On March 14th, 2018, Chris Brummer, professor at Georgetown Law, along with a panel of experts in the fields of financial regulation and cryptocurrency met before the United States House of Representatives’ Capital Markets, Securities, and Investments subcommittee to provide testimony for the first ever hearing on cryptocurrencies and ICO’s. According to a memorandum released by the subcommittee, the intention of the hearing was to “examine the economic efficiencies and potential capital formation opportunities that cryptocurrencies and ICOs potentially offer to businesses and investors, and review the adherence to applicable laws so that investors receive the full protections afforded by the federal securities laws.”
The witnesses that comprised the expert panel included Dr. Chris Brummer, Mike Lempres (Chief Legal and Risk Operator at Coinbase), Robert Rosenblum (partner at Wilson Sonsini Goodrich & Rosati), Peter Van Valkenburgh (Director of Research at Coin Center). Over the course of several hours, the members of the panel discussed a wide array of topics, from cyber security standards and regulation oversight to existing law application and even the utilization of cryptocurrency by white supremacists. See video of the speakers’ testimony here.
While opinions on the appropriate method to regulate these burgeoning markets differed between the members of the expert panel, there were many notable insights made during this hearing. After discussing the recent hacking of Japanese cryptocurrency exchange CoinCheck, during which over $500 million US worth of digital tokens were stolen, Mike Lempres indicated that CoinBase, one of the largest crypto-exchanges in the world, currently does not conform to any federal cyber security standard. Instead it adheres to a standard outlined by New York State Law, called BitLicense.
Commenting on the increasing popularity of Initial Coin Offerings, as well as the number of fraud accusations that have been increasingly accompanying ICO’s, Dr. Brummer indicated, “evidence of fraud is rife in many ICOs, necessitating welcome responses by regulators, but an awareness of the need for better policing of these markets is not in itself sufficiently instructive as to what one would like to see affirmatively disclosed in ICOs, whatever the overlying regulatory architecture.”
While it appears that only time will tell what roles agencies like the CFTC and the SEC might play in regulating these ever-expanding cryptocurrency markets, Coin Center’s Peter Van Valkenburgh left the subcommittee with a word of warning. Hasty, myopic, or incomplete legislation would force these “truly innovative capital formation opportunities” to seek homes in outside countries – taking with them the potential of significant economic activity.
Chris Brummer is Agnes N. Williams Research Professor and Faculty Director of Georgetown’s Institute of International Economic Law. Prior to joining Georgetown’s faculty with tenure in 2009, Brummer was an assistant professor of law at Vanderbilt Law School. He has also taught at several leading universities as a visiting professor including the universities of Basel, Heidelberg, and the London School of Economics.
Professor Brummer recently concluded a three-year term as a member of the National Adjudicatory Council of FINRA, an organization empowered by Congress to regulate the securities industry, where his work was praised as making a significant contribution to advancing investor protection. In 2016, Professor Chris Brummer was nominated by President Obama to serve as a Commissioner on the Commodity Futures Trading Commission, the U.S. regulator of derivatives. He received unanimous approval in the vote by the Senate Agriculture Committee prior to the election.