Lawmakers on Capitol Hill hold hearings into the failed cryptocurrency giant FTX
A MARTÍNEZ, HOST:
Congressional hearings into the failed cryptocurrency giant FTX continue this morning. Yesterday, prosecutors indicted FTX's founder on eight counts of fraud and conspiracy. Sam Bankman-Fried was supposed to testify before a House committee yesterday, but he's in jail in the Bahamas. So the committee's sole witness was John J. Ray III, who has helped restructure many companies, including Enron. And he called FTX one of the biggest business failures he had ever seen.
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JOHN J RAY III: This is really old-fashioned embezzlement. This is just taking money from customers and using it for your own purpose - not sophisticated at all.
MARTÍNEZ: Ray also testified FTX used QuickBooks for accounting a multibillion-dollar company. We're going to talk now to actor and author Ben McKenzie. He's a cryptocurrency skeptic, and he's testifying before that House committee today.
So, Ben, what's the biggest thing you want to get across in your testimony today?
BEN MCKENZIE: Sure. It is for the Senate. I am trying to convey that cryptocurrencies are not currencies. I have an economics degree. And cryptocurrencies cannot be an effective medium of exchange, unit of account or store of value. So what are they? Well, people put money into them hoping to make money off of them. Under American law, that's an investment contract; more precisely, a security - an investment of money in a common enterprise with the expectation of profit to be derived from the efforts of others. That's what's called the Howey Test. Those are the four prongs of the Howey Test. And that's how we determine securities in this country. And so these, quote-unquote, cryptocurrencies need to be classified properly and treated as securities, with all the applicable laws in place.
MARTÍNEZ: What raised your suspicions about cryptocurrency? What got you, like, kind of interested in this?
MCKENZIE: Well, a friend of mine came to me in 2021. This friend had given me the worst financial advice of my life a decade prior and basically encouraged me to invest in something that I think ended up being a penny stock pump and dump. And in 2021, he came back, and he said I should buy Bitcoin. And I love my friend. He's a dear friend. But that raised my suspicions. As soon as I started looking at cryptocurrency, I couldn't understand it. I am an actor by trade, and words are the tools of my trade. And cryptocurrencies not being currencies was very confusing to me. The further I went down, none of the words made sense. Decentralized actually meant centralized. Stablecoins weren't stable. I could go on and on, but it was a very strange experience.
MCKENZIE: And honestly, I just became obsessed with it.
MARTÍNEZ: And you got an economics...
MCKENZIE: That's why I'm writing...
MARTÍNEZ: ...Degree from Virginia, right? So it's like, if that didn't make sense to you, it's not going to make sense to a lot of people.
MCKENZIE: That's right. And I think the majority of the population, you know, the 80-plus percent of Americans who have not purchased crypto - I think that they almost always say the same thing when I ask them what they think about it. They say, I don't know. It seems complicated but also a little scammy. And I say, no, no, no. You got it. It's actually not that complicated, but it is scammy.
MARTÍNEZ: A little scammy - should the government have done something sooner?
MCKENZIE: Yes. This was a - pretty much a massive regulatory failure, in my opinion. And I don't want to - you know, I'm not trying to throw elbows here, but we really need to look at how crypto exploited the gaps in our regulatory structure. We're the only country in the world that I'm aware of that separates its commodities regulation from its securities regulation, has basically created rival agencies competing over jurisdiction. I think that's one of the issues. I think the fact that these companies are mainly headquartered overseas - you know, FTX is run out of the Bahamas - and yet had access to American customers - I think that's problematic. I think there's a number of issues that we need to address.
MARTÍNEZ: Ben, you've been critical of the celebrities and influencers who promoted FTX and then made a profit off of those endorsements. Do you think they should be held accountable somehow?
MCKENZIE: I think they should look within their hearts and ask whether they ought to give that money back to the people from whom it was stolen.
MARTÍNEZ: Can Larry David, though, claim that he - you know, at the end of that commercial, he said, I don't think it's going to work. Can he claim, like, hey, I - I knew it all the time.
MCKENZIE: He can claim whatever he wants. I would ask them just to look inside their hearts and think if they've done the right thing or not.
MARTÍNEZ: That's Ben McKenzie. His book, "Easy Money: Cryptocurrency, Casino Capitalism, And The Golden Age Of Fraud" is out next summer.
MCKENZIE: Thank you so much. Transcript provided by NPR, Copyright NPR.