GOOD MORNING, AND WELCOME TO, UH
, WELCOME TO EVERYONE TO OUR
OVERSIGHT HEARING OF THE CRYPTO
MARKET. I WOULD LIKE TO START
OFF THIS HEARING THIS JOINT
HEARING BETWEEN ASSEMBLY AND
SENATE THANKING SENATE CHAIR
LIMÓN AND HER STAFF AS WELL AS
THE ASSEMBLY BANKING STAFF FOR
HELPING ORGANIZE TODAY'S
HEARING. IT DEFINITELY ISN'T AN
EASY TASK AND TODAY WOULD NOT
HAVE BEEN POSSIBLE AT ALL
WITHOUT THE HELP. OF BOTH
SENATOR LEMON AND STAFF. I ALSO
WANT TO NOTE THAT THERE IS A
BACKGROUND PAPER PUBLISHED ON
THE COMMITTEE'S WEBSITE, AND
THERE ARE ALSO COPIES THAT ARE
AVAILABLE HERE IN THE ROOM FOR
YOU. THE PURPOSE OF THIS HEARING
IS TO ANSWER THE FOLLOWING
QUESTION IN LIGHT OF CONTINUED
TURMOIL AND UNCERTAINTY IN THE
CRYPTO MARKET. WHAT CAN
POLICYMAKERS DO TO PROTECT
CALIFORNIANS FROM THOSE? WHO
SEEK TO DEFRAUD THEM, SCANNED
THEM OR MISUSE THEIR HARD EARNED
MONEY. SINCE I BECAME CHAIR OF
THE ASSEMBLY BANKING AND FINANCE
COMMITTEE TWO YEARS AGO AND
BEGAN EXAMINING THIS EMERGING
AND UNDER REGULATED INDUSTRY
MORE CLOSELY. A FEW THINGS STOOD
OUT FIRST. THE TECHNOLOGY AND
THE NATURE OF THE PRODUCTS AND
SERVICES OFFERED TO CONSUMERS
ARE RAPIDLY CHANGING, AND IT CAN
BE DIFFICULT FOR REGULATORS AND
POLICYMAKERS TO KEEP UP. SECOND
PEOPLE BECOME INTERESTED IN
CRYPTO FOR ALL KINDS OF REASONS
, AND MANY INVESTORS DO THEIR
RESEARCH AND KNOW THAT CRYPTO
INVOLVES SIGNIFICANT INSTABILITY
AND INVESTMENT RISK. BUT EVEN
SAVVY INVESTORS CAN BE CAUGHT
SURPRISED BY THE LACK OF
INSURANCE THAT THE TREATMENT OF
THEIR ACCOUNTS DURING BANKRUPTCY
OR THE INADEQUATE CRYPTO
SECURITY PROTOCOLS THAT ARE OUT
THERE. SO THESE KINDS OF THINGS
WE OFTEN ARE THINGS THAT WE TAKE
FOR GRANTED IN OTHER AREAS OF
FINANCE, AND EVEN THOSE
INVESTORS WHO UNDERSTOOD THAT
ALL THOSE RISKS EXIST. THEY
REALIZED TOO LATE THAT THEY WERE
ACTUALLY PLAYING A RIGGED GAME
BECAUSE OF INSIDER TRADING OR
MARKET MANIPULATION, OR BY THE
VERY NATURE OF HOW TOKENS COME
TO THE MARKET. THE LAST NOTABLE
THING IS THE PASSION. I HAVE
BEEN IMPRESSED BY THE ENTHUSIASM
THAT INDUSTRY INNOVATORS HAVE
FOR THEIR WORK, AND I LOVE THAT,
AND MY GOAL IS NOT TO UNDERMINE
THAT GOOD WORK, BUT TO PROTECT
CALIFORNIANS AND HELP BRING
REGULARITY. CLARITY TO THE
CRYPTO MARKET IS MY PASSION.
MAYBE WE DISAGREE ON WHAT THE
CLARITY MAY LOOK LIKE, BUT I
THINK WE CAN ALL AGREE THAT
KRYPTOS FUTURE IS VERY UNCERTAIN
UNLESS THE RULES OF THE ROAD ARE
UNDERSTOOD BY ALL. SO WHY ARE WE
HAVING THIS HEARING? NOW WE ARE
HERE BECAUSE A LOT HAS HAPPENED
IN THIS LAST YEAR. IN FEBRUARY,
2022 MILLIONS OF AMERICANS SAW
SUPER BOWL ADS PROMOTING CRYPTO
COMPANIES. THESE ADS CONVEY THE
IDEA THAT YOU WERE LOSING OUT BY
NOT BUYING OR INVESTING IN
CRYPTO CRYPTO, IT SEEMED HAD
GONE MAINSTREAM. IN MARCH, THE
BIDEN ADMINISTRATION ISSUED AN
EXECUTIVE ORDER THAT ACTED AS A
CALL TO ACTION TO PROTECT
CONSUMERS, INVESTORS AND
BUSINESSES WHILE PROMOTING
RESPONSIBLE DEVELOPMENT AND USE
OF DIGITAL ASSETS. IN APRIL. THE
NEWSOME ADMINISTRATION ALSO
ISSUED AN EXECUTIVE ORDER TO
PROMOTE THE DEVELOPMENT OF
CRYPTO BUSINESSES AND
RESPONSIBLE INNOVATION. WE WILL
HEAR MORE ABOUT THAT EXECUTIVE
ORDER IN JUST A LITTLE BIT, AND
IN MAY, THE CRYPTO INDUSTRY
EXPERIENCED THE FIRST OF MANY
LARGE SCALE FAILURES THAT WOULD
REVERBERATE THROUGHOUT THE
INDUSTRY, CAUSING SIGNIFICANT
HARM FOR OTHER BUSINESSES AND
RETAIL INVESTORS. IN THIS CASE,
OR AT LEAST IN THE FIRST CASE.
THE COLLAPSE OF TERROR LUNA
STABLE COIN LED TO A 40 BILLION
LOSS, DISRUPTING THE
CRYPTOCURRENCY MARKET AND
HIGHLIGHTING THE NEED TO AT
LEAST LOOK CRITICALLY AT THE
SAFETY AND SOUNDNESS OF CERTAIN
KINDS OF CRYPTO TOKENS IN JUNE,
CRYPTO LINDER CELSIUS NETWORK
STOPS WITHDRAWALS, FREEZING THE
ACCOUNTS OF THE PLATFORMS 1.7
MILLION USERS AND IN JULY CRYPTO
BROKER, VOYAGER FROZE CUSTOMER
FUNDS AND FILED FOR BANKRUPTCY
AND JUST AS IT SEEMED LIKE
CRYPTO CRYPTO MARKET WAS
RECOVERING FROM THESE EVENTS. IN
NOVEMBER, WE SAW THE MELTDOWN OF
PROMINENT CRYPTO EXCHANGE F T X,
WHICH LED TO THE ARREST OF ITS
CEO. SANDBANK MAN FREED THE
COLLAPSE OF FDX SEEMS TO HAVE
BEEN A WATERSHED MOMENT FOR
CRYPTO. THERE'S A LOT OF THERE'S
A LOT TO CONSIDER ABOUT THE
POLICY IMPLICATIONS OF FT X'S
COMPLICATED BUSINESS ACTIVITIES
AND THE RISK THE COMPANY
REPORTEDLY TOOK WITH ITS
CUSTOMER FUNDS. BUT IT SEEMS TO
ME THAT THE LARGER EFFECT IS ON
KRYPTOS REPUTATION. FDX HAS
CONVEYED A MESSAGE TO THE
GENERAL PUBLIC THAT CRYPTO IS
NOTHING BUT SCAMS AND MAGIC
BEANS, FINANCIAL PRODUCTS WITH
NO REAL VALUE. I DON'T BELIEVE
THIS IS TRUE FOR THE RECORD. I
THINK THAT'S A FALSE NARRATIVE,
BUT IT'S HARD TO ARGUE AGAINST
GIVEN THE MAGNITUDE OF THE
ALLEGED FRAUD AT FT. X IN
SUMMARY, IT IS CLEAR THAT
SOMETHING IS NOT RIGHT IN CRYPTO
AND PEOPLE ARE GETTING HURT FROM
THESE HIGH PROFILE FAILURES.
THEY ARE LEFT WITHOUT ACCESS TO
THEIR FUNDS, AND THEIR MONEY IS
GONE. SO MANY CALIFORNIANS HAVE
SUFFERED REAL FINANCIAL DAMAGE
AND MORE STILL REMAIN AT RISK OF
SIMILAR HARM. IF WE DO NOT TAKE
ACTION HERE IN THE LEGISLATURE
SO WHAT IS TO BE DONE TODAY WE
WILL REVISIT THE NEWSOME
ADMINISTRATION'S EXECUTIVE ORDER
AS WELL AS THE LEGISLATURE'S OWN
EFFORTS TO PROVIDE NECESSARY
OVERSIGHT OVER THE CRYPTO
MARKET. WHEN GOVERNOR NEWSOM
RELEASED HIS EXECUTIVE ORDER
LAST YEAR, I EXPRESSED CONCERNS
ABOUT ITS SCOPE AND THE ROLE IT
COULD PLAY, INVALIDATING OR
OTHERWISE PROMOTING KRYPTOS
LEGITIMACY BEFORE THE HARD WORK
OF ESTABLISHING CONSUMER
PROTECTIONS HAD BEEN COMPLETED
LAST YEAR IN LIGHT OF THE MARKET
TURMOIL AND THE CONCERN THAT THE
POLICIES PUT FORTH BY THE
EXECUTIVE ORDER WERE
INSUFFICIENT. THE LEGISLATURE
OVERWHELMINGLY SUPPORTED AND
PASSED MY BILL A B 22 69, WHICH
WOULD HAVE ESTABLISHED A
LICENSING PROGRAM THAT WAS
PAIRED WITH CONSUMER PROTECTIONS
TAILORED TO THE CONSUMER AND
INVESTOR RISK IN CRYPTO. THAT
BILL WAS VETOED, AND THE
GOVERNOR EXPRESSED THE
ADMINISTRATION'S PREFERENCE TO
LET THE EXECUTIVE ORDER PLAY
OUT. I HAVE DEEP CONCERNS ABOUT
LETTING SUCH AN ORDER DICTATES
STATE POLICY MOVING FORWARD AND
OTHER STATES. THEY'RE TAKING
ACTION, FOR EXAMPLE, A CRYPTO
LICENSING BILL SIMILAR TO MY OWN
, WAS JUST INTRODUCED IN
ILLINOIS WITH THE SUPPORT OF THE
STATE'S REGULATOR. BUT I TAKE
THE GOVERNOR AT HIS WORD WHEN HE
COMMITTED TO WORK WITH THE
LEGISLATURE ON NEXT STEPS. I AM
COMMITTED TO WORKING WITH HIS
TEAM AS WE TAKE STOCK OF WHERE
CRYPTO IS AND WHERE IT MAY BE
GOING. WHICH BRINGS US TO THIS
POINT HERE TODAY, IN THIS
HEARING TODAY, WE'RE GOING TO
HEAR FROM THE DEPARTMENT OF
FINANCIAL PROTECTION AND
INNOVATION. ABOUT THEIR
IMPLEMENTATION OF THE EXECUTIVE
ORDER. I HAVE TREMENDOUS RESPECT
FOR D F P I COMMISSIONER HEWLETT
AND HER TALENTED TEAM AND I'M
EAGER TO HEAR FROM AND LEARN
FROM ALL OF THEM. WE WILL ALSO
BE HEARING FROM BRIAN CORN, AN
EXPERT ON FEDERAL POLICY WHO
WILL PROVIDE US AN UPDATE ON
WHERE THINGS ARE WITH CONGRESS
AND FEDERAL REGULATORS. WE WILL
THEN HEAR FROM ROBERT HARRELL ON
BEHALF OF THE CONSUMER
FEDERATION OF CALIFORNIA AND
SHEILA WARREN ON BEHALF OF THE
CRYPTO COUNCIL FOR INNOVATION,
WHO WILL ALSO GIVE US BOTH. BOTH
OF THEM WILL GIVE US THEIR VIEWS
ON HOW STATES SHOULD BEST
REGULATE CRYPTO. WELL, MR
HARRELL AND MISS WARREN HAVE
DIFFERENT PERSPECTIVES. I DO
LOOK FORWARD TO LEARNING FROM
BOTH OF THEM. AND I THINK THAT
WE WILL ALL LEAVE THIS ROOM WITH
PLENTY TO THINK ABOUT. FINALLY
TODAY IS ABOUT LEARNING THOSE OF
YOU WATCHING OR LISTENING. YOU
MAY HEAR SOME FRUSTRATION FROM
ME OR EVEN MY COLLEAGUES ABOUT
THE ADMINISTRATION'S APPROACH
OVER THE LAST FEW YEARS. THAT IS
BECAUSE WHEN IT FEELS WHEN IT'S
OFTEN FEELS WHEN IT OFTEN FEELS
TEDIOUS, ACTUALLY, PROCESS
REALLY DOES MATTER. AND I REMAIN
FRUSTRATED THAT THE
ADMINISTRATION'S RELEASE OF THE
EXECUTIVE ORDER AND ITS
DISMISSAL OF THE LEGISLATORS
CONCERNS ESPECIALLY SINCE THOSE
CONCERNS HAVE BEEN PROVEN
CORRECT TIME. AND AGAIN WHILE I
DOUBT THE NEWSOME ADMINISTRATION
INTENDED FOR ITS EXECUTIVE ORDER
TO ESTABLISH A PERMANENT POLICY
OVER THE LONG TERM, THE LAST
YEAR HAS PROVEN THAT THIS CANNOT
BE THE CASE. AND I BELIEVE NOW
MORE THAN EVER THAT CRITICAL
LEGISLATION IS NEEDED. I LOOK
FORWARD TO LEARNING FROM ALL OF
OUR EXCELLENT GUEST TODAY, AND I
AM EXCITED. TO FIND A PATHWAY
FORWARD WITH THAT I WILL TURN IT
OVER TO MY VARIOUS STOOP
COLLEAGUE, CHAIR AND SENATOR THE
MOUNTAIN. THANK YOU. THANK YOU,
SAM. REMEMBER GRAYSON AND
MEMBERS FOR ALL JOINING US AND
THANK YOU, CHAIR GRAYSON FOR
GETTING US STARTED. THIS IS AN
IMPORTANT HEARING TO SHINE LIGHT
ON WHERE CALIFORNIA IS COMING UP
SHORT WHEN IT COMES TO
PROTECTING OUR PEOPLE FROM
PROMISES THAT HAVE BEEN MARKETED
BY THE CRYPTO INDUSTRY. IN THE
FIRST HALF OF LAST YEAR, IT WAS
NEARLY IMPOSSIBLE TO ESCAPE THE
TV COMMERCIALS AND SOCIAL MEDIA
ADS THAT SENT A MESSAGE OF
MAKING MONEY IN CRYPTO IS EASY.
DON'T WAIT OR YOU WILL MISS OUT
ON GETTING RICH. THAT MESSAGE
THAT MESSAGING REALLY WORRIED ME
. PRACTICALLY SPEAKING. I DON'T
SEE HOW IT'S POSSIBLE FOR
EVERYONE TO GET RICH WHILE DOING
NO WORK. THAT'S NOT WHAT I'VE
EXPERIENCED IN MY OWN LIFE OR
HOW I HAVE SEEN THE WORLD SHAKE
OUT FOR FRIENDS OR FAMILY. AND
THEN LOOKING AT AN INDUSTRY IN
THE MESSAGING FROM MY
PERSPECTIVE AS CHAIR OF BANKING.
I HAD EVEN MORE CONCERNS. IF THE
INDUSTRY WERE BEING FULLY
TRANSPARENT WITH CONSUMERS, WE
WOULD SEE MORE OF AN EMPHASIS ON
THE REALITY. THAT THESE PRODUCTS
ARE VERY RISKY. THAT THE PRICES
OF THESE TOKENS ARE OFTEN BASED
ON PURE SPECULATION, RATHER THAN
ANY UNDERLYING CASH FLOWS. AND
THAT THESE PRODUCTS AND THE
COMPANIES OFFERING THEM ARE NOT
SUBJECT TO THE SAME REGULATIONS
THAT APPLY TO BANKING PAYMENTS
INVESTMENT PRODUCTS IN THE
TRADITIONAL FINANCIAL SPACE. BUT
LET'S RE REAL. THOSE ARE NOT THE
MESSAGES THAT ATTRACT CONSUMERS.
AND LET'S ALSO BE REAL ABOUT THE
SHARED RESPONSIBILITY HERE.
INDUSTRY HAS ITS ROLE. BUT WE AS
LAWMAKERS WERE ALSO RESPONSIBLE
TO ENSURE THAT OUR FINANCIAL
MARKETS ARE SAFE AND SOUND FOR
OUR CONSTITUENTS. WHICH BRINGS
US TO TODAY'S HEARINGS. THE
SIMPLE FACT IS CALIFORNIA HAS
NOT LIVED UP TO OUR REPUTATION
AS A LEADER, AND WE HAVE FAILED
TO PROVIDE SOME BASIC CONSUMER
PROTECTIONS IN THIS PARTICULAR
SPACE. THIS IS NOT A
CONVERSATION THAT STARTED LAST
YEAR. IN 2019 WHEN I WAS THE
CHAIR OF THE ASSEMBLY BANKING
COMMITTEE, ONE OF MY COLLEAGUES
INTRODUCED A BILL THAT WAS VERY
SIMILAR TO THE BILL THAT HAS
BEEN AUTHORED BY
ASSEMBLYMEMBER'S GRAYSON LAST
YEAR. IN FACT, THE LANGUAGE THAT
ARE FORMER HEAD OF THE
LEGISLATIVE COUNCIL DIANE BOY,
IRVINE, HAD WORKED ON ON HER
ROLE AS COMMISSIONER ON THE
UNIFORM LAW COMMISSION. WE HELD
AN INFORMATIONAL HEARING IN
OCTOBER OF 2019 ON THE PROPOSED
MODEL LAW, AND WE HEARD FROM
VARIOUS STAKEHOLDERS, INCLUDING
THE PREVIOUS COMMISSIONER OF D F
P, I. SOME OF THE MESSAGES THAT
WE HEARD FROM THE ADMINISTRATION
INCLUDED THE MODEL LAW WAS
UNTESTED. THAT THE CRYPTO
INDUSTRY POSED RISKS THAT NEEDED
TO BE MITIGATED, INCLUDING THE
RISK OF BAD ACTORS TAKING
CONSUMERS FUNDS. AND AT THE
FIRST STEP IN CREATING A SENSE
OF SENSIBLE REGULATORY FRAMEWORK
INCLUDES IDENTIFYING THE RISK
POSED BY VARIOUS PRODUCTS IN THE
INDUSTRY AND HOW THOSE RISKS
COULD BE ADDRESSED THROUGH LAW
AND REGULATION. AND THAT
EXISTING LAWS AND REGULATIONS
COULD BE OPTIMIZED TO LEVERAGE
THE WORK THAT D F P I WAS
ALREADY DOING. AS WE CONVENE
TODAY'S HEARING. IT'S ABUNDANTLY
CLEAR THAT THE APPROACH WE HEARD
FROM THREE YEARS AND 3.5 YEARS
AGO WAS NOT WAS NOT SUFFICIENT
TO PROTECT CALIFORNIANS. AS I
THINK ABOUT THE HARM THAT HAS
BEEN FALLEN CALIFORNIANS IN THIS
CONTEXT AND FROM THE MESSAGES OF
2019. I ARRIVED TO THE FOLLOWING
CONCLUSIONS. IF OUR STATE
GOVERNMENT IS UNWILLING TO PUT A
SO CALLED UNTESTED REGULATORY
FRAMEWORK INTO PLACE. WE WILL
LEAVE OUR CONSTITUENTS EXPOSED
TO INDUSTRY ACTORS WHO DO NOT
HESITATE, PUTTING UNTESTED
PRODUCTS INTO THE MARKET. WE
HEARD IN 2019 THAT THE INDUSTRY
POSED RISK OF BAD ACTORS TAKING
CONSUMERS CUSTOMERS FUNDS AND
THAT THE INDUSTRY IN 2022 SHOWED
US HOW REAL AND WIDESPREAD THAT
RISK COULD BE WITH THE FAILURES
OF MAJOR COMPANIES LIKE TERRA
CELSIUS. VOYAGER BLOCK FIVE
GEMINI AND F T X THAT CAUSED
BILLIONS OF DOLLARS IN LOST
FUNDS. ALTHOUGH THIS
ADMINISTRATION HAS ACKNOWLEDGED
IN 2019 THAT CALIFORNIA COULD
BENEFIT FROM BETTER DEFINING THE
PRODUCTS AND RISK WITHIN THE
INDUSTRY AND IDENTIFYING HOW NEW
LAWS AND REGULATIONS COULD
ADDRESS THOSE RISKS. THE
LEGISLATURE HAS RECEIVED NO
SIGNIFICANT ENGAGEMENT ON THIS
TOPIC, NOR HAVE WE SEEN ANY
CRYPTO SPECIFIC REGULATIONS
PROPOSED. LASTLY WE CLEARLY SEE
THAT ANY ATTEMPTS TO OPTIMIZE
THE LAWS AND REGULATIONS THAT
EXISTED IN 2019 HAVE BEEN
WOEFULLY INADEQUATE TO ENSURE
THAT CALIFORNIA'S ENJOY SOME
BASIC PROTECTION CONSUMER
PROTECTIONS WHEN ENGAGING WITH
THE INDUSTRY. I'M PROVIDING THIS
HISTORICAL CONTEXT SO THAT OUR
CONVERSATION DOES NOT NARROWLY
FOCUSED ON JUST THE 2022
EXECUTIVE ORDER. I BELIEVE THAT
UNDERSTANDING HISTORICAL CONTEXT
OF THE CONVERSATIONS CAN HELP US
BETTER UNDERSTAND WHERE WE ARE
TODAY AND WHAT WE NEED TO CHANGE
IN ORDER FOR THE FUTURE OF THIS
PRODUCT. BUT I ALSO FEEL THAT
LAST YEAR EXECUTIVE ORDER
DESERVES SOME REVIEW. ESPECIALLY
DUE TO THE SUBSEQUENT VETO OF A
PIECE OF REASONABLE LEGISLATION
THAT WOULD HAVE GIVEN
CALIFORNIANS CLEAR LEGAL
PROTECTIONS WHEN ENGAGING WITH
THIS INDUSTRY. I FELT THAT THE
TONE OF THE EO AND HOW IT WAS
ROLLED OUT. WAS OFF BASE BY
APPLAUDING AN INDUSTRY BEFORE IT
BROUGHT IT UNDER REGULATORY
FRAMEWORK. AND IT WAS CLEAR FROM
THE SUBSTANCE OF THE EO. THAT.
NOT FOLLOWING THROUGH WITH THE
MESSAGES IT DELIVERED IN 2019,
CALIFORNIA COULD BE ON THE PATH
OF DRAGGING ITS FEET WHILE
CONSUMERS AND RETAIL INVESTORS
FELT VICTIM AND FALL VICTIM TO
BAD ACTORS WHO ARE TAKING
ADVANTAGE OF THIS UNREGULATED
INDUSTRY. I WAS ENCOURAGED BY
ACTIONS TAKEN BY THE LEGISLATURE
LAST YEAR, LED BY EFFORTS OF
CHAIR GRAYSON. AND I WAS JUST
DISAPPOINTED THAT THE BILL DID
NOT BECOME LAW AFTER RECEIVING
SUCH BROAD BIPARTISAN MORE THAN
TWO THIRDS SUPPORT IN EACH HOUSE
OF THIS LEGISLATURE. IN LIGHT OF
THE FAILURES OF 2022,
HIGHLIGHTED BY THE FALL OF F T
X. CLEARLY THE STATUS QUO IS NOT
WORKING AND THE PATH THAT IS
LEADING US DOWN THAT WE ARE
LEADING DOWN. WE'LL CONTINUE TO
LEAVE CALIFORNIANS EXPOSED TO
FINANCIAL HARM AND CRIMINAL
ACTIVITY. I WANT TO ACKNOWLEDGE
THAT THE STAFF OF D F P. I ARE
ALSO WORKING DILIGENTLY ON A
WIDE BREADTH OF ISSUES, AND I
BELIEVE THAT MANY OF THEM SHARE
THE CONCERNS ABOUT RISK TO
CONSUMERS. PROS BY THE INDUSTRY
. I APPLAUD THE DEPARTMENT'S
WORK AND I HOPE THAT WE CAN
SUPPORT THEIR CONTINUED EFFORTS.
I'D ALSO LIKE TO THANK ALL OF
THE WITNESSES WHO WILL SHARE
THEIR FEEDBACK WITH US TODAY.
EVERYONE'S PARTICIPATION IS
GREATLY APPRECIATED. WELL I
WOULD HAVE LIKED TO HAVE SEEN
THE GOVERNOR'S OFFICE
PARTICIPATE IN THIS CONVERSATION
. WE WILL DO OUR BEST TO
UNDERSTAND THE ADMINISTRATION
SUPPORT. AND APPROACH AND LEARN
HOW WE CAN IMPROVE OUR EFFORTS
TO PROTECT CALIFORNIA CONSUMERS
AND RETAIL INVESTORS. THANK YOU.
AND NOW WITH THAT WE WOULD LIKE
TO WELCOME OUR FIRST PANEL WHERE
WE WILL HEAR FROM AVM ALEC,
GENERAL COUNSEL OF DEPARTMENT OF
FINANCIAL PROTECTION, INNOVATION
, AND BRIAN CORN, WHO LEADER WHO
IS THE LEAD OF THE FINTECH
BLOCKCHAIN AND CRYPTO CURRENCY
PRACTICES THAT MAY NOT PHELPS
AND PHILLIPS, MR MALIK. ONCE YOU
ARE SETTLED, YOU CAN BEGIN WHEN
YOU ARE READY.
GOOD MORNING CHAIR GRAYSON,
CHAIR LEHMAN AND COMMITTEE
MEMBERS. I APPRECIATE THE
OPPORTUNITY TO SPEAK WITH YOU
TODAY ABOUT THE STATE'S APPROACH
TO REGULATING DIGITAL FINANCIAL
ASSET BUSINESS ACTIVITY. MY NAME
IS ABBY MALIK AND I AM THE
GENERAL COUNSEL FOR THE
DEPARTMENT OF FINANCIAL
PROTECTION AND INNOVATION.
CALIFORNIA'S FINANCIAL REGULATOR
. I PREVIOUSLY SERVED AS
DIRECTOR OF FINTECH POLICY FOR
THE FINANCIAL SERVICES COMMITTEE
AT THE U. S HOUSE OF
REPRESENTATIVES, WHERE I LED THE
COMMITTEE'S EFFORTS ON CRYPTO
POLICY. PRIOR TO THAT ROLE I WAS
AN ASSISTANT ATTORNEY GENERAL
FOR THE CONSUMER PROTECTION
DIVISION. OF THE OFFICE OF THE
MARYLAND ATTORNEY GENERAL. IT IS
GREAT TO BE BACK IN MY HOME
STATE. I'M JOINED TODAY BY THE
FBI SENIOR COUNSEL ADAM RIGHT,
WHO HAS BEEN WORKING ON CRYPTO
OVERSIGHT AT THE FBI AND WILL
ASSIST WITH QUESTIONS. SINCE
JOINING THE FBI UNDER THE
LEADERSHIP OF COMMISSIONER CHLOE
HEWLETT. I HAVE HELPED LEAD THE
DEPARTMENT'S APPROACH TO
OVERSIGHT OF CRYPTO RELATED
FINANCIAL PRODUCTS, INCLUDING
OVERSIGHT. OF CRYPTO RELATED
FINANCIAL PRODUCTS. ENHANCEMENT
OF OUR REVIEW IN RESPONSE TO
CONSUMER COMPLAINTS, DEEPENING
OUR EXAMINATION AND SUPERVISION
OF CRYPTO COMPANIES AND
STRENGTHENING OUR ENFORCEMENT
EFFORTS AGAINST CRYPTO COMPANIES
THAT HAVE BROKEN THE LAWS. WE
ADMINISTER. IMPORTANTLY WE HAVE
ALSO RAMPED UP OUR WORK TO
EDUCATE THE PUBLIC ON CRYPTO
ENSURE THAT CALIFORNIANS
UNDERSTAND THESE PRODUCTS. I AM
PROUD TO HELP LEAD THESE
COMPREHENSIVE EFFORTS WORKING
WITH A TEAM OF PUBLIC SERVANTS,
INCLUDING SEVERAL RECENT HIRES
WITH CRYPTO EXPERIENCE, WHO ARE
DEDICATED TO PROTECTING
CONSUMERS. I WANT TO ALSO
EXPRESS MY APPRECIATION TO YOU
AND YOUR STAFF FOR WORKING IN
COLLABORATION WITH THE FBI TO
ADVANCE OUR SHARED GOALS TO
PROTECTING CONSUMERS. OVER THE
YEARS I'VE BEEN INVITED. TODAY
TO SHARE THE DEPARTMENT'S
OVERALL APPROACH TO OVERSEEING
DIGITAL FINANCIAL ASSET BUSINESS
ACTIVITY ARE CRYPTO COMPLAINTS
OUR ROLE IN THE GOVERNOR'S
EXECUTIVE ORDER ON CRYPTO ASSETS
AND BLOCKCHAIN TECHNOLOGY HOW
OUR DEPOSITORY INSTITUTIONS
ENGAGED WITH CRYPTO SERVICES ARE
LICENSING IMPLEMENTATION PROCESS
AND CONSUMER PROTECTION. IN THE
CRYPTO CONTEXT. I WOULD LIKE TO
TAKE EACH OF THESE IN TURN
TOUCHING ON THEM BRIEFLY IN THE
EXPECTATION THAT YOU WILL HAVE
QUESTIONS THAT WILL ALLOW
FURTHER DISCUSSION. AS YOU KNOW
, THE FBI PROVIDES OVERSIGHT
OVER ALL PARTS OF CALIFORNIA'S
FINANCIAL SYSTEM, INCLUDING
LICENSING LENDERS, SUPERVISING
BANKS AND CREDIT UNIONS AND
ADMINISTERING THE STATE'S
SECURITIES LAWS, CRYPTO
FINANCIAL PRODUCTS AND THEIR
RAPID CONSUMER INTEREST HAVE
BEEN A UNIQUE CHALLENGE TO
FINANCIAL REGULATORS. GLOBALLY
CRYPTO PRODUCTS SPAN ACROSS MANY
LAWS AND JURISDICTIONS AND ARE
BEING USED BY AN INCREASING
NUMBER OF CALIFORNIANS. OVER THE
LAST YEAR. UNDER COMMISSIONER
HEWLETT'S LEADERSHIP. THE FBI
HAS PRIORITIZED OVERSIGHT OF THE
CRYPTO INDUSTRY, MAKING SURE
THAT THE DEPARTMENT IS
EFFECTIVELY EXERCISING ITS
EXISTING AUTHORITY TO OVERSEE
COMPANIES THAT ARE LICENSED BY
THE DEPARTMENT. WE ARE
CONDUCTING EXAMINATIONS OF OUR
LICENSES WITH CRYPTO EXPOSURE,
INCLUDING COMPANIES THAT MAKE
CRYPTO LOANS OR INVESTMENT
ADVISORS THAT INVEST CLIENT
FUNDS IN CRYPTO. D F B. I HAS
SENT OUT SURVEYS TO OVER 10,000
LICENSES TO UNDERSTAND WHETHER
THEY ARE OFFERING CRYPTO
PRODUCTS AND IMPORTANTLY, WE
HAVE CENTRALIZED DECISION MAKING
ON CRYPTO MATTERS ACROSS THE
DEPARTMENT UNDER A NEW CRYPTO
ASSETS SUPPORT UNIT. THE FBI HAS
USED ITS EXTENSIVE ENFORCEMENT
AUTHORITY TO SHINE A LIGHT ON
CRYPTO FINANCIAL PRODUCTS AND
COMPANIES THAT BREAK THE LAWS WE
ADMINISTER. IN JUST THE PAST
YEAR, THE FBI HAS ISSUED 13
ORDERS STOPPING THE PRACTICES OF
COMPANIES WHO BROKE OUR LAWS,
INCLUDING AGAINST SUCH CRYPTO
COMPANIES AS VOYAGER AND BLOCKED
BY THE FBI HAS AN ONGOING
ENFORCEMENT EFFORT INTO THE
FAILURE OF F T X. WHICH WAS ONE
OF THE LARGEST CRYPTO EXCHANGES
, AND THE DEPARTMENT CONTINUES
TO BE PROACTIVE ABOUT TAKING
ACTIONS AGAINST CRYPTO COMPANIES
THAT VIOLATE OUR LAWS. LET ME
NOW DISCUSS OUR EFFORTS TO
ENHANCE THE REVIEW IN RESPONSE
OF CRYPTO COMPLAINTS WE RECEIVE
IN 2022 THE FBI RECEIVED JUST
UNDER 700 CRYPTO RELATED
COMPLAINTS, WHICH RANKS AMONGST
THE HIGHEST FOR FINANCIAL
PRODUCTS. AND, UNSURPRISINGLY
UNSURPRISINGLY, D F P. I
RECEIVED MORE CRYPTO COMPLAINTS
IN 2022 THAN IT DID IN EACH
PROCEEDING YEAR DATING BACK TO
2020. WHAT WERE THOSE CRYPTO
COMPLAINTS IN 2022 ABOUT WELL
ABOUT HALF OF THE CRYPTO RELATED
COMPLAINTS WERE ABOUT SCAMMERS.
IN OTHER WORDS, SITUATIONS WHERE
VICTIMS WERE TRICKED INTO
SENDING FUNDS TO IMPOSTERS
PRETENDING TO BE SOMEONE ELSE.
SUCH AS A KNOWN CRYPTO COMPANY.
THE OTHER HALF OF THE COMPLAINTS
D F P I RECEIVED RELATED TO
PRODUCTS AND SERVICES PROVIDED
BY ACTUAL COMPANIES. THE MOST
COMMON SITUATION FOR THESE
COMPLAINTS INVOLVED CONSUMERS
WHO WERE UNABLE TO WITHDRAW
CRYPTO BEING HELD BY THAT
COMPANY BECAUSE THE FUNDS WERE
NO LONGER THERE, POSSIBLY DUE TO
THE IMPENDING FAILURE OF THAT
COMPANY. AS A RESULT, THE FDA
ISSUED 65 CONSUMER ALERTS IN THE
PAST YEAR TO WARN CALIFORNIANS
ABOUT CRYPTO RELATED SCAMS. THE
FBI HAS ALSO RELEASED A WEB
BASED SEARCHABLE DATABASE OF
CRYPTO SCAMS AVAILABLE TO THE
PUBLIC. THIS DATABASE IS KEY FOR
MAKING THE PUBLIC MORE AWARE OF
CRYPTO TRENDS AND MECHANICS WITH
THE GOAL OF HELPING CONSUMERS
IDENTIFY SCAMS EARLIER. I WILL
NOW TURN TO THE GOVERNOR'S
EXECUTIVE ORDER ON CRYPTO CEO
DIRECTED THE FBI TO CONDUCT WORK
WITH THE GOAL OF PROTECTING
CONSUMERS, FOSTERING RESPONSIBLE
INNOVATION AND BOLSTERING
CALIFORNIA'S INNOVATION ECONOMY
. AS DIRECTED BY THE E O D F P.
I SOUGHT. FEEDBACK FROM HUNDREDS
OF STAKEHOLDERS, INCLUDING
CONSUMER GROUPS, ACADEMICS,
COMPANIES, INVESTORS AND
ENVIRONMENTALISTS ON CRYPTO
REGULATORY APPROACHES. THE FBI
CONVENED A SERIES OF ROUND
TABLES AND CO HOSTED A SUMMIT ON
RESPONSIBLE INNOVATION WITH èC
BERKELEY. THE FBI ALSO RECEIVED
FEEDBACK FROM THE PUBLIC AT
LARGE IN AN INVITATION FOR
COMMENTS KEY THEMES IN THE
FEEDBACK INCLUDED THE NEED TO
PROVIDE REGULATORY CLARITY FOR
CRYPTO SERVICES HARMONIZATION
WITH FEDERAL GUIDELINES.
PRIORITIZATION OF CONSUMER
PROTECTION, WHICH INCLUDES
DISCLOSURES, CONSUMER EDUCATION
AND ENFORCEMENT, CYBERSECURITY,
DIVERSITY, EQUITY AND INCLUSION
MEASURES TO ATTAIN FAIR ACCESS
TO NEW TECHNOLOGIES AND THE
CLIMATE IMPACT. LET ME NOW TURN
TO DEPOSITORY INSTITUTIONS AND
OTHER LICENSES INVOLVED IN
CRYPTO BANKS THROUGHOUT THE
COUNTRY ARE GRAPPLING OVER
WHETHER TO OFFER CRYPTO PRODUCTS
OR SERVICES. A RECENT D FBI
SURVEY FOUND THAT APPROXIMATELY
20% OF THE 200 BANKS AND CREDIT
UNIONS WE HEARD FROM WE'RE
OFFERING OR CONSIDERING TO OFFER
A CRYPTO RELATED PRODUCTS OR
SERVICES, THE FBI SUPERVISION
AND EXAMINATION PROCESS OF
FINANCIAL INSTITUTIONS IS ROBUST
AND LONG STANDING. THIS APPROACH
ALSO APPLIES TO CRYPTO OFFERINGS
, AND WE REMAIN IN CONSTANT
COMMUNICATION WITH OUR FEDERAL
REGULATORY AND STATE
COUNTERPARTS. LET ME BE CLEAR
ANY DEPOSITORY INSTITUTION
CONSIDERING CRYPTO SERVICES MUST
ENSURE THAT THEY HAVE
APPROPRIATE BANK SECRECY ACT
COMPLIANCE. DUE DILIGENCE
PRACTICES. RISK ASSESSMENTS.
CAPITAL ANALYSIS. AUDIT COVERAGE
. THIRD PARTY VENDOR MANAGEMENT
, CYBERSECURITY CONTROLS AND
MANAGEMENT EXPERTISE. OUTSIDE OF
BANKING. THE FBI IS ALSO
CONDUCTING A COMPREHENSIVE
INTERNAL REVIEW OF ITS OTHER
LICENSES THAT OFFER OR HAVE
EXPOSURE TO CRYPTO RELATED
PRODUCTS AND SERVICES AND HAS
ALREADY MOVED TO REVOKE THE
LENDING LICENSE OF SEVERAL NON
COMPLIANT COMPANIES. IN THE NEXT
MONTH, AS REQUIRED BY THE
EXECUTIVE ORDER. THE FBI WILL
RELEASE BEST PRACTICES AND
PRINCIPLES FOR THE CRYPTO
INDUSTRY, AS WELL AS PUBLISHED
GUIDANCE TO STATE CHARTERED
BANKS AND CREDIT UNIONS THAT MAY
BE OFFERING OR PLAN TO OFFER
CRYPTO PRODUCTS AND SERVICES
DIRECTLY OR IN PARTNERSHIP WITH
THIRD PARTIES. WE WILL ALSO
CONTINUE OUR WORK ON THE CRYPTO
MARKET MONITORING SURVEY.
FINALLY I WOULD LIKE TO SPEAK
ABOUT HOW CALIFORNIA CAN BEST
PROTECT CONSUMERS A CENTRAL
PRIORITY UNDER COMMISSIONER
HEWLETT, HAVING WORKED ON CRYPTO
POLICY IN CONGRESS, I CAN SAY
THAT FINANCIAL REGULATORS
THROUGHOUT THE COUNTRY ARE
WORKING HARD TO ASSESS HOW BEST
TO PROTECT THE PUBLIC WHILE
FOSTERING RESPONSIBLE
INNOVATION. THE FBI WILL
CONTINUE TO USE ITS AUTHORITY TO
REGULATE CRYPTO FINANCIAL
PRODUCTS THROUGH EXISTING LAWS,
INCLUDING THE CALIFORNIA
CONSUMER FINANCIAL PROTECTION
LAW, WHICH PROVIDES US WITH NEW
TOOLS TO BETTER PROTECT
CONSUMERS FROM UNLAWFUL, UNFAIR
, DECEPTIVE AND ABUSIVE
PRACTICES, INCLUDING THE CRYPTO
CONTEXT. ADDITIONALLY FP I WILL
CONTINUE TO USE ITS POWERS AS
CALIFORNIA'S SECURITIES
REGULATOR TO PROTECT CONSUMERS
AND INVESTORS FROM HARM. THE FBI
WILL CONTINUE TO COORDINATE WITH
STATE PARTNERS AS WELL AS
FEDERAL MARKET REGULATORS, SUCH
AS THE CONSUMER FINANCIAL
PROTECTION BUREAU AND THE
SECURITIES AND EXCHANGE
COMMISSION ALONGSIDE OUR
PRUDENTIAL PARTNERS, SUCH AS THE
FEDERAL RESERVE, F. D, I C AND
THE OFFICE OF THE COMPTROLLER OF
THE CURRENCY TO MAKE SURE THAT
THE STATE IS WORKING IN TANDEM
WITH THE FEDERAL GOVERNMENT TO
BEST PROTECT THE PUBLIC. REST
ASSURED THE FBI WILL CONTINUE TO
USE THE FULL EXTENT OF OUR LAW
TO PROTECT CALIFORNIA CONSUMERS
AND INVESTORS IN CLOSING. I
WOULD LIKE TO THANK CHAIR LIMÓN
CHAIR GRAYSON AND MEMBERS OF
BOTH COMMITTEES FOR THE
OPPORTUNITY TO SHARE THIS UPDATE
WITH YOU ABOUT OUR DEPARTMENT'S
APPROACH TO OVERSEEING DIGITAL
FINANCIAL ASSET BUSINESS
ACTIVITY. MY COLLEAGUE ADAM, WHO
RECENTLY JOINED AS PART OF OUR
CRYPTO ASSETS SUPPORT UNIT. AND
I ARE HAPPY TO ANSWER ANY
FURTHER QUESTIONS. THANK YOU.
THANK YOU VERY MUCH, MR MALIK.
NEXT WE WILL MOVE ON TO MR CORN.
THANKS VERY MUCH. I HAVE SLIDES.
LOOKS LIKE THEY ARE LOADING
GOOD. UM. IT'S GREAT TO BE HERE
. IT'S AN HONOR AND A PRIVILEGE
TO SPEAK BEFORE THIS BEFORE THIS
COMMITTEE I'D LIKE TO THANK
CHAIR LIMÓN CHAIR, GRACE AND THE
OTHER MEMBERS FOR HOSTING THIS
PANEL. I THINK IT'S AN EXTREMELY
IMPORTANT ENDEAVOR TO DISCUSS
AND INVESTIGATE EXACTLY WHAT'S
HAPPENING IN THE WORLD OF CRYPTO
CURRENCY AND HOW IT RELATES TO
WHAT'S HAPPENING WITH OTHER
STATES AND ON THE FEDERAL LEVEL
. MY NAME IS BRIAN CORN. I'M A
PARTNER AT THE LAW FIRM AND AT
PHELPS AND PHILLIPS. I'M BASED
IN THE NEW YORK OFFICE. I AM A
NATIVE CALIFORNIA, AND I'M A
PROUD GRADUATE OF THE LOS
ANGELES UNIFIED SCHOOL DISTRICT
, AND èC, BERKELEY. I'M
ADMITTED TO THE BAR IN BOTH
CALIFORNIA AND NEW YORK, AND
THEN IT DOES HAVE AT LEAST FIVE
OR SIX OFFICES UP AND DOWN THE
STATE OF CALIFORNIA AND WE
PRIMARILY PRACTICE IN CALIFORNIA
BEFORE CALIFORNIA REGULATORS
SUCH AS THE D F P I I'M HERE TO
GIVE YOU A VERY BRIEF OVERVIEW
ON WHAT'S HAPPENING ON THE
FEDERAL LEVEL. UM YOU CAN REALLY
DIVIDE THE FEDERAL ACTIVITY INTO
TWO PHASES. THE REGULATORY
AGENCIES AND THE LEGISLATURE THE
CONGRESS IF WE GO TO THE NEXT
SLIDE BRIEF OUTLINE. AND THE
NEXT SLIDE, PLEASE. SO, UH, THE
SECURITIES AND EXCHANGE
COMMISSION IN THE PAST, 6 TO 12
MONTHS HAS REALLY TAKEN THE LEAD
ON REGULATION AT THE FEDERAL
LEVEL. FOR A WHILE, THERE HAD
BEEN A LITTLE BIT OF A VACUUM AS
TO WHOSE COVERAGE AREA BELONGED
TO WHICH PARTS OF CRYPTOCURRENCY
AND CRYPTOCURRENCY IS NOT
HOMOGENEOUS. AS YOU KNOW,
CRYPTOCURRENCY INVOLVES BITCOIN
AND ETHEREUM. IT INVOLVES TOKENS
, WHICH ARE ISSUED BY TOKEN
PROTOCOLS. IT DIDN'T ALSO
INVOLVES STABLE COIN, WHICH IS A
SUPPOSEDLY A PROXY FOR FIAT
CURRENCIES SUCH AS US DOLLARS
STABLE COIN CAN EITHER BE LEVER
DORAN LIVERED LEVERAGE. STABLE
COIN WOULD INVOLVE STABLE COIN
THAT IS NOT BACKED 1 TO 1 WITH
FIAT CURRENCY AND UNLETTERED IS
FULLY BACKED 1 TO 1 WITH WITH US
CURRENCY. IT'S IMPORTANT TO
REMEMBER, THOUGH, THAT EVEN IN
STABLE COINS SUCH AS U. S D C,
WHICH IS OFFERED BY THE CIRCLE
COMPANY THAT YOU ARE STILL
TAKING THE RISK THAT THE COMPANY
ITSELF DOES INDEED BACK. UH IT'S
STABLE COIN WITH FIAT THAT IT
STORES IT IN A SECURE WAY THAT
IT DOES NOT, UH, INVESTED OR
LEND IT AWAY AND THAT IT'S
READILY AVAILABLE WHEN IT'S
NEEDED. UM IT IS NOT REGULATED
IN THE TRADITIONAL BANKING SENSE
THAT WE THINK ABOUT. WHERE WE
HAVE REGULATIONS THAT GOVERN HOW
HOW THESE ARE STORED. THE SEC
PRIMARILY USES THE 1946 SUPREME
COURT CASE. UH W S C. C V S. J.
HOWIE THIS WAS ABOUT AN ORANGE
GROVE COOPERATIVE IN WHICH, UM
THE MEMBERS BECAUSE THEY WERE
WORKING IN A COMMON ENTERPRISE.
UH DID NOT. AH WAS NOT DEEMED TO
BE A SECURITY, BUT IT DID
PROFFER THE SECURITIES TEST,
WHICH IS AN INVESTMENT OF MONEY
IN A COMMON ENTERPRISE WITH A
PROFIT EXPECTATION WHERE THE
PROFITS ARE DERIVED FROM THE
EFFORTS OF OTHERS, UH, THE HOWEY
TEST EVEN THOUGH IT'S NEARLY 80
YEARS OLD, IS STILL GOOD LAW AND
IS STILL USED BY THE BY THE
COMMISSION. IN EVALUATING
WHETHER TOKENS IN ANY
CRYPTOCURRENCIES ARE INDEED
SECURITIES. THERE'S ANOTHER TEST
THE REEVES TEST, WHICH CAME
THROUGH THE REEDS VERSUS ERNST
AND YOUNG CASE IN 1990, WHICH
PRIMARILY GOVERNS DEBT
ACTIVITIES AND ADOPTED SOMETHING
CALLED THE FAMILY RESEMBLANCE
TEST, WHERE SOMETHING RESEMBLES
THE SECURITY SIMILAR TO THE DUCT
TEST THAN IT IS DEEMED TO BE A
SECURITY. THE SEC ALSO REGULATES
BROKER DEALERS AND OVERSEES THE
ACTIONS OF FINRA, WHICH IS THE
BROKER DEALER REGULATORY AGENCY
. AND SO IN MANY CASES,
EXCHANGES THAT ALLOW FOR TRADING
OF CRYPTOCURRENCIES ARE DEEMED
TO BE ALLOWING TRADING OF
SECURITIES AND THEREFORE THOSE
EXCHANGES OFTEN GET CALLED TO
REGISTER HIS BROKER DEALERS. AND
FINALLY, THE SEC ALSO OVERSEES
THE REGISTERED INVESTMENT
ADVISORY TESTS AND RULES, UH AND
PROPOSES RULES IN RECENTLY
PROPOSED RULE LESS THAN TWO
WEEKS AGO TO ENCOMPASS CUSTODIAN
OF CUSTODY OF TOKENS, TOKENS IF
THEY ARE SECURITIES IN ORDER TO
HOLD A SECURITY. YOU MUST HAVE
THEM BECAUSE CUSTODY WITH A
QUALIFIED CUSTODIAN. UNDER THE
BROKER DEALER AND ARE A TEST. UH
AND MANY CRYPTOCURRENCY
COMPANIES AS YOU CAN IMAGINE, DO
NOT DO THAT IF WE GO TO THE NEXT
SLIDE. THE CFTC ALSO DOES
REGULATE SOME CRYPTOCURRENCY,
PARTICULARLY THOSE THAT ARE NOT
SECURITIES. IT HAS BEEN THE
PRIMARY REGULATOR OF BITCOIN. IF
WE CAN SAY THERE IS ONE, UH AND
THERE'S A TECHNICAL ISSUE WITH
THE COMMODITIES EXCHANGE ACT,
WHICH ENABLES ALL OF THE ACTIONS
OF THE CFTC. AND THAT IT'S NOT
CLEAR THAT IT'S ABLE TO REGULATE
THE SPOT MARKET. MOST
CRYPTOCURRENCY TRADING IS DONE
IN THE SPOT MARKET, NOT IN THE
FUTURES OR OPTIONS MARKET, AND
SO THERE HAVE BEEN EFFORTS TO
MODIFY THE C E. A TO ALLOW FOR
SPOT TRADING REGULATION BY THE
CFTC. THOSE HAVE NOT BEEN
SUCCESSFUL TO DATE. UM A SIMILAR
THEME THAT YOU'LL FIND WITH
RESPECT TO WHAT'S HAPPENED IN
CONGRESS IS THAT NUMEROUS
PROPOSALS HAVE BEEN MADE OVER
THE PAST FEW TERMS TO REGULATE
CRYPTO CURRENCY OR TO MODIFY
CERTAIN RULES AND ACTIONS TO
ALLOW FOR AGENCIES TO MORE
EASILY FIT INTO THESE BOXES IN
MOST OF THOSE HAVE NOT HAVE NOT
GONE FORWARD. UM I THINK, JUST
GENERALLY COMMENTING ON THE
FEDERAL ENVIRONMENT. AH THE F T
X SITUATION IS OBVIOUSLY
STARTLING, AS ARE THE NUMBER OF
OTHERS THAT HAVE BEEN MENTIONED
, BUT WE STILL NEED SOMETHING
THAT HAS ENOUGH NATIONAL
ATTENTION TO ALLOW THE PARTIES
TO PUT IT INTO A PIECE OF
LEGISLATION. STANDALONE
LEGISLATION DOES NOT SEEM TO BE
LIKELY. UM WE HAVE A REPUBLICAN
HOUSE NOW, WHICH IS, UH, BANKING
HAVE FINANCIAL SERVICES
COMMITTEE LED BY PATRICK MCHENRY
OF NORTH CAROLINA, WHO IS VERY,
UH, UP TO DATE ON ON BLOCKCHAIN
AND CRYPTO CURRENCY ISSUES. HE'S
GONE TO NUMEROUS EVENTS ON
BLOCKCHAIN AND SPOKEN, UH AND HE
HAS APPOINTED A DIGITAL ASSETS
FINANCIAL TECHNOLOGY INCLUDES
AND INCLUSION. COMMITTEE WHICH
IS CHAIRED BY FRENCH HILL OF
ARKANSAS. IT IS UNCLEAR WHETHER
, UM THIS SUBCOMMITTEE IS GOING
TO HAVE AN ACTIVE AGENDA OR NOT
. THE WEBSITE FOR THE
SUBCOMMITTEE IS NOT YET UP. AND
UM, IT'S JUST NOT CLEAR WHAT THE
WHAT THE CONGRESSIONAL
REPUBLICAN CAUCUS CONFERENCES.
UH PLANS ARE WITH RESPECT TO
DIGITAL ASSETS IN THIS IN THIS
PARTICULAR CONGRESS. THERE ARE A
NUMBER OF CONGRESS PEOPLE ON ON
BOTH SIDES OF THE AISLE WHO ARE
VERY FOCUSED ON ON
CRYPTOCURRENCY GREG MEEKS OF NEW
YORK. UM MAXINE WATERS, OF
COURSE, IS THE CHAIR OF THE
COMMITTEE IN THE LAST CONGRESS.
UH AND, UM, UM TOM EMMER, WHO'S
THE CHAIR OF THE CONGRESSIONAL
BLOCKCHAIN CAUCUS? WHICH IS A
BIPARTISAN GROUP OF PEOPLE WHO
WANT TO BOTH FOSTER INNOVATION
IN THE INDUSTRY, BUT ALSO ALLOW
FOR ADEQUATE CONSUMER
PROTECTIONS, AND THOSE ARE OFTEN
AT ODDS WITH EACH OTHER. UH, THE
BIDEN EXECUTIVE ORDER WHICH WEEK
. YOU'RE ALL FAMILIAR WITH, UH,
CALLED FOR A NUMBER OF REPORTS
TO BE SUBMITTED TO THE WHITE
HOUSE, UH, WITH RESPECT TO EACH
OF THE DIFFERENT AREAS THAT
COULD GOVERN AND REGULATE CRYPTO
CURRENCY. SORRY IF WE GO TO THE
NEXT SLIDE AH AH, AND, UM, THAT
RESULTED IN A LOT OF REPORTING,
BUT NOT A REAL, UH, THERE HASN'T
BEEN A LOT OF ACTION SO FAR WITH
RESPECT TO THE TO THE OUTCOMES
OF THE EXECUTIVE ORDER SIMILAR
TO THE CALIFORNIA EXECUTIVE
ORDER. IT WAS A LITTLE BIT MORE
COMPLEMENTARY TO THE INDUSTRY,
THEN, UH, THEN PROTECTIVE OF
INVESTORS. UM AS AN ASIDE WHEN I
WAS IN HOUSE COUNSEL AT
CITIGROUP, I WAS ON THE EQUITY
COMMITMENTS COMMITTEE AND WE
WOULD HAVE LONG DISCUSSIONS
AROUND WHAT THE SUITABILITY
REQUIREMENTS WOULD BE FOR A
PARTICULAR TRANSACTION. AND WHAT
LEVEL OF INVESTOR EITHER
INSTITUTIONAL RETAIL WITHIN
RETAIL. THERE ARE SUBCATEGORIES
ARE SOPHISTICATED ENOUGH TO
INVEST IN BY THIS PARTICULAR
PRODUCT AND VERY OFTEN WE WOULD
RESTRICT SOMETHING TO DIFFERENT
LEVELS OF RETAIL BECAUSE WE
DIDN'T THINK THAT IT WAS MEETING
THAT SUITABILITY. GUIDELINE. UH
THERE IS NO SUCH UH, COMMITTEE
WITHIN THE BLOCKCHAIN WORLD, AND
I THINK THE ACCESS THAT
CONSUMERS HAVE TO HIGHLY RISKY
AND SPECULATIVE FINANCIAL
PRODUCTS, UM IS KIND OF WHAT'S
GOTTEN, UH, EVERYONE IN TROUBLE
WITH RESPECT TO, UH TO THIS
INDUSTRY, AND THAT'S PROMOTED,
YOU KNOW A LOT OF THE RISK.
OBVIOUSLY, SOME PEOPLE HAVE MADE
QUITE A BIT OF MONEY. BUT UH,
IT'S UM YOU KNOW, AND ASSET
THAT'S VERY HARD TO ASCERTAIN.
AS AN INVESTMENT ADVISOR.
THERE'S NO FINANCIAL STATEMENTS
. THERE'S NO MANAGEMENT TEAM.
THERE'S NONE OF THE TRADITIONAL
DISCLOSURE THAT THE SEC WOULD
REQUIRE IN AN OFFERING STATEMENT
, UH, THERE'S NO RESEARCH. THE
RESEARCH COMMUNITY IS LARGELY
SILENT ON THESE PRODUCTS, AND SO
A LOT OF IT COMES DOWN TO, UM TO
TECHNICAL DATA AND SPECULATION.
UH, AND THAT'S NOT A GOOD RECIPE
FOR PEOPLE INVESTING THEIR LIFE
SAVINGS. OBVIOUSLY IF WE GO TO
THE NEXT SLIDE OTHER AGENCIES
INVOLVED IN REGULATING
CRYPTOCURRENCY, THE TREASURY AND
THE OFFICE OF, UH, CONTROL OF
THE CURRENCY HAVE BOTH ANNOUNCED
THAT THEY ARE GOING TO COME OUT
WITH JOINT STABLE COIN
RESOLUTIONS. UM IT'S AN
INTERESTING, UM, SITUATION
BECAUSE THE SEC TOOK ACTIONS TO
SHUT DOWN A STABLE COIN. ISSUE
OR PACK SOS AND PACKS OWES HAS,
UH, HAS PLEDGED THAT IT IS GOING
TO VIGOROUSLY CONTEST THE SCC'S
, UM, INVESTIGATION AND
ENFORCEMENT CASE INTO ITS
OFFERING OF THE BIN IN STABLE
COIN. UM WE TALKED ABOUT THE SEC
WITH RESPECT TO STAKING
SUSTAINING IS A TRANSACTION
WHERE A ACCOUNT HOLDER WILL PARK
THEIR CRYPTO, UH, FOR A CERTAIN
PERIOD OF TIME IN EXCHANGE FOR A
RETURN A RATE OF RETURN, UH,
SIMILAR TO A CD PRODUCT IN A
BANK WHERE YOU HAVE YOUR MONEY
TIED UP FOR A CERTAIN PERIOD OF
TIME, AND AT THE END, YOU HAVE A
HIGHER INTEREST RATE THAN IF IT
WAS IN A LIQUID SAVINGS ACCOUNT.
UM THE SEC HAS BROUGHT
ENFORCEMENT CASES AGAINST
KRAKEN. AH FOR STICKING
ACTIVITIES, UM, CRACKING
FAMOUSLY LEFT NEW YORK BECAUSE
IT DID NOT OBTAIN A IT LICENSE
FROM THE STATE, UH, AND WAS ONE
OF THE FIRST WYOMING CRYPTO
COMPANIES, UH AND DOUSE AND UM
AND SO STAKING IS NOW SEEMS TO
BE ON THE RADAR OF THE SEC, THE
DEPARTMENT OF JUSTICE IN THE
FINANCIAL CRIMES ENFORCEMENT
NETWORK OBVIOUSLY REGULATE THE
BANK SECRECY ACT, THE PATRIOT
ACT. AND THEY ARE ACTIVELY
ENFORCING OVERT ACTS OF FRAUD.
FRIED OBVIOUSLY IS NOTHING NEW,
BUT IT'S UH VERY DIFFICULT TO AH
TO CONTROL AND POLICE IN THE
CRYPTO MARKET. THERE'S AN
ESTIMATED 10,000 TOKENS THAT ARE
AVAILABLE FOR PURCHASE, UH,
THROUGH DIFFERENT EXCHANGES. UM
MANY OF THESE ARE TOKENS THAT
THAT NONE OF US HAVE HEARD OF.
WE KNOW LITTLE ABOUT WHAT DRIVES
THEIR VALUE. THEIR TRADING MIGHT
BE UP OR DOWN 30 TO 50% IN A
SINGLE DAY. THE CRYPTO MARKETS
ARE OPEN 24 HOURS A DAY THEY
DON'T TAKE OFF FOR WEEKENDS OR
HOLIDAYS, AND YOU COULD WAKE UP
ONE MORNING AND SIMPLY HAVE LOST
EVERYTHING IN YOUR ACCOUNT. UM
ALSO AS YOU AS YOU'RE AWARE OF
STATES, UH, PROPER MONEY LISZT
TRANSMITTER LICENSES, WHICH ARE
ALSO UH UM UH, A FORM OF
REGULATING THE INDUSTRY. WE GO
TO THE NEXT SLIDE. UH SO F T X.
WE PUT THAT IN THE CATEGORY OF
GARDEN VARIETY FRAUD. UM THIS
WAS A COMPANY THAT'S BASED IN
THE BAHAMAS STILL ACCESSIBLE THE
U. S PERSONS, WHICH IS A
QUESTION. UH THE TERMS OF USE OF
TX CLAIMED THAT THEY WERE NOT
GOING TO USE CUSTOMER ASSETS FOR
ANYTHING OTHER THAN HOLDING FOR
SAFEGUARDING AND THEY SEEM TO
HAVE VIOLATED THEIR OWN TERMS OF
USE. NOW IN TERMS OF USE OR NOT
, UH, NECESSARILY CONTRACTS WITH
INVESTORS. UH, AND THEY PROBABLY
DON'T HAVE THE SAME WEIGHT AS AS
VIOLATING A BANK REGULATION
WHERE YOU HAVE TO SEGREGATE
CAPITAL. UM BUT IT IS CONCERNING
THAT WE DO AGREE TO THESE TERMS
OF USE VERY OFTEN WHEN WE'RE
SIGNING UP FOR THINGS, UH, AND
FOR A COMPANY TO OVERTLY
VIOLATED, THE TERMS OF USE IS
TROUBLING. UH BLOCK FIVE IS
ANOTHER COMPANY WHERE THEY
OFFERED INVESTMENT ACCOUNTS, AND
THEY WERE GIVING CUSTOMERS, UH,
INTEREST OR OR TIME VALUE TOKENS
FOR THEIR FOR THEIR STAKING, UM
THEY WERE FINED $100 MILLION FOR
FAILURE TO REGISTER. UH, WITH
THE SEC. THE SEC FOUND THAT THIS
WAS AN INVESTMENT CONTRACT.
NOTHING THAT RESEMBLES THAT TYPE
OF CONTRACT HAD EVER BEEN DEEMED
AS SECURITY BEFORE AND YET THEY
WERE. THEY WERE FINED $100
MILLION FOR THAT. UM AND THEN WE
TALKED ABOUT CELSIUS. VOYAGER IN
GEMINI. UM ONE OF THE THINGS
THAT HAPPENS IN THIS INDUSTRY IS
THAT THE PARTIES TEND TO SETTLE
, WHICH CREATES THE IMPLICATION
OF A VICTORY FOR THE REGULATORS.
SO KIM KARDASHIAN AND PAUL
PIERCE RECENTLY, UM THEY WERE
BOTH FINE FOR PUSHING ETHEREUM
MAX TOKENS WITHOUT DISCLOSING
THAT THEY HAD A CONFLICT, NAMELY
THAT THEY WERE PAID A CERTAIN
AMOUNT OF MONEY FOR THEIR
ENDORSEMENT, UM, BY IMMEDIATELY
SETTLING THE CASE. UH IT CREATES
THE IMPRESSION THAT ETHEREUM MAX
WAS INDEED A SECURITY AND THAT
THE SEC INDEED HAD AUTHORITY TO
PURSUE AN ENFORCEMENT CASE.
AGAINST UM AGAINST THOSE PARTIES
AND VERY OFTEN THE INDUSTRY IS
STUCK WITH THESE, UH, WITH THESE
CASES WHERE WE HAVE SETTLEMENTS
THAT CREATE THE IMPRESSION THAT
, UM UM THAT CERTAIN BARS HAVE
BEEN PASSED, WE FOUND THAT WOULD
BLOCK FIRE WITH RESPECT TO OTHER
OTHER TYPES OF DEFINING THE
SECURITY AND THE DEFINITION OF
SECURITY UNDER CHAIR GENSLER OF
THE SEC HAS GOTTEN WIDER AND
WIDER. AH IN THE PAST SEVERAL
MONTHS, AND IT NOW LOOKS LIKE
THE SEC IS GOING TO BE THE
PRIMARY REGULATOR. UM I HAVE ONE
MORE SLIDE. UH WHERE WE TALK A
LITTLE BIT ABOUT IF WE GO TO THE
NEXT ONE REGULATORY CERTAINTY, I
THINK WOULD WOULD BENEFIT THE
INDUSTRY. ONE THING I'LL REMIND
THIS PANEL THIS IS A HIGHLY
NATIONALIZED AND INTERNATIONAL
INDUSTRY AND THAT CALIFORNIA IS
OBVIOUSLY EXTREMELY IMPORTANT
AND INFLUENTIAL, UM, PROBABLY
THE MOST INFLUENTIAL STATE WITH
RESPECT TO FINANCIAL REGULATION.
UH, IN ADDITION TO NEW YORK, UH
BUT THIS COULD VERY EASILY BE
SOMETHING WHERE YOU PUSH DOWN ON
ONE SIDE OF A BALLOON AND
SOMETHING ELSE DEVELOPS IN OTHER
STATES, WHERE THEY'VE DEVELOPED
MORE OPPORTUNISTIC LAWS LIKE
WYOMING TO HELP THE CRYPTO
INDUSTRY OR TO OTHER COUNTRIES,
IN FACT, AND WE'VE SEEN CLIENTS
OF OURS THAT HAVE GONE FROM
DIFFERENT INTERNATIONAL
JURISDICTIONS BECAUSE THEY'RE
RICH RESTRICTIONS HAVE BECOME
TOO ONEROUS. AND SO UM, YOU
KNOW, THERE DOES SEEM TO BE A
NEED FOR A COMPREHENSIVE
NATIONAL AND INTERNATIONAL
STANDARD. UM, BUT AT THE VERY
LEAST, WHAT I THINK WE CAN DO IS
PROTECT OUR OWN PEOPLE, UH, FROM
THEMSELVES, ESSENTIALLY IN, UH,
IN IN PUTTING A SUITABILITY
STANDARD THAT THAT RESEMBLES
THOSE THAT BANKS AND SECURITIES
FIRMS HAVE TO DEAL WITH. AND
ALSO ENFORCING CUSTODY
REQUIREMENTS. WITH RESPECT TO,
UM WITH RESPECT TO THESE ASSETS.
THANK YOU. THANK YOU VERY MUCH,
UM, MEMBERS, WE WILL NOW OPEN IT
UP TO QUESTIONS. SENATOR MIN.
HERE WE GO DIFFERENT THAN THE
SENATE. FIRST OF ALL. I WANTED
TO THANK THAT CHAIRS FOR HOSTING
HOLDING THIS HEARING. I THINK
IT'S CRITICALLY IMPORTANT. I
THINK CRYPTOCURRENCY SEEMS LIKE
IT'S FAIRLY CLEAR AT THIS POINT
FALLS INTO THESE REGULATORY GAPS
, AND I THINK IT'S IMPORTANT
THAT WE START TO REALLY
AGGRESSIVELY VISIT THIS ISSUE.
THAT BEING SAID I I'M CURIOUS
ABOUT A COUPLE OF THINGS. UM
FIRST IN THE FEDERAL VERSUS
STATE DIVIDE. WHAT? WHAT DO YOU
SEE AS THE ROLE OF THE STATE
HERE, DIRECTOR. AND THEN I THINK
RELATED LEE AND I THINK THIS IS
TO BOTH PANELISTS. UH, YOU KNOW,
WE KNOW THERE'S AN ONGOING
BATTLE BETWEEN THE SEC AND CFTC
OVER JURISDICTION. DOES IT
MATTER FROM OUR PERSPECTIVE AS A
STATE WHETHER OR NOT SEC OR CFTC
, ULTIMATELY CLAIMS PRIMARY
JURISDICTION OVER CRYPTOCURRENCY
SHOULD THAT AFFECT OUR
REGULATORY APPROACH. AND IF SO,
HOW? THANK YOU SO MUCH FOR THAT
QUESTION, SENATOR. I'LL GO
FIRST, UM, TO THE FIRST PART OF
YOUR QUESTION, UM WE ARE ALWAYS
WORKING IN COLLABORATION WITH
OUR STATE PARTNERS, UM AS WELL
AS OUR FEDERAL PARTNERS. UM WE
HAVE STANDING MEETINGS. UM WE
WORK WITH THEIR STAFF. UM AND,
UM, ASSESS THE VARIOUS
ACTIVITIES, PRODUCTS AND
SERVICES. UM IN CALIFORNIA. WE
HAVE A VERY ROBUST CONSUMER
PROTECTION AND INVESTOR
PROTECTION. UM STRUCTURE THAT WE
OPERATED, INCLUDING SUCH
STATUTES AS CSL FOR OUR
SECURITIES LAWS, AS WELL AS CCF
PL FOR A LOT OF CONSUMER
PROTECTION VIOLATION, SO WE
DON'T SEE ANY CHALLENGES IN
LEADING. I WOULD LOOK AT
CALIFORNIA AS VERY MUCH THE
LEADER AT THE STATE LEVEL
WORKING ON CRYPTO OVERSIGHT AND
VERY MUCH A GOOD PARTNER WORKING
WITH OTHER STATE REGULATORS, AS
WELL AS SOME OTHER FEDERAL
AGENCIES. YOU MENTIONED, UM FOR
THE SECOND PART OF YOUR
QUESTION. I'M NOT HERE TO OPINE
ON POLICY PRESCRIPTIONS. I WILL
SAY THAT WE ARE THE SECURITIES
REGULATOR. WE ARE THE
COMMODITIES REGULATOR. UM, WE
ARE THE CONSUMER PROTECTION
MINDED AGENCY AS WELL. SO WE
WILL USE ALL OF OUR AVAILABLE
RESOURCES IN PROTECTING
CONSUMERS SUPPORTING RESPONSIBLE
INNOVATION. AND UM, THE SEC AND
THE CFTC WILL HAVE AN OPEN AND
COLLABORATIVE DIALOGUE WITH THEM
AS THEY MOVE FORWARD WITH THEIR
ACTIONS AND OTHER ACTIVITIES IN
THIS SPACE. UM, GO AHEAD. YEAH I
THINK YOU NEED BOTH. I THINK I
THINK THE FEDERAL AND THE STATE
NEED TO WORK TOGETHER. UM THE
STATES CAN BE MUCH BETTER AT
CERTAIN THINGS. UM THERE. UH YOU
KNOW, I MENTIONED THE BLOCK VICE
SETTLEMENT FOR $100 MILLION THAT
WAS ACTUALLY 50 MILLION STATE
AND 50 MILLION FEDERAL LEAVE.
CALIFORNIA WAS INVOLVED IN THAT.
SO WHEN YOU HAVE THAT KIND OF
COLLABORATION UM, YOU KNOW, IT
CAN BE VERY POWERFUL. UH WHETHER
THE SEC VERSUS CFTC MATTERS, YOU
KNOW, I THINK THAT, UM YOU'RE
GOING TO SEE UNDER UNDER CHAIR,
GANSLER, UH MORE AUTHORITY. UH,
COMING. FROM THE SEC. HE
CERTAINLY LOOKING TO EXPAND, UH
AND, UM, ENFORCE, UH, YOU KNOW
THE AGENDA OF THE COMMISSION AND
ON CONSUMER, YOU KNOW IN
CONSUMER PROTECTION AND INVESTOR
PROTECTION. UH I THINK THAT
YOU'RE GOING TO HAVE CERTAIN
POCKETS OF THE INDUSTRY THAT
DON'T NEATLY FIT INTO THE
SECURITIES TESTS. BITCOIN
ETHEREUM, FOR EXAMPLE, UH,
THEY'RE NOT REALLY PART OF A
COMMON ENTERPRISE ANYMORE
BECAUSE THEY'RE MORE OR LESS RUN
BY CODE. UM THERE'S NO THERE'S
NO CEO OF BITCOIN YOU CAN CALL
AND TELL THEM TO SHUT THE THING
DOWN. RIGHT WE HAVE A MACHINE.
NOW THEY CAN'T BE TURNED OFF
BECAUSE IT'S ALIVE ON THOUSANDS
AND THOUSANDS OF COMPUTERS, AND
SO, UM, AS SCARY AS THAT IS TO
THINK ABOUT, IT'S NOT A COMMON
ENTERPRISE LIKE A TOKEN THAT'S
OFFERED BY A PROTOCOL. UM, THAT,
UM WHERE YOU HAVE A WHITE PAPER
AND FOUNDERS WHO ARE TOUTING HOW
WELL THEIR MANAGEMENT SKILLS ARE
WHAT SCHOOLS THEY WENT TO KNOW
THAT LOOKS LIKE A COMPANY.
THAT'S A BUSINESS AND SO, UM, SO
YOU NEED I THINK YOU NEED BOTH
OF THEM AS WELL. AND UH, BUT BUT
YOU'RE GOING TO SEE, UM UH, YOU
KNOW, CERTAINLY FOR THE
REMAINDER OF THIS ADMINISTRATION
OF VERY ACTIVE SEC, THEY'VE
HIRED UM, I THINK 200
ENFORCEMENT LAWYERS AND STAFF
FOCUSED ON BLOCKCHAIN, AND
THEY'VE DIVERTED OTHER
RESOURCES. TO THIS AREA, AND I
THINK THAT, UM I WAS READING IN
AN INTERVIEW THAT, UM, YOU KNOW
AGAINST HER, HAS EVEN TAKEN
UMBRAGE THAT THE INDUSTRY SEEMS
TO STILL BE VERY, UM UH, GLEB,
WITH RESPECT TO, UH SECURITIES
ENFORCEMENT AND COMPLIANCE. I
APPRECIATE THAT. AND UM, JUST A
QUICK FOLLOW UP. UM MR MALIK,
YOU MENTIONED IN YOUR TESTIMONY
THAT YOU HAVE A LOT OF EXISTING
AUTHORITY UNDER SOME OF THE LAWS
THAT WE PASS IN RECENT YEARS,
AND I GUESS I'M CURIOUS. WHAT
WHAT DO YOU THINK THAT YOU NEED
AS FAR AS ADDITIONAL AUTHORITY
TO PROTECT CONSUMERS HERE IN
CALIFORNIA? WELL THANK YOU FOR
THAT QUESTION. YOU'RE RIGHT. WE
HAVE EXISTING AUTHORITY AND WE
HAVE USED IT JUDICIOUSLY AND
WHEN NEEDED, UM, AGGRESSIVELY
AND ALWAYS ACCURATELY, I MEAN,
INCLUDING CSL, WHICH PROVIDES US
THE ABILITY TO GO AFTER, UM
CERTAIN SECURITIES ACTIVITIES
THAT ARE NON COMPLIANT. UM, SOME
OF THE CASES THAT WE'VE LOOKED
AT UM BRIAN MENTIONED BLOCK
FIVE. WE'VE ALSO WORKED ON
CELSIUS. VOYAGER TO THE EXTENT
THAT CCF PL IS SOMETHING WE CAN
USE. WE'VE EXPLORED THAT IN SOME
OF OUR ENFORCEMENT ACTIONS. UM I
WILL SAY, UM, AND THIS IS
SPEAKING AS A FORMER LEGISLATIVE
PERSON. I WANT TO BE A GOOD
PARTNER. DEPARTMENTS CERTAINLY
DOES, UM, AND CONTINUE THE
CONVERSATIONS WITH YOU AND YOUR
STAFF, UM, AND WILL IMPLEMENT
ANY NEW AUTHORITIES IF NEEDED,
BUT REST ASSURED, WE ARE USING
EVERYTHING THAT WE CAN. UM AND
THE TEAM THAT WE'VE BUILT, UM,
IS VERY ACTIVE IN OVERSIGHT OF
CRYPTO AS THINGS STAND TODAY.
THANK YOU. NEXT. I HAVE
ASSEMBLYMEMBER'S BAUER-KAHAN,
FOLLOWED BY ASSEMBLYMEMBER'S
DIXON. WELL, THIS IS ACTUALLY
FOLLOW UP TO SENATOR MEN'S
QUESTION. SO YOU MENTIONED UM
CCF PL AND CSL IS TWO OF THE
TOOLS YOU'VE USED. UM AND YOU
MENTIONED THAT YOU YOU KNOW
WHEN, AFTER FOUR AND REGISTERED
SECURITY USERS, 13 UNLAWFUL
INVESTMENT SCHEMES AND UM, YOU
REFERRED TO CRYPTO ISSUES TO LAW
ENFORCEMENT. SO THAT'S YOU KNOW
, YOU'RE ENFORCING. WHAT OTHER
TOOLS ARE YOU USING? ARE THOSE
THE TWO SO I WOULD LIKE TO POINT
TO. AH, COUPLE OF MORE BROADER
TOOLS. ONE WE THINK IS VERY
IMPORTANT IS EDUCATION TO THE
PUBLIC, SO I POINTED OUT THAT WE
HAVE THIS CRYPTO SCAM TRACKER
THAT, UM, IT'S SEARCHABLE, AND
IT'S SOMETHING THAT WILL
HOPEFULLY PREVENT FUTURE SCAM.
SO THAT IS PART OF OUR APPROACH
. UM AS WELL AS EXAMINATION, SO
THE CRYPTO ASSETS SUPPORT UNIT
HAS BEEN PRIORITIZING LOOKING AT
ALL OF OUR COMPANIES THAT ARE
PROVIDING SOME CRYPTO SERVICES,
SEEING WHETHER THEY'RE COMPLIANT
WITH OUR LAWS, CONTINUING OUR
EXAMINATIONS OF THOSE, AND TO
THE EXTENT BANKS AND CREDIT
UNIONS ARE IN THIS SPACE. WE
HAVE A LOT OF AUTHORITY AS A
PRUDENTIAL REGULATOR TO DO THOSE
EXAMINATIONS AND WILL CONTINUE
TO DO THAT. AS WELL AS EXPLORE
FUTURE ENFORCEMENT ACTIONS, BOTH
AS A DEPARTMENT AND IN THE
MULTISTATE MANNER AND ALONGSIDE
OUR FEDERAL PARTNERS. SO YOU
SAID YOU WERE DOING THOSE
ENFORCEMENT ACTIONS AS YOU WERE
SPEAKING AT THE BEGINNING UNDER
OUR LAWS, RIGHT? YOU JUST
WEREN'T SPECIFYING WHAT LAWS
THOSE WORDS SO I WAS TRYING TO
FIGURE OUT IF THERE WERE OTHERS.
SO, UM, THAT'S A GREAT QUESTION.
UM THE CORPORATE SECURITIES LAW
IS THE ONE THAT YOU MENTIONED
CSL CCF PL YOU CERTAINLY, UH,
MENTIONED AS WELL. UM WE HAVE
THE CFL LICENSE PROCESS OF THE
CALIFORNIA FINANCING LAW THAT
ALLOWS FOR NON BANKS WERE RIGHT
. CERTAIN LENDING SERVICES, SO
WE HAVE USED THE AUTHORITY THERE
TO EXAMINE THOSE LICENSES AND
HAVE TAKEN ACTIONS, INCLUDING
STOPPING THE ACTIVITIES OF
CERTAIN COMPANIES THAT ARE THERE
, UM SO THAT THEY CAN NO LONGER
UM ACT IN THIS SPACE. WE ALSO
HAVE, UM, UM INVESTMENT
COMPANIES UNDER OUR BROKER
DEALER REGIME AND OUR INVESTMENT
ADVISOR REGIME THAT ALLOWS US TO
LOOK AT THOSE COMPANIES IF
THEY'RE PROVIDING ANY CRYPTO
ADVICE, AND, UM, THAT'S ANOTHER
AREA THAT WE ARE ABLE TO LOOK AT
IN THIS SPACE AND I LOOK AT CCF
PL AS A FLOOR THAT WE CAN ALWAYS
GO TO IF YOU SEE SOMETHING THAT
IS IN CONFLICT WITH RU DEPTH.
MISSION SO THAT IF THERE IS
SOMETHING THAT IS, IN FACT
UNFAIR, DECEPTIVE OR ABUSIVE, AN
ACTOR PRACTICE UNDER THAT WE CAN
ALWAYS USE OUR AUTHORITY. SO I
JUST WANT I MEAN, I APPRECIATE
THE OF THIS PATCHWORK OF LAWS
THAT YOU'RE TRYING TO SHOVE
CRYPTO INTO AND FORCED TO
PROTECT CALIFORNIANS, BUT I
GUESS MY CONCERN IS, YOU KNOW,
MR CORNS PRESENTATION SHOWED. I
FEEL LIKE THERE'S A LITTLE BIT
OF A ROUND HOLE SQUARE PEG
SITUATION HERE WHERE YOU'VE GOT
LAWS ON THE BOOKS AND YOU'RE
TRYING TO USE THEM TO ENFORCE,
BUT WE DON'T HAVE A SITUATION
WHERE YOU HAVE A TOOL OR A LAW
THAT CAN GO AFTER THESE ACTORS
IF THEY DON'T FIT UNDER THE
TESTS CREATED UNDER THOSE OTHERS
LAWS WHICH WERE NOT WRITTEN FOR
CRYPTOCURRENCY, AND SO I GUESS
I'M CURIOUS AS WE SEE WHAT THE
ADMINISTRATION IS INTENDING TO
DO IN THE FUTURE. GIVE YOU MORE
AUTHORITY WAS THE ONLY THING I
SAW YOU ASKING FOR THE
LEGISLATURE. WHAT DO WE DO NOT
HAVE AN ENFORCEMENT LAW ON A LAW
ON THE BOOKS THAT WILL ALLOW YOU
TO ENCOMPASS CRYPTOCURRENCY.
LARGE WHEN WE KNOW CONSUMERS ARE
HURTING, AND I GUESS THAT'S
REALLY PERPLEXING TO ME. I DON'T
KNOW. IF MR CORDEN STUFF HE'S
NOT MANY OF THEM. I THINK HAVING
A AND ALSO I THINK WHAT? YOU UM
WHAT YOU'RE ALLUDING TO IS THAT
THE PUBLIC NEEDS TO KNOW WHAT
THE LAW IS. AND UH AND HAVING A
COMPREHENSIVE. LAW THAT DOES
ENCOMPASS CRYPTO ON ITS FACE.
AND THAT, UH, MAKES CLEAR WHAT
OPERATORS WHAT'S EXPECTED OF
THEM, UM OR AT LEAST MAKES IT
CLEAR THAT THESE EXISTING
STATUTES THAT, UM. THAT ARE ON
THE BOOKS OR AT LEAST GOING TO
BE ENFORCED IN THIS WAY. THINK
THAT THAT, UH, WOULD BE
TREMENDOUSLY HELPFUL. UM AND
THEN SO THE OTHER THING THAT I
THINK AND I REALLY WANT TO
APPLAUD OUR CHAIRS HERE WHO HAVE
DONE INCREDIBLE WORK IN THIS
SPACE, AND I THINK REALLY HELD
CALIFORNIANS AND CONSUMERS AT
THE FRONT OF EVERY PIECE OF WORK
THAT THEY HAVE DONE. UM YOU KNOW
, IN THE GOVERNOR'S VETO MESSAGE
, HE REALLY FOCUSED ON THE
LICENSING SCHEME. UM AS I READ
THE MESSAGE, BUT THE BILL DID
MORE THAN THAT, RIGHT. I MEAN IT
PROTECTING CONSUMERS WITH OTHER
TOOLS, RIGHT? UM ENSURING THERE
WAS NO SEGREGATION THAT THEY
WERE SEGREGATING ASSETS THAT
THERE WAS A BOND THAT, UM, YOU
KNOW. THE STABLE COINS WERE, BUT
THERE WAS NO UNPACK. STABLE
COINS. UM I DON'T SEE THE AGENCY
MOVING TO PUT ANY OF THOSE
PROTECTIONS IN PLACE. BUT MAYBE
I'M WRONG. SO I JUST WANTED TO
GIVE YOU AN OPPORTUNITY. UM WELL
AGAIN. THANK YOU FOR THAT
QUESTION. I WANT TO MAKE CLEAR
THAT D F P. I WILL DO WHATEVER
IT CAN WITH THE AUTHORITY THAT
IT HAS. IF THERE IS LEGISLATION
PROVIDING US WITH SOME OF THOSE
AUTHORITIES THAT ABSOLUTELY WILL
GO THAT WAY. UM CCF PL PROVIDES
US WITH, UM CERTAIN POWERFUL
TOOLS, INCLUDING ARGUED APP
AUTHORITY. IT ISN'T A LICENSING
REGIME IS A REGISTRATION PROCESS
AND, UM, IS AGAIN MORE OF A AH,
A GROUND FLOOR TO LOOK AT SOME
OF THESE ACTIVITIES IN THE
SECURITIES CONTEXT. AS BRIAN
MENTIONED, UM YOU KNOW, WE HAVE
BEEN VERY ACTIVE AND WILL
ABSOLUTELY CONTINUE TO BE
ACTIVE. UM BUT WE STAND READY TO
WORK WITH YOU AND YOUR STAFF. IF
THERE'S FURTHER THINGS YOU WANT
TO EXPLORE, UM, IN TERMS OF
FUTURE AUTHORITIES THROUGH
LEGISLATION, WELL, THAT'S
EXCITING. I HEAR THEM SAYING
THEY WANT THOSE PROTECTIONS THAT
WERE IN THE BILL LAST YEAR, SO I
LOOK FORWARD TO VOTING THEM INTO
LAW. UM SO MY LAST QUESTION WAS
FOR MR CORN TO ELABORATE A
LITTLE BIT FURTHER ON THE
SUITABILITY STANDARD. YOU HAD
MENTIONED THAT THAT WAS
SOMETHING YOU THOUGHT WOULD BE
VERY PROTECTIVE. IF YOU COULD
JUST ELABORATE FURTHER ON THAT,
AND THEN I WILL SEE IT. BEFORE.
YES SO, UM, IN THE SECURITIES
AND BANKING REGIME, YOU HAVE
BROKER DEALER LICENSING EVERY
BROKER IS REQUIRED TO MAKE AN
ASSESSMENT OF SUITABILITY FOR
ALL OF THEIR CLIENTS AT LEAST
ANNUALLY, AND YOU'VE PROBABLY
GOTTEN QUESTIONNAIRES OR WHEN
YOU OPEN AN ACCOUNT, YOU'LL GET
A QUESTIONNAIRE ON YOUR
INVESTMENT EXPERIENCE YOUR TIME
HORIZON. UH, YOUR NET WORTH HOW
MUCH YOU'RE LOOKING TO PUT INTO
DIFFERENT TYPES OF ASSET
CATEGORIES. UH, THERE IS NO UH,
ASSESSMENT OF THE SUITABILITY OF
, UM OF CRYPTO RIGHT NOW.
THERE'S NO REGIME TO REGULATE.
UH AND PREVENT PEOPLE WHO SHOULD
NOT BE TAKING, YOU KNOW,
PAYCHECK RISK ON VERY, VERY
SPECULATIVE INVESTMENTS FROM
DOING SO. AND SO I THINK THAT,
UM WHERE WHERE YOU HAVE A LOT OF
CONSTITUENT DISAPPOINTMENT IS
THAT THEY'VE PUT MONEY INTO
SOMETHING. THEY READ ABOUT IT
FROM SOMEWHERE, OR THEY JUST HAD
A HUNCH AND BET A LOT OF MONEY
ON, UH, PARTICULAR TOKEN GOING
UP. LAST YEAR, I READ OVER A
TRILLION DOLLARS OF VALUE IN THE
CRYPTO MARKET ACROSS THE BOARD
WAS COMPLETELY WIPED OUT. MOST
TOKENS. BOOTING BITCOIN ETHEREUM
WERE DOWN OVER 50% AND IF YOU
HAVE SOMEBODY WHO IS REALLY PUT
, UH THEIR THEIR LIFE SAVINGS OR
MONEY THAT THEY CAN'T AFFORD TO
LOSE, UH INTO THIS TYPE OF
PRODUCT, AND IT'S VERY EASY TO
OPEN AN ACCOUNT. UH YOU CAN DO
IT ON YOUR PHONE. YOU DON'T NEED
TO GO THROUGH VERY MANY TESTS AT
ALL, JUST ACCEPTING TERMS OF
USE. AGREEING TO BE TEXTED, UH
AND A FEW OTHER THINGS. UM YOU
KNOW, YOU LINK YOU CAN LINK YOUR
BANK ACCOUNT STRAIGHT TO THE TO
THE PROTOCOL AND START BUYING
RIGHT AWAY. AND THERE'S NOBODY.
AUCOIN BASE WHO'S GOING TO CALL
YOU AND SAY NO, YOU REALLY
SHOULDN'T BUY THAT. OR G. I
THINK YOU HAVE TOO MUCH EXPOSURE
IN THIS ONE ASSET AND MAYBE
THINK ABOUT SOMETHING ELSE. UM
AND SO THAT'S WHERE, UM YOU HAVE
A LOT OF PEOPLE WHO HAD FOMO
FEAR OF MISSING OUT. TRY AND
JUMP IN. A LOT OF THEM JUMPED IN
AT EXACTLY THE WRONG MOMENT. AND
THE BOTTOM FELL OUT. AND IF YOU
OPEN AN ACCOUNT AT IT AT A
REGISTERED BROKER DEALER, UM
EVEN A DISCOUNT BROKER, THEY'LL
GO THROUGH A SUITABILITY
ANALYSIS AND SOMEBODY WILL WILL
PUT THE BRAKES ON. UH YOU TAKING
TOO MUCH RISK OR PUTTING TOO
MUCH INTO CERTAIN POSITIONS, SO
I THINK THAT'S SOMETHING LIKE
THAT CAN BE VERY USEFUL IN THIS
CONTEXT AND YOU KNOW, PART OF
THE REASON THE INDUSTRY I THINK
IS AGAINST THIS IS BECAUSE NONE
OF THEIR TOKENS ARE REALLY
PASSED MUCH OF THE SUITABILITY
ANALYSIS. WE TALKED TO COMPANIES
ALL THE TIME THAT, UM, YOU KNOW,
THERE IS A WAY TO REGISTER YOUR
TOKENS WITH THE SEC ALREADY DO
AN EXEMPT OFFERING UNDER
REGULATION. D, UM IN
CALIFORNIA'S 25 1 OR TWO F, UH
AND MANY OF THEM ARE NOT
ATTRACTED TO THAT OPTION BECAUSE
YOU HAVE TO REALLY ONLY SELL TO
ACCREDITED INVESTORS AND WE HAVE
A LOT OF PEOPLE IN THE CRYPTO
INDUSTRY IN THEIR TWENTIES AND
THIRTIES WHO ARE TRYING TO
APPEAL TO MORE OF A TIKTOK TYPE
INVESTOR, AND, UM, YOU KNOW,
THAT'S THAT'S A RECIPE FOR
DISASTER IN MANY CASES. THANK
YOU. I APPRECIATE THAT. AND I
JUST WANNA, UM AS THEY PASS IT
OVER TO THE CHAIRS AGAIN SAY,
YOU KNOW, I THINK IT'S IMPORTANT
THAT WE CONTINUE TO WORK ON
ENSURING THERE'S PROPER
REGULATION FOR CALIFORNIA'S AS
MUCH AS THE 65 CONSUMER ALERTS,
AND I DON'T KNOW THAT I'VE EVER
SEEN ONE AND I IMAGINE THE
AVERAGE CALIFORNIAN HASN'T WE
NEED TO DO MORE THAN THAT? THANK
YOU NEXT ASSEMBLYMEMBER'S DIXON
. THANK YOU VERY MUCH CHAIR.
YEAH I'M THIS IS REALLY AN
IMPORTANT DISCUSSION TODAY. I
COMMEND YOU FOR BRINGING THIS TO
BRINGING US ALL TOGETHER A FEW
QUESTIONS JUST TO FOLLOW UP ON
THE PREVIOUS QUESTIONS. UM THERE
WAS A BILL THAT YOU INTRODUCED
ASSEMBLYMAN YOU INTRODUCED HER.
YOU BOTH INTRODUCED IN THE LAST
SESSION, AND IT WAS VETOED BY
THE GOVERNOR. NOW WE HAVE AN
EXECUTIVE ORDER, CLAIRE FOR ME,
CLARIFY IF YOU WOULD PLEASE IS
THE EXECUTIVE ORDER STILL IN
EFFECT? YES THE EXECUTIVE ORDER
PROVIDE FOR D F P I A SERIES OF
ACTIVITIES THAT WE NEEDED TO DO,
INCLUDING USING CCF PL
AUTHORITY, PUTTING UP PRINCIPLES
, GUIDANCE AND MARKET MONITORING
, WORKING WITH STAKEHOLDERS
DOING ENFORCEMENT, UM, WORKING
ON COMPLAINTS AND CONSUMER
EDUCATION. WE ARE IMPLEMENTING
ALL OF THAT. IN FACT, NEXT
MONTH, WE WILL RELEASE A BANKING
GUIDANCE, UM, TO OUR BANKS AND
CREDIT UNIONS. SOMETHING THAT
IS, UM UH, IN MANY WAYS A
CONTINUATION OF WHAT WE'VE SEEN
WITH THE PRUDENTIAL REGULATORS
IN WASHINGTON WITH THE FEDERAL
RESERVE THE F D I C AND PUTTING
OUT A JOINT STATEMENT. SO THAT
WILL COME OUT NEXT MONTH. WE'LL
ALSO PUT OUT PRINCIPLES THAT
WILL REALLY POINT TO THE NEED
FOR THE CRYPTO INDUSTRY TO ABIDE
BY OUR CONSUMER PROTECTION IN
OUR OUR BANKING LAWS. UM AND
THAT AGAIN WILL BE COMING OUT
NEXT MONTH. SO CURIOUSLY, I KNOW
THIS IS NOT A HEARING ON FT X,
BUT GIVEN THAT, UH, THAT ALL
THAT TYPE OF ACTIVITY WAS GOING
ON UNDER THE EXISTING EXECUTIVE
ORDER. DID ANY RED FLAGS. I'M
JUST CURIOUS. DID ANY RED FLAGS
SURFACE, SO IT'S AN INDICATOR
THAT WE CLEARLY THE STATE NEEDS
TO CLEARLY STRENGTHEN ITS OR
CREATE A REGULATORY FRAMEWORK
AROUND THIS, BUT JUST CURIOUSLY
, WERE THERE ANY RED FLAGS? DID
ANYBODY WRITE ANYTHING ON THE
ENFORCEMENT AND 700? COMPLAINTS
DID YOU FOLLOW UP AND TRY TO
UNDERSTAND WHAT'S THE NATURE OF
THOSE COMPLAINTS AND THE
ENFORCEMENT ACTION AGAINST THOSE
WHO WAS ANYTHING SURFACED? OR
WAS THIS JUST A BIG SURPRISE
WHEN IT ALL BLEW UP? WELL THANK
YOU FOR THAT QUESTION. I WILL
SAY FIRST OF ALL, UM, THE
COMPLAINTS WE'VE RECEIVED, AS
INDICATED, OR SOME OF THE
HIGHEST IN TERMS OF CATEGORIES.
WE PRIORITIZE ALL COMPLAINTS.
UM, BUT CRYPTO HAS BEEN AN AREA
THAT WE'VE BEEN VERY MUCH
FOCUSED ON AND WE USE THOSE
COMPLAINTS TO INFORM OUR OWN
ENFORCEMENT ACTIONS WHEN
APPROPRIATE, AS WELL AS MAKING
CONSUMERS AWARE SO THAT THEY CAN
PREVENT HOPEFULLY, FUTURE SCAMS
WITH F T X AND NOT ABLE TO GO
INTO MUCH DETAIL BECAUSE I
SHARED. WE HAVE AN OPEN
INVESTIGATION THERE. BUT LOOK,
THIS IS A VERY CATASTROPHIC
EVENT FOR LOTS OF PEOPLE WHO
WERE HARMED. THIS WAS ONE OF THE
LARGEST CRYPTO COMPANIES, ONE OF
THE LARGEST CRYPTO EXCHANGES.
LOTS OF RETAIL INVESTORS AND
OTHERS WERE HARMED. UM, WE'VE
WORKED AND CONTINUED TO WORK
WITH OUR FEDERAL AND STATE, UH,
COUNTERPARTS TO MAKE SURE THAT
WE ARE LOOKING AT THE SPACE AND
THE GOAL HERE IS TO PROTECT COME
FOLKS FROM FUTURE ACTIVITIES AND
COLLAPSES THAT COULD HAPPEN AS
WELL AS DO OUR UTMOST TO, UM, UH
TO WORK ON BEHALF OF THE
CALIFORNIANS WHO WERE USING F T
X. UM WE'VE CONTINUED TO HAVE
OPEN DIALOGUE AS I SAID WITH OUR
REGULATORS AND ARE ALWAYS
LOOKING AT THE MARKET AND DOING
WHAT WE CAN UM, BUT THIS IS AS
BRIAN MENTIONED A PLACE WHERE,
UM, THERE'S JUST A LOT OF
ACTIVITY. A LOT OF VOLATILITY. A
LOT OF THESE COMPANIES. FDX WAS
ONE EXAMPLE HAVING AN OFFSHORE
PLACE WHERE THEY WERE BASED OUT
OF WHICH MAKES IT CHALLENGING.
BUT WE ARE DOING EVERYTHING WE
CAN. I APPRECIATE THAT, UM, MR
CORN YOU WERE ASKED ABOUT STATE
OR FEDERAL. IT'S ACCORDING TO
THE REPORTS SAID. WE WERE
READING HERE IN PREPARATION.
CONGRESS DOESN'T SEEM TO BE
MOVING WITH A SENSE OF URGENCY
ON THE REGULATORY FRONT ON THIS.
THAT THAT'S MY IMPRESSION,
CORRECT. SO UM, EVEN THOUGH IT
WAS WHAT YOU WERE TALKING ABOUT
, CERTAINLY, IN MY OPINION,
ANYWAY, REQUIRES A ROLE OF THE
STATE. WOULD YOU DEFINE THE
SITUATION WE ARE IN IN
CALIFORNIA, GIVEN THE NUMBER OF
COMPLAINTS AND THE DAMAGES THAT
HAVE BEEN CREATED THE LOSSES
THAT HAVE BEEN CREATED. DO YOU
THINK WE ARE INNOCENT WE NEED TO
HAVE WE NEED TO HAVE A SENSE OF
URGENCY ABOUT CREATING SOME
LICENSING REGULATORY STRUCTURE
FOR THE FOR PEOPLE WHO THE
RESIDENTS AND CONSUMERS IN THE
STATE. YES SO IT'S REALLY
INTERESTING. IT'S IMPORTANT TO
ISOLATE TWO DIFFERENT RISKS HERE
. THE FIRST RISK IS I INVESTED.
IN A TOKEN, THE TOKEN VALUE
DROPPED. BUT THE PLATFORM DID
EVERYTHING RIGHT AND I WAS ABLE
TO TAKE MY MONEY OUT AND PUT IN
SOMETHING ELSE. RIGHT, SO THAT'S
ONE RISK THAT'S AMBASSADOR RISK
. UM MOST PEOPLE DON'T THINK
ABOUT PLATFORM RISK, RIGHT? I'M
PUTTING MY MONEY INTO A
CUSTODIAN THAT MAY NOT EXIST AND
THERE'S NO SAFEGUARD. AH FOR MY
ASSETS, NOT BEING COMMINGLED
WITH THE ASSETS OF THE
CUSTODIAN. SO FAILURE OF A
CUSTODIAN AND THE AND THE
COMPLETE INABILITY FOR CLIENTS
TO WITHDRAW FUNDS THAT MAYBE
DIDN'T LOSE VALUE. MAYBE GAIN
MONEY? UM IS IT DIFFERENT THING
ALTOGETHER, AND THAT'S I THINK A
LITTLE BIT MORE. UM FRIGHTENING
IN TERMS OF RISK THAT PEOPLE ARE
LOOKING AT. I THINK THAT, UM WE
HAVE, UH. REGULATORY AGENCIES ON
THE FEDERAL LEVEL THAT ARE, UH
ALWAYS PLAYING CATCH UP THERE
DOING A HIS DILIGENT A JOB AS
THEY CAN, BUT, UM, YOU KNOW,
THEY BRING ENFORCEMENT CASES.
THERE'S VERY LITTLE IN TERMS OF
RULE, MAKING THAT THEY CAN DO
BECAUSE THEY ARE BOUND BY THE
HOWEY TEST, WHICH IS A SUPREME
COURT CASE WOULD HAVE TO BE
ANOTHER CASE THAT EFFECTIVELY
MODIFIES IT OR OVERTURNS IT, OR
THERE COULD BE AN ACT OF
CONGRESS. AH THAT THAT PUTS
FORTH COMPREHENSIVE
CRYPTOCURRENCY REGULATION. EVEN
IF THAT HAPPENED, THOUGH, YOU
STILL HAVE ACTORS OUTSIDE THE U.
S WHO ARE ACTING UNDER
REGULATION S OF THE SECURITIES
ACT, UM, THAT ARE SELLING TOKENS
TO NON US PERSONS. SOMEHOW THEY
GET LISTED ONTO THESE EXCHANGES
, WHICH ARE AVAILABLE WITHIN THE
STATES, UM, ANYWAY, AND PEOPLE
GET THEIR HANDS ON THEM SO THAT
EVEN IF WE HAD A LICENSING
STRUCTURE FRAMEWORK. WE MAY NOT
EVEN GET THESE BAD ACTORS
CORRECT. THAT'S INTERESTING,
DUDE, WHEN YOU TALK ABOUT THE
CONSUMER IMPACT IN THE STATE OF
CALIFORNIA, IS THERE ANY WAY TO
QUANTIFY THEIR FINANCIAL LOSSES?
UH I DON'T KNOW. I DON'T HAVE
THAT DATA FOR CALIFORNIA. WE'VE
LOOKED INTO IT. UM, I WOULD SAY
A LOT OF THE NUMBERS ARE
ELEMENTARY, BUT WE'RE TALKING AS
A GENERAL MATTER, UM, LESS THAN
WELL, I WOULD SAY ALMOST 700
COMPANIES ARE SO THAT OFFERS
SOME CRYPTO SERVICES THAT ARE
BASED IN CALIFORNIA. IF MEMORY
SERVES ME CORRECTLY, SOMEONE
ELSE'S SHOWING ALMOST FOUR
MILLION CALIFORNIANS USING THESE
PRODUCTS. IN TERMS OF HARM. I
THINK THE DATA IS, AS I SAID,
PRETTY, UH, ELEMENTARY AT THIS
STAGE WHERE WE'RE TALKING ABOUT
, UM, PERHAPS HUNDREDS OF
MILLIONS OF DOLLARS THAT ARE
THAT ARE AT STAKE HERE THAT HAVE
BEEN HELD UP THROUGH COLLAPSES
THROUGH. AH PAUSES AND
WITHDRAWALS THROUGH MONEY BEING
LOST. AND THEN ONE OF ONE FINAL
QUESTION THE EDUCATION ASPECT,
WHICH I COMMEND. I MEAN, YOUR
HANDS ARE PRETTY MUCH TIED UNTIL
WE HAVE SOME ENABLING REGULATORY
ACTIONS HERE, BUT UM, I HAVEN'T
SEEN ANY EDUCATION AND AFTER
THOSE SUPER BOWL ADS OUT THE DID
YOU STEP UP THE EDUCATION AND WE
CERTAINLY DID. AND THIS IS
SOMETHING WE WELL, WE WANT TO BE
CLEAR. EDUCATION IS A PART OF
IT. IT'S A CENTRAL PILLAR, BUT
WE'RE GOING TO DO OUR
ENFORCEMENT ACTIVITIES AND
OTHERS AS WELL. BUT I'M HAPPY TO
SHARE THAT. EARLIER THIS MONTH,
WE RELEASED THAT CRYPTO SCAM
TRACKER, WHICH I ENCOURAGE
EVERYONE TO TAKE A LOOK AT IT
SEARCHABLE. IT SHOWS DIFFERENT
TYPES OF UM SCAMS, RUG POOLS,
ROMANCE SCAMS, UM, OTHERS THAT
THAT ARE VERY COMMON. UM AS WELL
AS JUST, UM, US DOING OUR UTMOST
TO SHARE. UM THROUGH OUR
CONSUMER ALERTS ISSUES THAT
WE'RE SEEING, UM, THAT HOPEFULLY
CAN PREVENT FUTURE HARM. AND HOW
DOES THE AVERAGE PERSON SEE THAT
AND WHAT IT'S HOSTED ON OUR
WEBSITE? UM, WE HAVE ENGAGED
WITH WITH WITH WITH MEDIA THAT
THE CRYPTO SCAM TRACKER, UH, AS
I SAID, WAS JUST RELEASED THIS
MONTH. BUT WE'RE ALWAYS TRYING
TO BE INNOVATIVE HERE AND
FINDING WAYS TO REACH THE USERS
OF THESE PRODUCTS AS BRIAN
MENTIONED SOME FOLKS HERE, YOU
KNOW, WE WANT TO MAKE SURE THAT
WE'RE PROTECTING VULNERABLE
POPULATIONS WHO FALL PREY TO
SCAMS. UM AND ESPECIALLY IN THE
CRYPTO CONTEXT AND ARE DOING
EVERYTHING THAT WE CAN. OKAY
VERY GOOD. THANK YOU SO MUCH.
THANK YOU MEMBERS. ANY OTHER
QUESTIONS? SO I DO HAVE A
QUESTION. UM AH. YOU HAVE
REFERENCED MR MALEK A FEW TIMES
THE FACT THAT, UH, THERE ARE
CERTAIN PIECES OF AUTHORITY THAT
YOU HAVE. SO I'M ACTUALLY
CURIOUS ABOUT THE AUTHORITY. YOU
DON'T HAVE UM, AND WITH THE
AUTHORITIES THAT YOU HAVE NOW,
ARE YOU ABLE TO TELL A COMPANY
BEFORE THEY START DOING BUSINESS
IN CALIFORNIA? YOU COMPLY? YOU
CAN DO BUSINESS WITH
CALIFORNIANS. UM IF YOU FIND
THAT THEY ARE NOT IN COMPLIANCE
, DO YOU HAVE THE AUTHORITY TO
SAY YOU GOT TO STOP? THANK YOU
FOR THAT QUESTION. UH I WILL SAY
IT IS A SOMEWHAT COMPLICATED
ANSWER, BUT I WILL DO MY BEST
HERE. IT REALLY DEPENDS ON THE
TYPE OF COMPANY WE'RE TALKING
ABOUT. IN THE TYPE OF PRODUCT.
FOR INSTANCE, WE HAVE
EXAMINATION AUTHORITY, WHICH WE
USE ALL THE TIME FOR OUR BANKS
AND CREDIT UNIONS WERE ALWAYS
TALKING TO THEM. THEY'RE ALWAYS,
UM, DISCUSSING CERTAIN PRODUCTS
IN OUR EXAMINATION TEAM HAS THE
AUTHORITY TO COMMUNICATE WITH
THEM THINGS THAT ARE CONCERNS
PRIOR TO THEM ENTERING THE
MARKET. YOU MAY BE ALSO POINTING
TO NON BANK BANKS THAT ARE
REALLY PROLIFERATING IN ARTISTS
ARE THE BIG PART OF THIS CRYPTO
ECONOMY. UM IF THEY'RE PROVIDING
LENDING ACTIVITY, THEY WOULD
HAVE TO ABIDE BY OUR LENDING
REGIME, INCLUDING THE CALIFORNIA
FINANCING LAW. IF THEY'RE NOT.
IF THEY DON'T HAVE A LICENSE. WE
CAN GO AFTER THEM IF THEY DO
HAVE A LICENSE, BUT THEY PROVIDE
SOMETHING THAT IS IN NON
COMPLIANCE WITH THE CFL
REQUIREMENTS. THEN WE'LL BE ABLE
TO GO AFTER THEM. UM SAME THING
WITH SECURITIES. SO IF WE LOOK
AT A PRODUCT BLOCK FIRES AN
EXAMPLE UM, AND THIS HAPPENED
PRIOR TO THE FDX SCAM. IF WE SEE
THAT THEY'RE OFFERING A
SECURITY, BUT THEY'RE DOING IT
IN NON COMPLIANT MANNER. WE ARE
ABLE TO GO AFTER THEM. THAT
BEING SAID, I WANT TO BE CLEAR.
WE DON'T HAVE A SPECIFIC SORT OF
BESPOKE CRYPTO LOG THAT ALLOWS
US TO DO ACTIVITIES LIKE I'M
YOUR HEARING LICENSING THAT IS A
DIFFERENT TYPE OF OVERSIGHT
AUTHORITY. THAT IS NOT SOMETHING
THAT WE ARE USING OR HAVE THE
ABILITY TO USE. SO FOR WHAT
ABOUT FOUR CRYPTO EXCHANGE
PLATFORMS. WHAT AUTHORITIES DO
YOU HAVE SPECIFICALLY? FOR COIN
BASE. SO CRYPTO EXCHANGES AND WE
HAVE TO BEAR IN MIND THAT SOME
OF THESE COMPANIES WHERE MANY
HATS STILL BE PROVIDING THE
EXCHANGE SERVICES, THEY MAY
OFFER SOME SORT OF DIGITAL
WALLET. THEY MAY ALSO PROVIDE
SOME LENDING ACTIVITY. WE WILL
LOOK AT THE ACTIVITY DESPITE
WHAT THEY'RE CALLING IT AND
WE'LL SAY WELL, THAT IS A LIGHTS
AND THAT IS A FINANCING PRODUCT
THAT YOU'RE OFFERING. YOU HAVE
TO ABIDE BY OUR OUR FINANCING
REGIME FOR EXCHANGE AND SAME
THING WITH DIGITAL WALLETS. WE
MAY LOOK AT IT. WE MAY SEE IT.
IT HAS A NEXUS ON CONSUMER
TRANSACTIONS AND REALLY
ABSOLUTELY WOULD NEED TO ABIDE
BY CCF PL AND OTHER AUTHORITY
FOR THE CLASSIC EXCHANGE WHERE
WE'RE SEEING AH CRYPTO BEING
BOUGHT AND SOLD, UM IF IT'S IN
FACT BEING USED IN A WAY THAT UM
, CONSTITUTES THE SECURITY. THEN
WE HAVE THE SECURITY HOOK. UM
AND THAT IS SOMETHING THAT WE
HAVE USED IN IN ACTIVITIES AND
WILL CONTINUE TO LOOK AT IT. BUT
AS BRIAN MENTIONED A LOT OF
THESE PRODUCTS, AND THESE
EXCHANGES ARE NEW, UM AND THE
COURTS AND THE FEDERAL
REGULATORS AND US ARE ALL TRYING
TO ASSESS THE APPROACH THAT
MAKES THE MOST SENSE. UM BUT
THAT IS NOT AN EXCUSE FOR THEM
NOT TO COMPLY BY OUR EXISTING
LAWS. IT IS ON THEM TO MAKE SURE
THAT THEY ARE ABIDING BY
SECURITIES LAW. THEY HAVE A
CONSUMER TRANSACTIONS OR
CONSUMER PROTECTION LAWS. OKAY
SO LET ME YOU KNOW WHAT I'M
HEARING IS, IF YOU CAN I MEAN
SIMILAR TO I THINK WHAT SOME
REMEMBER BAUER-KAHAN BROUGHT UP
IF YOU CAN CATCH THEM UNDER
EXISTING LAWS THAN YOU DO, BUT
YOU ARE RECOGNIZING THAT NOT ALL
OF THE LAWS COVER ALL OF THE
CRYPTO PRODUCTS OR EXCHANGES OUT
THERE. IS THAT A GOOD LIKE A YES
OR NO? WELL SENATOR, AS I
MENTIONED, THIS IS A VERY
DIVERSE SPACE. THERE'S LOTS OF
ACTIVITIES. THERE ARE THINGS
THAT ARE POPPING UP. WE, YOU
KNOW, I CAN'T SPEAK TO OUR
EXISTING ENFORCEMENT,
INVESTIGATIVE WORK THAT IS NOT
ANNOUNCED. BUT WE'RE DOING
EVERYTHING THAT WE CAN, BUT
SURELY AS WE ALL KNOW THAT WE'RE
TALKING ABOUT THOUSANDS OF
COMPANIES, LOTS OF THEM, MAYBE
FLY BY NIGHT THAT MAY BE CAUSING
AND SCAMS ON CONSUMERS. BUT
WE'RE DOING THE BEST THAT WE CAN
FAIR. I DON'T THINK I HEARD A
YES OR NO. SO LET ME REFRAME THE
QUESTION. SO DO YOU HAVE EVERY
SINGLE LAW AND AUTHORITY THAT
YOU NEED TO GO AFTER EVERY
SINGLE 700 COMPLAINTS THAT
YOU'VE SEEN THAT IS VERY
DIFFICULT FOR ME TO ASSESS. UM,
I WILL SAY. WE WILL USE ALL OF
OUR AUTHORITY. AND USE IT TO ITS
UTMOST EXTENT. IF YOU ALL AS THE
LEGISLATIVE BRANCH, UM, GIVE US
MORE AUTHORITY. WE WILL USE THAT
. CERTAINLY AND IT WILL BE
SOMETHING THAT, UM YOU KNOW, WE
WILL TAKE SERIOUSLY BECAUSE
CRYPTO IS A PRIORITY FOR OUR
COMMISSIONER AND FOR OUR
ADMINISTRATION, BUT I LEAVE IT
TO YOU, UH, SENATOR MORE
AUTHORITY TO MEET THAT'S GREAT.
IT'S A GOOD QUESTION AND ALL I
WOULD SAY I DON'T HAVE THE
ABILITY TO MAKE UM, SORT OF
POLICY. PRESCRIPTIVE UM, UM
ANSWER, BUT IT'S SOMETHING THAT
I CAN SPEAK WITH THE
COMMISSIONER ABOUT AND UM, AND
THE ADMINISTRATION TO MAKE SURE
THAT WE CAN, UM SORT OF WORK
WITH YOUR STAFF TO GIVE YOU AN
ANSWER. OKAY WELL, YOU'RE IN THE
POSITION YOU'RE IN. AND I AND I
GET YOU CAN'T GIVE ME A YES OR
NO, BUT I MEAN, I THINK FOR US,
IT'S REALLY HELPFUL. UM, WHAT I
HAVE HEARD IS THAT WE CERTAINLY
DON'T HAVE ANY AGENCY IN THIS
STATE THAT HAS FULL AUTHORITY TO
GO AFTER THE 700 COMPLAINTS, OR
AT LEAST TO FULLY DO THE DUE
DILIGENCE THAT THE 700
COMPLAINTS. AND GROWING REQUIRE
. I DON'T THINK IT'S BECAUSE OF
A LACK OF A WILL. I JUST THINK
THAT THERE'S REAL AUTHORITY. UM
I ALSO RECOGNIZE THAT A
LICENSING REGIME, UM, WOULD
ACTUALLY BE HELPFUL. UM THAT IS
, YOU KNOW, FROM MY PERSPECTIVE
. WHAT GIVES? UH AN AUTHORITY TO
COVER AN UMBRELLA PARTICULAR
SECTOR. THE ABILITY TO SAY HEY,
IT'S YOU KNOW, I THINK SOMETHING
CAME UP. WELL, WELL, A LICENSING
REGIME STOP ALL COMPLAINTS.
MAYBE NOT. BUT YOU WILL HAVE
GREATER AUTHORITY TO SAY YOU
CAN'T DO BUSINESS IN CALIFORNIA
WITH THESE, YOU KNOW, PIECES
THAT YOU HAVE IN PLACE AND THAT
I THINK DOES HAVE THE ABILITY TO
IMPACT SO THAT IS WHAT I'M
HEARING. IF THAT'S INCORRECT,
YOU'RE WELCOME TO CORRECT ME.
BUT THAT IS WHAT I'M HEARING.
AND I THINK THAT THAT'S WHAT
WE'RE TRYING TO GET AT. UM,
CERTAINLY A LICENSING. BILL WAS
INTRODUCED LAST YEAR. THERE'S
ANOTHER ONE INTRODUCED THIS YEAR
. UH AND SO FAR, I'M HEARING A
NEED FOR IT. UM AND NOT HEARING
THAT WE ACTUALLY DON'T NEED A
LICENSING REGIME IN THIS STATE.
SO WITH THAT, UM
ASSEMBLYMEMBER'S GRAYSON, WOULD
YOU LIKE TO CLOSE US ON THIS
PANEL AND YES, THANK YOU,
SENATOR LIMÓN AND CHAIR AS WELL.
I FOR THE SAKE OF TIME. THANK
YOU. I WANT TO THANK THE
PANELISTS. THANK YOU SO MUCH FOR
YOUR PRESENTATION, MR MALIK.
THANK YOU FOR HELPING US
UNDERSTAND BETTER WHERE THE FBI
OBVIOUSLY IS, AND I ALSO WANT TO
GO ON RECORD AS STATING. IT'S MY
ESTIMATION OR UNDERSTANDING THAT
REGISTRATION HELPS US GATHER.
AND GLEAN DATA, AND IT'S AN
INFORMATIONAL TOOL. WE AT LEAST
KNOW WHAT'S OUT THERE. BUT WHEN
YOU GO TO A LICENSE LICENSURE
REGIME, UH, THAT TAKES YOU
ACROSS THE THRESHOLD INTO AN
AREA WHERE YOU CAN BETTER IN
FORCE. WHAT YOU KNOW. AND IT
WOULD THAT BE A CORRECT
ASSESSMENT. THE DIFFERENCE
BETWEEN THE TWO I THINK THAT A
LICENSING REGIME DEPENDING ON
HOW IT'S DRAFTED, WOULD ALLOW
FOR MORE DIRECT AND CONSTANT
CONTACT WITH THE LICENSES AND
PROVIDES A AGAIN IT'S SPEAKING
VERY GENERAL HERE BECAUSE IT ALL
WILL BE IN THE DETAILS. UM A WAY
FOR US TO BE MORE IMPACT FOR
WITH THE ACTIVITIES OF OUR
LICENSES. THE REGISTRATION
REGIME WHICH WE ALSO HAVE, UM,
IS SOMETHING THAT WE'RE VERY
FAMILIAR WITH. WE'RE VERY
FAMILIAR WITH BOTH AND AGAIN. AH
SORT OF REITERATING OUR HOPE
THAT WE'LL CONTINUE TO
COMMUNICATE WITH YOU AND YOUR
STAFF ON ANY ON ANY OF YOUR
PRIORITIES. I TAKE THAT AS A
YES, THAT WOULD KIND OF BE THE
DIFFERENCE BETWEEN REGISTRATION
AND LICENSURE. ONE IS GATHERED
GATHERING DATA. ONE IS ALSO DATA
WITH ENFORCEMENT POWERS. WE DO
HAVE ENFORCEMENT POWERS UNDER
ARE YOU DEAF AUTHORITY AND ALL
THE OTHER STATUTES? THEY'RE JUST
APPLES AND ORANGES. OKAY RIGHT.
WELL, I REALLY APPRECIATE THAT.
AND THANK YOU. I WILL DEFINITELY
BE LEANING ON D F B, I AND YOUR
HELP AND PARTNERSHIP. TO BE ABLE
TO COME UP WITH THE RIGHT
INGREDIENTS NEEDED. TO BE ABLE
TO HELP ADDRESS THE 700
COMPLAINTS, MR CORDEN, THANK YOU
SO MUCH FOR YOUR PRESENTATION AS
WELL. I WANT YOU TO KNOW THAT WE
AT LEAST MY EARS TOOK NOTE OF
THE LAST PAGE OF YOUR SLIDE
PRESENTATION, WHERE IT CALLED
FOR A VERY WELL STRATEGIC
BALANCED APPROACH TO MAKE SURE
THAT IF WE PUSH DOWN ON ONE SIDE
IT DOESN'T POP UP ON ANOTHER. SO
THANK YOU VERY MUCH. THANK YOU.
THANK YOU. WE ARE GOING TO TURN
TO OUR NEXT PANEL, AND, UH, TIME
IS PRESSING US. BUT WE DO WANT
TO INVITE UP TO THE TABLE.
ROBERT CARROLL, EXECUTIVE
DIRECTOR, CALIFORNIA FEDERATION
OF CONSUMERS, AS WELL AS SHEILA
WARREN, CHIEF EXECUTIVE OFFICER.
CRYPTO COUNCIL FOR INNOVATION.
AND MR HARRELL. WHENEVER YOU'RE
READY, PLEASE GO AHEAD AND BEGIN
YOUR PRESENTATION. THANK YOU
VERY MUCH. HOW SAD IS THAT
BETTER? ALRIGHT, EXCELLENT.
THANK YOU. UM THANK YOU VERY
MUCH. GOOD MORNING, CHARLIE MON
CHER, GRACE AND MEMBERS OF THE
COMMITTEES. MY NAME IS ROBERT
CAROL AND THE EXECUTIVE DIRECTOR
OF THE CONSUMER FEDERATION OF
CALIFORNIA ALSO SERVE ON THE
BOARD OF THE CONSUMER FEDERATION
OF AMERICA. THANK YOU VERY MUCH
FOR THE INVITATION TO SPEAK AT
TODAY'S HEARING, WHICH I THINK
HAS ALREADY BEEN A VERY
INTERESTING ONE. UM I'D ALSO
LIKE TO PRAISE THE CONCISE YET
COMPREHENSIVE BACKGROUND PAPER
ACCOMPANYING THIS HEARING. I'LL
BEGIN BY SHARING SOME CONSUMER
STORIES BECAUSE I THINK IT'S
IMPORTANT TO PUT A FACE ON SOME
OF THE THINGS THAT WE'VE BEEN
TALKING ABOUT THUS FAR THIS
MORNING, THEN PIVOT TO SOME
ANALYSIS AND RECOMMENDATIONS AND
HOW CALIFORNIA CAN ACT. I HAVE
THREE STORIES FOR YOU THIS
MORNING. MY FIRST STORY IS ABOUT
A 74 YEAR OLD WIDOWED ASIAN
FILIPINO WOMAN IN ALAMEDA
COUNTY. HER STORY CAME TO CFC
VIA THE EAST BAY COMMUNITY
LAWCENTER. RETIREE SHE LIVES ON
A FIXED INCOME OF SOCIAL
SECURITY AND A PENSION. IN MID
2020. SHE JOINED WHAT SHE
THOUGHT WAS THE FAN CLUB OF AN
INDIVIDUAL NAMED SAM. AFTER
MONTHS, SAM INTRODUCED OUR
VICTIM TO HIS MANAGER, MARK
SUPPOSEDLY KNEW EVERYTHING ABOUT
CRYPTO. THE MANAGER CONVINCED
OUR CONSUMER TO INVEST $100,000
IN CRYPTO WITH PROMISES OF HUGE
INCREASES IN A VERY SHORT TIME
PERIOD. OUR VICTIM HAD $58,000
AND BORROWED THE OTHER $42,000
FROM FRIENDS. WITHIN WEEKS, SHE
SAW THE PROMISED INCREASES VIA
WHAT WE NOW KNOW TO BE A BOGUS
WEBSITE AND ASKED TO GET HER
MONEY OUT. FIVE TIMES SHE PAID
$2500 IN CRYPTO TO GET HER MONEY
RELEASED. IN TOTAL, SHE
CONTRIBUTED $112,500 OVER SIX
MONTHS. THE MONEY WAS NEVER
RELEASED. SHE HAS REACHED OUT TO
VARIOUS ENTITIES, INCLUDING THE
AG'S OFFICE AND THE FBI. AS A
RESULT OF THIS SCAM, SHE'S HAD
THOUGHTS OF HARMING HERSELF. MY
SECOND STORY. ALSO, THANKS TO
THE EAST BAY COMMUNITY,
LAWCENTER IS ABOUT A CONTRA
COSTA COUNTY MAN IN HIS EARLY
FIFTIES WHO'S DISABLED AND ON A
FIXED INCOME OF DISABILITY AND
WORK PENSION. IN THE FALL OF
2021. HE BEGAN TO FOLLOW
SOMEBODY ON INSTAGRAM, KNOWN AS
AIRPLANE. JANE GALINA. WE NOW
KNOW SHE'S A CANADIAN WHO
ADVISES ON HOW TO TRADE BUT IT'S
NOT LICENSED AND OUR VICTIM
DIDN'T KNOW THAT AT THE TIME. MS
GALINA APPROACHED THIS MAN
CLAIMING TO BE A DAY TRADER FROM
OHIO. OUR VICTIM CREATED AN
ACCOUNT ON TRADE X .COM WHERE HE
INVESTED $38,000 USING MOON AND
WAS TOLD THAT MS GALINA WOULD
MANAGE HIS INVESTMENT AND MAKE
HIM $100,000. AFTER PURCHASING
BITCOIN FROM AN ATM. THE VICTIM
GOT A TEXT MESSAGE, IRONICALLY,
FROM COIN BASE, SUGGESTING
SOMETHING MIGHT BE WRONG. OUR
VICTIM REACHED OUT TO VARIOUS
CONSUMER PROTECTION
ORGANIZATIONS, INCLUDING THE FBI
, FEDERAL TRADE COMMISSION,
BETTER BUSINESS BUREAU. AROUND
THE SAME TIME OUR VICTIM
INVESTED ANOTHER $12,500 ON A
DIFFERENT PLATFORM TRADE. 1960
.COM THAT ALSO PROVED TO BE
FRAUDULENT. OUR VICTIM IS OUT
$50,000, AND WE'LL NEVER SEE
THAT MONEY AGAIN. MY FINAL STORY
THIS MORNING COMES FROM A LETTER
WRITTEN TO THE JUDGE OVERSEEING
THE CELSIUS BANKRUPTCY. THIS IS
THIS. I'M GOING TO QUOTE FROM A
FORMER CELSIUS AMBASSADOR FROM
RANCHO CUCAMONGA, WHOSE ACCOUNT
GOT FROZEN QUOTE. THE UNEXPECTED
FREEZE OF MY ACCOUNTS AND
SUBSEQUENT FILING OF BANKRUPTCY
HAS DISRUPTED BOTH MY AND MY
FAMILY'S LIFE. THE STRESS OF
THIS EVENT ON BOTH MYSELF AND MY
FAMILY IS BEYOND WORDS. I DON'T
KNOW HOW TO EXPRESS THE GUILT,
FRUSTRATION, THE SHAME, SELF
DOUBT AND ABSOLUTE ANGER THAT I
AM FEELING REGARDING THE BURDEN
I HAVE CAUSED AND PLACED ON MY
FAMILY. BECAUSE OF THE ANXIETY.
I'M FEELING OVER THIS EVENT. I
HAVE BECOME DEPRESSED, MOODY AND
HAVE EVEN BEEN DRINKING AND THEN
ATTEMPT TO DECREASE MY STRESS.
LAST WEEK, MY WIFE OF 17 YEARS
ASKED ME TO LEAVE OUR HOME DUE
TO MY EMOTIONAL TURMOIL AND
UNPREDICTABILITY. HOW DO I
EXPLAIN TO MY DAUGHTERS THAT THE
FINANCIAL NEST EGG THAT WOULD
HAVE BEEN THERE START TO A
BETTER FUTURE IS NOW FROZEN AND
WE MAY NEVER SEE THOSE ASSETS
AGAIN. HOW DO I POSSIBLY REBUILD
THAT NEST EGG NOW? MOST
IMPORTANTLY, HOW DO I BEGIN THE
HEALING PROCESS WITH MY WIFE AND
MY DAUGHTER IS OVER THIS END
QUOTE. THERE ARE COUNTLESS MORE
STORIES BEYOND THESE THREE THAT
I'VE TOLD THIS MORNING. BY THE
WAY, WITH ALL DUE RESPECT TO THE
PREVIOUS PANEL, IF THIS WAS YOUR
MONEY, CALLING IT GARDEN VARIETY
FRAUD DOESN'T HELP YOU ONE BIT.
WHILE SCAMS AND FRAUDS ARE NOT
UNIQUE TO CRYPTO, THE SEEMINGLY
INNOVATIVE AND RELATIVELY NEW
NATURE OF CRYPTO, AS WELL AS THE
LARGELY UNREGULATED WAY IN WHICH
IT OPERATES, HAS LET PEOPLE BE
TAKEN ADVANTAGE OF LET US STRAY
AND FILLED WITH FOMO. FEAR OF
MISSING OUT ADD HUNDREDS OF
MILLIONS OF DOLLARS OF
ADVERTISING WITHOUT A FACT BASED
COUNTER, AND IT'S A RECIPE FOR
DISASTER FOR MANY SMALL AND
MEDIUM SIZED INVESTORS, WHO
SIMPLY DIDN'T DESERVE THIS. SAM
BANK BEEN FREED, KNOWN AS SBF,
THE FOUNDER OF FT X HAS BEEN
CHARGED BY THE FEDERAL
GOVERNMENT WITH A RANGE OF
CRIMES AND IS UNDER HOUSE ARREST
AT HIS PARENTS' HOME IN PALO
ALTO. JOHN J. RAY, THE THIRD THE
PERSON NOW RUNNING FDX, WHO
PREVIOUSLY RAN ENRON AFTER ITS
COLLAPSED CALLED WHAT HE FOUND
QUOTE. A COMPLETE FAILURE OF
CORPORATE CONTROLS AND SUCH A
COMPLETE ABSENCE OF TRUSTWORTHY
FINANCIAL INFORMATION. UNQUOTE
NOTING THAT FDX WAS MANAGED BY
AND I QUOTE AGAIN, A VERY SMALL
GROUP OF INEXPERIENCED,
UNSOPHISTICATED AND POTENTIALLY
COMPROMISED INDIVIDUALS, END
QUOTE. SOME CRYPTO INDUSTRY
REPRESENTATIVES HAVE SPENT THE
PAST FEW MONTHS TALKING ABOUT 50
X AS THE EXCEPTION TO THE RULE.
THEY SUGGEST THAT WE SHOULD
FOCUS LESS ON THE PROPER WAY TO
REGULATE THIS INDUSTRY AND THAT
THE REAL PROBLEM IS BAD APPLES
LIKE SPF. THIS APPROACH IS WRONG
HEADED AND IGNORES THE
FUNDAMENTAL LACK OF ADEQUATE
OVERSIGHT FOR CRYPTO OVERALL
BECAUSE OF ACTION TAKEN BY THE
STATE OF NEW YORK. AND THEY'RE A
BIT LICENSED GOING BACK A FEW
YEARS WHEN FT X COLLAPSED LAST
NOVEMBER, A MERE MONTH AFTER
GOVERNOR NEWSOM UNFORTUNATELY
VETOED THE OVERWHELMINGLY
BIPARTISAN 80 20 TO 69 OTHER BY
CHAIR. GRAYSON CO AUTHORED BY
CHAIR LIMÓN, NEW YORK CONSUMERS
WERE FAR BETTER PROTECTED
AGAINST THE FALLOUT OF THE FDX
BANKRUPTCY THAN CALIFORNIA
CONSUMERS. NOW IN FAIRNESS, HAD
THE GOVERNOR SIGNED THE BILL. A
CRYPTO LICENSE WOULD NOT HAVE
BEEN IN PLACE JUST A MONTH
LATER, BUT AT LEAST CALIFORNIA
WOULD BE ON A STRONG PATH
TOWARDS ADEQUATE PROTECTION OF
CONSUMERS IN THE CRYPTO SPACE,
WHICH WERE DECIDEDLY NOT RIGHT
NOW. ONE LEADS FROM THE FRONT,
NOT THE BACK. I APPLAUD THE
FBI'S RECENT LISTING OF CRYPTO
SCAMS AND CREATION OF A TRACKER,
AND I KNOW THERE ARE MANY, MANY
GOOD PEOPLE AT THE FBI WHO CARED
DEEPLY ABOUT PROTECTING
CONSUMERS. BUT LET US NOT DELUDE
OURSELVES INTO THINKING THAT THE
REACH OF D F P AS WEBSITE COMES
EVEN REMOTELY CLOSE TO THE
NUMBER OF VIEWERS OF A LARGE
NUMBER OF 2022 SUPER BOWL ADS
COSTING $40 MILLION FOR THAT ONE
DAY. BECAUSE THEY'RE SIMPLY NOT
COMPARABLE. I SHOULD ALSO NOTE
THAT WHILE BANKING GUIDANCE
FORTHCOMING FROM D F P IS GOOD
GUIDANCE USES WORDS LIKE SHOULD
AS OPPOSED TO WORDS LIKE SHALL
OR MUST CRYPTO IS ARGUED TO
HISTORICALLY UNDERSERVED
COMMUNITIES THAT THEY HAVE BEEN
IGNORED AND TAKEN ADVANTAGE OF
BY TRADITIONAL FINANCIAL
INSTITUTIONS. KRYPTOS THEN
POSITED AS THE PANACEA TO THESE
PROBLEMS. THE DATA SIMPLY
DOESN'T BACK THIS UP. ESPECIALLY
WHEN IT COMES TO UNDERSERVED AND
MINORITY COMMUNITIES. IN FACT,
ENTITIES SUCH AS THE BROOKINGS
INSTITUTION RECENTLY PUBLISHED
REPORTS STATING THAT THE DATA
SHOWS THE OPPOSITE OF WHAT THE
CRYPTO INDUSTRY HAS ASSERTED
ABOUT FINANCIAL INCLUSION. IT'S
NO ACCIDENT THAT CRYPTO ATMS ARE
DISPROPORTIONATELY LOCATED IN
POOR NEIGHBORHOODS, NOR THAT
THEIR PHYSICAL LOCATIONS
CORRELATE VERY STRONGLY TO
PAYDAY LENDER LOCATIONS. A NEW
REPORT THIS WEEK SHOWS THAT
FOLLOWING THE TERRA LUNA
COLLAPSED AND FT EXES BANKRUPTCY
CRYPTO TRADING ACTIVITY
INCREASED MARKEDLY WITH,
ACCORDING TO THE AUTHORS, QUOTE
LARGE AND SOPHISTICATED
INVESTORS SELLING AND SMALLER
RETAIL INVESTORS BUYING UNQUOTE.
THAT SOUNDS MORE TO ME, LIKE THE
LITTLE GUYS LEFT HOLDING THE BAG
THAN DECENTRALIZED FINANCE. I'D
LIKE TO SEPARATE WHAT'S
HAPPENING IN CRYPTO FROM
POTENTIAL USE CASES FOR
BLOCKCHAIN. CFC FOR EXAMPLE, HAS
BEEN WORKING WITH ONE OF THE
MAIN OPPONENTS OF LAST YEAR'S
BILL TO EXPLORE BLOCKCHAIN
POTENTIAL USE IN TITLE INSURANCE
AND INDUSTRY IN DIRE NEED OF
REFORM. IF THIS INTEREST ANY OF
YOU LET ME KNOW SO WHAT SHOULD
THE PROPER PATH BE FOR
CALIFORNIA? FIRST THE MAIN
ELEMENT, AS DISCUSSED ALREADY IN
THIS HEARING IS LICENSING. WE
LICENSED DOCTORS, NURSES, THOSE
WHO CUT OUR HAIR FIX OUR CARS
AND HOMES SELLS INSURANCE AND
OTHER INVESTMENTS. SHOULDN'T WE
LICENSE AND INDUSTRY THIS LARGE
AND COMPLEX? STATES LIKE NEW
YORK, ILLINOIS AND NEW JERSEY
HAVE EITHER SAID YES. OR MOVING
SWIFTLY DOWN THAT PATH. I SHOULD
NOTE THAT THE BRAND NEW ILLINOIS
BILL THAT WAS ALREADY REFERENCED
EARLIER IN THIS HEARING IS
SPONSORED BY THAT STATE'S
EQUIVALENT OF THE FBI, SO IT'S
BEEN BLESSED BY GOVERNOR
PRITZKER AND HIS ADMINISTRATION.
WITH CONGRESS UNLIKELY TO ACT,
IT IS UP TO THE STATES TO PUT
TOGETHER A MULTI STATE
COALITION. FEDERAL REGULATORS
RECENTLY BEEN REINVIGORATED, ARE
ALSO STEPPING UP. SECOND. IT IS
A VIGOROUS PRE LICENSING
APPLICATION REVIEW PROCESS. THIS
IS ONE OF THE MAIN BENEFITS OF
LICENSURE. LET'S TAKE THE SEC,
FOR EXAMPLE, DISCUSSED EARLIER
TODAY THE SEC DOESN'T EXIST TO
MAKE SURE THAT YOU PROFIT FROM
YOUR INVESTMENTS. RATHER, IT
EXISTS TO MAKE SURE THAT THE
INVESTMENT ITSELF ISN'T
FUNDAMENTALLY FRAUDULENT OR
BUILT ON THE HOUSE OF CARDS.
THIS IS WHERE D F P I AND A
RIGOROUS DUE DILIGENCE PROCESS
OF CHECKING POTENTIAL CRYPTO
LICENSES WOULD COME INTO PLAY.
AND LICENSES SHOULD PAY FOR THE
COST OF THEIR LICENSING AND
REGULATORY OVERSIGHT. THIS IS
COMMON. THE CRYPTO INDUSTRY LAST
YEAR ATTEMPTED TO ARGUE THAT
THIS SHOULDN'T BE THE CASE FOR
CRYPTO. THAT'S AN ARGUMENT,
CONTRARY TO HISTORY AND COMMON
SENSE, LET ALONE CONSUMER
PROTECTION. THIRD LICENSING SETS
CLEAR MARKERS ABOUT ACCEPTABLE
AND UNACCEPTABLE BEHAVIOR. A BIG
PROBLEM IN THE CRYPTO SPACE HAS
BEEN THE LACK OF CONSUMER
PROTECTIONS SIMILAR TO THOSE
EXIST, ALBEIT IMPERFECTLY WITH
BANKS AND OTHER FINANCIAL
INSTITUTIONS. THE LIST INCLUDES
THINGS LIKE DEPOSIT INSURANCE,
MUCH LIKE THAT OF THE F D I C
AND THEN THE CREDIT UNION SPACE
IN CASE OF BANK GOES UNDER
PROTECTIONS AGAINST CONFLICTS OF
INTEREST, A MASSIVE PROBLEM IN
CRYPTO CUSTOMER SERVICE
STANDARDS, GIVEN FROZEN ACCOUNTS
IN THE CRYPTO SPACE. BASIC
CUSTOMER SERVICE STANDARDS ARE A
MUST. IN FAIRNESS, I MUST POINT
OUT THAT DFAS RECORD ON THIS IS
A BIT MIXED AS IT HAS RECENTLY
WEAKENED PENDING RULES ABOUT
COMPLAINTS, STANDARDS AND
CUSTOMER SERVICE FOR OTHER
PRODUCTS AND SERVICES CURRENTLY
UNDER THE FBI'S JURISDICTION,
PROTECTIONS AGAINST HACKING AND
RELATED THREATS, HACKING AND
CRYPTO IS COMMONPLACE,
OPPORTUNISTIC AND VERY EFFECTIVE
WITHOUT ADEQUATE PROTECTIONS.
THE LIST GOES ON AND INCLUDES
SOME HIGH JUNK FEES ON
CONSUMERS. WITH LICENSING A
REGULATOR CAN REQUIRE
IMPROVEMENTS PRIOR TO A LICENSE
BEING GRANTED, MAKING A LICENSE
CONFIRMATION THAT AT LEAST
MINIMAL STANDARDS HAVE BEEN MET.
IT ALSO ALLOWS THE REGULATOR TO
GO BACK TO THEIR LICENSES TO
ENSURE STANDARDS ARE MET AS THE
MARKETPLACE EVOLVES. FOURTH
LICENSING MY ACTUALLY HELP THE
INDUSTRY SHED ITS WILD WEST
REPUTATION. CRYPTO HAS A MASSIVE
PUBLIC RELATIONS PROBLEM BECAUSE
THE PRODUCT IS VIEWED AS MORE
AKIN TO CASINO GAMBLING, AS
OPPOSED TO SMART, STRATEGIC
INVESTING. FINALLY. A COMMENT
ABOUT STABLE COINS. IN MY
OPINION, THE MOST MISNAMED WORD
OF THE PAST DECADE. STABLE COINS
MUST HAVE SUFFICIENT RESERVES TO
PROTECT CONSUMERS AND INVESTORS
PERIOD. JUST BECAUSE THE STABLES
COIN SAYS IT IS PEGGED TO THE US
DOLLAR OR EURO OR YEN DOESN'T
MEAN IT IS TRULY TIED TO THOSE
THINGS. WE SAW THAT FIRSTHAND
WITH THE TERRA LUNA COLLAPSED
LAST YEAR IN CLOSING THE PATH
FORWARD IS CLEAR. THE QUESTION
IS WHETHER CALIFORNIA WILL MEET
THAT CHALLENGE OR WHETHER WE
WILL CONTINUE TO BE NEAR THE
BACK OF THE PACK AND CONSUMER
PROTECTION WHEN IT COMES TO
CRISPO CRYPTO. THANK YOU VERY
MUCH, AND I'M HAPPY TO ANSWER
ANY QUESTIONS. THANK YOU SO MUCH
FOR YOUR PRESENTATION, MR ROLE,
AND NOW WE'LL TURN THEM AS
FOREIGN, PLEASE. TEAR GRAYSON,
CHARLIE MOON AND MEMBERS OF BOTH
THE ASSEMBLY AND SENATE BANKING
COMMITTEES. THANK YOU FOR THE
OPPORTUNITY TO TESTIFY TODAY ON
THE SIGNIFICANT BENEFITS AND
OPPORTUNITIES ASSOCIATED WITH
THE ADOPTION DIGITAL ASSETS IN
THE STATE OF CALIFORNIA. I'M
GRATEFUL FOR THE ENGAGEMENT AND
LEADERSHIP ALREADY SHOWN BY THE
CHAIRS AND BY SO MANY ON THESE
COMMITTEES. I'M PLEASED TODAY TO
REPRESENT THE CRYPTO COUNCIL FOR
INNOVATION, A GLOBAL ALLIANCE OF
INDUSTRY LEADERS ACROSS THE
DIGITAL ASSETS AND WEB THREE
SPACES. WE USE AN EVIDENCE BASED
APPROACH WORKED TO EDUCATE ON
THE ADVANCES OF THIS TECHNOLOGY
AND BELIEVE THAT PARTNERSHIP
BETWEEN GOVERNMENT AND BUSINESS
STAKEHOLDERS IS KEY TO CRAFTING
INCLUSIVE REGULATION THAT
BENEFITS CONSUMERS, INVESTORS
AND INDUSTRY PARTICIPANTS. WE'RE
PROUD TO HAVE MANY CALIFORNIA
BASED MEMBERS FROM ACROSS THE
ECOSYSTEM ON A PERSONAL NOTE. MY
FAMILY'S TIES TO THE GOLDEN
STATE ARE DEEP. I WAS BORN AND
RAISED IN HUNTINGTON BEACH, AND
I'VE LIVED AND WORKED IN SAN
FRANCISCO FOR NEARLY 20 YEARS.
MY THREE CHILDREN, ONE OF WHOM
IS HERE TODAY, CALL SF HOME.
OVER THE PAST TWO DECADES, I'VE
HELD ROLES AS AN ATTORNEY AND
ENTREPRENEUR PRODUCT BUILDER AND
AN NGO EXECUTIVE. THROUGHOUT MY
FOCUS HAS BEEN CLEAR AND
CONSISTENT. THE INTERSECTION OF
TECHNOLOGY LAW, DIVERSITY,
EQUITY, INCLUSION AND CIVIL
RIGHTS. THIS JOURNEY ULTIMATELY
LED ME TO WEB THREE AND CRYPTO.
WELL FOCUSED IN THESE SPACES.
I'VE WORKED WITH THE PUBLIC,
PRIVATE AND NON PROFIT SECTORS.
I FOUNDED THE DIGITAL ASSETS
TEAM, THE WORLD ECONOMIC FORUM I
CO FOUNDED THE CRYPTO RESEARCH
AND DESIGN LAB, WHICH USES
ETHNOGRAPHY TO INVESTIGATE
CONSUMER NEEDS. I WAS AN ADVISOR
FOR THE GOOD AND THE WORLD BANK
AND I WAS HONORED TO BE PART OF
CALIFORNIA IS VERY OWN
GOVERNMENT'S BLOCKCHAIN WORKING
GROUP. NOW DISRUPTIVE
TECHNOLOGICAL CHANGE TAKES TIME
AND PATIENCE TO REACH ITS PEAK.
THE FOUNDATIONS OF THE INTERNET
WERE LAID IN THE 19 SIXTIES, THE
FIRST BROWSER WAS LAUNCHED IN
1990. THE APP STORE WAS LAUNCHED
IN 2008. IT TOOK MANY, MANY
DECADES BEFORE WE SAW THE
EXPLOSION OF SOCIAL MEDIA,
FINTECH AND E COMMERCE
APPLICATIONS THAT POWER OUR
LIVES TODAY, MORE THAN 50 YEARS
OF HISTORY. CRYPTO AND
BLOCKCHAIN TECHNOLOGY OR AT THE
BEGINNING OF A SIMILAR JOURNEY,
BUT WHETHER THIS INNOVATION
REACHES ITS POTENTIAL DEPENDS ON
DECISIONS THAT WE MAKE TODAY.
AND JUST AS CALIFORNIA HAS BEEN
THE HUB OF INNOVATION FOR THE
INTERNET AND ITS APPLICATIONS,
WHETHER IN SILICON VALLEY,
HOLLYWOOD OR BEYOND, IT CAN
REMAIN THE CENTER OF ITS NEXT
GENERATION, WHICH WE CALL WEB
THREE. AS WE ALL KNOW,
CALIFORNIA IS THE FIFTH LARGEST
ECONOMY, ALMOST THE FOURTH IN
THE WORLD AND HAS NO ETHNIC
MAJORITY. THE OPPORTUNITIES HERE
CAN IMPACT THE REST OF THE WORLD
. THERE IS NO QUESTION THAT OUR
PREVIOUS POLICIES HAVE HELPED
THE US BECOME A GLOBAL LEADER IN
MYRIAD AREAS. BEFORE WE TALK
ABOUT POTENTIAL APPLICATIONS.
I'D LIKE TO DO SOME SCENE
SETTING. IN MY VIEW, CRYPTO AND
WEB THREE REPRESENT A ONCE IN A
GENERATION OPPORTUNITY TO
RETHINK FOUNDATIONAL SYSTEMS.
OUR CURRENT FINANCIAL SYSTEM WAS
DEVELOPED AND EVOLVED IN A PAPER
BASED ECONOMY. BUT TO STATE THE
OBVIOUS THE WORLD IS GOING
DIGITAL AND AN EVER ACCELERATING
PIECE. WHAT DO YOU WANT? PERCENT
OF AMERICANS DO NOT USE CASH FOR
PURCHASES IN A TYPICAL WEEK.
ABOUT 7500 BANK BRANCHES IN THE
UNITED STATES CLOSED BETWEEN
2017 AND 2021. AND WE'VE BEEN
USING CHECKS SINCE THE 18
HUNDREDS, BUT IF ONLY RECENTLY
MOVED INTO THE WORLD OF SENDING
RENT, DIGITALLY PAYING FOR
COFFEE WITH TABLETS AND FILING
TAXES ONLINE, IT IS TIME TO
FOCUS ON WHAT IS NEXT. DESPITE
THE STATS, I JUST LAID OUT. I
REGRET TO SAY THE US IS STEADILY
FALLING BEHIND. WE HAVE BEEN
OVERDUE FOR AN UPDATE TO OUR
FINANCIAL RAILS AND CRYPTO
DEMONSTRABLY CAN IMPROVE
EFFICIENCY AND REDUCE COSTS,
MEANING BETTER SERVICES AND
CHOICES FOR THE USER. I'M
SOMETIMES ASKED WHAT THE
BREAKOUT APPLICATION IS WHERE
THE WEB THROUGH ECOSYSTEM AND MY
RESPONSE IS, I THINK WE NEED TO
THINK ABOUT SCALE DIFFERENTLY
INSTEAD OF BUILDING ONE THING TO
SERVE EVERYONE. WE'VE SEEN THE
PROBLEMS WITH THAT APPROACH.
MAYBE WE SHOULD BE THINKING
ABOUT BUILDING DIFFERENT
INSTANCES OF SERVICES THAT
DESIGNED BY COMMUNITIES TO MEET
THEIR SPIT SPECIFIC AND EVEN
SOMETIMES TEMPORARY NEEDS.
INDEED RESEARCH SHOWS THERE HAS
BEEN AN INCREASED FOCUS ON
HYPERLOCAL EFFORTS AND COMMUNITY
EMPOWERMENT THAT IS MOVING FROM
A MODEL THAT EXTRACTS FROM
COMMUNITIES TO A MODEL THAT
INVESTS LONG TERM AND
COMMUNITIES ON TERMS THE
COMMUNITIES THEMSELVES DEEM
RELEVANT. THE BEST MODELS IN MY
OPINION BUILT WITH NOT FOR
COMMUNITIES COMMUNITY BASED
RESEARCH SHOWS THAT THE AVERAGE
PERSON UNITED STATES ENCOUNTER
SIGNIFICANT BARRIERS TO
FINANCIAL SECURITY AND WELL
BEING, PARTICULARLY FOR PEOPLE
WHO ARE POOR. FINANCIAL
INSTITUTIONS HAVE HAD DECADES TO
BRING THOSE WHO HAVE BEEN
HISTORICALLY EXCLUDED INTO THE
SYSTEM, BUT THEY HAVE NOT ALMOST
20% 1 IN FIVE AMERICANS REMAIN
UN OR UNDERSERVED BY CURRENT
OPTION. IT IS TIME TO RETHINK
OUR SOCIETY'S RELATIONSHIP TO
MONEY AND GENERATIONAL WEALTH
BUILDING FROM THE GROUND UP. SO
WHERE DID DIGITAL ASSETS FIT
INTO THIS PICTURE? WELL FIRST,
CALIFORNIA HAS BEEN A HUB FOR
LEVERAGING KRYPTOS BENEFITS FOR
HISTORICALLY UNDERSERVED
COMMUNITIES, ESPECIALLY
MINORITIES, MIGRANTS AND SMALL
BUSINESSES, WHO MAY NOT BE THE
PRIORITY FOR LEGACY SYSTEMS AS
AN EXAMPLE, CITY THREE IS AN
OAKLAND BASED PROJECT WORKING ON
CRYPTO EDUCATION. COMMUNITY
DIRECTED FUNDING AND A MORE
AFFORDABLE PAYMENTS NETWORK FOR
LOCAL BUSINESSES ON BOARDED OVER
1000 INDIVIDUALS TO WEB THREE
WALLETS WITH 60% REPRESENTATION
BY PEOPLE OF COLOR. THERE'S ALSO
BEEN A LOT OF ACTIVITY AROUND
REMITTANCES, WHICH PLAY AN
IMPORTANT ROLE IN CALIFORNIA'S
ECONOMY. IN 2021, CALIFORNIA
ACCOUNTED FOR OVER ONE THIRD OF
ALL REMITTANCES SENT FROM THE
UNITED STATES TO MEXICO. CRYPTO
CAN BE TRANSFERRED ALMOST
INSTANTLY AND CAN CUT REMITTANCE
PAYMENT FEES FROM THE EXORBITANT
5% TO A MIRROR 1% FOR THE
AVERAGE REMITTANCE CENTER, A
MIGRANT WORKER WHO SENDS 23 OF
THESE PAYMENTS PER MONTH. THESE
SAVINGS ADD UP FAST. THEY'RE
ALSO DIGITAL COLLECTIBLES, WHICH
ARE EMERGING AREA OF IMPORTANCE
FOR OUR STATE BEING AS WE ARE
THE CAPITAL OF MEDIA
ENTERTAINMENT. WE KNOW THAT NON
FUNGIBLE TOKENS ALSO CALLED N F
. T S HAVE ALREADY OPENED DOORS
FOR CREATORS ESPECIALLY
UNDERREPRESENTED GROUPS LIKE
WOMEN AND PEOPLE OF COLOR AND
FOR DIGITAL FORWARD ARTISTS. BUT
WE'RE ALSO BEING DESY MYRIAD
DIFFERENT WAYS IN WHICH FTS CAN
AND WILL BE USED IN THE FUTURE.
INCLUDING FOR LAND TITLES,
ACCESS TO EVENTS LIKE CONCERTS
OR FOR NON TRANSPORT PURPOSES
LIKE ACADEMIC CREDENTIALING.
EVEN OUR VERY OWN CALIFORNIA
DMVS PILOTING A PROGRAM RIGHT
NOW TO ROLL OUT AN FT CAR
TITLES. WATCHING TECHNOLOGY AND
DIGITAL ASSETS CAN THUS BE AN
IMPORTANT TOOL FOR RECORD
KEEPING. AS ANOTHER EXAMPLE, A
PARTNERSHIP BETWEEN USC AND
STANFORD USES COMPLICATED
CRYPTOGRAPHIC TECHNIQUES AND
BLOCKCHAIN TO CAPTURE STORE AND
VERIFY TESTIMONY FROM SURVIVORS
AND WITNESSES OF 14 GENOCIDES
AND EPISODES OF MASS VIOLENCE SO
FAR. FINALLY WE'RE SEEING THE
WAYS IN WHICH CRYPTO AND
BLOCKCHAIN TECHNOLOGY CAN HELP
ADVANCE EFFORTS TO TACKLE THE
CLIMATE CRISIS. ON THE
INVESTMENT SIDE, THERE IS A
GROWING REGENERATIVE FINANCE OR
REFI MOVEMENT FOCUSED ON THE
$207 BILLION CARBON MARKET. ON
THE INFRASTRUCTURE SIDE, DATA
CENTERS ARE INCREASINGLY FOCUSED
ON INVESTING IN NEW RENEWABLE
ENERGY SOURCES AND ENERGY
TECHNOLOGY, CAPTURING STRANDED
RENEWABLES AND USING HARMFUL
BYPRODUCTS LIKE METHANE TO POWER
OPERATIONS. THESE ARE JUST A FEW
EXAMPLES OF THE VALUE KRYPTON.
DIGITAL ASSETS ARE ALREADY
PROVIDING TODAY. NOW. OF COURSE,
IMPORTANT TO NOTE THAT WHILE
THERE IS TREMENDOUS PROMISE FOR
CRYPTO AND WATCHING TECHNOLOGY
TO REVOLUTIONIZE NOT ONLY
FINANCE BUT ALSO SO MANY OF OUR
LEGACY SYSTEMS, THERE ARE ALSO
RISKS. AS GOVERNOR NEWSOM
EXECUTIVE ORDERS SUGGESTED IT IS
CRITICAL THAT LEGISLATION AND
REGULATIONS ENABLE RESPONSIBLE
INNOVATION ON MITIGATING RISKS
FOR CONSUMERS AND INVESTORS,
NOTING THAT IN SOME CASES, THESE
TWO GROUPS ARE THE SAME. IN THE
PAST YEAR. 2022 WE SAW FAILURES
OF LEGITIMATE PROJECTS AS WELL
AS OUTRIGHT AND OUTRAGEOUS FRAUD
COMMITTED AGAINST CUSTOMERS
TRANSACTING IN DIGITAL ASSETS,
RESULTING IN SIGNIFICANT LOSSES
FOR CONSUMERS AND HARM TO REAL
PEOPLE. IT IS CRITICAL THAT WE
ESTABLISHED REGULATORY
GUARDRAILS AND CONSISTENT
CONSUMER PROTECTION REQUIREMENTS
. AS THIS INDUSTRY CONTINUES TO
GROW AND DEVELOP, AND IT IS
CRITICAL THAT THESE REQUIREMENTS
ARE NOT PERFORMATIVE BUT
ACTUALLY SERVED TO EMPOWER USERS
OF THESE NEW SYSTEMS, LEVERAGING
THE CAPABILITIES OF THE SYSTEMS
THEMSELVES. CURRENTLY AS WE'VE
HEARD, THERE IS NO COMPREHENSIVE
FEDERAL REGULATION DIGITAL
ASSETS. INSTEAD COMPANIES ARE
SUBJECT TO A PATCHWORK OF STATE
LAWS LIKE THE NEW YORK BIT
LICENSE. IT'S LIMITED PURPOSE
TRUST CHARTER AS WELL AS
REGULATION BY ENFORCEMENT FROM
FEDERAL AGENCIES, WHICH OFTEN
FAILS PROTECT INVESTORS BECAUSE
IT HAPPENS AFTER THE FACT.
BLANKET ENFORCEMENT HARMS
INNOVATION INVESTOR PROTECTION
BECAUSE IT DOES NOT ALLOW FOR A
THOUGHTFUL, COMPLIANT WAY FOR
COMPANIES TO BRING TO MARKET THE
INNOVATIVE PRODUCTS AND SERVICES
THAT ARE CLEARLY IN DEMAND. THE
LACK OF CLEAR, CONSISTENT AND
TRANSPARENT REGULATION CONTINUES
TO BRING SIGNIFICANT UNCERTAINTY
TO ALL STAKEHOLDERS ACROSS THE
ECOSYSTEM. CALIFORNIA UNDERTAKES
THE IMPORTANT WORK NEEDED TO
ESTABLISH A FORMAL LICENSING
FRAMEWORK POLICYMAKERS CAN AND
SHOULD LOOK TO LESSONS LEARNED
FROM OTHER STATE REGIMES. FOR
EXAMPLE, THE NEW YORK DFS HAS
ESTABLISHED A BESPOKE REGULATORY
FRAMEWORK FOR DIGITAL ASSETS AS
WE KNOW THE DFS EARLY ON
RECOGNIZED THE POTENTIAL OF
THESE ASSETS AND THE NEED TO
REGULATE THEM IN A WAY THAT
PROTECTS CONSUMERS WELL
PROMOTING INNOVATION IN LINE
WITH THE ACTIVE ORDER IN THIS
STATE. DFS IS FOCUSED ON
REQUIREMENTS WAITING TO CAPITAL
RESERVES, PREVENTING MONEY
LAUNDERING IN CYBER SECURITY
GOALS THAT WE APPLAUD, ALL OF
WHICH ARE SUBJECT TO REGULAR
EXAMINATION, REPORTING AND
SUPERVISION AND UNDER CURRENT
LEADERSHIP AT DFS, WE'VE SEEN
RENEWED MOMENTUM AND IMPROVING
THE AGENCY'S ABILITY TO REGULATE
EFFECTIVELY IN THIS SPACE.
HOWEVER. AS THE INDUSTRY IS
CONTINUING TO GROW AND EVOLVE
OVER THE PAST SEVEN YEARS IN NEW
YORK AND ELSEWHERE, WE HAVE
ENCOUNTERED SOME CHALLENGES THAT
CAN HELP INFORM CALIFORNIA'S
DEVELOPMENT OF A SIMILAR
REGULATORY REGIME. IT IS
IMPORTANT FOR STATE REGIMES TO
CONTINUE TO LEAD IN FOSTERING
PRODUCT DEVELOPMENT THAT SERVES
CONSUMER NEEDS AND PROMOTE
SAFETY AND SECURITY IN THE
MARKETPLACE. A STATE REGIME
SHOULD ESTABLISH CLEAR AND
TRANSPARENT EXPECTATIONS FOR THE
TIMING OF APPLICATION APPROVALS
IN NEW YORK. IT'S UNFORTUNATELY
NOT UNCOMMON FOR THE TIMELINE
FROM APPLICATION TO APPROVAL TO
BE SIGNIFICANT, SOMETIMES TAKING
YEARS. THIS IS BOTH DUE TO THE
EVER CHANGING COMPLEXITY OF THIS
INDUSTRY AND THE HISTORICAL LACK
OF CRYPTO EXPERTISE AND STAFFING
. BUT WITHOUT A CLEAR DEADLINE,
MANY INNOVATORS ARE LEFT SIMPLY
UNABLE TO OPERATE IN NEW YORK.
TO ENSURE CONSISTENT CONSUMER
PROTECTION STANDARD. CALIFORNIA
SHOULD SEEK TO COORDINATE WITH
OTHER STATES TO COMBAT CASES OF
FRAUD AND MARKET MANIPULATION.
ADDITIONALLY STANDARDS AND BEST
PRACTICES REGARDING USEFUL
DISCLOSURES IN THE CUSTODY OF
DIGITAL ASSETS SHOULD BE
DEVELOPED. CALIFORNIA AND OUR
VIEW SHOULD LEAD WHEN IT COMES
TO RECIPROCITY AND HARMONIZATION
OF STATE REGIMES THAT SIMILAR
REQUIREMENTS AND STANDARDS. THIS
COULD INCLUDE, FOR EXAMPLE,
COORDINATION OF REGULATED ENTITY
EXAMS WITH OTHER STATE
REGULATORS SIMILAR TO THE WAY
THAT STATE MTL FRAMEWORKS
COORDINATE WITH ONE ANOTHER FOR
EXAMINATION PURPOSES. IN
ADDITION, RECIPROCITY WITH OTHER
STATES WOULD AVOID REDUNDANCY
AND CREATE A STREAMLINED SET. OF
STANDARDS AND REQUIREMENTS. IT
IS CRITICALLY IMPORTANT AND VERY
CHALLENGING FOR REGULATION TO
KEEP PACE WITH INNOVATION. I
RECOGNIZE THE DIGITAL ASSETS ARE
BUILT ON A TECHNOLOGICAL
UNDERPINNING DISTINCT FROM THAT
OF TRADITIONAL FINANCIAL
MARKETS, AND ACCORDINGLY, IT IS
ESSENTIAL THAT ANY REGULATORY
FRAMEWORK SHOULD PROPERLY
ACCOUNT FOR SUCH DISTINCTIONS.
THERE SHOULD BE A CLEAR AND
REASONABLE TIMEFRAME FOR ANY
COMPANIES TO TRANSITION INTO ANY
NEW STATE FRAMEWORK. AS PART OF
ALL OF THIS, I WOULD STRONGLY
ENCOURAGE AND I APPLAUD
CALIFORNIA FOR CONTINUING TO
SEEK INPUT FROM MARKET
PARTICIPANTS. THE CRYPTO COUNCIL
LOOKS FORWARD TO WORKING WITH
YOU OVER THE COURSE OF THIS
SESSION TO ADVANCE THESE
IMPORTANT ISSUES. THANK YOU
AGAIN FOR THE OPPORTUNITY
TESTIFIED BEFORE YOUR COMMITTEE
IS THIS MORNING. I'M HAPPY TO
ANSWER ANY QUESTIONS YOU MAY
HAVE THANK YOU, MISS WARREN. AND
ALSO TO MR MORELLI ONCE AGAIN,
AND I WILL QUICKLY TAKE IT TO
COMMITTEE MEMBERS FOR QUESTIONS.
WE HAVEN'T. ASSEMBLYMEMBER'S
DIXON. I MISS WARREN. JUST QUICK
QUESTION. AND I, UM RESPECT YOUR
. POSITIVE IMPRESSIONS OR
BELIEFS IN THE CRYPTO INDUSTRY.
CAN YOU CITE EXAMPLES OF FINANCE
SUCCESSFUL FINANCIAL PERFORMANCE
? I MEAN, HOW DOES ONE THE
AVERAGE CONSUMER EVALUATE
FINANCIAL PERFORMANCE? IS THERE
A FINANCIAL REPORT OF ANY OF
THESE THESE FUNDS? HOW DO WE
EVALUATE THAT? THEIR
PERFORMANCE? THANK YOU FOR THE
QUESTION. WE HAVE A NUMBER OF
INDICES AND EXCHANGES THAT
REFLECT THE CURRENT MARKET
CONDITIONS AROUND ANY INDIVIDUAL
OPPORTUNITY OR OFFERING, BUT I
THINK IT'S CRITICAL TO NOTE THAT
NOT ALL DIGITAL ASSETS ARE
FINANCIALLY MOTIVATED. NOT ALL
OF THEM ARE ISSUED FOR FINANCIAL
PURPOSES. SOME ARE SIMPLY AROUND
THE CREDENTIALING THAT I
MENTIONED OR AROUND PROOF OF
OWNERSHIP OR THINGS LIKE THIS.
AND THAT MAKES THE SPACE
COMPLICATED BECAUSE SOME OF THE
ISSUERS OF THESE DIFFERENT KINDS
OF OPPORTUNITIES LOOK THE SAME,
AND THE ACTIVITY MIGHT EVEN
RESEMBLE TRADITIONAL FINANCIAL
ACTIVITY. BUT THE PURPOSE IS
VERY DIFFERENT, BUT IN TERMS OF
EVALUATING ANY GIVEN MOMENT
WHERE SOMETHING STANDS AND WHERE
THE PRICE YOU KNOW, THE RELATIVE
PRICE MIGHT BE, THERE IS AN
ENTIRE INDUSTRY THAT'S GROWN
AROUND THAT ANALYSIS AND
EVALUATION. OKAY I DON'T KNOW IF
THAT EXISTS AROUND FT. X, FOR
EXAMPLE, THAT A CONSUMER AND MR
HERALDS EXAMPLES OF THE
WIDESPREAD LOSSES, FINANCIAL
IMPACTS TO PEOPLE INNOCENTLY WHO
SHOULD HAVE BEEN ABLE TO
DETERMINE POSSIBLY WITH
AVAILABLE INFORMATION. IF THIS
WAS A LITTLE A SOLID FINANCIAL
INVESTMENT. SO HOW CAN ONE MAKE
THE DECISION AND MAYBE IT'S JUST
A RHETORICAL QUESTION, BUT I
THINK IN YOUR EXAMPLE THERE'S
MANY DECADES TO GO HERE TO FIND
THE BEST FRAMEWORK TO MANAGE
DIGITAL, BUT IT'S MANAGING AIR
AND I DON'T KNOW IF WE COULD PUT
IT. PUT A BOX AROUND AIR. PART
OF WHAT I THINK WE'RE CALLING
FOR, AND WE'RE LOOKING FOR AS AN
INDUSTRY IS A ROBUST CONSUMER
DISCLOSURE FRAMEWORK THAT'S
ACTUALLY GOING TO EDUCATE
CONSUMERS AND RIGHT NOW, THAT'S
FALL. IT'S VERY SCATTERED. IT'S
FALLING UPON DIFFERENT ACTORS TO
DO THAT IN DIFFERENT WAYS. SO
MANY EXCHANGES, WHICH ARE THE
PLACES WHERE YOU CAN CONVERT
FROM FIAT INTO CRYPTO, AND VICE
VERSA. THEY DO ACTUALLY HAVE
MARKERS FOR WHAT THEY HAVE
DEEMED USING THEIR OWN
EVALUATIVE FRAMEWORK, A RISKIER
OPPORTUNITY OR SOMETHING THAT IS
LESS POTENTIALLY RISKY. AND I DO
THINK THAT GENERAL UNDERSTANDING
IS THIS IS A VERY NEW SPACE AND
A NEW INDUSTRY AND THEREFORE IT
DOES CARRY HIGHER RELATIVE RISK
THAN AN INDUSTRY THAT'S BEEN
AROUND FOR HUNDREDS OF YEARS.
WHAT WE'D LIKE TO SEE IS
CONSISTENCY AND WHAT THAT SHOULD
LOOK LIKE. THERE ARE MANY GOOD
ACTORS IN THIS SPACE WHO HAVE
ZERO INTEREST IN PROMOTING OR
SUPPORTING ANY OF THE SCAM
ARTISTS WHO ALSO EXISTS IN THIS
SPACE. WHAT WE'RE LOOKING FOR IS
GUIDANCE AROUND HOW WE MIGHT DO
THAT EFFECTIVELY IN A WAY THAT
IS ACTUALLY MEANINGFUL AND
USEFUL TO A CONSUMER BUT ALSO
WILL BE USEFUL AND IMPORTANT AND
RELEVANT TO A REGULATOR. OKAY.
THANK YOU. SENATOR CABALLERO. SO
I'M HERE. I'M SITTING HERE
LISTENING TO THIS TODAY. A AND,
UM I'M REALLY MOVED BY THE
STORIES THAT YOU TOLD IN REGARDS
TO CONSUMER FRIED AND I'M I
GUESS I'M TRYING TO FIGURE OUT
UM, WHAT IS THE VALUE?
CRYPTOCURRENCY. I DON'T. I DON'T
SEE ANY VALUE TO IT AT ALL. AND
IF YOU DON'T SEE ANY VALUE TO
IT, THEN WHY DO WE ALLOW IT AT
ALL? AND YOU KNOW, MAYBE I'M
JUST REALLY NAIVE. YOU ASKED ME
TO INVEST 1000 BUCKS WITH YOU?
JUST ON A ON A FACEBOOK PAGE OR
A ANY OTHER, UM, METHODOLOGY,
EMINENCE. SAY NO. UM I'M CHEAP.
OKAY SO BUT BUT I'M TRYING TO
FIGURE OUT IN TERMS OF OUR OUR
SOCIETY AND OUR ECONOMY AND HOW
WE HANDLE MONEY. WHY WOULD WE
WANT TO ALLOW THIS AT ALL? AND
MAYBE IT'S JUST A RHETORICAL
QUESTION. BUT MAYBE I SHOULD ASK
THE OTHER PANEL CENTER. THIS IS
THIS IS ONE OF THE FUNDAMENTAL
CHALLENGES. LET ME JUST KIND OF
REPEAT IN SUMMARY. SOME OF THE
CRITICISMS OF PEOPLE LIKE, UM
WARREN BUFFETT. UM WARREN BUFFET
AND A FEW OTHERS. JAMIE DIMOND,
IRONICALLY, ONE OF THE HEADS OF
THE LARGEST FINANCIAL
INSTITUTIONS IN THE WORLD HAS
BEEN VERY CRITICAL OF CRYPTO FOR
THE VERY REASONS THAT YOU STATE
. UM IT'S THIS NOTION OF IS
THERE SOMETHING BEHIND IT? IT'S
PRICES BASED ON THE PERCEPTION
OF VALUE AS OPPOSED TO ACTUAL
VALUE RIGHT AND THAT'S AN
OVERSIMPLIFICATION, BUT UM AND
OF COURSE, WHENEVER WARREN
BUFFETT WOULD CRITICIZE CRYPTO,
THE CRYPTO WORLD WOULD SAY HE'S
A NONAGENARIAN. HE DOESN'T KNOW
WHAT HE'S TALKING ABOUT. AND I
THINK THE LAST YEAR I MEAN,
BANKRUPTCY AFTER BANKRUPTCY
AFTER BANKRUPTCY AND I'M NOT
DISAGREEING WITH MISS WARREN
THAT THERE ARE THERE ARE SOME
NOTABLE PLAYERS WHO ARE TRYING
TO DO THE RIGHT THING. BUT THIS
IS A BIG PROBLEM. AND UM, SOME
REMEMBER, DIXON EARLIER POINTED
OUT SUPER BOWL ADS, WHICH YOU
KNOW WAS IN MY PRESENTATION. THE
SCALE IS MASSIVE. I LOVE THE FBI
AND WHAT THEY'RE TRYING TO DO.
DON'T GET ME WRONG, BUT YOU
CAN'T TELL ME THAT THE NUMBER OF
PEOPLE LOOKING AT THEIR WEBSITE
EVEN COMES 1 1/100 OF 1% AS
CLOSE AS THE HUNDREDS OF
MILLIONS OF PEOPLE THAT SAW THE
SUPER BOWL ADS. I WOULD NOTE
THAT THIS YEAR THERE WERE NO
SUPER BOWL ADS ON CRYPTO. AND A
LOT OF THE VC MONEY HAS ACTUALLY
MOVED INTO A I, WHICH IS A
WHOLE, ANOTHER TOPIC FOR OTHER
SERIES OF HEARINGS, SO IT'S A
CHALLENGE. IT REALLY IS. I ASKED
. THE QUESTION IS BECAUSE I'M
TRYING TO FIGURE OUT WHAT ARE
THE GUARDRAILS. AND I'M TRYING
TO THINK THROUGH ALL THESE
THINGS, THESE THINGS AND THEN I,
BUT THE ULTIMATE QUESTION IS
WHAT IS THE PUBLIC BENEFITS? SO
YES, I WOULD. ANYBODY CAN TELL
ME THE CHANCE TO ANSWER THAT
QUESTION, BECAUSE THIS IS, IN
FACT WHY I CO FOUNDED THE CRYPTO
RESEARCH AND DESIGN LAB CRADLE.
AND I'D BE HAPPY TO SHARE THOSE
REPORTS WITH YOU AROUND CONCEPTS
LIKE GENERATIONAL WEALTH
BUILDING AND AROUND THE USE BY
THE BLACK COMMUNITY OF BITCOIN
SPECIFICALLY, BUT ALSO MORE
BROADLY OF CRYPTO. AND WHAT WE
FOUND IS YOU CAN'T SEPARATE THE
DEMAND SIGNAL WE GET FROM THE
SAME COMMUNITIES THAT ARE
EXPLOITED BY PAYDAY LENDERS.
IT'S THE SAME COMMUNITIES THAT
HAVE DEMAND SIGNAL FOR THESE
ASSETS AND OPPORTUNITY. I DON'T
THINK YOU CAN SEPARATE THAT FROM
ENERGY, INTERGENERATIONAL TRAUMA
AROUND EXPERIENCES WITH THE
BANKING SYSTEM, SO WE HAD
COUNTLESS STORIES OF PEOPLE WHO
TALKED ABOUT REDLINING
EXPERIENCES WALKING INTO A BANK
AND GETTING DENIED A MORTGAGE
THAT INCLUDING OUR STATE. AND SO
YOU HAVE TO UNDERSTAND. I THINK
A LITTLE BIT AND IT WAS REALLY
EYE OPENING FOR ME AS SOMEBODY
WHO COMES FROM A CIVIC TECH AND
SOCIAL JUSTICE BACKGROUND, BUT
IT'S STILL VERY COMPELLED BY THE
OPPORTUNITY HERE, AND I THINK
THE RESPONSIBILITY WE ALL HAVE
TO THINK ABOUT HOW CAN WE MAKE
SURE THAT PEOPLE ARE MOVING INTO
THE RIGHT OPPORTUNITIES? BECAUSE
THERE ARE SCAM ARTISTS. I AGREE
WITH MY COLLEAGUE HERE? THAT'S
CERTAINLY THE CASE AND I WOULD
THINK YOU'D BE DELUSIONAL TO
DENY THAT THAT'S THE CASE.
HOWEVER THE OPPORTUNITY IS VERY
REAL, AND I'D LOVE TO JUST GIVE
YOU SOME STATISTICS. I THINK
THERE'S THIS NARRATIVE THAT THE
PEOPLE INVESTING IN THIS
EXPLOITING PEOPLE EVERYWHERE.
THESE CRYPTO BROS. WHO ARE KIND
OF THIS, YOU KNOW TO LOOK IN
VALLEY. THEY LOOK A CERTAIN WAY
CERTAIN DEMOGRAPHIC BUT IN FACT
PURCHASE A DIGITAL ASSETS UNITED
STATES THE AVERAGE
CRYPTOCURRENCY BUYER IS UNDER
40. THE MEAN AGE IS 38. 55% DO
NOT HAVE A COLLEGE DEGREE. 40%
44% OF CRYPTO TRADERS ARE NOT
WHITE. 41% ARE WOMEN AND 35%
HAVE HOUSEHOLD INCOMES OF LESS
THAN 60 K ANNUALLY. NOW MY
COLLEAGUE LOOKS AT THAT AND SAYS
ALL THOSE PEOPLE MUST BE SUBJECT
TO PREDATION. AND THEY MUST BE
FOOLISH AND THEY MUST BE JUST
SEEING SOME CELEBRITY DOING A
THING OR WHATNOT. WHAT I SEE IS
A DEMAND SIGNAL FOR PEOPLE TO
FINALLY SAY THIS IS A MORE
INCLUSIVE OPPORTUNITY THAT I
HAVE ACCESS TO. I AM NOT
EXCLUDED FROM I FIND THAT VERY
POWERFUL AND WHAT I REALLY WANT
TO SEE IN REGULATION THAT COMES
DOWN FROM ANYBODY, INCLUDING THE
FBI, INCLUDING FROM THIS BODY IS
AN OPPORTUNITY SPACE THAT
REMAINS OPEN FOR THESE PEOPLE.
IT MAKES IT SAFER AND MAKES IT
MORE SECURE. IT PROVIDES THEM
ACCURATE AND APPROPRIATE
EDUCATION AROUND WHAT IT IS
THEY'RE GETTING INTO. BUT MY
PERSONAL BELIEF IS THAT
EVERYBODY SHOULD HAVE THE RIGHT
TO DETERMINE FOR THEMSELVES AND
THEIR FAMILIES WHAT TO DO WITH
THEIR HARD EARNED PAYCHECKS. AND
IF THAT MEANS THAT THEY WANT TO
MOVE INTO AN ASSET CLASS THAT
HAS PROVEN OVER TIME, HE WILL
SPEAK ABOUT BITCOIN OVER THE
PAST 14 YEARS TO MAKE TREMENDOUS
TO BE A TREMENDOUS INVESTMENT
OPPORTUNITY. MY VIEW IS LET'S
ENABLE THAT TO HAPPEN IN A
SAFER, STRUCTURED WAY. I
APPRECIATE THAT RESPONSE BECAUSE
IT SPEAKS TO ME. THE PROBLEM
THAT I HAVE IS, IS IT AT THE
EXPENSE OF SOME OTHER SCHLEP
THAT ENDED UP PUTTING IN MONEY
AND DIDN'T KNOW THAT IT WAS LIKE
A PONZI SCHEME THAT WHEN I GET
CONCERNED ABOUT IS EVERYBODY IS
ENTICED BY EASY MONEY. AND I
GUESS MY UPBRINGING AND TRAINING
WAS. IF IT'S EASY, THEN IT'S AT
THE EXPENSE OF SOMEONE ELSE. UM
AND SO YOU GOTTA BE CAREFUL SO
THAT THAT'S JUST MY CONCERN. AND
I THINK THAT THE JURY'S OUT ON
WHETHER PEOPLE ACTUALLY END UP
WITH GENERATIONAL WEALTH FROM
IT. THAT DIDN'T COME FROM, UM,
SOMEBODY GETTING TO FRIDAY DOWN
THE ROAD, AND YOU CAN'T TRACE IT
BECAUSE IT'S A CURRENCY THAT
DOESN'T HAVE ANY FINGERPRINTS ON
A REALLY IMPORTANT POINT,
BECAUSE, UM, SCALE AS PART OF
THE CHALLENGE HERE, UM, FOR
THESE COMPANIES TO GROW FROM
BEING MORE OF A NICHE TO LARGER
SCALE ADOPTION. THAT'S WHY YOU
SAW THE HUNDREDS OF MILLIONS OF
DOLLARS BEING SPENT ON
ADVERTISING CAMPAIGNS. 40
MILLION IN ONE DAY IN THE SUPER
BOWL. MANY MANY OTHERS THAT WAS
ABOUT CREATING THAT DEMAND OR
SCALE. IF I MAY INTERRUPT, YOU
HAVE TO LEAVE. AND SO, UH, YES.
SO CHAIR, GRAYSON WILL EAT IT,
BUT I APOLOGIZE FOR THE
DISRUPTION AND I THINK EVERYONE
FOR PARTICIPATING AND I
APOLOGIZE FOR STARTING THE FOOD
FIGHT AND HAVING TO RUN TO, BUT
BUT I APPRECIATE THIS DISCUSSION
. I WOULD LIKE TO DO MORE VERY
QUICKLY RESPOND TO THAT VERY
QUICKLY, WHICH IS JUST TO SAY
THE USER EXPERIENCE AROUND
ONBOARDING INTO CRYPTO HAS BEEN
EXTRAORDINARILY CHALLENGING, AND
SO I THINK, AND I'M HAPPY TO
SHARE MORE ABOUT THIS AFTER
AFTER THIS HEARING, SO THE FACT
THAT THESE KINDS OF FOLKS HAVE
BEEN ABLE TO ENGAGE HIS
OPPORTUNITY DESPITE THE US BEING
UNTIL VERY RECENTLY,
EXTRAORDINARILY COMPLICATED, I
THINK, SPEAKS TO THE COMMITMENT
THAT MANY OF THEM HAVE. AVAIL
THEMSELVES OF THESE
OPPORTUNITIES. THANK YOU VERY
MUCH. WE DO HAVE TWO OTHER
QUESTIONS AND THEN WE'LL TAKE IT
TO PUBLIC COMMENT.
ASSEMBLYMEMBER'S PETRIE-NORRIS.
THANK YOU. THANK YOU. CHAIR. UM
SO I THINK WHAT YOU'VE HEARD IN
THE LAST 10 MINUTES OF QUESTIONS
, I THINK IS A GOOD DEAL OF
SKEPTICISM ABOUT THIS INDUSTRY.
UM SO IN THE IN THE 16 HUNDREDS
AND THERE WAS THE TULIP BUBBLE,
THERE WAS TULIP MANIA AND FOR
THREE YEARS THE PRICE OF TULIPS
, 1000% AND THE BUBBLE PERSON
IT'S ONE OF THE MOST FAMOUS
COLLAPSES OF ALL TIME AND THE
REASON THAT THAT PERSON
SPECTACULARLY AS THERE WAS
NOTHING REAL BEHIND IT, AND I
THINK, UM I'VE HEARD. SOME OF MY
COLLEAGUES SAY PEOPLE ARE ASKING
THE SAME QUESTIONS ABOUT THIS
KIND OF AT A REALLY BIG PICTURE
LEVEL. WHICH IS WHY I THINK, UM
, YOU KNOW, FROM THE INDUSTRY
PERSPECTIVE, AND I'LL JUST SAY,
YOU KNOW, MISS WARREN, I
APPRECIATE YOUR COMMENTS, AND
YOU'RE SAYING THAT YOU DO WANT
TO SEE REGULATION THAT YOU DO
WANT TO SEE, UM, A FRAMEWORK TO
PROTECT CONSUMERS IN THIS SPACE.
I THINK THAT'S A REALLY
IMPORTANT STEP FOR THE INDUSTRY
. SO FOR FOLKS THAT ARE
LISTENING TO TAKE AND TO ENGAGE
IN BECAUSE I DO THINK, FAILING
THAT YOU ARE GOING TO SEE A HUGE
BACKLASH THAT SAYS YOU KNOW
WHAT? NONE OF THIS MAKES SENSE.
AND THERE ARE TOO MANY SCAMMERS.
THIS IS TOO MUCH LIKE A PONZI
SCHEME. AND SO WE'RE JUST NOT
GOING TO ALLOW IT AT ALL? UM SO
I WOULD URGE YOU KNOW YOU AND
OTHERS IN THE INDUSTRY TO ENGAGE
IN A REALLY PRODUCTIVE WAY
AROUND REGULATION BECAUSE IT IS
ALSO FELT OVER THE COURSE OF THE
LAST TWO YEARS THAT THERE'S BEEN
KIND OF THIS GAME OF OH, NO,
WE'RE NOT A FINANCIAL ASSET, SO
WE SHOULDN'T BE REGULATED BY
THESE GUYS. OH, NO, WE'RE NOT
ACTUALLY THIS SO WE SHOULDN'T BE
REGULATED BY THESE GUYS. AND
IT'S RESULTED IN A TOTAL LACK OF
REGULATION AND THEREFORE LACK OF
CONSUMER PROTECTION LEADING TO,
UM YOU KNOW, SOME OF THE JUST
THE TRAGIC STORIES THAT WE'VE
HEARD TODAY, SO I GUESS TO
QUESTIONS HELP US UNDERSTAND WHY
THIS ISN'T TULIP MANIA 2023. IF
YOU COULD SPEAK A LITTLE BIT
ABOUT NOT JUST KIND OF BIG
PICTURE A WILLINGNESS FOR THE
INDUSTRY TO ENGAGE IN A
CONVERSATION AROUND REGULATION,
BUT, UM, FROM YOUR PERSPECTIVE,
SOME CONCRETE STEPS THAT, UH,
THAT WE SHOULD COLLECTIVELY TAKE
CARE IN CALIFORNIA TO ENSURE
THAT WE'RE DOING EVERYTHING WE
CAN TO PROTECT CALIFORNIA
CONSUMERS. I APPRECIATE THAT. I
THINK THAT THIS IS AN INDUSTRY
THAT AS I MENTIONED IN MY
OPENING REMARKS, WE HAVE TO
THINK ABOUT USE CASES A BIT
DIFFERENTLY. AND SO I THINK WHEN
PEOPLE SEE OH, YOU KNOW, WHERE'S
THE GOOGLE? OR WHERE'S THE YOU
KNOW THE SORT OF BREAK CROWD,
YOU KNOW, BREAKTHROUGH HOUSEHOLD
KIND OF THING, RIGHT? LIKE IF WE
DON'T HAVE THAT, WHAT'S THE
POINT OF ANY OF IT? AND I FIND
THAT A LITTLE BIT CHALLENGING
BECAUSE I TESTIFIED IN FRONT OF
ST ADD COMMITTEE LAST YEAR, AND
I SPOKE ABOUT A COUPLE OF THINGS
THAT THAT MOVED ME TREMENDOUSLY,
ONE OF WHICH WAS THE IMMEDIATE
OUTPOURING BY CRYPTO DONATIONS
AT THE REQUEST OF BOTTOMLESS
ALINSKY INTO UKRAINE. AND WE
KNOW FROM THE UKRAINIAN
GOVERNMENT THAT THAT MOVEMENT OF
THAT MONEY INTO AREAS THAT WERE
VERY CHALLENGING TO FUND BECAUSE
OF SANCTIONS AND OTHER KINDS OF
LEGITIMATE THINGS THAT HAPPENED
IN THOSE SPACES WAS THE REASON
THAT UKRAINE WAS ACTUALLY ABLE
TO STAVE OFF THE RUSSIAN
INVASION, WHILE THE BULK OF
FOREIGN AID CAME A MONTH. A
MONTH LATER, THAT WAS A CRITICAL
THAT THAT QUICK TIMING OF THAT
RESPONSE WAS REALLY IMPORTANT.
REMITTANCES WHICH I MENTIONED
ARE $630 BILLION INDUSTRY THAT
HAS BEEN KNOWN AND CHASTISE
REPEATEDLY FOR BEING PREDATORY
IN NATURE. IT EXPLOITS
VULNERABLE PEOPLE IN POPULATIONS
THAT EXPLOITS MIGRANTS EXPLOITS
PEOPLE THAT CAN'T COMPLAIN
BECAUSE PERHAPS OF THEIR STATUS
OR DOCUMENTATION OR WHATEVER IT
MIGHT BE. THAT'S A PROBLEM THAT
HAS BEEN ALLEVIATED TO A GREAT
DEGREE. NOT JUST IN THE U. S. TO
MEXICO CORRIDOR US. TELL
SALVADOR US TO GUATEMALA BUT TO
THE PHILIPPINES AND THAILAND TO
THE PHILIPPINES FROM SOUTH KOREA
TO THE PHILIPPINES, I JUST ALL
THESE EXAMPLES OF THIS, BUT THEN
I GET PEOPLE TELLING ME OH,
WELL, THAT'S NOT A SCALABLE
THING THAT'S NOT ON THAT SCALE.
IT'S A TINY SOLUTION TO A TINY
PROBLEM. IT'S A VERY REAL
PROBLEM. AND JUST AS YOU KNOW, I
AM HEARTBROKEN BY THE STORIES
THAT WERE SHARED THEIR STORIES
OF THIS KIND OF THING HAPPENING
WHERE THE AMOUNT OF MONEY THAT
WAS ABLE TO BE SENT HOME
SIGNIFICANTLY INCREASED
OVERNIGHT, WHICH MEANT THAT THE
MONEY WAS GETTING THERE IN TIME
TO PAY THE BILLS TO PAY THE RENT
TO KEEP THE LIGHTS ON TO GO TO
THE TO THE GROCERY STORE. I FIND
THESE STORIES EQUALLY POWERFUL.
SO I THINK THE VALUE HOW WE HAVE
TO LOOK AT THIS HOLISTICALLY AND
I THINK THAT THE VALUE OF WHAT
YOU SEE IS NOT JUST ABOUT
FINANCIAL PRICE OR MONETARY.
IT'S ABOUT WHAT IT MEANS TO HAVE
A MORE INCLUSIVE SPACE AND MORE
INCLUSIVE OPENNESS TO ACCESS
SYSTEMS THAT HAVE HISTORICALLY
BEEN RELEGATED TO THE CORNERS OF
OUR FINANCIAL SYSTEM, AND THAT'S
WHERE THIS THING IS STARTED.
I'VE BEEN IN THIS SPACE FULL
TIME FOR FIVE YEARS AND WHAT I
SAID WHEN I FIRST JOINED WAS
BASED ON A LOT OF WORK. IDENTITY
OF ELOPEMENT AID WAS AN
OBSERVATION. WE'RE GOING TO SEE
ADOPTION IN PLACES THAT FELT
THESE CHALLENGES. MOST ACUTELY
PLACES WITH HYPERINFLATION,
WHICH WE'VE SEEN IN VENEZUELA
AND SAHARAN AFRICA, PLACES THAT
HAD AUTHORITARIAN REGIMES,
PLACES WHERE THERE ARE
LEGITIMATE ACTIVISTS AND OTHERS
ALL WRAPPED UP. THAT WE'RE
LOOKING TO GET MONEY. WOMEN IN
IRAN WHO WERE LOOKING ACTIVISTS
ARE LOOKING TO GET MONEY UNDER
SANCTIONED REGIMES THAT COULDN'T
OTHERWISE DO THAT SAFELY IN ANY
WAY, AND WE HAVE SEEN THAT
WHETHER THIS EMERGES TO BECOME
SOMETHING THAT ENVELOPES A
LARGER PART OF OUR ECONOMY
REMAINS TO BE SEEN. BUT OUR HOPE
IS THAT THE ACTIONS TAKEN BY
THIS COMMITTEE AND BY OTHERS IN
THE STATE OF CALIFORNIA WILL
ENSURE THESE OPPORTUNITIES
REMAIN AVAILABLE TO THE MANY
CALIFORNIANS ALREADY AVAILED
THEMSELVES OF THEM. AND THAT WE
WILL HAVE A SAFE AND SECURE RAIL
SYSTEM THAT CAN BE USED BY MANY
OTHERS. THANK YOU VERY MUCH.
SIMILAR MEMBER PETRIE-NORRIS
ANYMORE. OKAY? SENATOR MIN. HMM.
THANK YOU. CHAIR GRAYSON. I JUST
WANT TO FOLLOW UP ON THE SUNNY
WOMAN'S EXCELLENT QUESTIONS, AND
I WANTED TO WELCOME MY FORMER
LAW SCHOOL CLASSMATE SHEILA
WARREN. UH ONCE UPON A TIME WE
WERE THREE LS AND IT FEELS LIKE
NOT SO LONG AGO. UM SO BEFORE
COMING TO STATE SENATE, I
ACTUALLY STUDIED MONEY, AND I'LL
TELL YOU THAT THOSE OF US WHO
STUDY MONEY HAVE ALWAYS BEEN A
LITTLE SKEPTICAL OF
CRYPTOCURRENCY AS A REPLACEMENT
FOR MONEY JUST BECAUSE IT
DOESN'T HAVE A LOT OF THE
ATTRIBUTES WE THINK ABOUT WITH
WITH MONEY. UM IT IS. IT'S NOT
SOVEREIGN. IT'S NOT BACKED BY A
SOVEREIGN. IT DOESN'T HAVE
RECOURSE TO ANY ASSET, SUCH AS
ASSET BACKED SECURITIES Dð. UM
AND IT'S VERY VOLATILE. WHICH
MAKES IT YOU KNOW IF YOUR DOLLAR
INFLATED, YOU KNOW, 1000% 1 YEAR
AND THEN DEFLATED 1000% THE NEXT
YEAR DOESN'T MAKE IT VERY
USEFUL. BUT THAT ALL BEING SAID
THAT THAT IS NOT MY PROBLEM. I
THINK, UM MY PROBLEM IS THINKING
ABOUT THIS IN THE CONTEXT OF
ASSET BUBBLES, WHICH WHICH
ASSEMBLYWOMAN PETRIE-NORRIS
REFERRED TO, UH, YOU KNOW, WE
HAD A ECONOMIST ROBERT SHILLER,
WHO WON THE NOBEL PRIZE NOT SO
LONG AGO FOR HIS WORK ON ASSET
BUBBLES. AND REGARDLESS OF WHAT
YOU THINK OF THE MERITS OF
CRYPTOCURRENCY BITCOIN, ETCETERA
, AND BY THE WAY, I THINK THAT
CRYPTO AND BLOCKCHAIN HAVE SOME
INCREDIBLE APPLICATIONS, AND I
THINK YOU REFERRED TO SOME OF
THEM AS WARN, BUT BUT I THINK
THAT IT'S UNDENIABLE THAT WE ARE
EXPERIENCING MASSIVE ASSET
BUBBLES AND INFLATIONS RIGHT
NOW, AND THEY THEY SEEM TO FEAR
MUCH FIT. WHAT ROBERT SHILLER
AND OTHERS HAVE DESCRIBED AS FAR
AS ASSET BUBBLES. REMEMBER A
CABBIE TELLING ME LIKE, FIVE
YEARS AGO? YOU GOTTA INVEST IN
THIS THING CALLED BITCOIN. AND I
THOUGHT, OKAY, THAT THAT'S THE
POINT AT WHICH THIS IS GOING TO
GO OVER THE TOP. THIS IS PEEKING
OUT. NO, IT KEPT GOING UP FOR
ANOTHER FIVE YEARS. SO THIS IS
AN UNUSUAL ASSET BUBBLE, BUT I
THINK IT'S VERY CLEAR TO AN
ASSET BUBBLE, AND I THINK THE
QUESTION I HAVE IS AS THIS
RECEIPTS I SUSPECT WE'LL SEE A
LOT MORE INSTANCES OF FRAUD. UH
HOW DO YOU REGULATE THAT? AND I
THINK THAT'S THE CORE QUESTION
THAT WE ALL HAVE TO ADDRESS HERE
BECAUSE YOU CAN THINK OF THIS.
AND I THINK THE ANALOGY THAT
TULIPS IS A GOOD ONE. TULIPS ARE
BEAUTIFUL. THEY HAVE SOME VALUE.
RIGHT PEOPLE LIKE BITCOIN.
BITCOIN IS A BEAUTIFUL AND
ELEGANT PIECE OF CODE OR I'M
NOT. I'M NOT A CODER, BUT IT'S
AS I'M TOLD, IT'S VERY ELEGANT.
UH EVEN IF IT'S VERY HIGH
TRANSACTION COSTS AND INTENSIVE
ITTY OF ENERGY. IT'S A BEAUTIFUL
THING. PEOPLE MAY WANT IT. BUT
HOW DO YOU REGULATE PEOPLE
BUYING SOMETHING THAT MANY OF
THEM JUST MAY WANT TO BUY? AND I
THINK THAT'S THE ANSWER. WE HAVE
TO DEAL WITH, BUT BUT I THINK
EARLIER, SUDDENLY, WOMAN,
BAUER-KAHAN HIT THE NAIL ON THE
HEAD WHEN SHE DESCRIBED THIS AS
A ROUND PEG IN A SQUARE HOLE. I
DON'T KNOW THAT OUR CURRENT
REGULATORY STRUCTURES AND
SYSTEMS REALLY DO IN A YOU KNOW,
REALLY ARE EQUIPPED TO DEAL WITH
SOME OF THE CHALLENGES. TO
CONSUMERS, INVESTORS THAT WE
FACE SO THIS ISN'T REALLY A
QUESTION. IT'S JUST AN EDITORIAL
COMMENT, BUT I INVITE BOTH OF
YOU TO RESPOND. HOW HOW SHOULD
WE REGULATE THIS? BECAUSE I DO
THINK SOMETHING IS NEEDED HERE.
THIS DOES PRESENT NEW CHALLENGES
, WHICH, AT THE SAME TIME, WE'RE
VERY FAMILIAR THEIR CHALLENGES
WE FACE FOR MILLENNIA NOW, AND I
THINK THE TULIP CRISIS IS AN
EXAMPLE THAT SENATOR THANK YOU
VERY MUCH. I APPRECIATE YOUR
COMMENTS BOTH TODAY AND I KNOW
WHEN YOU WHEN THE BILL LAST YEAR
MOVED, YOU MADE SOME VERY
THOUGHTFUL COMMENTS ABOUT WORK
THAT YOU PREVIOUSLY DONE. WE
REALLY APPRECIATE THAT. UM THERE
IS NOTHING INCONSISTENT. WITH
ALL THE THINGS THAT IS, WARREN
HAS BEEN SAYING ABOUT THE GOOD
THINGS THAT COULD COME FROM
CRYPTO AND WHATNOT. AND AGAIN. I
MADE IT VERY CLEAR. I SEPARATED
OUT CRYPTO FROM BLOCKCHAIN. I
THINK THERE'S SOME INTERESTING
USE CASES FOR SOME INDUSTRIES
THAT ARE IN DIRE NEED OF
DISRUPTION. I POINTED OUT TITLE
INSURANCE, UM, FOR THOSE KINDS
OF PUBLIC DOCUMENTS OR THINGS
LIKE THAT YOU CAN FIND ONLINE. I
THINK THE USE CASES MUCH CLEARER
IN MY MIND. AND WE'RE WILLING TO
WORK WITH FOLKS ROLL UP OUR
SLEEVES AND WORK WITH FOLKS ON
THAT. BUT THERE IS NOTHING
INCONSISTENT WITH ALL THE PRAISE
THAT MISS WARREN GAVE UH, FROM A
LICENSING REGIME. NOW I'M NOT
SAYING THE LICENSING REGIME IN
SOME SORT OF MAGICAL PANACEA.
YOU WILL NEVER COMPLETELY
ELIMINATE FRAUD. UM FRIED, NO
MATTER WHAT INDUSTRY YOU LOOK AT
HAVING SAID THAT IF YOU CAN HAVE
A AND D F P, I IS UNIQUELY
POSITIONED. THIS IS LITERALLY
ONE OF THE REASONS WHY THE
FORMER DEPARTMENT OF BUSINESS
OVERSIGHT WAS MODIFIED INTO THE
FBI THREE YEARS AGO. FOR EXACTLY
THESE KINDS OF SITUATIONS. THEY
YOU HAVE THEIR DEVELOPING
EXPERTISE. THERE WAS SOME
CRITICISM OF THE NEW YORK BIT
LICENSE. THE NEW YORK WILL BE
THE FIRST TO ADMIT THAT THEY
WERE UNDER RESOURCED. AND NOW
THAT THEY ARE ADEQUATELY
RESOURCED, UM IT'S IN A MUCH
BETTER PLACE AND THEY ARE TAKING
THE LEAD, AND THAT SHOWS YOU THE
BENEFIT. LOOK F T X FAMOUSLY BY
THEIR OWN ADMISSION, NOT BY NEW
YORK. DFS IS ADMISSION BECAUSE
THEY'RE NOT ALLOWED TO SAY THAT,
JUST LIKE THE FBI CAN'T SAY
SOMEONE'S APPLIED FOR A LICENSE,
AND IT'S PENDING. FT X DID NOT
GET A NEW YORK BIT LICENSE. NOW
I DON'T HAVE A MAGIC WAND TO
KNOW EXACTLY WHY OR WHY NOT, BUT
THAT'S NOT AN ACCIDENT.
GENERALLY SPEAKING, THE 35 OR SO
COMPANIES GIVE OR TAKE THAT HAVE
A NEW YORK BIT LICENSE ARE NOT
THE ONES THAT ARE GOING UNDER.
THEY'RE NOT THE ONES THAT ARE
FREEZING ACCOUNTS. THEY'RE NOT
THE ONES THAT WE ASSOCIATE WITH
SCANDAL THAT IS NOT AN ACCIDENT.
AND SO THERE'S NOTHING
INCONSISTENT WITH MS WARRANTS. I
THINK, TO A CERTAIN EXTENT
OVERLY ROSY FUTURE SCENARIO.
HOPE SHE'S RIGHT BUT SKEPTICAL.
LET'S MAKE SURE IT'S CHECKED
WITH LICENSING. I THINK THAT IS
THE WAY THAT YOU BEGIN TO
HARNESS AND GET A BETTER FEEL
FOR HOW TO PROTECT CONSUMERS.
WHO HAVE BEEN LEFT BEHIND. UM
YOU DO IT. YOU'RE NEVER GOING TO
LEVEL OUT THAT EDUCATION GAP
BETWEEN HUNDREDS OF MILLIONS OF
DOLLARS BEING SPENT AND THE
RELATIVELY FEW PEOPLE WITH ALL
DUE RESPECT TO THE FBI THAT MAKE
THEIR WAY TO THEIR WEBSITE FOR
THE SCAM TRACKER, WHICH IS
GREAT. I HAVE NO PROBLEM WITH
THAT. I THINK THAT'S FANTASTIC.
YOU GOT TO PUT YOUR THUMB ON THE
SCALE A LITTLE BIT TO TRY TO
LEVEL THAT OUT. LICENSING HELPS
YOU DO THAT, AND, MOST
IMPORTANTLY, THAT PRE LICENSING
APPLICATION PROCESS WHERE D F P
IS ABLE TO REVIEW ALL THESE
SYSTEMS. ALL THESE CHECKS AND
BALANCES SO THAT WHILE IT
DOESN'T GUARANTEE ANY RESULT, IT
MAKES A CONSUMER I THINK, FEEL
MORE CONFIDENT THAT OKAY, THIS
ISN'T JUST MONEY GOING DOWN A
RAT HOLE. I THINK THAT'S A
PARTIAL ANSWER TO YOUR VERY
THOUGHTFUL QUESTIONS. THANK YOU
. CHAIR. GRAYSON AND I WILL
SURPRISE MYSELF BY AGREEING WITH
MOST OF WHAT WAS JUST SAID.
APART FROM THE CHARACTERIZATION
OF MY VIEW, AS ROSIE, I THINK IT
IS OBJECTIVE. REGARDLESS I
AGREE. I THINK THAT THERE IS A
TREMENDOUS AMOUNT OF ROOM HERE.
I DO THINK THAT ONE OF THE
CHALLENGES ABOUT THIS INNOVATIVE
SPACE IN THIS TECHNOLOGY IS IT
DOES NOT FALL NEATLY INTO ANY
EXISTING CATEGORY. IT IS NOT
PURELY BANKING, FINANCIAL
SERVICES ORGANIZATIONS, NOT
PURELY TECHNOLOGY. IT'S REALLY
BOTH AND THE NATURE OF DIGITAL
ASSETS IS MYRIAD. THESE ARE NOT
JUST INTENDED TO BE USED. I
THINK TO YOUR POINT SENATOR MAN
AS MONEY OR PAYMENTS. THERE ARE
OTHER USAGE FOR DIGITAL
COLLECTIBLES. DIGITAL ASSETS
TOKENS. OH THIS IS A GIANT
CATEGORY BUT STILL EVOLVING,
EVOLVING TODAY. AND THE
TECHNOLOGY IS EVOLVING TODAY AND
SO I THINK IT'S IMPORTANT THAT
THAT BE TAKEN TOO STRONG
CONSIDERATION IN ANY REGULATORY
LICENSING REGIME. NOW, ALL THAT
BEING SAID THERE IS TREMENDOUS
INTEREST FROM INDUSTRY ACTORS.
AND WHEN I SAY AND PREVENTING
THESE KINDS OF SCAMS FROM
OCCURRING THEY DON'T BENEFIT THE
INDUSTRIES ARE NOT THESE THESE
HUMAN ACTORS WHO GO INTO EXPLOIT
AND GOING TO TAKE ADVANTAGE OF
AN EMERGING NASCENT AREA. ARE
NOT FOLKS ANYBODY WANTS TO
SUPPORT. AND SO THERE'S A LOT OF
INTEREST IN DIFFERENTIATING THE
WHEAT FROM THE CHAFF
RECOGNIZING, HOWEVER, THAT THIS
TECHNOLOGY THE TRANSPARENCY IT
CREATES, WHICH CAN LEAD UNDER
THE RIGHT SCHEME TO
ACCOUNTABILITY. IS A VALUE
ITSELF. AND SO I DO THINK THAT
WHAT WE'VE OBSERVED AND WHAT
WE'VE KIND OF SEEN IN NEW YORK
AS MYRIAD CHALLENGES, SO THE
IT'S CALLED A BIT LICENSE FOR A
REASON, RIGHT? IT CAME INTO
BEING SHORTLY THEORY, UM, HAD
JUST LAUNCHED WHEN A BIT LICENSE
CAME INTO EXISTENCE. THERE
REALLY WAS ONLY BITCOIN. WE'RE
NOW FACING A VERY DIFFERENT
ENVIRONMENT, AND WE HAVE TO
THINK ABOUT ANY SORT OF
LICENSING SCHEME IN LIGHT OF
WHAT'S ACTUALLY HAPPENING TODAY
ON THE GROUND. SO ALL OF THAT IS
TO SAY, I THINK PARTNERSHIP AND
COLLABORATION BETWEEN THE
PRIVATE SECTOR AND PUBLIC SECTOR
AND WITH ALL OF YOU IS GOING TO
BE OF CRITICAL IMPORTANCE TO
ENSURE THAT WHATEVER COMES DOWN
IS GOING TO BE RELEVANT,
MEANINGFUL AND ACTUALLY
PROTECTIVE OF THE FOLKS THAT WE
WANT TO PROTECT, AS OPPOSED TO
JUST PERFORMATIVE SO THAT WE CAN
ALL KIND OF FEEL GOOD OR NOTHING
ACTUALLY HAPPENS. THANK YOU SO
MUCH, MISS WARREN FOR YOUR
TESTIMONY. AND AS THE SENATOR
EXITS I CAN NOW APPLAUD YOU BOTH
FOR BEING THE PANEL THAT
WHITTLED THE ENTIRE COMMITTEE
DOWN TO JUST THE CHAIR. UH SO
WITH THAT, UH, GREAT TESTIMONY.
UH, UM, FOR ALL THE INFORMATION
, WE WERE ABLE TO LEARN FROM TWO
DIFFERENT PERSPECTIVES, MR
LAUREL, JUST THE STORIES THAT
YOU STARTED OFF WITH, REALLY
WERE VERY, VERY TOUCHING DEEPLY
AND ALSO THE INFORMATION WE'RE
ABLE TO PROVIDE. MISS WARREN,
HOW YOU BEGAN YOUR TESTIMONY
WITH ALL THE POTENTIAL AND ALL
THE GOOD INTENTIONS AND ALL THE
THINGS THAT WE COULD REALLY MOVE
FORWARD WITH CREATIVITY AND
INNOVATIVE IDEAS SUCH AS AS
CRYPTO, SO I APPRECIATE THAT
ALSO THE STATISTICS YOU GAVE AND
HOW THAT IT DOES MEET THE VISION
I BELIEVE OF CALIFORNIA,
INCLUDING BEING VERY INCLUSIVE
AND INCLUDING EVERYBODY, SO THE
POTENTIALS THAT THERE ARE THERE
ARE ARE REAL. I JUST THINK THAT
THE CASE THAT YOU MADE WITH YOUR
STATISTICS PROVES EVEN MORE WHY
WE NEED CONSUMER PROTECTIONS.
AND I APPRECIATE YOU
ACKNOWLEDGING THAT AS WELL AS WE
MOVE FORWARD, SO WITH THAT I DO
BELIEVE WE WILL GO TO PUBLIC
COMMENT AT THIS TIME. THANK YOU
TO THE PANEL FOR YOUR
PRESENTATIONS. JUST A REMINDER
THAT YOU STATE YOUR NAME AND
YOUR ORGANIZATION AND PLEASE
KEEP YOUR VERY THOUGHTFUL,
MEANINGFUL COMMENTS TO ABOUT ONE
SECOND. NO, JUST 30 SECONDS
WOULD BE GOOD HALF A MINUTE,
PLEASE. IF YOU HAVE A PUBLIC
COMMENT, COME RIGHT UP. THIS
SIDE OF THE MICROPHONE IS RIGHT
THERE. AND GO AHEAD AND STATE
YOUR NAME AND ORGANIZATION.
THANK YOU. I'M KEN ANDERSON HAVE
A SMALL BUSINESS HERE LAUNCHED
BADGE LLC AND IN SITU HATES UH,
GRAYSON. THANK YOU FOR HAVING ME
HERE AND ALL THE ASSEMBLY
MEMBERS THAT WERE HERE EARLIER,
AND I LIKE TO JUST ADD MY
TESTIMONY TO MISS WARREN. I
SPENT THE LAST FOUR YEARS
BUILDING THE WHAT IS CURRENTLY
THE MOST ACTIVE PUBLIC NETWORK
IN MOST GREEN PUBLIC NETWORK IN
THE BLOCKCHAIN INDUSTRY. I I'VE
PERSONALLY WORKED ON USE CASES
FOR REMITTANCE FROM FINANCE FROM
KOREA TO SOUTH AFRICA WORKED ON
E S G TOKENIZATION. I WORKED
WITH THE INNER WORK ALLIANCE AND
DEFINING THE TOKEN TAXONOMY
AROUND MSG TOKEN DEFINITION THAT
COMPANIES LIKE MICROSOFT OR
USING AS PART OF THEIR GSG RATTY
SO I CONSIDER MYSELF AN EXPERT
ON THE TECHNICAL SIDE OF
DISTRIBUTED LEDGER TECHNOLOGY.
UM, I THINK I WOULD. IN ADDITION
TO WHAT MR WARREN WAS TALKING
ABOUT, I'VE SEEN USE CASES WHERE
WE WERE TRACKING. VACCINE
TEMPERATURES IN EUROPE DURING
COVID EARLY DAYS IN COVID. WE'VE
USED USE CASES FOR CHECKING, AD
TRACKING AND REMITTANCE, UM,
EARLY WARNING SYSTEMS IN SYRIA
FOR BOMBINGS AND STUFF LIKE
THAT. THESE ARE THINGS THAT ARE
HAPPENING TODAY. MY CONCERN IS
THAT WITH A LOT OF THE DOOMSDAY
STYLE STORYTELLING THAT HAS BEEN
GOING ON WE MIGHT THREATEN A LOT
OF THOSE REAL INNOVATIVE USE
CASES. THAT ARE GONNA HAVE
INCREDIBLE IMPACTS GOING FORWARD
THE WAY YOU MIND IF I JUST
FINISHED THIS ONE THOUGHT AND
I'LL GET OUT OF HERE THE WAY
THAT WE RESOLVE THIS.
CRYPTOCURRENCY. THE BASE OF THIS
IS CRYPTOGRAPHY. THE WAY THAT WE
RESOLVE AND REGULATE THIS SPACE
IS THAT WE BUILD PROTOCOLS THAT
ARE BASED ON CRYPTOGRAPHIC
MATHEMATICS AND PROGRAMMABLE. UH
PATTERNS AND PROTOCOLS AND
FRAMEWORKS. WE CAN'T DO THIS.
THE WAY IS MISS WARREN TALKED
ABOUT WITH THE WAY WE'VE DONE IT
HISTORICALLY WITH PAPER. THIS IS
A VERY PROGRAMMATIC, FAST
MOVING, EVOLVING SPACE THAT
NEEDS THAT TYPE OF FRAMEWORK AND
COLLABORATION BETWEEN THE
PRIVATE INDUSTRY AND THE
REGULATORS. THANK YOU SO VERY,
VERY MUCH. THANK YOU. GOOD
AFTERNOON. I THINK ALMOST, UM
JAMIE MINOR ON BEHALF OF THE
BLOCKCHAIN ADVOCACY COALITION.
OUR ASSOCIATION WAS FOUNDED ON A
DESIRE FROM OUR MEMBERS WHO WORK
WITH GOVERNMENT ON ESTABLISHING
COMMON SENSE REGULATIONS THAT
BOTH PROTECT CONSUMERS WHILE
STILL ALLOWING WEB THREE
COMPANIES TO INNOVATE AND CALL
CALIFORNIA HOME. WE BELIEVE
THERE ARE NUMEROUS USE CASES
THAT CAN EMPOWER LOCAL
COMMUNITIES AND SHARE CALIFORNIA
AND THE LEGISLATURE'S VALUES AND
WE LOOK FORWARD TO FURTHER
DISCUSSIONS ON THAT FRONT. UM
WHEN LOOKING AT A REGULATORY
FRAMEWORK FOR US, IT IS OUR HOPE
TO WORK WITH THE LEGISLATURE TO
CREATE A LICENSING REGIME THAT
IS TAILORED TO SPECIFIC PRODUCTS
AND DON'T GO AFTER THE
TECHNOLOGY ITSELF, WHICH, AS WE
HEARD AND DISCUSSED TODAY, UM
YOU KNOW, PROVIDES A LOT OF
CONSUMER BENEFITS, INCLUDING BUT
NOT LIMITED TO TRANSPARENT. SEE
CONSUMER EMPOWERMENT AND. WE
BELIEVE IT'S CRITICAL THAT WE
RECOGNIZE CRYPTOCURRENCY IS NOT
THE TECHNOLOGY. UM AS A
CALIFORNIA BASED ORGANIZATION.
WE BELIEVE CALIFORNIA VALUES
HAVE A UNIQUE OPPORTUNITY TO
LEAD THAT BALANCE OF STRONG
INNOVATION AND CONSUMER
PROTECTION AND ECONOMIC
OPPORTUNITY. WE LOOK FORWARD TO
WORKING WITH THE LEGISLATURE
WITH THE CHAIR AND OTHER
STAKEHOLDERS. UM, TO STRIKE THAT
RIGHT BALANCE. THANK YOU VERY
MUCH. GOOD AFTERNOON DANIEL
CANDLE KAISER ON BEHALF OF THE
CALIFORNIA LOW INCOME CONSUMER
COALITION. WANT TO THANK THE
CHAIR, THE SENATOR AND ALL THE
MEMBERS FOR THIS VERY IMPORTANT
DISCUSSION. SO AS OF LAST YEAR,
AS WE KNOW THERE WERE MORE THAN
18,000 DIFFERENT CRYPTO
CURRENCIES BEING TEST DRIVEN BY
CONSUMERS. AND WE SAW MORE THAN
OUR SHARE OF REALLY GRISLY
ACCIDENTS. SO TO SPEAK. UM WHAT
WE NEED, UH, WE DESPERATELY NEED
ARE MORE SAFETY FEATURES
SPECIFICALLY FOR THE KINDS OF
INDIVIDUALS THAT ARE SERVED BY
CLICK MEMBERS, UH, BY OUR LEGAL
AID PROVIDERS, UM, WE NEED
CALIFORNIA TO RETAIN ITS
LEADERSHIP ROLE. AND, UM, AGAIN,
UH, PROVIDE CLEAR RULES FOR THE
ROAD FOR THESE, UH, PRODUCTS
WHICH ARE INCREASINGLY USED.
THANK YOU SO MUCH. THANK YOU, MR
CHAIRMAN. THANK YOU FOR HOLDING
TODAY'S MEETING. MY NAME IS
GEORGIA. COEHLO I'M THE FOUNDER
OF A COMPANY CALLED BIT AML, AND
WE PROVIDE REGULATORY COMPLIANCE
CONSULTING TO CRYPTO COMPANIES
THAT HAVE DONE SO FOR ALMOST
EIGHT YEARS. NOW, IN THAT TIME
WE'VE WORKED WITH HUNDREDS OF
CRYPTO INNOVATORS. UH AND I'M
EXCITED BY THE ENERGY AND THE
PASSION HERE TODAY WHERE
CALIFORNIA CAN CERTAINLY LEAD
THE WAY ON CONSUMER PROTECTION,
SOMETHING NEAR AND DEAR AND
CLOSE TO MY HEART. UM, I THINK A
B 39 PROVIDES A GREAT FRAMEWORK
. INDEED, THERE'S A LOT OF
HOLISTIC APPROACH HERE TO RISK
MANAGEMENT. NOTHING UNREASONABLE
. IN MY OPINION, I WOULD CAUTION
THAT IF WE DID A ONE SIZE FITS
ALL APPROACH, WE MAY BE SETTING
OURSELVES UP FOR WHAT WE'RE
SEEING. IN NEW YORK EARLIER THIS
WEEK, IT WAS ANNOUNCED THAT IT
TORO WAS GRANTED THE 33RD BIT
LICENSE. SO BY MY MATH THAT'S
4.125 LICENSES PER YEAR. AND I
DON'T THINK THAT'S WHERE WE WANT
TO HAVE DIVERSITY, EQUITY
INCLUSION. I THINK THAT THAT
SAYS TO US THAT IT'S A BIG
PLAYERS GAME AND THAT WE DON'T
HAVE AN OPPORTUNITY FOR
INNOVATION. UH THE MAJORITY OF
OUR CLIENTS THAT WE WORK WITH
PROVIDES SOME SORT OF DIRECT
WALLET TO WALLET AND NON
CUSTODIAL SERVICE, WHICH I THINK
FACILITATES INTRODUCTION INTO
THE CRYPTO SPACE BUT DONE THAT
DOES NOT HAVE ALL OF THE RISKS
THAT WE'VE SEEN WITH F T X WHERE
YOU'RE ENTRUSTING YOUR FUNDS TO
ANOTHER PARTY. SO IT IS MY HOPE
THAT WE HAVE A REGISTRATION. AND
A AND A PERMISSION BASED LICENSE
ON THE ONE HAND BASED ON THAT
CUSTODIAL VERSUS NON CUSTODIAL
BUSINESS MODEL. THANK YOU, MR
CHAIRMAN. THANK YOU. GOOD
AFTERNOON, MR CHAIR. MY NAME IS
KEVIN TREMOR. I'M A LONGTIME
CRYPTOCURRENCY INVESTOR IN
CONSUMER. IN FACT, I INITIALLY
STARTED INVESTING IN THIS MARKET
IN LATE 2013. LIKE MANY OF MY
FELLOW INVESTORS, I'VE
EXPERIENCED THE UPS AND DOWNS OF
THIS TUMULTUOUS MARKET FIRST
HAND, I'D LIKE TO APPLAUD YOU
AND BOTH COMMITTEES FOR
CHAMPIONING CONSUMERS LIKE
MYSELF AND TAKING THE TIME TO
FOCUS ON THIS IMPORTANT ISSUE
THIS MORNING. UM THERE HAS BEEN
MUCH DISCUSSION ABOUT HOW THIS
SECTOR COULD BE DETRIMENTAL
CONSUMERS. HOWEVER I WOULD LIKE
TO OFFER ALTERNATIVE VIEWPOINT.
I BELIEVE THAT THIS SECTOR HAS A
LARGE AMOUNT OF POTENTIAL AND
PROMISE FOR CONSUMERS LIKE
MYSELF, AND I WOULD LOVE I THINK
THE LARGEST RISK CONSUMERS HAS
COME FROM IN ACTION AT THE STATE
AND FEDERAL LEVEL, AND I THINK
IT'S IMPORTANT THAT WE NEEDED
STRAIGHTFORWARD GUIDELINES AND
RULES. SO WE KNOW BAD ACTORS
WILL HELPING GOOD ACTORS
FLOURISH. AND THAT'S WHY I
APPLAUD YOU FOR INTRODUCING
MAYBE 39. WE DO DISAGREE WITH
SOME OF THE CRITICISMS THAT
CONSUMERS AND THE SPACE TODAY WE
BELIEVE THAT CONSUMERS CAN MAKE
SMART AND INTELLIGENT DECISIONS
IF GIVEN THE PROPER TOOLS AND
KNOWLEDGE. UM, AND THAT'S ONE OF
THE REASONS WHY I FOUNDED THE
DIGITAL CURRENCY TRADES
ALLOWANCE ALLIANCE. UM, WE ARE A
NONPROFIT COALITION OF TRADERS
AND INVESTORS, UM, AND THOUGHT
LEADERS ACROSS THE SPACE AND
SINCE OUR INCEPTION, WE HAVE
BEEN REALLY PROACTIVE IN TRYING
TO EDUCATE MEMBERS LIKE YOURSELF
AND YOUR STAFF WOULD LIKE TO
ACKNOWLEDGE LUKE AND MICHAEL FOR
BEING SO, UM RECEPTIVE TO SOME
OF OUR MESSAGING. UM AND YOU
KNOW, WE REALLY APPRECIATE ALL
THAT. I DO BELIEVE IT IS
IMPORTANT TO STRESS A FEW
POINTS. WHAT HAPPENED AT FT X
WAS STRAIGHT FRAUD. UM IT IS NOT
, YOU KNOW, UM, INDICATIVE OF
THEIR WIDER SPACE. UM MOST MOST
OF THE CRYPTO ACTORS ARE GOOD,
GOOD PEOPLE, GOOD ACTORS, AND
THEY WANT TO PLAY BY THE RULES.
YOU KNOW, WE SHOULDN'T BE
PAINTING WITH A WIDE BRUSH. IT'S
ON THE ACTIONS OF A FEW. UM
HOWEVER, THE SAME TIME IT'S VERY
IMPORTANT TO PRIORITIZE CONSUMER
PROTECTIONS. UM SOME OF THE LOW
HANGING FRUIT THAT I BELIEVE WE
SHOULD BE ADDRESSING BOTH AS A
STATE AND FEDERAL, UH, GOT A
FEDERAL GOVERNMENT SHOULD
INCLUDES INCLUDE RESTRICTIONS ON
CROSS COLLATERAL IZATION. WE
SHOULD HAVE RESTRICTIONS ON THE
AMOUNT OF LEVERAGE THAT
CONSUMERS CAN ACCESS WITHOUT
EDUCATION, AND WE SHOULD HAVE
PROHIBITIONS ON CO MINGLING
FUNDS. AND I WOULD LIKE TO CLOSE
BY SAYING CALIFORNIA HAS AN
OPPORTUNITY TO SERVE AS A LEADER
IN THE DIGITAL CURRENCY SPACE,
WHERE THE BEDROCK OF THE TECH
SECTOR WHERE HUB OF INNOVATION
AND WE ARE A LEADER EMBRACING
FUTURE TECHNOLOGIES AND SHOULD
MAKE SURE WE KEEP ON DOING THAT.
THANK YOU FOR YOUR TESTIMONY.
AFTERNOON CHAIR, GRAYSON. MY
NAME IS SAM. DRY MANURE COVER US
POLICY FOR A COMPANY CALLED
RIPPLE RIPPLES OF SAN FRANCISCO
HEADQUARTERED COMPANY FOCUSING
ON FOCUSED ON LEVERAGING CRYPTO
AND BLOCKCHAIN TECHNOLOGY THAT
ALLOWS BANKS, PAYMENT COMPANIES
AND FINANCIAL INSTITUTIONS TO
SEND MONEY GLOBALLY INSTANTLY
RELIABILITY AND FOR FRACTIONS OF
A PENNY HAVING BEEN FOUNDED OVER
10 YEARS AGO, WHERE ONE OF THE
OLDEST COMPANIES IN THE SPACE
AND HAVE GLOBAL PRESENCE WITH
OFFICES IN TORONTO. LONDON,
DUBAI, SINGAPORE, SOUTH PAULO.
REBEL WE'VE BUILT A NETWORK THAT
ALLOWS FOR BIDIRECTIONAL
MESSAGING, WHICH IS SEPARATE, AS
DISTINCT FROM THE UNION UNI
DIRECTIONAL MESSAGING THAT
CURRENTLY EXISTS IN THE
TRADITIONAL FINANCING SYSTEM.
AND WE USE A DIGITAL ASSET
CALLED X R P AS A BRIDGE
CURRENCY BETWEEN FIAT CURRENCY
SO PARTIES CAN CONDUCT
TRANSACTIONS NEAR
INSTANTANEOUSLY WITH FRACTIONAL
TRANSACTION FEES, ALL DONE ON A
SECURE PUBLIC DECENTRALIZED
LEDGER. ANOTHER KEY ASPECT OF
RIPPLES OUR COMMITMENT TO
SUSTAINABILITY. WE'VE MADE A
PUBLIC COMMITMENT TO BEING
CARBON NET ZERO BY 2030.
COMPARED TO BITCOIN, FOR EXAMPLE
, WHERE CAN TAKE UP TO EIGHT
MINUTES TO SETTLE A TRANSACTION.
X RP TRANSACTIONS ARE SETTLED IN
APPROXIMATELY THREE SECONDS. WE
UNDERSTAND THAT RECENT EVENTS
HAVE CAST DOUBTS REGARDING LONG
TERM VIABILITY RIPPLES OF PRIME
EXAMPLE OF A COMPANY THAT HAS
DEVELOPED A REAL USE CASE
DELIVERING REAL VALUE TO
CUSTOMERS EVERY DAY, THANKS TO
THE DIGITAL ASSET TECHNOLOGICAL
INNOVATION. WE UNDERSTAND THAT
THROUGH LEGISLATIVE PROPOSALS
LIKE MAYBE 39 YOU'RE SEEKING TO
STRENGTHEN CUSTOMER AND INVESTOR
PROTECTIONS WHILE SIMULTANEOUSLY
NOT HANDCUFFING THE INNOVATION
THAT WE AND OTHER CALIFORNIA
COMPANIES ARE DEVELOPING. RIPPLE
SUPPORTS THAT FRAMEWORK THAT
STRIKES THAT BALANCE, AND WE
LOOK FORWARD TO WORKING WITH YOU
AND THE REST OF THE COMMITTEE.
THANK YOU. THANK YOU. I'M THE
LAST ONE HOLDING THIS UP. I WILL
BE BRIEF. GOOD MORNING AND THANK
YOU FOR THE OPPORTUNITY TO SPEAK
. JERRY GRAYSON. MY NAME IS TO
PRINT PICADO, SPEAKING ON BEHALF
OF THE CHAMBER OF PROGRESS, A
TECH INDUSTRY ASSOCIATION
WORKING TO ENSURE THAT ALL
AMERICANS BENEFIT FROM
TECHNOLOGICAL LEAPS THIS PAST
YEAR WAS A TURNING POINT FOR THE
DIGITAL ASSET INDUSTRY. IT'S
CLEAR AFTER THESE MAJOR
COLLAPSES, THIS INDUSTRY NEEDS
THOUGHTFUL REGULATION THAT GIVES
COMPANIES CLEAR RULES OF THE
ROAD AND GIVES CONSUMERS MORE
CONFIDENCE. USING A COMBINATION
OF LEGISLATION, REGULATION,
EDUCATION AND ENFORCEMENT. AS WE
HEARD FROM MS WARREN ABOUT THE
POTENTIAL AND ACTUAL BENEFITS OF
CRYPTOCURRENCY, I WANT TO SPEAK
AND RECOGNIZE THAT BANKS ARE
CURRENTLY RECOGNIZING THE
PROMISE OF BLOCKCHAIN TECHNOLOGY
AND INVESTING IN DIGITAL ASSET
COMPANIES, PARTICULARLY JPMORGAN
CHASE CREATED THEIR OWN
CRYPTOCURRENCY. THAT ALLOWS
CUSTOMERS TO SAVE MONEY TO MOVE
MONEY BETWEEN THEIR ACCOUNTS.
ALTHOUGH IT IS TRUE THAT PEOPLE
UNITED STATES CURRENTLY USED
DIGITAL FINANCIAL ASSETS
PRIMARILY AS A SPECULATIVE
ACTIVITY. HOW CALIFORNIA
REGULATES TODAY WILL SHAPE THE
WAY CRYPTO INDUSTRY EVOLVES OVER
THE NEXT FEW YEARS. REGULATIONS
SUCH AS THOSE THAT REQUIRE
APPROPRIATE RECORD KEEPING RISK
COMMITTED GATIEN ANTI MONEY
LAUNDERING STANDARDS.
DISCLOSURES REQUIREMENTS
REQUIRING SEGREGATED ASSETS AND
ADEQUATE RESERVES WILL BE
IMPORTANT AS THE INDUSTRY MOVES
FROM SPECULATION. Tð
UTILIZATION. CRYPTOCURRENCIES
ARE NOT WITHOUT THEIR CHALLENGES
AND DRAWBACKS. SO WE HEARD
TODAY. WE DO. THEY DO OFFER A
NUMBER OF POTENTIAL BENEFITS
THAT HAVE THE POTENTIAL TO
TRANSFORM THE WAY WE THINK ABOUT
AND INTERACT WITH DIGITAL
ASSETS. THANK YOU. THANK YOU SO
MUCH FOR YOUR TESTIMONY, SAYING
NO OTHER PUBLIC TESTIMONY. I DO
WANT TO SAY THAT I
WHOLEHEARTEDLY BELIEVE THAT
CALIFORNIA CAN SUCCEED IN
LIFTING UP INNOVATION AND
CONTINUING TO BE THE LEADER IN
INNOVATION WHILE PROTECTING
CONSUMERS AT THE SAME TIME THAT
BOTH CAN BE ACHIEVED. I DO WANT
TO THANK EVERYBODY WHO
PARTICIPATED IN TODAY'S HEARING.
YOU CAN FIND THE MATERIALS FOR
TODAY'S TOPIC ON THE COMMITTEE'S
WEBSITE. AND I LOOK FORWARD TO
CONTINUE OUR WORK ON THIS ISSUE
. SO THANK YOU VERY MUCH AGAIN
FOR ATTENDING THE HEARING WE HAD
TODAY. THANK YOU.