Congress wants to know what Coinbase, Binance.US, FTX, Kraken, and KuCoin are doing to combat cryptocurrency scams. The House Committee on Oversight and Reform expresses concern in separate letters to each crypto exchange about “the rapid growth of fraud and consumer abuse,” as well as the “lack of action by cryptocurrency exchanges to protect consumers conducting transactions.”
The committee’s letters cite data from the Federal Trade Commission (FTC) indicating that over 46,000 people in the United States have lost a total of $1 billion due to cryptocurrency scams since the beginning of 2021, with individuals losing an average of $2,600. Investment and romance scams have been particularly lucrative for bad actors, with each scheme yielding approximately $575 million and $185 million, respectively.
Concerns about bogus listings are not unfounded.
Furthermore, the letters raise concerns about fraudulent listings that scammers use to conduct “rug pulls,” or the act of hyping up a coin to increase its value, only to shut down the project and steal the assets themselves. According to lawmakers, some exchanges “allow digital assets to be listed with little or no vetting,” which prevents exchanges from discovering potential vulnerabilities and exposes users to theft.
Legislators have valid concerns about fraudulent listings. The Securities and Exchange Commission (SEC) is currently investigating Coinbase for allowing users to trade unregistered securities. This investigation is distinct from the one in which a former Coinbase employee is charged with wire fraud. The former employee involved in the case allegedly informed his brother and friend about upcoming exchange listing announcements, which is typically when a token’s value increases.
The government’s scrutiny of crypto has only grown in the midst of a crypto crash that has seen the value of stablecoins plummet, crypto companies go bankrupt, and mass layoffs. The Commodity Futures Trading Commission (CFTC), the Federal Bureau of Investigation (FBI), and the Department of Justice (DOJ) all announced in July that they are cracking down on cryptocurrency scammers. Each agency opened cases against various fraudsters, all of whom escaped with millions or billions of dollars.
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The committee is requesting documentation from FTX, Binance, Coinbase, KuCoin, and Kraken regarding their efforts to prevent scams, perform audits, investigate fraudulent listings, and more. The documents must be submitted by September 12th, 2022. In addition to the exchanges, the committee asked the Treasury Department, the FTC, the CFTC, and the SEC how they plan to combat scams.
