Sam Bankman-Fried’s Shadow Loomed Over Congress’ First Crypto Hearing Post-FTX Collapse

Less than a month after the stunning collapse of the crypto exchange FTX, Congress held its first hearing on Thursday on what Washington should do amid the fallout. Senators called for swift legislative action to safeguard consumers but many disagreements still exist over the shape of those actions. Debates will likely continue for months on how, exactly, crypto should be regulated in the U.S.

The hearing was hosted by the Senate Agriculture Committee, and didn’t feature the person at the center of the FTX saga: CEO Sam Bankman-Fried, who is expected to testify at a House hearing later this month. The only person invited to testify on Thursday was Rostin Behnam, the chairman of the Commodity Futures Trading Commission (CFTC), an agency that regulates derivative markets and is among those lawmakers are considering tasking with reining in the freewheeling world of cryptocurrency. Behnam pressed the Senate to give his agency oversight of most crypto markets, calling for “comprehensive market regulation.”

However, Behnam’s testimony was complicated by his close working relationship with Bankman-Fried over the last year. And the bill that Behnam and other senators advocated for on Thursday was the same one championed by Bankman-Fried himself, raising many eyebrows.

Here are the main takeaways from the hearing.

Senators are divided over the path to take on crypto

Many of the senators who spoke on Thursday emphasized the need for some sort of action following the FTX crash. “The risks of trading crypto have come into sharp focus in the past few weeks,” said Senator Debbie Stabenow, a Michigan Democrat, who co-led the hearing with John Boozman, an Arkansas Republican. “The lack of clear consistent rules has allowed crypto to flourish despite the harmful conflicts of interest, an absence of responsible governance and risk management and a failure to safeguard customer assets.”

Many senators voiced support for the Digital Commodities Consumer Protection Act, a bill sponsored by Stabenow and Boozman and aims to give the CTFC greater control over crypto. But another bill from Senators Kirsten Gillibrand, a New York Democrat, and Cynthia Lummis, a Wyoming Republican, the Responsible Financial Innovation Act, is competing for attention. And many other crypto bills are floating around in the House, all of them proposing different levels of involvement by the US government in a financial world that has quickly amassed hundreds of billions of dollars in value.

Many members of Congress are still struggling to understand exactly how cryptocurrency works. Some senators on Thursday, including Republican Senators John Thune of South Dakota and Roger Marshall of Kansas, raised the possibility of at least temporarily banning crypto in the US altogether, though it was unclear if they understood how such a ban would work. “Do you ever consider that there should just be a pause in this cryptocurrency digital world until we get our arms around it?” Marshall asked Behnam.

“I don’t have the luxury to sit back,” Behnam responded. “No matter what, whether it’s in the US or offshore, these markets are going to exist.”

Senator Elizabeth Warren, a Massachusetts Democrat who is often a leading progressive voice on regulations, was not present at Thursday’s hearing, but will likely present formidable opposition to any bill that is remotely friendly to crypto: At a Senate Banking Committee hearing this week, she called FTX “not much more than a handful of magic beans.”

The CFTC wants control over crypto

At the moment, the CFTC is jockeying for regulatory control over crypto with the Security Exchange Commission (SEC) and other agencies. Thursday’s hearing gave Behnam a chance to make the case for his agency, which is much smaller than the SEC and often perceived as much more crypto-friendly.

Behnam refuted this idea on Thursday: “If individuals took a harder look at our record, they would understand we’re the farthest thing from a light-touch regulator,” Behnam said.

Behnam sought to distance himself from Bankman-Fried, who has served as the main face of crypto on the Hill. Bankman-Fried said on Wednesday at the New York Times’ DealBook summit that he spent “hundreds, probably thousands of hours” in Washington trying to secure meetings with regulators. Bankman-Fried, along with former FTX Digital Markets CEO Ryan Salame, also contributed tens of thousands of dollars to lawmakers on the Senate Agriculture Committee for their election campaigns this year.

Behnam admitted at the hearing to meeting with Bankman-Fried ten times over the last couple years in his office. But he said that the meetings were related to FTX’s “dogged” pursuit of a proposal that would let investors make sophisticated bets with borrowed money directly on FTX instead of through a broker. The proposal was highly controversial, with detractors arguing it could destabilize markets. “We did not have flexibility to put it on the side of the desk or disregard it…knowing the importance of the issue and the very strong feelings on both sides,” Behnam said.

Senator Cory Booker, a New Jersey Democrat, also sought to distance Bankman-Fried from the Digital Commodities Consumer Protection Act, which Bankman-Fried publicly supported. In October. Bankman-Fried tweeted in October that the bill would “provide customer protection on centralized crypto exchanges.”

“It’s been widely discussed in the media that the Stabenow-Boozman bill is an SBF bill,” Booker, who co-sponsored the bill, said. “Sam Bankman-Fried did give a lot of feedback, as did many others, from industry, academia, from the policy community, and beyond.”

Behnam said that the bill would have to be “strengthened” in the wake of the FTX crash, including with regard to conflicts of interest and the financial information cryptocurrency exchanges should be required to disclose.

Some are skeptical that Congress will do anything

While Behnam and some senators used the hearing to push hard for the Digital Commodities Consumer Protection Act, the bill has received criticism from both crypto supporters and skeptics. Crypto supporters worry it will heavily restrict the sprawling crypto ecosystem known as decentralized finance (DeFi). Miller Whitehouse-Levine, policy director of The DeFi Education Fund, told TIME in a phone interview that “I don’t think this hearing is indicative of momentum behind the DCCPA. If anything, I think it has added much more to think about in the next few months.”

Crypto detractors, on the other hand, argue the bill lacks teeth in protecting customers from shady practices and that the CFTC might be the wrong agency to police it. Americans for Financial Reform released a letter in September arguing that the CFTC was too small and ill-equipped to regulate the crypto market.

Dennis Kelleher, the president of the advocacy group Better Markets, went a step further, arguing that the CFTC should be investigated over “how much access influence Sam Bankman-Fried bought” at the agency. He points to one strategy FTX took of hiring a slew of former CFTC officials, including Mark Wetjen, Ryne Miller, and Brian Mulherin.

After Thursday’s hearing, Kelleher expressed frustration that it had unfolded “as if the FTX blowup didn’t happen.”

“When something like this happens, typically you have an overreaction of elected officials of the need to crack down on the industry,” he says. “Instead, this hearing is to push a bill that was endorsed and pushed by FTX.”

The hearing was the first in a series of congressional meetings about FTX. The House Financial Services Committee will hold a hearing on its collapse on Dec. 13, and expects Bankman-Fried to testify there. As congress mulls whether to pass legislation, federal agencies including the CFTC, the SEC and the Department of Justice (DOJ) have reportedly launched investigations of FTX.