Attorneys general urge Senate to reject crypto regulation bill

New York State Attorney General Letitia James is leading a bipartisan coalition urging the U.S. Senate to reject a major cryptocurrency bill, warning it would limit states' ability to oversee the securities and commodities market. The Senate is poised to hold a procedural vote Tuesday on whether to move forward with the so-called CLARITY Act, which would create a new federal regulatory framework for the $2.3 billion cryptocurrency market. But in a letter to the co-chairs of the Senate Committee on Banking Sens. Tim Scott, R-SC, and Elizabeth Warren, D-MA, James and 16 other AGs called on the committee not to approve the current version of the CLARITY Act "unless and until the states' powers to police the market and protect investors are fully preserved." The five-page letter urges senators to "expressly preserve the police powers of the states and ensure that the states remain armed with the tools necessary to protect the American people from predatory scammers." "As the epidemic of online scams continues to grow, we remain firmly opposed to any federal statutory changes that would displace states' authority to oversee the securities and commodities markets to protect everyday Americans," they wrote. "Enforcing our laws against those defrauding investors in our states is an important function and an essential complement to federal authority." Others who signed onto the letter included Kansas Attorney General Kris Kobach, a Republican, and New Jersey Attorney General Jennifer Davenport, a Democrat. A key concern for the attorneys general is that the proposed regulations would blunt state enforcement powers, which they said have been a "critical weapon" in fighting the "epidemic" of online scams in the cryptocurrency ecosystem. They cited more than 330 anti-fraud enforcement actions against cryptocurrency scammers initiated by states, that shut down fraudulent websites and schemes, "securing justice for victims, and prioritizing cases where the victims had no federal, private, or other recourse against the scammers." "In each of these cases, there are individuals throughout America who lost money," they wrote. "The unfortunate truth is that pernicious actors continue to target unsuspecting Americans, particularly as AI allows them to create fake websites, chat with potential victims, and create worthless cryptocurrency tokens with ease." The attorney general said while the proposal gives states some regulatory authority to prosecute fraud, "the language is often ambiguous, unclear, or confined in ways that either create the opportunity to challenge state police powers or outright deprive the states of their ability to continue to combat the scam epidemic." "Even though states will prevail in enforcing laws that are not preempted, the benefit of the litigation and delay caused by ambiguity accrues to bad actors," they wrote.