Caitlin Long accuses regulators of corruption in industry regulation

Custodia CEO Caitlin Long (formerly Avanti) said she had made an unsuccessful attempt to influence regulators to stop a major fraud in the industry amid problems at a crypto bank seeking a license.

1/ IT’S TIME FOR ME TO REVEAL A FEW THINGS. I’ve just published a post “Shame On Washington, DC For Shooting A Messenger Who Warned Of #Crypto Debacle.” Link to post is here:https://t.co/yTWWrEk3Os pic.twitter.com/rbo21DzOv3

— Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) February 17, 2023

According to the head of the organisation, a few months before the collapse of an unnamed company she handed over to law enforcement evidence of probable crimes. She also said there were risks of a bank run for industry-related lenders. Her argument was not heeded.

Long lamented that Custodia had become “the target of a coordinated attack” by the White House, the Fed, the Federal Reserve Bank of Kansas, and Senator Dick Durbin for daring to apply for a federal bank license.

“He [Durbin] put our 100%-liquid, creditworthy bank that does not use leverage, […] on the same level as FTX. The senator indirectly compared us to a 29-year-old accused of fraud who wears an electronic bracelet,” she stressed.

According to Custodia’s CEO, rooting out corruption and fighting fraud in the industry has nothing to do with the interests of the parties represented in Congress.

She drew a parallel with State Street founder Paul Cabot, who in the 1930s, during Oval Office negotiations, convinced then-President Franklin Delano Roosevelt not to “break” the mutual fund industry, which resembled the current crypto industry. The fruit of those efforts to “bring order” was the Investment Company Act of 1940, she reminded.

According to Long, Washington now seems ready to “kill honest innovators”.

“Few people in the industry truly understand how to separate the wheat from the chaff, and even fewer sit at the negotiating table with regulators, like me. While I have not had the opportunity to engage directly with decision-makers, I wonder whether my warnings have been buried in the bowels of bureaucracy,” she said.

Long proposed working with politicians of all stripes. She urged President Joe Biden to follow Roosevelt’s example—bring today’s “Cabots” to the negotiating table.

The Custodia CEO expressed confidence in the industry’s continued development and a reduced role for banks.

“The crackdowns imposed by Washington will only push risks into the shadows, forcing regulators to play ‘moles’, as they will emerge in unexpected places,” she warned.

Long remained optimistic and believed authorities would recognise that there are antidotes to fraud seeping into the system.

Kraken CEO Jesse Powell said it was infuriating that regulators ignore industry problems when pointed out by them with huge “red flags” and clearly illegal activity.

He lamented that for years he has been telling regulators about offshore competitors, and as a result Kraken itself becomes the target of persecution.

I can’t tell you how infuriating it is to have pointed out massive red flags and obviously illegal activity to regulators only to have them ignore the issues for years. “They’re offshore. It’s complicated. We’re looking at everybody.” FOR YEARS. Then to be used as their example. https://t.co/YHdNazM2UE

— Jesse Powell (@jespow) February 18, 2023

The head of Binance, Changpeng Zhao, asked Powell to choose his words more carefully, as the term “offshore” seems too narrow, self-centered, missing the broader picture and unhelpful to the development of our industry.

The top executive added that the leaders of FTX and its former CEO Sam Bankman‑Fried are Americans, and spent significant time and effort lobbying in the United States, which did not spare them from fraud.

The word “offshore”.@jespow uses the word “offshore” quite often. Here is my feedback.

The term “offshore” appears overly narrow-minded, self-centered, misses the broader picture and unhelpful to the development of our industry.

thread: 1/6 https://t.co/dPLdlsjb6F

— CZ 🔶 Binance (@cz_binance) February 20, 2023

“There are good (and bad) people everywhere. Embracing diversity and openness will lead to a better outcome. Any over-generalisation (especially about others) is counterproductive and negative. Let us beware of this. […] Blockchain has no borders. Let us build a better world together,” Zhao concluded.

Earlier, Compound founder Robert Leshner warned of a “Armageddon” in the industry due to actions by U.S. regulators.

Earlier, Gemini co-founder Cameron Winklevoss forecast a new bull run in the East.