In a commentary published by Fortune on Dec. 12, authors Omid Malekan and Brian Whitehurst challenged the crime-related labels that many officials have placed on cryptocurrency. They argued that while the unique nature of cryptocurrency presents challenges for regulators, it does not warrant such negative characterizations. Malekan is an author and adjunct professor at Columbia Business School, while Whitehurst serves as head of regulatory affairs and regulatory counsel at Lukka, a blockchain data solutions firm.
According to Malekan and Whitehurst, "It [crypto] has operated in a legal and regulatory gray zone, but not for any nefarious reason. Its unique approach to ownership and settlement poses a challenge to rules written for a different kind of financial system. A more objective look shows that most of the activity labeled as crypto fraud is just regular fraud that happens to involve crypto. The vast majority of actual crypto activity is, and always has been, fine."
The authors compared the perception of fraud in crypto to a widely-reported plane crash while likening fraud in traditional finance to "the countless car crashes that kill far more people." They also pointed out that the majority of value held in crypto is legitimate, with scam tokens representing only "a small minority of digital assets." Using FTX's case as an example, they highlighted how fraud within the industry has been unfairly blamed on crypto rather than on individuals or entities involved.
Malekan and Whitehurst also discussed recent high-profile enforcement actions in the crypto industry involving Coinbase, Kraken, and Bittrex. They clarified these cases do not involve allegations of fraud, but are rather registration issues resulting from a lack of regulatory clarity. In discussing Binance's case—the world's largest crypto exchange—they noted its inadequate know-your-customer (KYC) and anti-money laundering (AML) protocols could occur at any intermediary. They cited Wells Fargo as an example.
Earlier this year, Wells Fargo reached a billion-dollar shareholder settlement after deceiving shareholders about regulatory progress related to its fake-account scandal. The authors contrasted this with Binance, which they said "has never been accused of misappropriating client funds, but it gets portrayed as being worse than a major bank that defrauded shareholders to cover up the severity of how badly it defrauded customers."
Malekan and Whitehurst urged regulators and policymakers to address the "relatively small number" of digital asset-related scams without condemning the entire crypto industry.
In a separate report, Leo Schwartz wrote in Fortune Crypto's "Proof of State" newsletter that Sen. Elizabeth Warren (D-MA) introduced the Digital Asset Anti-Money Laundering Act to address allegations of illicit activity in crypto. Warren's proposed legislation recently attracted five new cosponsors, but a similar bill in the House is failing to gain bipartisan support. U.S. Rep. Sean Casten (D-IL) expressed his intentions to introduce a version of the legislation in the House but has yet to find a Republican member willing to do so.
