>> thank you. >> that concludes that panel. but thank you all very much for evidence it has been very informative, and thank you -- >> this civil war in syria and how turkey relationship with ethnic kurds complicates the u.s. role in the region. ... we knew we have to get people on board. we also had to interrupt how they caught. challenging people in our own moment sometime.

do not use it to say other communities matter but to really focus on black people and be of solidarity. watch afterwards on c-span to book tv. a hearing on efforts to regulate virtual currencies. with the securities and exchange commission. on actions taken by their agencies. it's just under two hours. the committee will come to order.

this morning we will receive testimonies from sec chairman. and cft chairman chris giancarlo. on the growing world of virtual currencies and what is shown in their two currencies. type of money that can be traded . we are used to purchase goods predominately online. they are selling virtual coins or tokens to initial coin offerings also known as ico's to raise capital. especially given that meteoric rise in valuation. just for perspective on january it broke the $1,000 barrier and then peaked in december of 2017 as of this morning is trading at roughly

$6,900. the market capitalization is a roughly $115 billion. this is an incredible rise and given that in 2013 when this committee have subcommittee topics was about $5 million. they had been more wide spread. they have noticed invoiced their opinions. they make informed decisions and ensure that the markets they oversee and participate in working up appropriately. the sec has put forth many expectations. mainly they had issued investor bulletins. an investigative report on what characteristics make a security offering.

issued several statements on the issue. brought enforcement actions against fraudsters and issued joint statements about virtual currency products. they have also been helping and form the markets might launching a dedicated website. bringing enforcement actions against the vigils. issuing several statements by others on the issue. in scheduling hearings on the topic. much of the recent news about virtual currencies has been negative. between enforcement actions brought by your agencies the hack of the international coin check exchange in the concerns raised by various regulators and market participators there is no shortage of examples this also is important to know that the technology innovation

and ideas underlying these markets present significant positive potential. these aspects have the ability to transform for investors the composition of and the ability to access the financial landscape. thus changing and modernizing capital formation and transfer of risk. technology is forward-looking and we look to our regulators to continue carrying out their mandates. including investor protection as markets involve. i look forward to hearing more and learning more about virtual currency oversight. including what their agencies are doing to ensure appropriate disclosures and safeguards for investors. senator brown. welcome. good to have you both here. virtual currencies have captured the attention of investors and speculators in the computer programmers and regulators all over the world.

and i know how many people imagined how quickly and broadly that that would spread. is nothing short to most of us ever markable to be sure it's critical for our regulators to understand innovation and technology so that markets can grow and evolve while investors and consumers are protected. understanding the risks of emerging technologies is no easy task but we are relying on you to maintain that integrity of these new markets. the volatility of bit coin has also been a remarkable define attempt to think of it as a traditional currency it is 1000% rise last year at 60% decline last night -- makes last month and the price drop around in the air. but that growth is shown as the intersection of ingenuity and to afferent greed. sometimes it appears that scam artists and hackers may understand more about the

technology than most market participants. that should concern all of us. i hope our witnesses today to help us understand evolution of the markets related to virtual currencies raise awareness and the many threats and identify their regulatory gaps. recently explaining the threats to investor protection and the potential to abuses and virtual currency markets. i understand neither the fcc or the tfcc has the authority to police all of those. but you must make the most of the authority you have. bit coin mania has summoned now. i hope there are lessons from that era you draw on to do your job to protect investors. in addition it may be used to find illicit activity especially outside of the united states. i know the regulatory framework in other countries it's still in development and i'm pleased that the u.s. has been a leader but we can do more.

i hope the chairman agrees with me that the committee needs to look closely at the gaps in regulation in this area and to review our agency's ability to get ahead of the curve. as you begin to adapt to the unique enforcement and those opposed by currency. don't forget your day jobs to pursue and punish the conduct or traditional misconduct. very serious misconduct wherever it might appear and also means wall street. i'm concerned it's business as usual when it comes to violations by the big banks. the cftc imposed penalties on three big banks. then decided those firms needed waivers under the securities law. that might make sense of this was an isolated incident. something like 68 violations

over the last ten years. it's very serious. too often we see a big banks pay fines and move right along the violators won't stop breaking the law. i wait -- raise the issue of waivers. it is clear that virtual currencies and bring bring us into a new age but that does not mean we overlook the basic principles of going after the bad guys and being tough when they are repeat offenders. thank you mister chairman. >> think you senator brown. we will turn to the testimony of our witnesses. gentlemen again we welcome both of you here and we appreciate you coming to share your knowledge and understanding on this issue with us. chairman clayton you may proceed.

the distinguished senators of the committee. i think you for the opportunity to testify before you today. on the important topic of crypto currencies the total market capitalization was estimated at $700 billion earlier this year. in 2017 initial coin offerings raised nearly $4 billion. these are local, national and international. i will attempt to level set where we stand on the regular tory perspective. they might be viewed as overly simplistic but they reflect how i present these issues. for ease of analysis i break the space into three categories. first, a promising new

technology referred to as a distributed ledger technology or a block chain. proponents of the technology assert that it will bring great efficiencies to our national and global economies included our capital markets. i hope that it does. and the commission looks forward to working with market participants included a more effective oversight to our markets. the second and third categories are crypto currencies and ico's which are subsets of the products seeking to take advantage of the commercial opportunities presented by block chain technology. one is promoted to be up replacement for dollars. some of them more widely known were introduced as a substitute for traditional currencies such as the u.s. dollar or the euro. those who promote these virtual currencies have asserted they will make it easier and cheaper to buy and sell goods. particularly across borders. they have asserted that transaction and verification and ease and easing cost will be eliminated or reduced to date these have proved elusive

in many areas. initial coin offerings are security offerings. their interest in companies much like stocks and bonds under a new label. promoters use the term coined on an electronic ledger as compared with the stock certificate and the related injury in the company's records. if it functions at a security. it is a security. also importantly they may have nothing to do with the distributor ledger technology. it does not mean you are investing in black chain related ventures. there are many problems with the way that they are operating. but to our worst particular attention. first, the markets for these products had substantially less oversight than our traditional securities markets.

to be blunt if you are trading crypto currencies on the platform that looks like a stock exchange do not take any comfort from that look. our stock exchanges have expensive rule sets in the air required to conduct surveillance. also broker-dealers have capital and conduct requirements. these requirements and others without a doubt are necessary to protect those markets and our investors. second, many ico's are being conducted illegally. the other participants are not following the security laws. some say this is because the law is not clear. i do not buy that for a moment. the analysis is simple. are you offering a security if so you have a choice follow our private placement rules or conduct the public offering a note for professionals in these markets.

be a security they are squarely within the crosshairs. what are we doing about these problems. i look forward to discussing with you that question in more detail but we will start with a comment on jurisdiction and enforcement. we do not had direct jurisdiction over the popular markets that trade through crypto currencies. this is not an oversight as a result of a new product and market the traditional markets did not need direct regulations. they are sovereign backed and regulated with a long history. crypto currencies on the other hand have no seven backing sovereign backing or oversight and again to be blunt are currently functioning as assets for trading and investment much more than as mediums for exchange.

if ask we will work with other regulators to evaluate and address this issue including our friends at the fed. they all have a keen interest in this market. to the extent that digital assets are securities and i believe every ico is security. we have jurisdiction. we will enforce these laws many of them also include private rights of action. we are working with the doj and other regulators to enforce these laws. thank you for the opportunity to testify before you today and i stand ready to work with congress on these issues and look forward to this. and distinguish members of the committee. i have submitted a written statement for the record that

details the cftc work in authority over the virtual securities. it is is a slightly different perspective and that is as a dad. i am the father of three college aged children. a senior, a junior in a freshman. during the high school years we tried to interest them in financial markets my wife and i set up a small brokerage account . other than my youngest son who own shares in a videogame company we have not been able to pique their interest in the stock market. they are not much different than most kids their age. something changed in the last year. suddenly they were all talking about bit coin. they were asking what i thought and should i buy it. one of their older cousins was telling them about it and they got all excited. i imagine that may be members of this committee may have have some similar experiences into your own feelings as of late.

we owe it to this new generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response not a dismissive one. and yet we must crackdown hard on those who try to abuse the enthusiasm with fraud and manipulation. and we much -- must thoroughly form ourselves. we must make good policy choices and put in regulatory framework to reduce risk for consumers. i suggest that the right response has at least several elements. the first is to learn everything we can we had forged a new initiative. to engage with these innovators and inform the agency about virtual currencies and other financial technology. next is to put things in perspective. as of 8:00 a.m. this morning the total value is about a hundred $13 billion.

that is less than the market cap of one large publicly traded company mcdonald's. the total value of all of those in the world is about $313 billion. in comparison to global money supply is around $7.6 trillion. because it's sometimes compared to gold as an investment asset the value of all the gold in the world is around $8 trillion. which dwarfs the size of the virtual currency market. the next task is to tell the public what we learn and educate consumers there is a lot of noise around virtual currencies and regulators must help set the record straight. they had produced a large amount of consumer education materials including written statements podcasts webinars and a bit coin website.

we had even scheduled visits to libraries and briefings for seniors. we've never conducted this must outreach for any other financial product. another element as regulatory is regulatory coronation. because no one agency is direct authority. we have to work together. that includes us the sec the fed the irs the treasury network and even state banking officials. and the next element is to exercise the legal authority like trade reporting and market surveillance. the capital requirements and even a cyber protections or platform safeguards if these are all standard regulations in the futures market we oversee.

through our authority over commodity driven markets we do have enforcement power over spot point markets. and with newly launched bit coin to futures you can now obtain data for that manipulation and five underlying spot markets. and that leads to the final element and the is tough enforcement. led by the virtual currency we had launched several civil actions over the last few weeks cracking down on fraudsters in manipulators in more will follow. i want to quote something that they said in the wall street journal. they require us to be nimble and forward-looking and cord needed with state, and federal colleagues. with important stakeholders including congress. i'm glad to be with you today and i hope my kids are listening thank you very much.

i will begin the questioning. first i will say i've have those dinner conversations with my own children. and you're right. this is an incredibly interesting but growing new area of financial challenge. particularly among my children and yours. both of you has set in one way or another that neither of you or your agencies had complete jurisdiction over crypto currencies whether you have sufficient jurisdiction and i would like both of you to address that question. should congress address revising and refining our financial law so that one agency or a group of agencies had complete jurisdiction's or

if you look in the at the jurisdictions of all agencies do we have sufficient jurisdiction in place today. you're always cautious about speaking for other agencies. we should all be there to come together and be there the federal banking regulators there are states involved in swell. they look at the virtual currency platforms and assume that they are regulated in the same way we don't need to have additional legislative authorities.

i think that's a very good way to put it senator. i think that is exactly right. is able seven different ways what we call the spot market for a bit bit coin is not a regulated marketplace. for us at the cftc we are familiar with that because we generally don't have regulatory supervision over the spot markets. that is a long-standing basis that we regulate. we surveilled and we will take enforcement action but we don't have the ability to set the standards on most markets. he also doesn't have that jurisdiction.

i think the starting point for the informed conversation as there is that. there are other elements to that. their other agencies that come to bear on this. the state regulators there is a patchwork across the nation. there has also been active in the area in terms of money laundering and know your customer requirements. there is a patchwork here but there is not comprehensive structure. it is an important one to be head. you've led to my next question. much of the currency is cross-border. the international nature of

this market is why a patchwork is probably not sufficient if it's going to continue to develop as a significant market. there are reports that we all have heard that this currency are used for illicit activity and since and has been stepping up in that regard and i encourage them to continue to do so. in the challenge of global markets is a challenge that i think we face now in many regards in the 21st century. with the internet. we certainly had that challenge. as a result of the regulations together. it is really a tremendous challenge for all of us. and in this area it requires a

lot of new thinking. i appreciate your remarks from both of you in this issue. i would encourage you to form that work group. and evaluate what are regulatory structures should look like in america to deal with this. let us know your further thoughts on that. i appreciate that. i see you last year with the initial coin offerings. you have suggested white they have focused on policing those transactions. how much of that was raised in the u.s. this has been conducted is been conducted on largely an unregulated basis but i imagine senator a significant

enough portion where we should be paying attention. my understanding during the last few months. that speaks volumes about the work. we both talked leading to you. about agencies working together. and the importance of that and other issues. your testimony highlights cooperation between the chair. regulating other currencies. with the consumer financial protection view hero. however he been accorded you been accorded in your work specifically on this on this area largely through the stock. i believe i have made it very clear my views in this area

and that this is an area that we should all be on the lookout for from each of our perspectives is member. they've heard my comments there. on an enforcement perspective we don't see that on the security side of that. i'm not aware of any direct coordination on a particular enforcement action but i could check on that. in the past few months. it has been fined over $300 million by other regulators from various forms of manipulation. they had been quiet under the watch. one study by a georgetown law professor found the sec is quote often referred to as wall street firms. how do we have confidence that they are willing to hold wall

street accountable and the trends in penalty when it's going the wrong way. i actually saw that report. it probably does not come to a surprise. i found annoying. it annoying. to be honest. i did not reflect the fact that the cases that we break is roughly 22 to 24 months. any type of statistics necessarily have a latency. to them our enforcement vision put out a report. it talks about the numbers in the competence of way. i'm happy with that report. i'm also happy and confident that the people that are in our foursome and delete division many of them former federal prosecutors two of them heads of the securities task force they are pursuing our security laws vigorously.

i have no doubt. they come to work every day and they have my full confidence. i believe you when you say that. i remember the last sec and it was not there how they were asleep at the switch. as the chair of the government and they used to tell me watch us and let us know you are watching us. by a statement of one of the enforcement code directors last fall. that they might lose a hundred of their enforcement staff by not replacing those who leave compared to 2016 figures this would reflect the 7% reduction in headcount. so how are you can stay on top of that and the other enforcement and all of the other areas that we just talked about to be able to fight traditional misconduct.

that is personnel. my biggest challenge at the moment. we have a hiring freeze as a result of natural increases in cost hiring freeze and people retiring or taking other jobs. it reduces the size of the workforce at the sec. i could use more people and enforcement i could use more people in trading and markets. those are the two areas where i think at the american people would get the greatest return for additional bodies. when you come in front of us. and tell us that you're having trouble filling those jobs isn't that message those who want to game the system and those who want to defraud the system. it is not the cup in the

paint. the message that somehow we are asleep at the switch absolutely not. i hope the budget is enough. i hope you will speak to us. i think i've been very straight on the incremental amount of money. you are chairman of two powerful regulatory bodies. anything that smacks the security comes somewhere in the range does it not.

with the commodity. something that could be deemed us commodity. the federal reserve is the biggest bank regular that we have and also the treasure is involved in this. can you do it on your own through the administration he have the fed in the treasury. and perhaps some others that we haven't thought about. before this gets out of control somewhere in the world by recognizing the treasury secretary. he has brought us together and the representatives of the federal reserve. the funny thing about these crypto currencies is the only work if they have their

purported purpose. the virtual currency working group and the fed we've have a number of preliminary conversations and work streams developed i've have a number of bilateral conversations. we are all clear as to what were doing. do you have the answers that both of you can get can you work a task force together to get your arms around us without that?

i cannot give you a definitive answer to that question because we should work together. we may be back with our friends from treasury they give you a virtual examination in my day. they lack value it seems to me they lack liquidity. i don't know where the bottom is. if the bottom was ever reached has opposed to a sovereign issue currency. do you disagree.

i don't know where the natural equilibrium point is in this. there are some economists that there is a relationship between bit coin value and the difficulty or the cost of mining. as a process of reducing these and that there are some charts i have seen that it plotted the correlation that seem to be correlated to where the price broke free of that correlation and it came back into correlation late at the end of the year last year. i'm not an economist. i find those things fascinating but i met an expert at this. the point they are making is there is some sort of floor

there tied into the cost. i'm just sharing that with you. look, there are a lot of smart people who think there is something to the value of the crypto currency. i'm not seen those benefits manifesting themselves in the marketplace yet. and from the perspective of protecting main street investors. they should understand that. does the market put a value on it or does it go astray straight up or straight down. in our world the securities world they dictate how many we

to tell some. he has seen obviously your mandate is to watch the commodities. the market integrity is generally perceived to be our court mandate. there is a hiring freeze. we talked the other day about this. in the realm of appropriations and so forth. i'm hoping that we will give you every tool we need to do your job into higher and the people that you need to execute that. thank you gentlemen for your testimony. and following on the questions

we do need more personnel. but very specifically. specifically do you have that technology that can begin to understand and not just on a day-to-day basis to give you the temperature. but look ahead and say this is the direction it's going. it could have very sick if against effects. the answer to your question as we formed a crypto currency working group. they have done an exceptional job getting up to speed on this in a short amount of time. and identifying some of the very issues you talk about. in an emerging area like this. could you use more horsepower always.

trying to understand where it's been a land. and doing the things that people say add up. that is a very important word. where are the technologies located. we have what is a combination of the technology. does it make economic sense. the same question. we have done a couple of things we hired the agency's

first ever animation officer. they come with a deep background with a lot of the new technology innovations. it is our innovation hub. in your ask where is it located. so much of the innovation is taking place there. we wanted to be close to the innovators to learn from them. in terms of protecting consumers we formed of virtual currency task force. it recently brought civil actions against those. as i said in my testimony there is more to come. and then to the resource questions. we do need more research. and built into those resources are additional resources let

me just elaborate a bit. this is just one crypto currency they seem to meet proliferating that every day there is a new variety of that. based on the same technology. just the sheer expansion of these in the crypto currencies is an issue into my time is short. are you tracking all of these different emerging currencies and it goes back to my setback question is reminiscent of the late '90s in derivatives. they were and nominally

anomaly is small. and then ten years later thank you very much. you're absolutely right. it is one of many however of the many there is a handful of significant traction. so many of these are fraudulent and we went after one and just mentioned it because i think it's interesting. called my big coin by people that were defrauded by it. and we went after them and went after them hard. we will continue to do that. right now this is still a relatively small market despite ratio but as you say

we have to watch it and watch it carefully. they had direct jurisdiction. but we've had to watch it. i have a hard time getting my have around it. they fluctuate in different places. on that systemic. i agree with that. they go and wrap the questions.

allowing an public offering. i'm happy to address the question. we are out of time on that right now. the pen and pencil that we begin with as well. and we did not had a quill at that time. but we did have number two lead. as i learn more about this think it's fascinating to see how quickly things are moving.

they suddenly talk about a new type of exchange. it sounds almost like bartering to me. i'm bartering that could avoid the determination of the value in dollars and cents which brings up the question of how do you tax it if you need to recognize income but also in this particular case i noticed both of you identified that you have existing resources in regulatory oversight capabilities that you are utilizing today. and while i question whether or not there seems to have to be filled it would appear that some basics that a lot of us don't quite understand. i just want to start out. we started with this discussion. with regard to the issue of whether or not you have control over and ico. and the fact that if they were issuing in this particular

case bit coin or the opportunity to market it. you had identified it as a stock or at least a value of something. what is that thread that you utilize once again and can you delve into that once again. or how your agency response to the regulatory need in this case. what is a specific item that you look at as being an item which is subject to your review. the definition of a security is brought. india includes the technical term. if you are offering me a security i give you money into the purpose of me giving the money. as to profit from the efforts going forward. how to take the money and grow

a business. by the way you can trade it to someone else. he probably will get by with it tomorrow. commodity rise you would not have an interest in the subject of investigating or reviewing the trading of the egg commodity. we are talking about a different story. where commodities are more certainly and item of interest to you. our these currently being traded. are they a commodity or are they a security or are they both.

what is so challenging about bit coin as it has characteristics of multiple different things. bit coin is a medium of exchange or a means of an account. they have different connotations to them. as we have seen a number of means of its change. a conference that stopped accepting bit coin because they cannot process the payments. it still spoken of. in that case it has implications from the fed in currency from our point of view when it is used as a store of value that's very much like an asset or a commodity.

people buying and holding if you go on to the twitter universe. hold on for dear life. the 30-year-old niece. and she is an ho dl. i want to hang onto it. and she's not there. she's just a kid. she believes in it. and i think she represents a lot of folks that there's something and this i in this i want to hold on to it. in that regard from our point of view it's a commodity. if there is it derivative on that we regulate it. and the cash market we don't have regulatory authority but what we will do and we are doing is looking for the court manipulation. people like my niece can have some security.

there are two any of them. thank you gentlemen. at january 26. they published an article. they wave a big gift to companies. how they can hold companies accountable when they defraud people. and the article said the sec is thinking about letting companies sell shares in initial public offerings while at the same time allowing those companies to prohibit investors from bringing class action lawsuits against them. wow. forcing investors to give up

class action when they had been defrauded. they have never allowed the corporations i just want to get a straight yes or no answer from you on this. do you support this enormous change in sec policy. i think you know that i can't pre- judge an issue that may come before the sec. but i would be happy to talk too. i can't dictate whether this issue comes before us or not because of the way that comes up for the sec and the past. that's actually not right.

i'm only one of five votes. and you at best will be a deciding vote. it would take a long time for it to be decided because it would be the subject of a great deal of debate. this is not an area that is on my list. what i'm reading is real skepticism. it's to protect investors and not to not to throw them under the bus. i can't think of anything that would do more harm to investors and saint they have to pre- wave there rights.

like i said is not a change that is good. that is the fiduciary role. financial advisors who put the high fees the commissions the kickbacks for recommending a specific product i head of the intercept of the clients cost hard-working americans trying to say for their retirement about $17 billion every year. that's why president obama and the department of labor put that rule in place to eliminate these conflicts of interest in retirement accounts now less than a month after you were sworn in as chairman of the sec you issued a request for interest mission asking for public comment related to the standards of conduct can you state to this

committee that any rulemaking you do on this topic will not weaken the existing protections for retirement savers. see. >> i'm making an absolute statement like that. you are not going to waive the rules for people trying to save for their retirement. we have a rule from the department of labor. you can strengthen the rule. i want to know that you're not going to weaken the rule. the relationship between investment visor and there deal in a very simple area

they all had different standards but my main objective is to bring clarity to that without jeopardizing investor protections. whether or not you are jeopardizing and the protection that they're trying to save for their retirement. clarity is what is a right now and it's cost investors saving for their retirement $17 billion a year. a combination of an insufficient standard in some places which we are looking to increase a lack of clarity and also the standard is only as good as the remedy available. and one of the things that i'm also looking at believe me what dollars and you actually collect when something has done you wrong.

that's a problem. i agree with you. if you want to strengthen enforcement of this rule or strengthen the rule itself coming in. but that's what the american people look to the sec for. i want to change the subject just a little bit back to bit coin or crypto currencies. we see ipos and tax in jurisdictional arbitrage and you guys see that today in this developing crypto currency by the way who pays for frivolous class action law seats --dash mac lawsuits. -- lawsuits. customers, employees and all of the above. regulatory arbitrage is one of

many issues that i see in this market. to be frank tax laws and things like that are there of course they are difficult to trace. they are the ones that play in this. most of the current investment south korea and china are very heavily invested. if the use real name bank accounts in order to trade in this. is it really going on around the world here. there is certainly regulatory arbitrage. this was a unregulated space across the world. and know what you are seen as each country taking a perspective of your action which also is that asset class

there is a lot happening that is beyond the understanding of your average investor. i understand there is interaction between all of our regulations. that is the other country regulators as well. i'm asking both of you what are you seeing and what are you anticipated we need to do to combat that. two areas which is regulatory. we are also seeing price arbitrage as well. there is so much interest there that it drives the price up there slightly higher. .. ..

>> i think some time ago, perhaps the middle of last year, that bitcoin was off the regulatory grid and one thing that chairman clayton and i have been working so hard to do is to dispute that notion. we're limited in our regulatory authority to set regulatory standards under the platforms, but when it comes to enforcement, when it comes to ico's, we're using full authority to drive the message. other countries are doing that as well. i spoke recently -- or had communications with the head of japan agent of things going on there, and mr. clayton spoke

eloquently in bozell, switzerland and i think the message is getting through, this is not off the grid and i think part of that is now, you're seeing it in the bitcoin price. as the word is getting out that we will go after misconduct, i think you're starting to see that reflected in the price and i think that's an important step. >> well, with the time that we have left, with the pump and dump and you see this getting involved. can you address what your agencies are doing to combat that? >> this is one of the things that i'm worried that investors don't understand, when you have an unregulated exchange, the ability to manipulate prices. >> right. >> goes up significantly. and you know, just a few coordinated sales can change a price. >> as far as on e-mail. >> i've mentioned we formed this virtual currency

enforcement task force. i mean, we've got some really good people on this and as we brought three actions in the weeks more to come. we're digging deep and learning a lot and seeing a lot and i don't want to get ahead of that, other than to say that we are working hard right now. >> and you have a jurisdictional right to do that. >> we have enforcement jurisdiction, yes, we do. >> thank you, mr. chairman. >> senator donnelly. >> thank you, mr. chairman, thanks to both of the witnesses. this would be to both of you. now that the sec and the cftc have asserted jurisdiction and what warned the public of the risks of virtual operators, what else can you do to prevent them falling victim? >> i'll be glad to take this. earlier ranking member brown

mentioned what do we do cfpb. we've formed a partnership in the education in the area of bitcoin. one of the things you've learned recently is that america's libraries are a place where a lot of people go and research bitcoin and they use the library computers, one of the most frequently searched items from a library computer is bitcoin. so, we're teaming up with cfpb to go out to america's libraries and educate librarians who often get questions asked to direct patrons to use resources and our bitcoin website and other resources, so we're getting creative in the area of consumer education, i've mentioned we've got several pod casts on the puckett, which are with thousands of downloads, we are working as hard as we've ever worked, we've never done as much work on consumer education as we've done with virtual currency. >> we also have an office of

investor education that have been engaged with a number of groups and they've done a terrific job at getting the word out. in terms of like getting the word out though, there are financial intermediaries and other actors that we're counting on to act responsibly in this area. >> let me ask you a follow-up. it goes to the point you made about the libraries and others. are you concerned that retail investors will remain vulnerable to fraudulent and manipulative on-line solicitations that are sometimes more difficult for you guys to pick up? >> senator, in the broad range of marketplaces, seniors seem to be the choice, the target of choice for fraudsters and manipulators. whether it's in precious metals, whether it's in foreign exchange, whether it's in a whole range of products, we see and we prosecute continuously

fraudsters who seek to prey on either the less sophisticated seniors who maybe don't have quite the retirement nest egg that they need and fall prey to get rich quick schemes or that they'll guarantee 100% returns or nonsense like that. it's a big part of our enforcement effort. >> let me ask you this, in this goes to perspective and to hopes and dreams, but what warnings would you give? there's an article in "the washington post" yesterday and it was about good hard-working americans, people who have worked really hard and want to have a pension. it's about a group of our friends and neighbors were kentucky and the title of the article was bit coin is my potential pension. what would you-- what would you say to them to help protect them from winding

up in a situation a few years from now, it didn't quite work out the way they were hoping? >> it's such a troubling development, senator, unquestionably, which is why we're putting out so much materials. what i would say then, it's the same advice i'd give my children. if it sounds too good to be true, it is. if they're promising a ridiculous returns, they're ridiculous. if you are-- you're going to give them money you'd better be prepared to lose it. you know-- >> i agree with everything that chairman giancarlo said. i would say that there are disruptive technologies that come among. but they shouldn't be disruptive-- pumping all of your money into

a disruptive technology has a high likelihood of not working out for you as an individual. when we see disruptive technologies come along, there will be winners, but there will be many losers. that's the way it works. >> let me ask you one other question. how can both of you assist law enforcement and the federal authorities to ensure these virtual currencies are not used by terrorist groups or nations like north korea to evade sanctions? >> so, we worked very closely with law enforcement. we recently commenced the program with the fbi, but we actually had fbi agents, with our agency in order to look at this. at the end of the day the use of the cash markets for that, it's going to require multiple agencies, who because of the anti-money laundering can see

these before we can and bring our expertise to bear and coordinate with our law enforcement agencies. >> same here, i would supplement that with we also have a dark web working group that tries to monitor what's going on in that space in order to identify these issues. >> senator kennedy. >> thank you, mr. chairman. welcome, very. i think you're both doing a terrific job. chairman giancarlo, when is the last time you bought a stock, exchange traded fund, a mutual fund or a bond? >> so, i hold generally traded funds. >> when is the last time you bought one. >> well, probably before i pretty much put my investing-- >> a year ago?

>> well, probably before i started at the commission. >> two years ago. >> yes. when you bought it, what did you buy, an equity or bond? >> index funds mostly. >> index funds. >> when you bought it did you sit down and proceed the prospectus for the index fund? >> well, you know, i'm not-- as a lawyer i'm not supposed to say i probably didn't read it cover to cover, but i will confess that i didn't read it cover to cover. >> how many investors do you think did that, don't read it? >> i think most. >> okay so, what's the point? i mean, we're talking about all the dangers and the risks of cryptocurrencies like bitcoin. i'm putting aside the schyster fraud issue. what's the point of all of this overdisclosure if nobody's reading it? >> well--

>> and why do we want to do the same thing with bitcoin? >> historically it's been one of the foundation al principles of our securities laws that adequacy of disclosure, full disclosure is one of the building blocks. i will tell you that having been in business, most business tell you they study the prospectus only to see what they can sue on if they need to sue on if something goes wrong. >> i think you see where i'm going. i'm going to ask you both a philosophical question in a second about how far you think we ought to go to protect people from themselves. but i don't think the disclosure we have right now works. i think it's good for the lawyers and it's good for the financial advisors, but i think we overdisclose. and i don't-- i think you can-- i'll bet you each have smart

lawyer on your staff, you could go to them and say, write me a good disclosure for bitcoin. and you would get it back and look at it and then pick 50 names from the washington d.c. phone book and ask them to come in and say read this and tell me if it makes sense to you. i mean, what's the point? >> how far do you think we ought to go here in terms of crypto currency? i'm separating this from the black chain technology. china outloued -- out lawed it and i think south korea, too. do you think we ought to go after-- >> i think that's the question that we're here to pose and take forward, which is, what is

the right way to deal with this new technology? i' i'm not as a person watching it, i'm not satisfied when i see people thinking that these trading platforms of cryptocurrencies have the same kind of protections that a stock exchange would. and that people are offering public stocks and they should be following the placement rules unless they're registering with us. those things make me unhappy and figuring how to deal with them is why we're here. i agree with you, we should not go too far. but to be clear, for me in the ico base, it's clear when people are violating our securities laws work pretty well, disclosures could be improved. it could really be improved. >> let me make this suggestion, i don't want to go over.

last time i asked questions, i got a little carried away. now, i think i went over three minutes and our ranking member put me on double secret probation. i'm not going to do that today. >> i have the power to do that. >> he does. the disclosure, i mean, you can extend the disclosure we have now to bitcoin and you haven't done anything. i'm not suggesting we shouldn't have disclosure, but you've got to have a disclosure that makes sense and helps people other than the lawyers. >> i agree, senator. >> senator warner. >> i usually agree with my friend from louisiana, but i think we may be on top of something that is transformational and i don't think you can separate the underlying distributed ledger or block chain from some of

these crypto-assets. and if we looked-- if we had the same rate of increase that we've-- the next two years that we've had the last couple of years we're talking now a couple hundred billion we'd be at north of $20 trillion caught up in this area by 2020. and i just -- i think you-- i remember i was lucky enough to get in the cell phone business in the '80s and everybody thought it was a small business and they were wrong and i got rich. i think we're going to see the same transformation take place and we're going to have to wrap our arms around and we've got consumer protection, money laundering issues, cyber security issues. and some of the bitcoin exchanges have been hacked. i'm not sure what the right regime ought to be, but i would argue that, well, i commend the

treasury secretary putting a working group together, this is the reason that we created in the first place, that this rises potentially to the level of a systematically relevant event and i'd just be curious whether you believe, and i commend what both of you are trying to do -- but whether this ought to go to a level analysis. sir, i had the same question you had which is there's a big rise here. if it does keep going, is this a systemic issue, which is one of the reasons we brought is up at fsoc. and commend the treasury secretary for the working group. i want to celebrate ico's and cryptocurrency. ico's, we should regulate them like securities. end of story. >> i have a few more questions.

sometimes what we're not seeing is an ab accepts of disclosure, it's false disclosure. false disclosure is often fraud and we need to step in there. in terms of discussion, chairman clayton mentioned we have begun discussions and in addition there have been discussions led at the financial stability board and the international organization of securities commissioners, so these discussions are taking place at the right levels and so much more to be done. >> and crypto-assets and crypto-currencies and you've got a whole new platform where they're creating, you know, file sharing or extra computer time. i'm not sure what those fall into. are they potentially regulated within your realm? or is it there is a trade, a trading exchange, a tokenization exchange between

excess computer time? i'm not sure where that fits at this point. >> the definition of a security, i believe, the people who wrote the 34 act and the 33 act. they were smart. they did it on a principle basis and they basically said, if you're giving people money in exchange for a future development of a business with the hope of a return and whether that return comes in the form of server time or your ability to sell server time, it's a security. >> and i concur with the approach you've taken in terms of ipo's and i think there's been very bad behavior yet, certainly the sec has not stopped. others they have stopped. and if i would go back and review the ones that have gone forward. >> let me say something about the 33 and 34 act. when they were written, there was recognition there was a

tremendous amounts of securities action in this country and we were going to rely on gate keepers to enforce those rules, accountants, lawyers, underwriters, sellers and the like. i'm counting on those people to do their job and i've made that clear. >> let me ask chairman giancarlo, what we did-- and one of the i think so i'm concerned about, i think we may have moved too fast on allowing, for example, futures trading on bitcoin. and i just wonder, you've allowed future trading contracts on bitcoin and yet the sec has not allowed etf's. i'm worried that need a more coordinated effort because rit large with cryptoassets could be as transformation as as wireless years ago. i know my time expired, but if

you could comment on that i'd appreciate it. >> it's important that we coordinate. i believe that we're all both individually and collectively understanding our authorities, understanding this new technology working around it. there was communication amongst myself chairman clayton, the treasury secretary and others in connection with bitcoin futures. bitcoin futures have-- are quite different than the bitcoin market. bitcoin is an anonymous area. bitcoin futures is fully transparent to the regulator. bitcoin retail, bitcoin futures, mostly institutional and high net worth. bitcoin futures regulated. bitcoin futures regulated. bitcoin unregulated. with the coin futures we're having visibility into underlying spot markets and data from those markets we would not otherwise have. >> completely agree on coordination. like i said, i break it down

into three areas, there's this great technology that i agree with you has promise. there are these pure cryptocurrencies which we need to take a look at across treasure, sec, fed and securities offerings called ico's that should be undertaken as securities offerings consistent with our regulatory regi regime. >> senator cotton. >> thank you. and thank you, gentlemen, for your appearance today. i want to continue on the line of questioning that senator warner began. so putting aside bitcoin or other kinds of cryptocurrencies based on block chain or distributed ledger technology, what are your thoughts for the underlying value of the block chain and distributed ledger technology, both to enterprises and consumers and perhaps to government agencies?

>> it's important to remember that if there were no bitcoin, there would be no ledger, it grew out of that. and the potential applications or ordinarily i'm no pie in the sky dreamer, i report what i read, but the applications range from enormous potential in financial services industry and the banking industry, but right down to the way charity dollars are spent, the way perhaps refugees are accounted for across the globe, there was an article just this morning about use of the distributed ledger technology for two and a half billion people around the world who don't have access to banking services. one of the areas that, in our own area of agriculture futures, 66 million tons of american soy beans were just handled through a block chain transaction by the dreyfus

company for sale to china. so bitcoin is used, it's used in our american transportation and logistics system. and potentially for regulators to be able to do really close market surveillance and if it had been available in 2008, if we had been able to see the counter party credit exposure from one bank to another bank in real-time with precision, that would have made much policy changes made without a rush to good data. i think it's got enormous potential. how it will be realized. when it will be realized and those we can't say, but the potential seems extraordinary. >> i agree that the potential seems very significant and just look around anywhere in our economy where verification and record keeping has cost and potentially reduced is an opportunity for this technology and that's just one of them and

i hope that people pursue it vigorously. >> let's turn our attention now to cryptocurrency and bitcoin the most prominent. yesterday the dow jones had the largest drop, 4.6%, which is high, not the highest ever and generated a lot of news conference. the dollar has faced 2% inflation or less now for many years. bitcoin, however, is seeing a 32,000% increase in its value. the last five years it's declined by some 60% in the last 30 days. what are the factors driving that kind of extreme price volatility in bitcoin relative to u.s. securely traded companies or the u.s. dollar. >> the volatility we've seen in bitcoin is not as much as other asset classes, the vic, the

fear index or volatility gauge. we've seen extreme volatility in bitcoin, but in our world, in commodity derivatives, we're used to volatility in asset classes and that's one of the things that the merchants of the futures product is meant to do is to provide those who are exposed to that volatility a means of hedging and mitigating the risk to that volatility. >> mr. clayton. >> i don't really know what's driving the volatility in bitcoin and cryptocurrencies. they're not correlated with sovereign currencies, so it must be something different from what would drive the dollar. but that's one of the issues before us is there does appear to be a lot of volatility compared to the medium there is supposed to be a substitute

for. >> so, what does that kind of volatility portend for cryptocurrencies future as alternative to legal tender, transnational organizations? >> you raise a great point. now, maybe that volatility tamps down to a stable, but an asset that's highly volatile is not a very effective means of exchange because you don't know how much you're getting by the time you receive it or how much you're paying at the time you have to pay it. if you agree with a price on day one, and you have to source it on day ten, you expose yourself to significant risk. >> thank you. my time has expired and i want to expose myself-- cryptocurrencies for terrorist organizations not just in trading, but hacking as well and we've seen media reports from north korea. i'm glad to hear you're working

closely with our law enforcement and intelligence agencies and i hope that continues, thank you. >> senator menendez. >> thank you, mr. chairman, it's good to welcome a fellow new jerseyen in your role, mr. chairman. i have ben actively following both venezuela and russia's interest interest in developing virtual currencies for the purposes of evading u.s. sanctions. last month i sent a letter to secretary mnuchin on this subject and i talked to the expect a few weeks ago when she was here for the committee. under what circumstances would the cftc would have a role in engaging or regulating a proposed new petro or crypto-ruble currency, what role do they play in preventing the use of digital currencies to avoid u.s. sanctions? >> our jurisdiction would be

very limited in that area, senator. as i spoke about before, we have in the area of fraud and manipulation, if we thought that instrument was being used for fraudulent purposes we would not hesitate to take authority. but you're probably touching on an area where the jurisdicti jurisdictional lapse is probably greatest for the two agencies sitting before you today. >> so, let me ask you, manipulation. what if you're manipulating to avoid u.s. sanctions? >> you know, i'd have to speak to our enforcement, but we would certainly look at it-- >> i'd like to have you do so and love to hear back through the committee. are you interacting with finsen to that the integrated into the financial regulatory network

that watches for illicit activity. >> as we mentioned before, dharm clayton and i are part of a multi-currency task force put together by the treasury secretary that includes the fed and finsen and we've already had our first meeting, beginning meeting to set up work streams. we will have more to come. it so happens that i'm meeting with the virtual currency team this week on a previously scheduled meeting to get some introductory discussions started that we-- of cooperation between our agencies and for other folks to ask them this question as well. i would say to both of you, to the extent that you have a role to play and you lack the present authority to do so, i would love to know about that if you determine it's necessary because i guess my sense of cryptocurrencies largely driven

to evade u.s. sanctions and to undermine sovereign currencies, that both of them are challenge to the national interest of the united states. let me ask you this, we've seen initial coin offerings, and companies are using digital tokens instead of going through the capital market and the initial coin offerings grew from about 96 million in 2016 to over 4 billion in 2017. many of these ico's are relying on celebrity promoters to gin up sales. last year floyd mayweather used instagram to promote. we've seen kardashians use their status with a card to sell products to customers at a steep cost. and this is the next avenue of exploitation and i worry about

unsuspecting investors that don't have the resources to understand the true risk. what can the sec do to better protect investors who may be persuaded by celebrity promoters for token offers, without fully understanding the risk? >> senator, i'm not going a comment on a specific instance. >> broadly. >> sometime ago we put out an alert that said if you're promoting securities, you're taking on securities law liability. i believe that that has tamped down some of this endorsement activity. i will say it again right here, if promoting securities, you're potentially taking on securities law liability. >> well, let me ask you, i appreciate that and i hope that you will think about doing more to protect consumers. can you walk us through why the sec at this point is not comfortable with approving

etf's with significant cryp cryptocurrencies? >> ours is a largely pre tail product space. we've made it clear to the marketplace that there are a couple of issues with having an etf that's based on a cryptocurrency. they go to price discovery, custody and you know, some other issues around volatility. we've let the industry know that those are issues that are of concern to us and that we don't want to approve an etf product with a crypto currency underwire until we can get comfortable with those issues. >> thank you. thank you, senator moran. >> mr. chairman, thank you very much. i'm sorry you have to crane your necks to the left so hard to have a conversation with me, but i'm delighted to be back on the committee, mr. chairman, thank you very much. let me first start by suggesting to you that if you have suggestions, i will

probably not have the chance to see you in the financial services appropriation subcommittee before we look at fy 19. assuming that we're successful in the next few days on fy 18 and budget caps, we'll have an opportunity to reconsider spending levels for fy 18. you've made your requests through the appearance through the subcommittee. if there are priorities as we go back to potentially increase funding with any level of jurisdiction within fsgg. i would welcome your input to the highest priority. i heard the commentary earlier in regard to one of the questions, i think, to senator reed was, the hiring freeze has created challenges. i don't know that we can overcome that, but if it's personnel in a particular way or other things, it would be useful for me to know. >> thank you very much. and our-- i didn't want to get ahead of the process and our fy 19

request reflects the sentiment i've expressed today. >> i don't know na we'll see the fy 19 request before we're taking a look at potential increase in funding for fy 18 depending when the president's budget is released. i don't need it today if there are any suggestions you'd like to convey to me. the issue of-- you may have answered this question right now with senator menendez, chairman clayton. but doesn't the-- you indicated why you were reluctant or unwilling at the moment to approve an etf proposal. but doesn't etf's just as options do, on its exchange, reduce the-- mitigate the concerns, reduce the volatility and increase price discovery and reduce risk? so additional products. my question is really, don't additional products help alleviate some of the

challenges we face or is bitcoin or cryptocurrency so unique that it's different than other items that are traded on exchanges? >> i think that the cftc product has that effect. it's largely an institutional product and you can take both sides of the market and you know, it gives people a chance. etf's, you can take both sides of an etf, but predominantly they're offered for a long investor, someone who wants exposure to the rise and fall of bitcoin or other currencies, just as it would. and that's a different dynamic than a futures product and we've long taken an investor protection view of approving those types of products. which is embodied in our liquidity and pricing rules. if we get comfortable with those rules, then we can move

forward. >> let me raise a different topic than cryptocurrency. one of the things that i've tried to pay attention to and often in cooperation with the senator from mexico, senator udall, trying to modernize our i.t. system, particularly within the federal government. and you indicated, chairman clayton, about the 500 million dollar loss in a japanese cryptocurrency in your written testimony. we've now passed as part of the national offense authorization bill what's labeled as ngt ac act-- mgt act. modernizing governmental technology, to rid themselves of their legacy technologies and have access to dollars to replace that legacy and encourages moving to the cloud, again, with the opportunities for us to have better

technologies and safer technology systems to reduce our vulnerabilities. i just would encourage you, you have a lot at risk in the safety and security of the data that you hold. and i'd welcome your reassurances that i'm sure you'll tell me that you're spending many millions of dollars and working diligently and you have the right personnel in place, but i would guess if we asked agencies of the federal government who have been hacked themselves, and whose data has been released, they would have told us the same thing prior to that occurring to them. i'd be, first of all, delighted to be reassured that we will not be reading in tomorrow's paper or next month's papers that there's been a hack at cftc or sec, and then secondly, i would just offer you the opportunity to take a look at that legislation and see how it might be of benefit to your

agencies. and to suggest any idea that you would have for what congress can do to further strengthen cyber security within your worlds. >> thank you. >> you're welcome. >> thank you very much. >> mr. chairman, thank you. >> thank you, senator cortez. >> thank you. gentlemen, thank you. i apologize, i had another committee hearing going on at the same time, but i appreciate your written comments and the conversation today is so important, and as somebody who from nevada and worked on consumer protection issues, obviously, weeding out any type of fraud is important in this space as well. so, let me though start with a couple of questions that i have. i understand that companies that originated outside the cryptocurrency space like kodak and burger king have jumped into the cryptocurrency space and some critics have warned that some companies are using

block chain as an opportunistic venture without having a clear business plan. one company long island iced tea trained to long block chain and watched the prices soar. are you concerned that they're changing to both of you. >> the short answer is yes. i've put out a warning in this space and to securities lawyers as well. nobody should think it's okay to change your name to something that involved block chain when you have no real underlying block chain business plan and try to sell securities based on the hype around block chain. >> when you say you put out a warning, what does that mean specifically? >> well, we put out-- published it's on the sec website, i made a speech regarding this, this is an area of concern to us.

anytime there's something new that people seek to, you know, raise the value of their securities without the underlying goods being there. >> right. >> it's problematic. >> so as you know, the jurisdiction of the cftc and the sec is slightly different in this regard, and chairman clayton is rightfully concerned about initial coin offerings that are misrepresenting the affiliation, whether it be with kodak or otherwise. we focus on fraud and manipulation broadly in instruments where there is wild claims for them and i mentioned earlier, a case we recently brought. a firm called my big coin. which turned out to be my big con, they were taking people's money and investing know nothing other than their own jewelry and houses and fancy cars, this kind of thing. we've been very aggressive in

using our enforcement authority, we've recently brought three cases this month alone. i've said there will be more, and we are looking into the-- and monitoring markets very carefully. we believe that our big task is bringing enforcement cases and letting people see that, as well as consumer education, which i've also-- >> yes, so it has a deterrent effect. okay. thank you. it's also been reported that more than 3 million bit coyn coynes-- bitcoins stolen and a japanese exchange was hacked. and 500 million from another exchange, mount gaux. if people put money in a stock or bond, they would have help and u.s. is helping people

recover money stolen by bernie madoff. and when virtual coins are hacked or stolen what is done if anything? >> it's a good point and one we've emphasized in our investor alert. when engage in investing on-line with an off-shore entity. the chances that we can do anything practical to get your money back are very, very low. in our futures market, for example, we have what we call systems safeguards, requirements that futures exchanges have cyber protections in place, and they adopt best practices. the underlying spot markets we don't regulate, we don't have the authority to require them to have cyber safeguards in place. >> right. >> and you know, a lot of these companies are young, they're startups, they're focused on putting what resources they have into developing their technology and in some cases what i understand was the cyber

protections weren't there. now, i know that the jfsa has been aggressive on this and we've asked questions, what are they doing about it, unfortunately the theft has already happened. so, this is a problem. these underlying stages while we do have enforcement authority, we don't have the same regulatory authority that we had in the markets that we oversee, that's our day job, as with unof your colleagues mentioned earlier so therefore, this is a gap. >> or the same kind of protection rules like custody. >> right. >> it was gone. >> yes, so buyer beware. so around this space a lot of education is important, i would imagine from all of these federal agencies to buyers so they know until something else can be done which i think we're still trying to figure it out. my time is up. thank you very much, thank you. >> thank you, senator. >> i had not planned on having a second round, but i have agreed to allow senator shelby

and senator warren to each have one brief question. >> senator shelby. >> i want to get in the area of what's on a lot of people's minds today and i know you don't control it, the stock market. you know what goes up comes down, as we all know, and we don't know when and so forth. is this perhaps more than an ordinary correction or do you have a judgment on that at all? >> chairman-- >> so, your question is exactly the question i asked my staff and some of my colleagues across the federal government because we should be asking those questions. by this morning, there was nothing to indicate that any of our systems didn't function as they were expected to function yesterday. there was a-- this was the largest volume since november 2016.

there was a significant price change, but it was not a price-- we have-- do you mind, we have two types of limits, we have single stock limits and then we have market limits, the circuit breakers. neither one of those were hit in any great detail or any great-- the single stock was 9, the circuit breakers didn't get hit so as i sit here today, there's nothing at that came out of this that concerns me from a functioning standpoint. but days like yesterday, our job is to look at them. >> from a regulatory standpoint, are you saying that you don't see anything amiss? >> yes. >> from a regulatory standpoint? >> yes, and-- >> you can't control what goes up and what goes down. but, is what spooked the market, is it profit-taking, perhaps? is it a whiff of maybe inflation out there because

people that watch the markets and participate in the markets see that the fed is beginning to raise interest rates, dealing with price stability as they see it and the fed has information perhaps we don't ha have. the economy's high, unemployment is low, so forth. there's a combination of all our-- can we really say? >> well, i can't really say 'cause i-- you know, there are a lot of opinions on those things and our job is to look at the functioning. >> absolutely. >> and look at the systemic risks. >> that's right. >> and i'm asking myself is there anything that happened yesterday that gives me a different view of systemic risk than i had the day before? and so far, no. that's a question i ask myself every day. >> of course we all know that when the market is going up, people are lazy and that's natural. wh

when-- some people are elated and that's natural. and when it's going down-- do you have a question. >> a mentor of main the introduction into the financial markets would say, he's an old hand in the markets, what drove the market up yesterday or down. he'd say oh, it's up, more team bought than sold. it's down? more people sold than bought. we laughed, but when you listen to the pundits and they say the market was up yesterday because of this, that may have been why or it may not have been why, but the reporters or the pundits needed a reason and they pick something out and that becomes the reason for the day and i don't mean tore facetious, but the markets are very, very complex. >> very much. >> and sometimes it's oversimplifying and you hear it on the news, you hear it by people who are stock pickers and they say well, it's because of this. i don't know how anybody really

knows. now, if there are fundamental moves, fundamental changes, and if that's where we have to do, and i share chairman clayton's view, our job is to look at the structural underpinnings and see if anything is not functioning. >> see if the fundamentals are sound. >> you won't be surprised to know we had a late night last night and making sure the margin levels held and making sure there was no significant margin breaches and i can say that the system held, the system worked as it was designed to do and the margin worked the way they were designed to work and so, the right systems, the right policies are in place, but the markets are always-- evolving organic and that's why we need to stay very close to them. >> the market always corrects, the question, is this ordinary, maybe not an ordinary correction, but is it a correction the market will correct itself? and we go from there? is that fair? >> yes. >> thank you, mr. chairman.

>> senator warren. >> thank you, mr. chairman. so, i want to go back to virtual currency and i want to ask about initial coin offerings, ico's. some raise money for legitimate companies and others we know are just ponzi schemes and many of the investors in ico's are just everyday americans, lured by aggressive marketing promising very high returns. in fact, it's now so bad that facebook recently banned all ads for virtual currency related products and ico's because there were so many, quote, deceptive and misleading advertising that targeted regular consumers. so i just want to ask a little bit of question around how we make ico's safer. chairman clayton, the sec evidently recognized the risk, so it announced last summer

that it would consider certain coins to be securities, under the securities act, meaning they have to be registered with the commission and comply with disclosure requirements. in 2017 companies raised more than $4 billion in ico's. how many of those companies registered their ico with the sec? >> not one. >> not one. and as of today, how many companies have registered for upcoming ico's? >> not one. >> not one. so we're still at zero. can you say a word about why that's so? >> yeah. i don't think the gate keepers that we rely on to assist us in making sure our securities laws have-- are followed have done their job. we've made it clear what the law is. as i've said many times, there are thousands and thousands of

private placements that go on every year in the u.s. we want them to go on. we want people to raise capital, but we want them to do it right. >> right. >> what ico's do, is they take the disclosure-like benefits of a private placement and then add to it the public general solicitation and retail investor promise of a secondary market without registering with us. and folks somehow got comfortable that this was new and it was okay, and it was not a security, it was just some other way to raise money. well, i disagree with them. >> so it's not new. or it is new, but it's not okay and not another way to raise money. >> correct. i'm understanding you to say it's violation of the law. >> yes. >> and registration really matters when companies don't regular administer their tokens of securities, they can hide information and the sec does

not have the information it needs, i monitor this market? >> i'm perfectly happy for these people to do private placements, but do them right. don't try and do it as a private placement, but get the benefits of a public-- >> and lever over into a public offering. >> and other shenanigans. >> should i take it today is a warning bell for people, maybe pay attention to the law or the sec is going to pay closer attention to them. >> yes, it's not the first time, but i appreciate the opportunity to do it today. >> thank you. thank you mr. chairman. >> thank you, senator and thank you to our witnesses, we appreciate not only your testimony today, but the work that you are doing in this critical area. i would ask you to get back to me on recommendations as you have-- as you refine your evaluation of our current financial legislative system, and whether we need to provide further clarification from congress. with that, this hearing is adjourned.

thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> well, after a brief overnight shutdown of the federal government, both the senate and the house eventually approved a two-year federal budget. it included immediate funds to keep the government open through march 23rd at least. the senate vote was 71-28,

which took place after kentucky republican rand paul delayed the vote until the wee hours of the morning. the house followed, agreeing to the senate proposal 5:30 a.m. eastern. 240-186. the president then signed the bill, officially reopening the federal government. taking a look at live programming today. join us later here on c-span2 for a look how trade policy impacts the u.s. economy. georgetown university's mccourt school of public policy hosts business leaders and public officials from inside and outside of the united states. it's expected to start about 12:45 eastern. and later today, it's a discussion on the role of congress in the ongoing renegotiation of the north american free trade agreement, or nafta. live coverage begins at 4 p.m. eastern on c-span. this weekend on american history tv on c-span 3. from the west point history,

talk of growing up in a military family and service in vietnam. we go to a bunker and it had a viewpoint you could see what was going on over the combat base and watching the rockets come in, on one side, and the other side and explosions are going off and scared to death. and arkansas said, that kind of looks like the fourth of july and i said, oh, no, it doesn't. i said what do you mean, people are dying when those things land. that doesn't happen on the fourth of july and she started crying. >> at 4 p.m. on real america, winter olympics, featuring two films 1953 film "rebirth of seoul" and the olympics in california. >> the united states team is causing plenty of unexpected excitement here. they were pregame underdogs and now, they've upset all predictions by winning this game with the russians. their play earning them the

first gold medal ever won by a u.s. team in hockey. >> and at 8 p.m. eastern, presidency, scholars explore the relationships between ronald reagan, george h.w. bush and mickhail gorbachev at the end of the cold war. >> look at 1989 when bush comes in and look at bush and gorbachev in '90 and '91, from gorbachev's point of view, bush is not measuring up to what reagan had been. >> watch american history tv every weekend on c-span3. >> sunday night on after words, black lives matter co-founder patrice con-colors with the bo book, as we created black lives matter we knew, oh, we have to

get people on board and interrupt when people try to co-op black lives matter so we spent a significant amount of the first year to make sure it wasn't co-opted andage chaing people that we love and artists to not say our lives matter, to not use it to say other communities matter, but to focus on black people and to be okay, and the allies and the solidarity with black people and then took it out to the world. >> watch after words, sunday night at 9 p.m. eastern on c-span2's book tv. >> sunday on c-span's q & a. new york times staff photographer doug mills talks about the photos he took while covering president trump. >> obviously, he enjoys having us around. i really believe, despite his constant, you know, comments about fake news and the media

and so forth, he think he likes having us around. it helps to drive his membering and the news of the day, he does every day, constantly driving the message. therefore, having us around really allows him to do that. >> q & a, sunday night at 8 eastern on c-span. next, south dakota governor dennis due guard's last state of the state address. he reviews health care, education and training, travel relations and agriculture. grn daugaard is term limited. his term ends next january. >> members of the house, members of the senate, friend and family in the galleries and the people of south dakota listening and viewing this. please welcome the honorable governor dennis