[Congressional Record Volume 168, Number 198 (Tuesday, December 20, 2022)]
[Senate]
[Pages S7790-S7791]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                             Cryptocurrency

  Mr. DURBIN. Mr. President, I come to the floor very briefly to make a 
note of an article that appeared this morning in the Chicago Sun-Times. 
The article relates to an opportunity that Terrence Duffy, who is 
currently the chairman of the Chicago-based CME Group, the Chicago 
Mercantile Exchange--Mr. Duffy, in his testimony before Congress and 
the Senate, has commented on the situation with the cryptocurrency 
exchange known as FTX and its former head, Sam Bankman-Fried.
  We are all aware of what happened here. This is a situation wherein 
an individual capitalized on the cryptocurrency craze and became a 
billionaire. He was a young man who struck a different pose than most 
financiers. He spent his time wearing T-shirts and playing video games 
when he wasn't making millions of dollars with his crypto investment.
  Many people were unfortunately drawn into his portrayal of what 
cryptocurrency could result in and lost their shirts. Mr. Bankman-Fried 
went from billionaire to bankrupt in a matter of 72 hours.
  The question is, Should America have seen this coming? Should we have 
done more? That raises serious questions.
  The purpose of entering this article into the Record is to make note 
of the fact that Terrence Duffy, with the Chicago Mercantile Exchange, 
forewarned us of this possibility.
  The Chicago Mercantile Exchange is a major part of the economy of 
Chicago, of Illinois, and of the Midwest. It is an industry that has 
been established over decades, and it is a regulated industry. One 
might get the impression that regulation and success in business are 
antithetical, but in this circumstance, the Federal regulation of the 
Chicago Mercantile Exchange not only gives assurance of its integrity, 
it also enhances its reputation around the world--a lesson that the 
cryptocurrency world might learn.
  If we are going to lead the world when it comes to financial 
investment, we have to assure the world that it is on the square, and 
the Commodity Futures Trading Commission, for one, which has the 
regulatory authority over the Chicago Mercantile Exchange, has set out 
on that mission successfully for decades.
  I wanted to note the fact that when he appeared before the U.S. House 
Agriculture Committee in May, Mr. Duffy warned us about the dangers 
that were inherent to the FTX enterprise. He said at one point that he 
believed the proposal that Mr. Bankman-Fried was making to create his 
business model was fraught with dangers. Mr. Duffy called it at the 
time in May a ``risk management light'' that could destabilize 
financial markets involved in cryptocurrency.
  I am a member of the Agriculture Committee, and we may have some 
element of jurisdiction over this cryptocurrency industry as it relates 
to commodities. We have had one hearing wherein the chairman of the 
Commodity Futures Trading Commission came before us and made a 
presentation as to why he believed we had an opportunity and an 
obligation to regulate. I agree with him. If this cryptocurrency world 
is to continue with any credibility, it needs adequate authorization 
and regulation to make sure that the people who are investing in it are 
protected.
  I have written two separate letters to Fidelity--a major financial 
house in Massachusetts--and raised questions as to their assertions 
that people should be allowed to include cryptocurrency in their 
retirement accounts. I am skeptical of an account, when you should be 
making conservative investments for your future, that enters into this 
high-flying cryptocurrency world, which, as we see from the experience 
of FTX, is fraught with danger.
  There is a great effort underway by the cryptocurrency world to 
become major players in American politics. I discovered, much to my 
surprise, weeks after I had raised questions about the future of 
cryptocurrency, that FTX and Mr. Bankman-Fried had, in fact, 
contributed to me.
  I was asked by a reporter: Have you received any contributions from 
this enterprise or industry?
  I said: Of course not.
  Then I looked to find I had. They had sent money unsolicited by me 
and unknown to me until 2 weeks ago. That money, of course, is going to 
be redirected to charitable enterprises and not to a political purpose 
for me or any of my staff.
  It is an indication, though, that they have more money than friends 
in the cryptocurrency world and that they are trying to make sure they 
have plenty of friends in Congress and on Capitol Hill. It is the 
nature of our political campaigns that a massive amount of money is 
invested and spent. Oftentimes, candidates can't keep up with the blur 
of contributions and expenditures. Well, that happened to me when it 
came to FTX and Sam Bankman-Fried, and I think it might have happened 
to others.
  So let's take care. If we are going to do our duty for the American 
people, we have to regulate this industry in a way to protect them from 
the disastrous results which we recently saw with FTX.
  Mr. President, I ask unanimous consent that the Chicago Sun-Times 
article be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                      [From the Chicago Sun-Times]

 CME Group's Boss Spotted Early Trouble at Crypto Exchange FTX Run by 
                           Sam Bankman-Fried

                           (By David Roeder)

       Sam Bankman-Fried, who sold himself as a T-shirt-wearing, 
     video-gaming whiz kid disrupting all things financial, has 
     been arrested in the collapse of his FTX cryptocurrency 
     exchange.
       It's shaping up as the biggest scandal roaring through the 
     markets since Bernie Madoff's Ponzi scheme and, irrespective 
     of Bankman-Fried's guilt or innocence, it's making a lot of 
     supposed sharpies look very bad.
       They include funders such as Chicago-based private equity 
     firm Thoma Bravo, the Ontario Teachers Pension Fund and 
     Sequoia Capital. Sequoia published a glowing profile of 
     Bankman-Fried weeks before it wrote off the value of its 
     investment with him. It described how he Played League of 
     Legends while on a call with the firm, taking that as a good 
     thing. By some accounts, federal regulators were quite late 
     on the case.
       Many FTX backers issued statements after its Nov. 11 
     bankruptcy about the rigor of their vetting processes. It's 
     puzzling how so many people with advanced degrees and 
     powerful computer programs missed what John Ray III, the 
     executive brought in to clean up the mess, called ``just old-
     fashioned embezzlement. This is just taking money from 
     customers and using it for your own purpose.'' Ray told 
     Congress customers may have lost $8 billion.
       Clearly, none of the backers listened to early warnings 
     from a Chicago business executive who knows something about 
     risk management.
       Terrence Duffy is the chairman of CME Group, the largest 
     futures exchange in the U.S. It's the amalgam of the Chicago 
     Mercantile Exchange, the Chicago Board of Trade, the New York 
     Mercantile Exchange and other assets. He sounded alarms about 
     possible problems with FTX early on and said in March he 
     called Bankman Fried a fraud to his face.
       A week after the FTX implosion, Duffy went on the On the 
     Tape podcast to elaborate on the conversation. It started 
     with talk of a business deal but quickly turned sour when 
     Duffy said it was clear FTX had no plan to isolate risk in 
     crypto trading. ``I said, `Your model is crap. Why would I 
     deploy a model that's going to introduce risk to the system?' 
     '' Duffy said on the podcast.
       At the time, Bankman-Fried was said to be worth $26 
     billion. As Duffy recounted it, ``I said, `My net worth 
     doesn't start with any b's. I'll give you a 3 to 1 that I 
     have more money than you.' I said, `I'll tell you what, I'll 
     give you a 4 to 1 I got more money in my right pocket than 
     your net worth.' I said, `You're a fraud, and I'm going to 
     make sure that we get this out there.' And that was it. So we 
     went to Congress.''
       It sounds like a South Side guy talking. Duffy is among the 
     longest-serving chairmen in Chicago business, having gotten 
     there without a wealthy background or an MBA. He grew up in 
     Mount Greenwood, where his parents had a floral shop. He 
     tended bar, including at She-nannigan's on Division Street, 
     thinking of becoming a cop or firefighter.
       His parents mortgaged their house so he could lease his 
     first membership at the old Merc in 1981. He once said he 
     paid them back in two years. On the trading floor, he made 
     connections and earned people's trust. After serving on the 
     exchange's board, he was named Merc chairman in 2002 and has 
     led it through its absorption of the Board of Trade and 
     transformative growth.

[[Page S7791]]

       He testified before the U.S. House Agriculture Committee in 
     May about FTX's dangers with Bankman-Fried sitting next to 
     him. Both were clearly uncomfortable.
       Duffy's written testimony was jargony but carefully laid 
     out what he saw as deficiencies in FTX's operation compared 
     with futures markets, which has several levels of protections 
     against trading defaults. CME Group calls the protections its 
     ``default waterfall'' on its website.
       Duffy said futures trading firms hold $173 billion to cover 
     trading risks. FTX was proposing an algorithm that would in 
     stages liquidate accounts depending on how prices fluctuated. 
     ``The proposal as put forth is fraught with dangers,'' Duffy 
     said. He called it ``risk management light'' that would 
     destabilize financial markets beyond crypto.
       Since that hearing, the FTX story has gotten worse. Federal 
     prosecutors have charged Bankman-Fried with running a brazen 
     scheme to apply customer funds toward real estate purchases 
     and political contributions and to cover losses at Alameda 
     Research, a crypto hedge fund he founded. Bankman-Fried has 
     admitted his operations lacked basic financial controls but 
     denied an intent to defraud.
       Ray, who worked on the Enron case, described the alleged 
     fraud as years in the making.
       Why do people fall for this stuff? Chalk it up to ego, lazy 
     due diligence and that bane of money managers, the fear of 
     missing out.
       Investors and regulators should have taken to heart Duffy's 
     clear-eyed Chicago view. Tending bar and making your mark on 
     the old trading floors can qualify you to spot trouble ahead.

  There being no objection, the material was ordered to be printed in 
the Record, as follows:

  Mr. DURBIN. I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Michigan.