This past Monday, Democrat legislators pushed regulators to start to once again examine SoFi Technologies, a bank holding company that owns its own cryptocurrency exchange platform.
Extreme skepticism surrounding the financial services company takes place in the wake of FTX, another large cryptocurrency platform, officially filing for bankruptcy after its users discovered that another trading firm, Alameda Research, pulled out millions in deposits in order to make various investments, spawning a massive liquidity crisis. Sam Bankman-Friend, the former CEO of FTX, was in control of both companies and pushed Caroline Ellison, an ex-girlfriend, to be the leader of the latter.
As sitting members of the Senate Banking Committee, Sen. Sherrod Brown (D-OH), Sen. Jack Reed (D-RI), Sen. Chris Van Hollen (D-MD), and Sen. Tina Smith (D-MN) all banded together to request that Anthony Noto, the CEO of SoFi, hand over information about standard compliance with banking laws and determinations concerning appropriate levels of exposure to digital assets.
“Over the past year, several meltdowns in the crypto market have wiped out trillions in value, including another huge crash last week,” expressed the lawmakers stated in a letter addressed Noto. “We are concerned that SoFi’s continued nonbank digital asset trading activities pose risks to consumers and safety and soundness risks to your institution.”
SoFi was given permission from the Federal Reserve to carry out operations as a national bank at the start of this year, highlighting that the cryptocurrency unit of the company must finally be divested or pulled entirely into compliance within a period of two years of the original approval. “We are concerned that SoFi’s continued impermissible digital asset activities demonstrate a failure to take seriously its regulatory commitments and to adhere to its obligations,” continued the legislators.
In the wake of his massive fortune vanishing seemingly overnight as the company chose to file for bankruptcy, Bankman-Friend is attempting to get $8 billion from his investors to deal with the large number of withdrawal requests issued by customers. FTX CEO John Ray III, one of the attorneys managing the bankruptcy proceedings for the company after formerly representing plaintiffs hurt by the shutting down of Enron, stated via a court filing this past week that he had never in his career “seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information.”
The group of four legislators issued another letter to officials at the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, calling on the officials to further monitor SoFi and many other groups that take part in cryptocurrency activities.
“As we saw with the crypto meltdown this summer, where crypto-assets lost over $1 trillion in value in a matter of weeks, contagion in the banking system was limited because of regulatory guardrails,” explained the letter. “In the event of crypto-related exposures at SoFi Digital Assets ultimately require its parent company, bank holding company, or affiliated national bank to seek emergency liquidity or other financial assistance … taxpayers may be on the hook. Your agencies have publicly acknowledged these types of crypto-related risks.”