The House of Representatives and the Senate took the first steps in response to the collapse of FTX this week. The Senate Agriculture Committee has announced a hearing at which the chair of the Commodity Futures Trading Commission (CFTC) will testify, while the House Financial Services Committee announced its intention to hold bipartisan oversight hearings and to take testimony from companies and individuals involved, including Sam Bankman-Fried, Alameda Research, Binance, FTX, and related entities, among others. Separately, a spokesperson from the US Senate Committee on Banking, Housing, and Urban Affairs stated that the committee would also hold oversight hearings into the FTX bankruptcy.
The committees will likely want to hear from both enforcement and regulatory officials such as the Department of Justice (DOJ), Securities and Exchange Commission (SEC), and CFTC. However, it remains unclear what, if anything, these agencies are able to say beyond what is already known (e.g., that they are investigating).
Given these likely challenges, Congress may also seek testimony from FTX’s investors and perhaps the recipients of investments from Alameda Research, lenders, and competitors, as well as industry trade associations. Perhaps most importantly, Congress will want to discuss what went wrong, current regulatory authorities, and possible legislative proposals to regulate the industry going forward.
In preparation for these and future hearings, companies across the industry may be contacted by congressional committees and/or individual members of Congress and may expect renewed focus by prosecutors and regulators. Businesses should consider how they will respond to requests for interviews, documents, and even testimony, as statements made to Congress may be used in enforcement and regulatory proceedings by federal and state agencies. A request for information in conjunction with oversight should be treated in the same way as one would treat a grand jury subpoena—that is, responded to after consulting with counsel.
Committees to Watch
The Senate Agriculture Committee, which serves as the committee of jurisdiction for the CFTC, has announced a hearing for December 1, 2022, and the House Financial Services Committee has announced that it will hold hearings, but has not set a date. The Senate Committee on Banking, House, and Urban Affairs and the Senate’s Permanent Subcommittee on Investigations (PSI) can also be expected to hold hearings and perhaps issue investigative reports and make referrals to the DOJ and other agencies.
The House Financial Services Committee will come under Republican control in January and that can be expected to result in enhanced political skirmishing with Democrats, often with business caught in the middle. PSI is the only committee in Congress which has no law-making authority but is completely focused on investigations. It is also likely that these committees will be well-staffed with former experienced prosecutors, and even detailees from the DOJ, who know how to conduct investigations.
- Treat oversight inquiries the same way you would treat a grand jury subpoena.
- Start thinking now about whether you do have exposure here and, if so, develop a strategy so that you have the benefit of time and considered judgment rather than crisis timing.
- Consult with counsel with deep experience in congressional and other government investigations who are available to respond with a view of the full enforcement landscape.