January 28, 2023

Volume XIII, Number 28

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Senator Wyden Seeks Information from Crypto Exchanges Regarding Their Financial Stability and Customer Protections in the Event of Bankruptcy

On November 29, U.S. Senator Ron Wyden (D-OR), Chairman of the Senate Finance Committee, sent requests for information to the CEOs of six of the largest crypto exchanges. The requests seek information about the safeguards each exchange has put in place to protect customers’ assets in the event they file for bankruptcy or otherwise experience financial distress.

Chairman Wyden’s inquiry comes on the heels of bankruptcy filings by FTX, one of the largest crypto exchanges, and several other crypto platforms. His requests note that FTX’s bankruptcy, in particular, has reportedly left close to one million customers facing significant losses of their assets.

Media reports have also suggested that insufficient controls may have caused or contributed to FTX’s collapse. To that end, Chairman Wyden is seeking information from the exchanges about their implementation of safeguards designed to protect customer assets, including, but not limited to:

  • Segregation of customer assets from institutional assets;

  • Restrictions on the use of customer assets for purposes other than those specifically disclosed to customers;

  • Controls designed to ensure adequate liquidity in the event of increased customer withdrawals;

  • Policies and procedures designed to prevent potential market manipulation, including wash trades;

  • Policies and procedures designed to prevent the misappropriation of customer data by officers, employees and affiliated entities engaged in institutional or personal trading; and

  • Support for industry initiatives and/or legislation to create protections for customers, such as an industry-funded insurance fund.

Chairman Wyden is also seeking information from the exchanges about their financial condition, including their current balance sheets and audited financials, as well as information about any insurance policies carried by the exchanges that could benefit customers in the event of bankruptcy, theft or hack.

Chairman Wyden has previously expressed concern that strict regulation of crypto assets could unnecessarily hamper innovation. His inquiry suggests that Members of Congress who previously supported lighter regulation for crypto assets may be spurred into action by recent events.

© Copyright 2023 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XII, Number 335
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About this Author

Rachel Rodman Corporate Litigation Attorney Cadwalader Washington, DC
Partner

Rachel Rodman is an experienced litigator who focuses her practice on defending banks, specialty finance companies and other financial services institutions in investigations and enforcement actions by federal and state agencies, supervisory actions and consumer protection civil litigation. 

Rachel has significant experience in government investigations and litigation relating to consumer financial products and services. She regularly represents depository institutions, finance companies and other market participants in enforcement and supervisory actions by federal banking...

202-862-2210
Kendra Wharton, Washington, Associate
Associate

Kendra Clayton is an associate in Cadwalader's Washington, D.C. office, where she is a member of the White Collar Defense and Investigations Group. She advises clients in white collar criminal, regulatory, and compliance matters, including alleged violations of the federal securities laws and the Foreign Corrupt Practices Act. Prior to pursuing a legal career, Kendra worked as a legislative aide in the United States Senate.

Kendra received her J.D. from the Georgetown University Law Center, and her B.S., magna cum laude, from the...

202 862 2333
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