journalists, and Capitol hill police.

One woman, a protestor and rioter from Arizona, was shot and killed by Capitol police. Three others died due to medical emergencies, according to Washington, D.C., Police Chief Robert Contee.

The march outflowed from a “Stop the Steal” rally held by President Donald Trump in the hours prior, decrying the results of the 2020 Election and fueling various allegations of voter fraud and manipulation.

He urged his supports at the rally to turn their attention to the U.S. Congress, where both bodies were deliberating the final tally of the Electoral College votes.

Our organization, the Consumer Choice Center, advocates for lifestyle freedom, innovation, and consumer-friendly policies, and we wouldn’t normally interject on issues of law and order. But considering how close yesterday’s events came to the heart of the American Republic, it is impossible to overlook.

What transpired at the Capitol yesterday was something no one should tolerate in a liberal democracy such as the United States. The ransacking of a seat of the federal government, by any force or group of individuals, is an act of aggression that should no doubt be prosecuted.

It was, no doubt, a result of demagoguery and a violent urging at the hands of U.S. President Donald Trump.

There are many items of concern that our organization has broadly agreed with President Trump on: questioning the role of the World Health Organization early on in the pandemic, dismantling burdensome regulations that quash innovation, pushing for the safe and orderly opening of the economy after devastating coronavirus restrictions, and more.

At the same time, we have opposed the Trump administration when it was most needed: issuing disastrous tariffs that raise prices for all consumers, introducing drug pricing plans that will set back innovation while making drugs more expensive, and a federal vaping flavor ban that will deprive former smokers of the ability to choose a less harmful alternative.

Personally, I have opposed Trump’s desire to severely restrict and reduce immigration to our country. My family immigrated to the U.S. some 30 years ago, and we have enjoyed a much more fruitful life because of it.

But those policy arguments and disagreements are secondary to the very real threat of a violent parade of hysteria through the halls of the U.S. Capitol.

We advocate for ideas to improve society based on the rule of law and democratic order. We use the means of free expression, free assembly, and the right to petition our government to ensure that policies that help every consumer and every citizen will be the law of the land.

Seeing a mob trample into the primary seat of one of America’s branches of government achieves none of that, and should be rightly condemned.

Our decentralized republican democracy based on a time-honored Constitution, a system that is unique to the United States and has allowed for some of the most promising economic and social innovation in the world, was threatened. And we cannot excuse these actions in the slightest.

As I wrote in Huffington Post shortly after Trump’s 2016 victory, we must understand the pivotal role of government in our lives, and this to protect our life, our liberty, and our pursuit of happiness:

“The role of government is not to solve every dispute in society, reflect the diversity of its people or even to advocate on behalf of a particular worldview apart from that of freedom.

It is, as most all founding documents claim, to protect the life and liberty of its citizens. To ensure domestic tranquility and to protect against the infringement of certain liberties so that citizens may be allowed to flourish and live their lives as they see fit.”

Yaël Ossowski, Huffington Post, November 10, 2016

From this point forward, we must restore the rule of law and advocate for liberal democratic principles to advance the American project.

That President Trump should continue to serve out the last two weeks of his term, after this insurrection and rebellion in our nation’s capital, is unacceptable.

Whether it be through his removal from office by the invocation of the 25th Amendment by Vice President Mike Pence and the cabinet, or articles of impeachment in the U.S. House and swift removal by the U.S. Senate, something must be done to show to the world what happens when order and liberty are transgressed in a representative liberal democracy.

When the actions of certain individuals go too far, and when demagoguery threatens the very system that allows us to freely enjoy our liberty and pursue happiness how we see fit, that is an appropriate time to use the tools at our disposal to rectify injustice.

Let us hope justice conquers after the events of this week.

The Myth of the Vaping Crisis is Sparking a New War on Flavored Nicotine Products – And That Harms Consumers

In the backdrop of a very busy Congress, members of the U.S. House are pushing a bill that would eradicate entire categories of flavored nicotine products.

This sweeping ban would directly harm consumers who use menthol tobacco, flavored cigars, snus, and vaping products by outlawing the products they use and pushing them to the black market.

The proposed law comes in the wake of the much-hyped “vaping crisis” that transpired over the summer, in which thousands of individuals suffered lung damage from inhaling vapor products, also called e-cigarette, or vaping, product use-associated lung injury (EVALI).

In the end, the culprit was revealed to be illegal cannabis vaping cartridges loaded with Vitamin E acetate and not nicotine vaping products, according to the Centers for Disease Control.

Read the Consumer Choice Center Policy Primer: Myths and Facts on Vaping: What Policymakers Should Know

Though scientific experts correctly identified the cause of the injuries – black market THC cannabis vape cartridges – that hasn’t stopped legislators from using that pretext to introduce new prohibitions on flavored tobacco products used responsibly by adult consumers.

H.R. 2339, named the Reversing the Youth Tobacco Epidemic Act of 2019, proposes several sweeping changes to flavored consumer products and is expected to soon hit the House floor for a vote.

The bill would outlaw the following:

  • Menthol products
  • Flavored cigars and cigarillos
  • Flavored smokeless tobacco, known as snus or dip.
  • Some flavored vaping products

The goal is to significantly reduce or eliminate youth use of these products, which is a noble pursuit.

But youth smoking is at an all-time low

Fewer young people than ever are using traditional tobacco products – less than 2.3%. That’s a significant decline since the year 2000, where nearly 15% of minors smoked cigarettes, according to the CDC.

  • This represents a public health victory, and one that has been achieved with sensible education, regulation, and innovation. The same is true for adult smokers. Just 13.7% of adults currently smoke, the lowest number ever recorded.
  • The latest CDC figures show that 20.8 percent of high schoolers have vaped at least once in the last 30 days. But 7 to 8% of those were vaping cannabis rather than nicotine.
  • A total flavor ban on all tobacco products and vaping products for adults would do little to curb use among youth.
  • It may even exacerbate the problem and only punish lawful adult consumers and deprive them of their choice, not to mention devastate the communities that rely on tobacco taxes to fund important social programs.

What’s more, by categorizing non-tobacco vapor products as tobacco products, House members are attacking the very innovation that has led to the lowest-ever figure of recorded tobacco use.

Prohibition Hasn’t Worked

The 100-year anniversary of the passage of Prohibition of alcohol took place last month.

  • All these years later, we know that outlawing certain consumer products does not eradicate their existence. Rather, it moves them from the legal, regulated market to the illicit and unregulated black market.
  • This makes the products themselves less safe, and the trade around those products even more dangerous.

After an entire nation had awoken to the disaster of Prohibition, it was successfully repealed in 1933.

Minorities are more likely to use menthol products

According to the CDC, African-Americans who use tobacco are 90% more likely to favor menthol products and represent the vast majority of consumers in the flavored tobacco market.

  • A ban would create an illicit market without regulations or ID checks
  • Such bans would then force police officers to crack down on illicit menthol cigarette trade, further straining relations between the African-American community
  • As seen in the case of Eric Garner, who was choked out by a police officer and later died in New York City for selling loose cigarettes on the street, bans and restrictions that create illegal markets can lead to devastating consequences.
  • If a law bans menthol and flavored tobacco products, the demand wouldn’t disappear.

Rather, it would be pushed into the unregulated market, siphoning away tobacco taxes and incenting police officers to use their power to enforce laws in minority communities.

Age-restriction by law is a powerful means of dissuading youth use

By penalizing convenience retailers that sell to minors, regulators have already created a significant barrier to youth access.

  • This allows law enforcement to prosecute bad actors and focus their efforts on illicit markets where dealers don’t ask for ID.
  • Recently, Congress’ raising of the age to purchase tobacco and vaping products to 21 years old also dissuades youth use, ensuring no high schooler will be able to legally purchase these products.
  • Nearly half of tobacco and vape shops don’t ID young customers.

Enforcing existing laws on youth access, including prosecuting shops that don’t check ID, are a powerful means of keeping youth away from tobacco products.

Bans Deny the Science on Harm Reduction by Vaping and Smokeless Products

For many adult smokers looking to quit, vaping products have been proven key to harm reduction.

  • About 4.4% of adults, nearly 11 million, are now using vaping devices
  • National health bodies around the world, including Public Health England, the New Zealand Ministry of Health, and Health Canada have endorsed vaping as a smoking cessation method.
  • The U.K.’s top health body has repeatedly said that vaping and e-cigarettes are 95 percent less harmful than smoking.
  • Bans that include flavored vaping products would deprive adult smokers of a less harmful method of consuming nicotine

We all have an interest in eliminating the number of young people who take up smoking. But counterintuitive bans would make that goal harder, not easier to achieve.

And depriving adult consumers of harm reducing technologies like flavored vaping products will reserve the decades of public health successes.

Let’s hope our members of Congress consider these facts before they vote on H.R. 2339.

Download the full policy note here.

Consumer Choice Radio

ConsEUmer Podcast

Consumer Choice Center Cast

Follow us

Facebook-f Twitter Instagram Linkedin Youtube Spotify

Contact Info

712 H St NE PMB 94982
Washington, DC 20002

info@consumerchoicecenter.org

© COPYRIGHT 2023, CONSUMER CHOICE CENTER

Scroll to top