WASHINGTON, DC – U.S. Senator Sherrod Brown (D-OH), chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, delivered the following opening remarks during today’s hearing titled “Protecting Investors and Savers: Understanding Scams and Risks in the Crypto and Securities Markets.
Senator Brown’s remarks, as prepared for delivery, follow:
Financial fraud and scams have always been with us. In fact, they are older than money itself. Criminals have always found inventive ways to swindle people out of what they earn.
Crypto is no different.
The scams that have persisted in the securities markets can easily be translated into crypto assets. They may seem even more appealing to potential victims when wrapped in new technology and with the promise of quick and outsized returns.
In the early years of Bitcoin, scammers hacked into exchanges to steal from early adopters. It didn’t take crypto scammers long to realize that Bitcoin can be used for age-old frauds like Ponzi schemes and fake investments – promising big returns with only upside and no risk.
Last March, this committee examined how cryptocurrencies could be used in illicit financing such as terrorism and human trafficking. Today’s hearing examines how the growing presence of fraud and speculation in the crypto and securities markets threatens investors and savers.
Over the past two months, we have witnessed dramatic explosions in the crypto markets, exposing both the alarming interconnectedness and the enormous risks among crypto businesses.
Consumers and investors have been misled by promises that their crypto will earn double digit interest rates – in perpetuity.
Think back to the multi-million dollar Super Bowl ads and who they targeted.
But one crash after another has revealed how quickly supposedly “stable” investments can crumble. We have seen that unregulated and unlicensed entities can both borrow and lend hundreds of millions of dollars to engage in risky crypto transactions.
Our witnesses know all too well the fraud and risks in the growing crypto markets. They have been on the front lines in the securities markets, chasing bad actors, exposing fraud, and educating investors and investment firms.
While the work of state securities regulators and FINRA is always important, it is especially critical during times of market volatility and economic uncertainty. These are the times when diligent savers see their retirement accounts dwindle, and offers of supposed “guaranteed profits” or, quote-unquote, “risk-free” investments may seem more tempting.
Crypto’s appeal is understandable.
Promises of double-digit interest and lies about FDIC insurance or SIPC protection appeal to Americans scared of market volatility and worried about retirement — or piling up bills.
Times of crisis also create opportunities for those seeking to exploit economic anxiety.
At the start of the coronavirus pandemic, all of our financial watchdogs started issuing warnings about COVID-19 scams. From vaccine investment fraud, to sales of unnecessary PPE, fraudsters have used our fears to steal and cheat.
Our witnesses today will also discuss scams and frauds that target vulnerable groups or tight-knit communities, where pre-existing trust and relationships can be abused. This is another area financial watchdogs are familiar with.
Seniors and other vulnerable Americans too often fall victim to scammers, peddling Ponzi schemes or using high-pressure tactics to get victims to part with their money, right away.
This committee has seen the predatory behavior that targets service members looking for affordable short-term credit, who are instead sold high-cost payday loans. Bad actors touting supposedly “safe” investments use similar predatory methods to defraud military families.
And we know that these frauds are often under-reported.
Victims blame themselves or don’t want to admit what happened. We need to fix that, and Ms. Walsh will talk about that today.
US markets are the envy of the world. Our diversified economy and the rule of law help families and workers save for the future.
We have to keep it that way.
That is why law enforcement and our regulators, like our witnesses today, need to be vigilant. They must be able to identify scams and act quickly to punish bad actors.
Just last week, the FBI issued a warning to financial institutions about cybercriminals creating fraudulent cryptocurrency investment apps. Officers found hundreds of victims who collectively lost tens of millions of dollars.
And we know this is just the beginning. There are more casualties and more casualties every day.
My colleagues opposite seem confused about our priorities.
Our markets are the envy of the world, because of – not in spite of – the way we protect Americans’ money. Supposed “innovation” and “opportunity” mean little if they come at the cost of massive fraud.
New ways to cheat people with their money is not the kind of innovation most people want in our economy.
We hear industry players calling for “rules of the road” when a big fraud is uncovered and after a bad actor has knowingly broken the law. The rules are there, the roadmap is clear, and this committee must ensure that our regulators enforce the law and protect the workers and families who keep our economy and markets running.
As this committee and the American people learn more about crypto-based investments and understand how frauds and scams thrive, we will push our regulators to do more. Of course, that means the SEC. It also means banking regulators.
Industry should not be allowed to write the rules they want to follow.