The Wall Street Journal: Crypto companies are enhancing their influence by hiring former government officials

Original Authors: Paul Kiernan, Dave Michaels, The Wall Street Journal

Original Title: 《Crypto Aims to Boost Influence With Washington Hires》

Translation by: Gu Yu, Chain Catcher

The cryptocurrency industry has secured a foothold in Washington's revolving door, hiring dozens of former government officials and regulators as it seeks to shape policies to manage a largely unregulated market.

Individuals working for or advising cryptocurrency companies or investment funds include three former chairs of the U.S. Securities and Exchange Commission (SEC), three former chairs of the Commodity Futures Trading Commission (CFTC), three former U.S. senators, and at least one former White House chief of staff, former Treasury secretary, and former chair of the Federal Deposit Insurance Corporation.

The oversight organization Tech Transparency Project has identified over 200 former staffers from federal agencies, congressional offices, and national political campaigns who have worked in the crypto space. They have gone to companies like Coinbase, Circle, and FTX, venture capital funds like 16z, law firms representing cryptocurrency clients, and trade associations focused on cryptocurrency.

This trend comes as regulators rush to establish rules to protect investors in the cryptocurrency market and prevent illegal activities or financial instability. On Wednesday, President Biden signed an executive order directing federal agencies to conduct a broad review of cryptocurrency.

"In Washington, this emerging industry typically doesn't accumulate so much hard and soft power," said Jeff Hauser, executive director of the progressive organization Revolving Door Project. He noted that as they recruit former government officials, lobbying and political spending by crypto companies have surged.

Recruiters span various roles, including alumni from both Republican and Democratic administrations. Industry representatives say that former government officials can help companies comply with the law and understand regulatory expectations.

Former SEC chair Mary Jo White is now a lawyer at Debevoise & Plimpton LLP, where she is defending cryptocurrency issuer Ripple Labs Inc. against an SEC enforcement action. Ms. White led the SEC during the Obama administration.

Former Treasury Secretary Lawrence Summers advises cryptocurrency investment firm Digital Currency Group Inc. and serves on the board of Block Inc., a fintech company investing in cryptocurrency payment systems. Meanwhile, former acting comptroller of the currency Brian Brooks is the CEO of Bitcoin mining company Bitfury Group and briefly served as CEO of Binance.US, a U.S. subsidiary of a large global exchange.

A person familiar with several hiring arrangements said that total compensation for former officials in the cryptocurrency industry can reach seven figures, while top salaries at regulatory agencies are about $250,000. Former officials going to cryptocurrency-focused companies or investment funds can also negotiate potentially valuable long-term incentives, such as stock options or a share of profits known as carried interest.

Two recent developments have driven the hiring.

First, after the 2020 election, the industry realized that cryptocurrency might not remain unregulated forever. While the Trump administration included some outspoken supporters of cryptocurrency, most senior officials in the Biden administration have expressed skepticism about the asset class.

Second, a provision in last year's bipartisan infrastructure package required cryptocurrency brokers to submit tax forms to the IRS. The cryptocurrency industry argued that the provision was overly broad but failed to have it removed from the bill.

"This is the watershed moment of 'Wow, we need these people,'" said Julian Ha, a partner at the recruiting firm Heidrick & Struggles in Washington, who recruits for cryptocurrency companies.

The recent surge in the value of digital tokens has provided the cryptocurrency industry with funding to compete for talent in Washington. According to CoinMarketCap, the total value of the cryptocurrency market recently stood at about $1.73 trillion, up from $200 billion two years ago.

The industry and its lobbying firms have long been recruiting former government officials to help shape policy. What’s unique about cryptocurrency is that the basic rules of the road are unwritten. Existing financial regulations, if applied to the crypto market, could impose heavy costs on today’s highly profitable companies. Meanwhile, the industry is pushing for new rules that are more suitable and easier to comply with.

"Often, we talk about how the industry spends all this money on political influence, and they get huge returns from tweaking some small regulatory policies," said Dan Auble, a lobbying expert at OpenSecrets, an organization tracking the flow of money in politics. "But this is really a situation where what the government does in the coming years could make or break the industry."

In Washington, the industry is clashing with the SEC and lobbying Congress to enact new laws that are said to be more aligned with how its technology operates. In the eyes of some policymakers, a roster of experienced former regulators can lend credibility to companies that often describe traditional finance as mundane and elitist.

Former government enforcement officials have become attractive hires for cryptocurrency companies needing regulatory or enforcement review assistance.

Former SEC litigation attorney Dugan Bliss left the agency in May 2021 to join BlockFi, a cryptocurrency company that allows users to earn yields by lending out Bitcoin or similar tokens. BlockFi agreed last month to pay $100 million to the SEC and several states to settle allegations that its interest-bearing accounts violated investor protection laws. A company spokesperson said Mr. Bliss did not participate in the BlockFi investigation while at the SEC.

Mr. Bliss was part of the SEC's legal team that fought in court against cryptocurrency company Ripple and its two top executives. The SEC argued in a December 2020 lawsuit that Ripple raised nearly $1.4 billion by selling its digital currency XRP, violating investor protection rules, while its co-founder and CEO profited hundreds of millions of dollars from the trades. Ripple countered that XRP is used for international payments and is not an investment regulated by the agency.

Ms. White represents Ripple against the SEC. Her enforcement chief Andrew Ceresney is also on the defense team. In court filings in April, the SEC claimed that Ms. White and Mr. Ceresney's legal strategy involved "harassing" the SEC by making evidence requests, while both litigators knew they had previously worked at the SEC, which was irrelevant. A federal district judge stated in January that Ripple and its executives were entitled to some records from the SEC but allowed the agency to keep most records confidential.

Christopher Giancarlo, who stepped down as CFTC chair in 2019, argued in a June 2020 article that XRP should not be overseen by the SEC. His law firm had represented Ripple, and Mr. Giancarlo relied on information provided by Ripple to write the article. In an interview, he declined to say whether he knew at the time of publication that Ripple was under investigation by the SEC.

Mr. Giancarlo was in charge of the CFTC when it approved Bitcoin futures contracts, a move he said brought cryptocurrency "into the regulated space." Since then, he has been helping companies because he believes the technology underpinning cryptocurrency will change how finance operates for the better.

"So I came out," he said, "and I advise companies on how to stay on the right side of the law and how I believe the law will evolve."