imagining a great republic, political novels and the idea of america. >> i think a reading of american political classics is very troubling in empowering in terms of this country's stand for something, very special and the great writers like stowe and huckleberry in all these people are reminding and they are storytellers so i tried to be something special, not just the city on a hill but a city that cares and loves and will work with one another and understand the politics is indispensable to bringing about progress for as much people as possible. >> q&a, sunday night at 8:00 p.m. eastern on c-span. >> now that hearing on the growth of virtual currencies as lawyers answer questions about the need for consumer protections, transparency and

federal oversight in their industry. house financial services subcommittee held the six hearing. >> without objection, the chair is authorized to declare a recessive committee at any time. the hearing is entitled examining crypto currencies and ico markets. i now recognize myself for four minutes to give an opening statement. the crypto currency and initial quite all three markets have grown rapidly in recent years and it's more like recent months as specifically ico's have been increasingly used by committees to raise capital for their rsbusiness and products to that and people often equate them with a new type of initial public offering or ipo however and ico is not in ipo. ico whether they represent offerings of securities or not offer potential for entrepreneurs to raise more effective, to terminate an efficient funding for innovative projects as opposed to a

traditional ipo. although in ico is the same character six of raising capital and accessing new sources of investment it does not involve an investment in some amount of equity in company which is afforded under an ipo nor does it offer the same amount of industrial protection. the size of the ico market has grown exponentially in the past year and in the token report estimates that approximately $6.6 billion was raised in point offerings in 2018 alone,, just n the first months, 480 oh ico's were raised $1.66 billion. crypto currencies and ico's and providete a startup to access capital and grow their business. early investors in some currencies have experienced massive gains in an ever-increasing number of ico's as graded opportunities for investors to diversify their cultural ico's in currencies. since the search popularity or crypto craze there has been considerable attention attracted

by investors seeking diversify the folios and startup enterprises in search b of additional access to capital and to growze their businesses. this is also rightly garnered to the regulators. additional scrutiny has routed the currency and ipo markets due to the number of fraudulent ipos that have raise money with no intention of ever providing a product or return to the ico purchasers. a soon to be published mit study of the ico market estimates that 270 million to $317 million raised by queen offerings as quote, likely gone to fraud or scams" according to mit professor christian. bs ic has the authority to bring actions against ico's for any violation of the federal securities law and as part of

the increased scrutiny of the ico's the fcc recently announced actions against two virtual currency organizations for engaging in unregistered securities offerings. additionally the fcc suspended trading in three issuers claiming involvement inol crypto currency and blocking technology. what "the wall street journal" recently reported that the fcc has issued quote, dozens of subpoenas in information request to technology companies and advisers of all involved in the ico's. this includes quote, demand for information about the structure for sales and presales of the ico. sfurther on march 7 of this yer the fcc broadened its series of notice statements to exchange type activity warning that online trading platforms may also be violating the securities federall securities laws. according to the statement platform is providing a mechanism forla treating assets that are classified as securities under the federal securities laws than the platform is operating as an exchange. it must register as fcc is a national security exchange. today's hearing we will examine

theia economics efficiencies and potential capital formation opportunities the crypto currencies and icoco to potentially offer businesses in investors and review the adherence to applicable laws so that investors receive the full protections afforded by the federal securities laws. additionally the hearing will consider the current regulatory approach that regulators such as the fcc are using to monitor and oversee crypto currencies and ico's and how to achieve further regulatory clarity in these markets. is further action on how to write like the currency and ico markets is considered it is important that innovation in the area of digital currency and capital formation are not stifled while ensuring that consumers are protected, fraud is prevented insecurity laws are followed. the chair now recognizes the gentleman from minnesota, mr. ellison to half minutes for an opening same. >> mr. chairman, thank youso for calling the supported hearing today. as important as it is there are other things happening that i want to address. the senate is voting today to

roll back some of the rules of the biggest banks in the country. think about that for a minute. ten years after big banks crash the economy senate republicans and some democrats want to roll back rules that we put in place to prevent the next crash. some of my colleagues may have forgotten how bad the crash was but i have not. millions of people lost their jobs in one in 24 homes were closer and $2.6 trillion banished from americans retirement account so why aren't we again are we going back there. supporters of the bill say this is helping out the small community banks. no. no. not buying it. committee banks are doing pretty well and we're not saying you don't need attention but this is not about them. the fdic says 96% of them are profitable and these profits are higher than ever. again, i want to be attentive and responsive to community banks but this is not about the small makes. the banks that will benefit

here, these are banks that are close to $50 billion in bailout money during the crisis and banks that can put their names on a football stadium in some of these provisions in this bill will back the rules for the large banks like citigroup in j.p. morgan and chase. this bill increases the chance of another crash in a nonpartisan congressional budget office says the bill will increase the likelihood of another bailout. i am disappointed that the senate is likely to pass this bill today and i can promise this committee that i will do everything in my power to stop it when it comes to the house. are you back. >> thank you sprint judgment you back. thee g gentleman from illinois e chairman of the committee is recognized for one minute. >> thank you chairman. according to quinn market cap .com there are over 1500 different crypto currencies with the total market capitalization to exceed $250 billion and that's a staggering amount of

money. this market develops congress has a responsibility to ensure that investors are protected without unduly limiting opportunities for growth. most companies express some uncertainty regarding crypto currencies to the company the topic. for example, google just announcedng its banning ads from the currencies, exchanges, wallets and initial point offerings and firms providing advice. congress needs a strong understanding of the technology and its application for can understand how it fit into our existing regulations and the laws we have on the book may encourage or exhibit an efficient market. for example, do we need clarification of what he crypto currency exchanges and if this were implied any investor protections for the sec staff made this point the other day when noting and i quote, many online trading problems appear to investors as fcc registered and regular marketplaces when they are not.

similarly, chairman clayton has expressed skepticism about no initial point offerings i be registered but there are a lot ofnt questions in this and i thk it is important that we have is hearing today print my time is expired in i go back. >> judgment time has occurred. gentleman from california is organized which would happen when it. >> i was unable to be here this morning and ask unanimous consent to enter into the record the statement to the gentle lady from york. >> without objection. >> crypto currencies areey a crock. what social benefit do they provide? well, they allow a few dozen men in my district to sit in their pajamas on the couch all day and tell their wife they are going to be millionaires. they help terrorists and criminals with money around the world. theyey help tax invaders and thy help startup companies commit fraud, take the money and 1% of the time they actually create usefuld, business but then agai, i daresay that some tiny% of all larceny and crime help finance amino turns out to be useful. it hurts the us government in

two ways. our ability to have the dollar be the chief means of international finance is what has underpins our ability to impose sanctions and stop tax cheating and furthermore when we take risks we don't encourage gaveling. we encourage investment in the real economy. when you five bit coin or finance a new factory, no, you are gaveling on its value for the social benefit. i know these crypto currencies are popular. they are - popular with guys who want to sit in their pajamas until their wife they will be millionaires. they are popular with those who havere read atlas shrugged thatt had a believe these are the new cans in the new divinely inspired documents of our age. but they are horrible and horrible in one other way and

that is and i will mispronounce word but sunridge is the benefit that the us government by ensuing currency. it is the flow and who do not pay interest on new creek created dollars. we lose that as well. the fed is able to return well over $50 billion to our treasury eand many of the recent years ad we undercut that. finally we have got these initial point offerings deliberately naming themselves to lie to the public in convey the image that it is like an initial public offering. they stole the intellectual property and trademark of legitimate investing and applied it to a fixed, fraudulent,

gaveling scheme of no social benefits. aside from that it's a good idea. i'll back. >> the gentleman yields back and gentlemen on our panel, you are in for a lively conversation. no this is not a senate hearing about dodd frank form and you are in the right place but we are here to talk about crypto currencies and blocking technologies but we are here to welcome today a great panel and mr. mike who is the chief legal and risk officer for queen base. doctor chris brummer is a professor of law from georgetown university law center. mr. robert rosenblum, partner at wilson's and director of research point center. each of you will be organized for five minutes to give an oral presentation of your testimony and having read the testimony there are far more than five minutes of information and each one of those and good luck as you consolidate that down. we will thenol have a question. and we will without objection to your written testimonies into the permanent record and part of the record as well. that, you are recognized for five minutes. >> thank you. goodt. morning, chairman.

thank you for the opportunity to address this important topic in the at a significant time but my name is mike and i'm the chief legal and risk officer at point base. the nation's leading digital currency exchange. when you for holding this hearing on the technology that could transform capital y transformation, and our economy. it has tremendous potential and build a potential we believe the responsible regulation is required. the technologies incredible benefits could also be stifled by regulatory or legal missteps. am pleased to testify this morning on behalf of point base. we view ourselves as a leader in the legitimate and maturation of the economy. we provide an on-ramp for acquiring, treating and holding digital currency and through our strategy of operating the most trusted and easiest to use digital currency exchange wallet we have grown dramatically.

we have very strong cyber security protections in compliance practices to ensure that wein remain the most trustd company in this space. our cyber security program is state-of-the-art and remains the critical core of our business. similarly, a compliance program is designed to build upon the highest levels in our industry. in addition to our formal regulatory role point base continuously shares its expertise to make sure that our ecosystem is clean and compliant. we train more months when agencies locally than anyone. i planted three items today the model of the base exchange, our view on ico's in the broader regulatory environment. queen base exchange o operates despotic change in the ability to buy and sell digital currency. we do not offer margin or derivative training and there are more than 1400 currencies andd tokens available and we

limit ourok trading to or that have real tory clarity. bit coin, either, like point in between cash. part ofe the reason we trade ony those four assets i is that each has been determined by regulators to be a virtual currency. therefore we w believe not a security. one of today's questions is how to approach ico's frequent base currently does not trade ico's or any other security programs. despite that we believe that ico'ss are inevitable in full of tremendous potential. we believe we can unlock the ability of viewers anywhere in united states to raise money on a level playing field. they won't need to know funders in silicon valley or new york to access vibrant source of capital. at the same time there is a need for responsible regulation to ensure investor protections and we welcome that regulation investors must have confidence in the integrity of the market. for this reason to support enforcement action where they are necessary to weed out bad

actors and perfect investors. at the same time we need to be sure were not killing good innovation brought about by new technology. we believe there is no need for congress to create a new regulator g or new regular tree scheme because federal regulators always have sufficient authority toat overse the space consecutively. there are at least four federal regulatory agencies that can effectively protest investors in the market. the fcc, the cftc and the federal trade commission. in addition this exists along private state regulations. with respect to the us regulatory environment it is important to stress and they need to be able to distinguish between various tokens to enable innovation. this requires regulators to coordinate and provide market assistance. for example, some tokens may be a commodity and others a thsecurity.

the secec and cftc should be abe to draw a line to determine whether a token should be treated as a commodity or security compliance purposes. the agencies have done this before when new classes emerge. for example, in addressing stock in the steps. as mentioned in the beginning we operate the most trusted and easiest use platform to access digital currency. we believe that trust is enhanced through partnership with regulators. that point base we are committed to working with you, the sec, the cftc and other regulators to help shape responsibly regular market. we believe that the decisions you make now will help determine the future of innovation and capital formation. that teacher is not 20 years away. it is almost here today. thank you for this opportunity to discuss these issues and i look forward to answering your questions. >> thank you. with that we go to doctor brummer was organized for five

minutes. >> if you could push the button in front of you -- there we go. thank you. pull the mic down in front of you. do you. thank you. >> thank you for inviting me here to testify at this hearing. my name is chris brummer and i'm a professor at georgetown law center. i'm here today in my capacity as an academic and not just fine on behalf of any entity. we are blessed in the united states have the safest, deepest, liquid capital markets in the world. one of the reasons for this is our system of information sharing and dissemination to investors. the disclosure system embodied in the act of 1933 is large one where promoters share among other thingsd material information publicly about the company, management and the securities being offered, as

well as the intended use of the proceeds. this information has been filed with the exchange question, vetted, scrubbed and analyzed. most ico disclosures are facilitated by unregulated groups focusing largely on the existing technology or technology under development to be financed by an offering. there is as a result a large gap between disclosures and many of the registered filings such as s1 and that is in the information provided in those white papers. this raises a number of red flags to say the least. for ourer purposes today i'd lie to highlight briefly some of the key disclosures one would expect and likely need in order for buyers of ico tokens whether they are investors seeking to profit or technology user seeking to support and participate in innovative product in order to make a purchase and in an informed manner. these disclosurese are relevant especially relevant, i believe, as i see us transition from

technical expert ecosystems interest division of instruments thatpe are ever more likely to track every day investors retail public. disclosure number one. location. at least one study has noted ithat roughly 32% of ico's it s not possible to identify the issuing entitiesy or promoters origin. this creates serious i informatn asymmetry on the part of the investor. without knowing the issue of entities or promoters origin it becomes possible to know or identify what rules and legal protections might be afforded to investors. further investors have means by which to contact relevant public authorities in fraud, or law theft or loss. they should set out a detailed statement beyond a simple po box of what the issuer and its of where the issuer as well as its key management are located. disclosure number two. problem in technology solutions. for most of the history of your securities no information was

moref important for investors then an issuer's financial statement. ico's tend to serve a different purpose from ipos of the 1930s. instead of running industrial companies, transitioning to a more mature cycle of development ico's involved product developed by startups identifying technology-based problems that promote imposing the sale or financing technology-based solutions. in return for financing promoters s offering coins too. features. most of these offerings it's not the company's past performance or even financialia statements that is most important. instead it is the ventures technology proposition and consequently retail buyers understand the basic contours of the underlying technologies that is paramount as i see us become more popular means of fundraising. to that and you can envision a number of important reforms. an optimal disclosure system ipos would require a plain

english description of the technology, problem and solution and furthermore, for larger fundraisers moree technical pars of white paper would be subject would be a technology audit. meanwhile, all coded regardless of the size should be posted public code to expository so potential buyers can look at the code itself or other proxies for the strength of the code. they should avoid hyperbole would describe their solutions and endemic problem in many white papers and should be required to identify in objective base for all statements. along these lines of disclosures should be made whether it's post ico financial limits will be provided token holders. description of the token is also [inaudible] promoters should be able to disclose whether or not the ownership of the company's as well as the detail city of what legal rights owners of the

tokens will enjoy as well as how the to be treated and on what system. they should also be required to provide disclosures for blocking governance and the basic risk factors impacting not only the token itself but the industry at large. thank you. >> thank you. mr. rosenblum, youu. are recognized for five minutes. >> chairman, honorable members, first of all, let me think all of you for holding this hearing. i think it is timely and i think it is very important and i think in the industry those who want to get things right will very much welcome your participation and your interest in the topic. again, thanknd you for hearing e top would you mind pulling your closer. >> normally people don't have trouble hearing me so this is a lovely change. i am a partner at the law firm and the palo alto law firm generally recognized as being a

leading advisor to technology firms like life science firms and the like. i am ahead of the firm's block chain and kotoko practice. i do need to say that i'm appearing here on my own behalf and not on behalf of my law firm and not on behalf of any clients. however, thank you for having me anyway. in our capacity as being among the leading tech firm we have a great number of initial coin offerings and similar transactions we represent a large number of ico issuers and a large number of funds that invest in initial coin offerings and we represent a large number of entities often very sophisticated entities that are investing in initial coin offerings. i will give you a quick observation that when about nine months ago or so the ico market really started to become significant in the united states i was concerned as some of the

comments we have already heard as to whether and i'll talk in a couple moments i think there really are very important things happening in c this market and again, i think, that's why it's important for this company to be focusing on these issues. she has two basic proposals or two suggestions for somebody. first, i think in the near term congress could greatly help the market in the ico markets facilitate and put ico's and to help guard against fraud by authorizing the fcc and by authorizing and encouraging the fcc and other regulators to both modify and amend the rules to more closely or better assist ico issuers and meeting requirements of the federal security laws the stock market says there are already a number of disclosure issues and

registration requirements to security issuers and they don't work well and they are not geared towards ico's in tokens and so the fcc can be doing a lot more and although they are trying very hard they can do a lot more to amend the rules and modify the rules and i think irthis committee can help. in the longer term this committee could lead the way to have a more unified and this closer approach and overall legislative approach to how we handle ico's in the united states. truthfully, i think it is too early to know the contours of that litigation would look like at that point. we are only nine months in and really try seals there is industry so dynamic and changing so quickly that i think it would be premature at this point to

try to craft that legislation but i do think there are things that are basic principles that can help us inform what that legislation will look like but when you're able to get to it. there are three things though that in all your list of activities that we should be keeping in mind. one is there is a tremendous innovation in the block chain and crypto currency is a bit of a misnomer. there are some o tokens, but co, seither that are cooked of currencies. there are a number of other tokens and those for most of those that we will talk about today that have very specific purposes on specificc problems designed to do very special things. second there are tremendous capital raising techniques and i hope during this hearing will be able to discuss why those capital raising techniques or opportunities are so significant potentially so valuable to the us economy. third, there is no getting

around the fact that there is significant fraud, opportunities for market manipulation and significant opportunities for loss of privacy and data breaches. those need to be part of a considered many regulatory and legislative responses. that led me and my remarks and thank you so much. >> thank you. you are recognized for five minutes. >> thank you german. i am peter, director of research at quinn center an independent nonprofit that focused on the crypto currency public policy space. today i will start by discovering the financial innovation of that point and discuss the differences between crypto currencies and ico's and finally describe the regulatory landscape for thesece technologies. the mental innovation of the coin is digital scarcity so in

the physical world you know a thing like gold is scarce because you can hold it in your hands and ask a lab to tell you thatha it is real and when you hand it to someone else they have it and you do not. inmi the digital world how can e know that a bit point is scarce. we know there are only 16.9 million bit point in the world right now because their distribution and movement are ascribed perfect accuracy on a public ledger called the bit point watching. anyone can independently read and mathematically authenticate the dataat in the parking just like anyone can independently verify the scarcity of gold. that digital scarcity can then be employed by innovative people for a variety of innovative purposes and a token that is scarce in transferable from person-to-person can be used as money just like any other portable and transferable goods throughout history from gold to seashells. that in a nutshell is that point. a scarce token can also be automatically redeemable for digital good or computing service provided by the same network ofr participation who

verify the parking and these are projects like file coin inbox back and they are beginning to compete with incumbent service providers like amazon, facebook and google. a scarce token can also represent a legal agreement or financial aspect so public company or investment fund could issue and track its shares as tokens on the block chain. whether they were money or assets or competitions whether than relying on a handful of corporations running multiple data centers to keep the record a block chain version of the record relies on an open network potentially participants that have skin in the game and independent verify insecure that data. those records will always be available until every last participant goes off-line. in other words, they will likely always be available. those records will act be accurate unless every participant has their individual

computer hacked. in other words, they will likely always be accurate. there's this revolutionary decentralized architecture that makes the system's effectively on taxable at least using traditional methods of attack. pertinent to today's hearing these technologies are also employed for capital formation. scarce tokens like coin and ether exist in the world and they are in use. other coins in tokens are merely theoretical because the software that will enable them has yet to be designed and built. recently. developers have raised money to fund the development of new blocking software projects by selling a promise of future tokens to willing investors in so-called initial coin offerings or ipos. from a regulatory standpoint there is a fundamental distinction that must be made between on the one hand scarce tokens that exist on the block

chain and are used for payment or to obtain computing services and on the other hand promises of future tokens representing the hopefully profitable efforts of a developer. the former but coin in a cerium they are effectively digital commodities and they are scarce items that may have value on open markets as money investments or as inputs are valuable industrial processes. there commodities are just digital in the latter promises of future token our securities. promises from issuers to investors that efforts will be put forward to create profits. both have investor protection t risks but they are distinct risks that are best addressed in different ways. a commodity likemm token is no issuers upon whom investors rely. thee token does trade on speculative commodity markets. placing these markets for fraud

and manipulation is critical for investor protection. a promise of future tokens is a security with an issuer upon whom investors lie. mandating accurate disclosure from these issuers is, as he said, critical for investor protection. the sensible in emerging regime isst nothing new even though the underlying assets may seem like science. the cftc should use its existing authority to please commodities, stock markets foreeee broadman ablation and the fcc should manage and mandate disclosure making securities offering. policymakers -- or if it is made clear by regulators it will destroy theic viability of these innovations and leadership press appropriate thank you and look forward to your questions. >> thank you. i appreciate all of your input and we will start with a five-minute question. for myself but i recognize myself here and i want to try to cover things. investor protections, first and foremost, the fcc versed the cftc and this use of block chain technology so on that investor protections may be doctor

brummer, you could illuminate us a little bit on what current projections youum see or lack of current u protections that are n place to protect mr. and mrs. 401k. that is -- we have institutional investors and sophisticated investors and then we got more retailis investors so if you cod address that we with your microphone on and down toward yourth mouth, please. >> it's very rares that i'm askd to speak water. at this point in time the fcc is working on really operationalizing some of the powers and authority under the 33 act or 34 act or the 40 act or the investors who are increasingly having exposure to crypto currency markets for the better in some instances and for ill in others.

there is a regulatory vacuum currently that regulatory vacuum extends to some extent to this market in capital currencies. i think that where there is or are financial products that under traditional analyses would tend to be identified as commodities there are questions about disclosure that are required to be asked and even in the securities state the infrastructure on which in many of these tokens are currently being treated are not entirely subject to the sec's oversight so there are rules and in place but it's a mismatch. >> i will get to mr. rosenblum here. you said -- >> here is how i encapsulated it here. the fcc is trying to do its job to protect investors and you say

it needs to modify their rules to help facilitate ipos and you say it's premature to draft legislation. both chairman clayton and [inaudible] has said that their current amounts from the permian treasury and reserve that they may come to congress here in the coming months and we know that this has moved very quickly in the last nine or ten months we have seen this explosion of it and this panel and this congress is not going to sit by idly with a lack of protection for investors and you have seen some of my colleagues express some show is a skepticism of the legitimacy of crypto currencies and certainly ico's. i want to look at very quickly what the role for congress may be to play in this and what chilling effect and may have from your opinion, quickly. >> yes, thank you, sir. there are two parts of the legislation. i think there's a immediate set of legislation t that needs to happen to authorize the fcc and

other regulators to modify rules consistent with investment protection but to also facilitate investment capital development or capital investments. that is not to say they won't also be additional grants of power or additional protections that congress ads but at my broader point it is that this industry is moving so very rapidly and its people to know as one- example -- if you take block chain- which has a tremendous capacity to score, record and obtain information today and you mix that with artificial intelligence which is certainly something people are trying to do today that the capacity of artificial intelligence combined with block chain to potentially lead to tremendousus new marketing and tremendous new business opportunities and tremendous new scientific social, logical,

advances is tremendous. however, the opportunity to advance and use the same technology for a me manipulative conduct or data breach and what i refer to as the various conduct is really hard to fix right now. what i don't want to do is lock us into a system to early and i will give you one more -- >> i don't disagree and fortunately i'm running out of time but we won't believe we can explore this further questions. i'd like to get to the other directly. do you believe there are any in certain instances where initial coin offerings should not be regulated as an offering insecurities? >> thank you for the question. it is difficult to answer because it's hard to imagine the circumstances where i feels might be offered. i think that again speaking on behalf of point base we clearly -- we do not support any

initial coin offerings at the current time because were not sure what the regular structure and treatment is or the appropriate -- >> in rentals when you talked about the fcc not so much and i have had some expressive talking about the fcc has been more flexible and open and receptive to ico's and block chain and i don't know if that has been your experience as you viewed it. >> got to say our experiences we are waiting for the dust to settle before we actively enga engage. once the rules are clear we will move in and we think tremendous potential and want to be supportive. i will say what is security and commodity and they perform sdifferent functions and they o deserve to be treated w differently. >> i'm well over my time and there is no doubt that the token

is not gold in the commodity as such. i think that is some of the struggle we have. withth that the chair recognizes the gentleman from georgia, mr. scott for five minutes. >> thank you, mr. chairman. you have opened up a line of discussionir here that i would like to follow up on. in your testimony you said that you believe there is no need for congress to create a new regulatory regime. you said that you felt the federal authorities already have that authority and that it was basically just a lack oft coordination but both the fcc's chairman clayton and cftc chairman have told me that neither one of them, nor the cftc or the cftc have any rregulatory authority and as a

matter of fact they said what regulation there is is that thid on top of that at the state level they are regulating these entities as they referred to as money transmitters. it just seems like to me that there is some type of regulatory shortfall here and if you ask me it's a little bit of that and not just a lack of coordination. ... >> yes, congressman. thank you, i do. and what i would say is that there are sufficient authorities in place today. i'll point out that there is a long -- >> so you're saying that the

chairman of the s.e.c. and the chairman of the cftc are wrong? >> of course not. >> they say that's not so. >> no, what i'm saying, though, is i think in context what's happening is when you talk about money transmission licenses, that covers a portion of our activity as a business. where in many ways an integrated business, a portion of there is none at the federal level. >> respectfully, congressman, i would also point out that with, again staying at the state level we have a bit license with new york state which is indeed a comprehensive consumer protection license that covers cryptok activity within the stae of new york. on the federal level i would respectfully say there is regulation of commodity markets just the way there is regulation of commodity markets everywhere else and this new asset, which is not t a physical thing that u holdmo in your hand, still has

many characteristics of a commodity. >> letn me -- my time is short. there is so much here. this is exciting new area, we're discovering a lot - here but let me switch to the ico issue. now,g mr. rosenblum in your testimony, you said you believe it is too early for congress and federal regulators to enact a comprehensive legislative or governing scheme cryptocurrency. i can assure you i'm the co-chairman of the fintech caucus, and i can assure you none of us on the caucus or on the committee want to be killing good inthey vision, especially one that is raising as this is, billions of dollars of capital because it is very important for he have one to know and as c-span is broadcasting this but

it is important to know as of february 28, 2018, individuals and businesses raised $1.66 billion through initial copy offerings or icos. so i agree with you, mr. rosenthal, however, going back to the sec and the cft, they have not proposed rules regarding the regulations of cryptocurrency and other digital assets and instead have relied on informal rule-making or enforcement actions. so i want to ask you particularly, mr. rosenblum and others on the panel, what in your minds could the federal regulators be doing better and do you believe that enforcement

actions and other formal guidance are sufficient to regulating and, this emerging and exciting digital assets? >> congressman, scott, thank you for the question. i agree with, i agree with, i think the point that you're moving towards or the that you're suggesting here, which regulation by enforcement, in an area that is as complicated, as dynamic as this is not the appropriate way to regulate. >> right. >> enforcement is necessary of course. however i do agree with you entirely that we need clearer guidelines, clearer understanding of how the sec's registration rules, its market trading rules, its exchange rules, investment company, investment advisor rules should apply and do apply and that is not something you can do by regulation through enforcement and that is again one of reasons why i think this subcommittee and this hearing is so important

on this process because we do need guidance precisely on these rules. >> thank you, mr. rosen plume. i yield my time. >> thank you, chairman huizinga. you mentioned that you store more than $20 billion digital currency and trade over $20 billion in assets. in light of the january 2018 hack of coin currency eggs change where in $534 million was stolen, i have a few questions related to the cyber security side of this. i wonder what cybersecurity standards does coin base adhere to? >> thank you for the question. we, and ian i'm hesitating, not

my area of expertise as we get into this stuff. our cybersecurity protocols i believe state of the art. we have entire time does nothing but work with cybersecurity. approximately 99% of the assets that we hold are held off-line, in what is known as cold storage. which makes them virtually immune to hack. we do have a hot wallet process, in effect, think about the coin storage, akin to a teller window at a bank. the hot wallet is op line -- online obviously and we have that amount fully insured to protect consumers and investors as to that. >> are there any if you know about it, we can follow up in writing or let us know who the person you recommend with coinbase we talk to but is coin base required to follow

cybersecurity laws? someal providers are sub subject to gramm-leach bliely. are there any other federal security laws that apply to coinbase and others like you? >> first off, more that happy to get you the name with head of ourik security. >> great. >> the second thing, cybersecurity security standard we are held to is new york state's standard through their bit license which is a, take quites a lot of work. we're working with a number of big four accounting firms to get appropriate standards and other standards. >> i think you answered this, but maybe clarification, in the event of a hack of your platform in lots of assets is there guarranty provided through the purchasers of the your assets

through your platform? do you have any legal responsibility for safekeeping of clients assets and what other protections are afforded to your customers, in event the hot wallet is hacked? you kind of mentioned that but go into more detail if you have any. >> we're not, we do hold a little bit of fiat currencies, usd, united states dollars. those are held in banks which do have fdic insurance as to those dollars. as to our crypto current -- currencies there is no federal insurance program we belong. we attempted to create a degree of comfort among our customers by insuring the hot wallet amount. to date we have not been hagged. we never had to make a payment out under those. >> hope it continues that way. your testimony also mentions that the exchange supports four assets because each has bp determinedi by regulators a virtual currency, therefore not

a security. but you go on to note that regulators arere not providing enough clarity for other cryptocurrencies. how do you establish the regulatory, legal security for those currencies that you support and did the sec or cftc individually provide guidance for those four currencies or did coinbase made the designation based on sec and cftc guidance? >> force, the cftc exclusively found they listed these of those assets as crip cocurrencies, the -- cryptocurrencies. >> okay. >> we also, there are court cases refer to them as cryptocurrencies and the sec itself has distinguished itself between cryptocurrencies and securities and specifically in the dow report they referred to either as a cryptocurrency, in

context of discussing security. >> okay. you also mentioned in your statement, i'm out of time. so, if that is okay if i could follow up and i have questions for others. five minutes goes way too fast. thank you for all of you being here. wewe want to understand as muchs we can but grateful for your testimony and we'll follow up with other questions if that is right. i will yield back. >> gentleman yields back. and it may be behoove the chair at this time to note that we will be having an opportunity to forward questions through the chair to the, to the panel and depending on our time as well and participating, we may be able tohe get to a second roundf questioning so with your indulgence. we'll continue to move along and with that, mr. ellison from minnesota is recognized for five minutes. >> thankin you. now let's talk about cryptocurrencies a little bit. so, youou know, in my meetings with constituents over the last

several months i've had many of them say,so hey, what is going n with this cryptocurrency any hear that it started really low valuation, now it's really high and it is up and down. should i get into it? look, i'm no investor, i can't tell you what you should do, but it did occur to me i should ask yout experts if somebody is not sophisticated in this area wants to invest, what thud she, what thud she know in advance? would you all talk about the what the hazards might be for an unsophisticated investor inha ts area? >> so that's a great question. it is an important question and i, would certainly say that given the complexity of many of these instruments it is very dangerous. one of the disclosures i suggested would be really critical particularly as retail investors become more interested in the space to understand what

the risks are when it comes to investing. not only they can lose a lot of their money but they can lose all of it and it is not just the specific venture itself that creates risk. it is not even the cyber risk or potential for hacking but it is a very dynamic ecosystem. that there are certain kinds of changeses in the nature of the technology where say internet-based principles become embedded in the blockchain and lead some of the blockchain technologies we're depending on now rather obsolete. where the tokens tied to them becomeha ultimately worthless. these are the kind of risks retail investors themselves may not necessarily understand even where they may have some basic, if not only hazy understanding of the technology itself. as a result, because just like you, i will sometimes go to the gym, people ask me, tell me about bitcoin. i think that is always the sign of trouble, of sometimes either

a potential for investors to not be properly informed about where they're putting hard-earned savings and as a result there are certainly, there's a need for much more fulsome communications with those who are seeking or who may be interested in participating in those markets. >> so over the course of 2017 we saw, you know, some precipitous increases in value, we saw some drops, it changed a lot. what do you think is driving some of those swings? is it regulation or the possibility of it? >> i i think it's a product of speculation. i thinknkt it's a product of -- >> bubble? >> of a bubble, certainly. it is a product of investors who are, money chasing investments instead of investors chasing money. it's a product of inadequate disclosure.

and as a result, just to echo some of the comments here on the paneleq regulation can be very healthy for those markets. it can help to address some of the spikes in volatility and patterns of fear, the bubbles but that kind of action is needed now. >>of so -- yes, sir? no i would only add that we had a long history of technology bubbles. i think a lot of what is happening in blockchain technology looks rather like the dot-com bubble of the late '90spp and early 2000s. i think that is important for main street investors to understand and educational programs from the cftc like lab cftcto and educational advisoris from the sec are critical because in the late '90s it would have been extremely correct to say that pets.com is overvalued, extraordinarily overvalued, and they will blow all of their money on a souper bowl ad, and there are projects

in our space that look like that but it would have been correct to say amazon.com was overvalued. that is why we see a lot of froth in the market. a lot of these products are challenging major multinational corporations and if any of them succeed they will be in the future as valuable and critical as the infrastructure that those corporations created but that is a highly speculative bet. >> only time for maybe one last question for one last person. we're talking about regulation here in the uniteded states. the discussion is on. what about other countries? how does that impact this conversation? anybody? >> we've. been looking at georgetown,er my colleagues and other people certainly on the panel, how inneroperable are our rules and approaches? the cftc i know has been very interested in terms of information transfers, information exchanges between regulators. i think one important component to these projects that the ftc

was mentioning, that is a important and healthy program, but i think how to include more than a market access component to these agreements and to push our regulators to also incorporate in the fintech space questions of coordinated regulatory design, information sharing and enforcement and i think that would help to make sure we can export some of our best values and approaches abroad and to take best lessons learned overseas and to incorporate them here. >> gentleman's time has expired. with that, the chair recognizes the gentleman from ohio, mr. stivers, for five minutes. >> thank you, mr. chairman. i really appreciate you holding this very important hearing on a topic that has a lot of people's attention. the first question i have, i'm going to try to ask three questions, we'll see how it goes to dr. brummer. talk a little bit about the promise of blockchain

technology? let'ssnd take a couple steps backward, talk about the promise ofof blockchain technology to me our financial system work, transparent and efficient, not transparent and efficient and what blockchain technology can mean both for financial transactions and other things in our economy. >> all right. so i think the value in blockchain technology and it's very useful for all of us to remember that blockchain technology has its applications not only in the financial space but other ecosystems. everything from pharmaceuticals and health and real estate and property. that it provides a platform in a very decentralized format you can create a system a ledger, a methodology and mechanism for tracking things and transactions in aer way that is extraordinary difficult to tamper with. it allows for disintermediation

for folks in the middle. that allow for a cheaper transaction experience. ii think that precisely to because it is embedded in in online technologies the ability to fully lever, right now i will talk about then upside for jusa momentte because i've certainly been emphasizing. >> i would like you to wrap it up in 15 seconds. >> 15 seconds. >> but keep going. >> but the difficulty to the operating online there is more that regulators can do, federal regulators can do in with investor protection but it raises questions, people talked about money transmitter laws. >> that is my third question. we'll get to that in a second. my second question for mr. van

valkenburgh. can you tell us the difference between tokens used as commodity and those that are security. if you can do it in two minutes. we have five. >> that is great challenge. happy to try to answer. thank you for having me. we have a flexible test in the u.s. what is security. it is derived from a case called the f howie case. and that test can be applied for promises of future coke concerns. what you're looking for two things, expectation of profits i'm simplifying, relying on efforts or issue of third party promoter. this promise of future tokens is critical to thinking why a ico is security and others might not be. we have discernible issuer promising to a build something f economic value but we're relying on them to keep that promise. now that why is fits the test of a commodity or security.

digital commodity we use commodities as money, we use commodities as inputs for commercial andti industrial process. the same thing is true of digital commodities like bitcoin, serium or file coin is built. important to note that file coin is raising money to build itself. once it is built i think it will being a commodity. i will quickly go through those three. bitcoin is something that is nothing but scarce and transferable person-to-person. i make the met at metaphor to g. it is different than gold. but like gold i can hand it to a person and that may be valuable and used as medium of exchange and store of value. >> i want to do one more question. you have 58 seconds. two the other quickly. >> etherium is a experience on interneat, you use ether as a fuel to power the engine on the internet. it is commodity like oil.

>> the last one. >> filecoin, the last one is rather like digital real estate. you use filecoin to get storage on the internet. it is commodity like real estate, if you think of real estate measured as gigabytes rather than square feet. >> question for the whole panel, this is slightly off topic because it has come up, if folks could come up whether they feel likeld fin since 2013 guidance d money laundering and know the customer safeguards are appropriate or do you think they are being abused out in the system? do you think there is more information needed on those issues? can we go down the panel, anybody interested in answering that one. >> ihe think it's a very sensibe piece of guidance. it was written on early in the space and created asw lot of clarity especially for exchanges. that is why all u.s.ar exchanges i'm herbert of are collecting information on their customers

and filing suspicious activity reports and keeping financial system transparent even if it is cryptocurrency. >> thankhe you. i yield back, mr. chairman. >> with that the chair recognizes the ranking member of the committee, ms. maloney for five minutes. >> thank you, my apologies. i had to chair democrats at another meeting this is incredibly important issue, thank you for calling it. mr. lempres, my friend and colleague mr. cleaver sent to bitcoin foundation and digital chamber of commerce how they prevent extremist groups, white nationalist movement to use cryptocurrency to fund campaigns of hate? i see cryptocurrencies are used heavily by sexr traffickers it sell women. this is big problem and one ann wagner and i have been working

on. coinbase is one of the largest crip cocurrency exchanges in the world, what are you doing to prevent these extreme extremists using your exchange to fund their activities? do you have a set of standards? >> thank you for the question. first off we take that very seriously. specifically with regard to hate groups, for example, we have a specific section of our terms of use that we rely on. we kick people off the platform anytime we see anything that constitutes either encouraging or facilitating hate on that. >> thank you. >> through our network. the, more, speaking more broadly on bad actors and things we do to track them down, one of the nice things about this technology, it actually gives you insight you can't get in any other financial instrument currently because of the nature of the blockchain which is an immutable permanent record publicly available. we use both internally-developed

and commercially available blockchain analytic tools which give us quite a bit of insight into connections between individuals. if, for example, we identify some kind of bad node or some bad activity we can track to see who is reached or who touched that and what relationship they haveor with anybody else that might have touched that. i should mention that we are memberst of the bank secrecy at advisory group. we work closely with fincen. wehe file awful lot with sars. show you how important we view the space, nearly 20% of our total employees are dedicated towards compliance. >> thank you. as i said before i'm extremely concerned about virtual currencies because a lot of average people are using it, believing it is an investment tool. they're pouring their life savings into virtual currencies, they stand to losee a lot of

money when this bubble eventually bursts. some people treat these things as invests, not as currencies. and thatat is a huge problem because there is no investor protections like we have for stocks and bonds. so i'm working on a bill that would regulate virtual currencieso but not the technology that have the characteristics ofnd an investmt like we've always regulated investments with robust investor protections including disclosures which will be regulated by the sec. so professor brummer, let me start by asking you a question. do you believe that the definition of a security in current law encompasses all virtual currencies? >> no, i don't believe so. the howie test which is long the standard for digit products and whether they fall within the sec's perimeter have several

characteristics and benchmarks that have to be satisfied and when you apply them to some of thesest virtual currencies like bitcoin you get less than fulsome results according to those benchmarks. >> if we want to regulate virtualg currencies being tread as investments and require adequate disclosures to investors would congress need to expand the sec's authority in your opinion? >> they would need to expand the sec's authority, yes. >> and i liked the part of your testimony where you described what kinds of disclosures should be made to people who invest in initial coin offerings and i agree thatwh the sec can taylor the required disclosures so they're appropriate for digital tokensof and virtual currencies which are different from traditional securities. do you think requiring these kinds of basic disclosures would stifle innovation in this space ordo harm the development of the blockchain technology?

>> i really don't think so. i mean the kinds of things i've outlined, adding mailing addresses -- >> i have 15 seconds left. professor brummer -- i know my colleagues need time too. what do you think of the idea of subjecting virtual currency exchanges to minimum cybersecurity standard? do you think this is necessary in light of the huge cybersecurity risks that virtual currency exchanges face? >> i think that would be extremely helpful. cybersecurity is perhaps the number about one challenge facing our financial markets infrastructure providers and to the extent which you want to provide those financial services you should be subject to certain kinds of high expectations about cybersecurity of your operation. >> my time more than expired. thank you very much. all of you, thank you. > with that the chair recognizes the gentleman from minnesota, mr. emmer for five minutes.

>> thank you, mr. chair, appreciate it. appreciate all of you being here. thisha is a huge topic that can not possibly be even scratched in my mind in five minutes with each of the people up here. i have a whole litany of questions i know my office will follow up through the chair with each of you. i think where i want to go this morning after listening to you, i find myself maybe not with my colleagues on some of this. i just, i have a problem with government is here to help us and we need more government, we're going to have to go into this neutron tear and -- new frontier and we need more regulation. i herd at the beginning we have regulatory vacuum. thatat scares me to death. i tend to believe people and trustd them. i tend people are in these things to improve their own lives and people around them. that old adage after rising tide

who lifts all boats. i her elected officials don't have any concept what we're dealing with here, how exciting it is my gosh, we have to regulate, we have to create more government infrastructure. by the way i respectfully disagree with the idea that won't act asy a wet blanket on this amazing new technology. what we're talking about here is blockchain.sp blockchain technology applies all over the place. i mean it can solve some of our cybersecurity issues. these are open transactions, where milton friedman of all people predicted this back in 1999, he said there will come a day in the financial services space you will be able to do this over the internet, a will havere a transaction with b andt willes be entirely open for peoe to see and a won't know b and b won't know a. you can know that i think, mr. lempres was talking about you who you can see things through the block enchain that are going on. i love the fact mr. rosenblum

talked about examples of blockchain technology outside of this space. i tell you in minnesota we have a company called banku providing digital identities to unbanked andt underbanked individuals to build credit history and access to capital. that is something that democrats and republicans should be celebrating here in congress, not going, oh, my gosh, this is terrible, we don't understand it. we needul a new policeman or tae theno policeman we already have and give them even more powers to start to invade this space and perhaps frustrate the development. i have concerns, i realize there haser to be some regulation butt is the balance and i heard from the panel we have regulation already in place, we need clarity. mr. lempres, why don't i start with you, you talked about we have to be able to say what is a security in this space, what is a commodity. i would add, what is currency? because these are all important definitions to whether or not

certain agencies are within their jurisdiction and to have you say two things, really scared me, one, that you haven't made any offerings because you don't have the certainty you need to know whether or not you can start to work in this space and second to say that 20% of your workforce is working on compliance, that's nothing to be celebrating from this side of the table in my mind. so i just ask you, what about clarity in this issue, in this area and what about the balance that i'm concerned with? >> thank you for raising this. obviously very, very important issue. we, going to certainty, i can tell you that from our standpoints, what we really need more than any particular approach to know what that approach is going to be from the government, so we can plan and we can move, this system innovates very quickly and just knowing where the lanes are extremely helpful for us. >> if i can interrupt real quick

because i'm sorry i'm thinking at a conference i was at last week one of our very important and respected secretaries made a statement about everybody needs to register. well there is no clarity around the law, so all of a sudden people looking into the space or getting into the space, i heard from more people there after that comment we can't start our business in the united states. we'll have to go somewhere else to start it. does that concern you? >>s it does although i will say the entire world is struggling with these same issues. with regard to the percentage of our team focused on compliance, the biggest piece is focused on the bank secrecy act. know your customer obligations, people concerned about money laundering, counterterrorism, things like that, that is an important element no matter which countrye we're operatingn and certainly a developed country we'll have those expectation. >> we should workk all of you to understand those things that would work. i should leave you with this.

this systemos gives advantage to the individual, not the government. i'm worried about giving advantage to the government and taking away liberty from the individual. hopefully we'll meet that balance as we go forward. thank you, mr. chair. >> gentleman's time expired. with that the chair recognizes the gentleman from illinois, mr. foster, for five minutes. >> before i begin my testimony i would like to ask unanimous consent to enter a letter from congresswoman cinema arizona blockchain company in support of this committees investigation into this area. >> without objection. >> thank you. distributive ledger technology has tremendouss promise. value of non-falsifiable ledger willch bring transparency to financial and non-financial transactions t could increase transparency. it alsoid provides a platform fr more speculative transactions such as bitcoin that are backed

by nothing more than perhaps their scarcity and the belief there will be at some point a greater fool to take them off their hands at some unknown price in the future. but nonetheless much of our daily lives will soon involve something like blockchain. so i think it is past time that governments around the world have a look at the, at these digital tokens to figure out where and how they should be used. it strikes me that there are three fundamental questions i would like your reaction to that we have to face. will there be a mechanism to bust trades or not? in the case of the "flash crash," for example, we had the cftc had very clear rules under market gyration was result in trades being broken. there is no such mechanism, for example, in bitcoin, where if someone steals your bitcoin codes they have it and you can not get it back. similar questions arise hacker absconds with the contents of your vault.

is there a hire authority you can go to break that trade? that is the fundamental design question that i think you face and t we face as regulators. second isme there something equivalent to the a consolidated audit trail? in the securities space we learned by bitter experience of the need, if we're going to detect and protect from market manipulation we need an electronic record of the timing and beneficial owner behind every transaction. that could be designed into digital entities like this or it could not be. thirdly, related to the authentication of participants. you know will there be a mechanism, you know, if necessary, with a court order, with a order of the regulator, to unveil the identity of counterparties and issuers? thath is something that could be present or could not be in any of these. so, i was wondering if you have, reaction to how we, how you

think we should address those three issues, busting trade, consolidated audit trail and authentication of participants? happy to go down the line here. >> sure i'm happy to start. busting trades transaction once it occurs has occurred there's no, there's no opportunity to, for settlement 24 hours something else, you could pull it back. so that is a challenge. >> but there are technological means of doing that where every transaction would be conditional on the fact that some trusted set of entities haven't publicized an code that invalidates the trade. there are technological ways of doing that but everyone has to understand it is not like cash. if you steal cash, it's yours, alll right? you know, with the exemption of serial numbers and so on you pretty much own that cash. but could be designed

differently and, all right. >> absolutely could be. >> so consolidated audit trail. >> those two items i put together, authentication of participants and consolidated audit trail, certainly if you're trading on our platform are we have information on you, we have your bank account typically. we have a lot of know your customer information. so we know individuals where they are. we verified their eye dinty and know thes. source of funds. we know quite a lot about them. theree is immutable record so many in ways not consolidated audit trail much in the terms you're looking at but we can reconstitute it if it becomes necessary. >> okay. dr. brummer, do youy. want to te a swing at those? >> [inaudible] >> microphone, please. >> other than things i'm sympathetic to your objective i

would have to defer to mr. lempres how the internal operations. >> mr. rosenblum? >> sir, i think, to take all of your questions we have to step back and look at a couple of things. there are a number of different currencies and a number of different items being traded here and a number of different places they get traded. if you're talking about bitcoin and other things we'll view as pure currencies, right? probably where those questions start from, there is one set of answers. i promise to get those. the second thing, we're talking about new tokens and things being developed for particular platforms, those are very different, right? there are at least two places those can be traded. one is on the platform themselves, second on exchanges, most likely exchanges registered with the sec when we're talking about exchanges registered with the sec your notion of they're

of having all those things exist absolutely will happen. the question iff we move, and i think with well-regulated, well-thought out platforms that type, at least to a large extent, all the things you talked about, identifying customers, having consolidated audit trail or some kind of trail, or bust trades can happen on those platforms. when we move to something like bitcoin, there you have a much morefo difficult problem with this. that genie is way out of the bottle. that ability to trade bitcoin throughout the world. very difficult to build a no your customer rule or identification rule. you have a wonderful consolidated audit trail. you can follow bitcoin throughout the trail, you just don't known who held it that wil be more challenging for this subcommittee. >> thes gentleman's time has

expired. with that the gentleman from ohio is recognized for five minutes. thank you, mr. chairman. rapid expiration of five minutes is duly noted so i will try to train through this. i different dialogue between commodities andhe securities and mr. van den berg, sort about that, valkenburg. wanted to spend a little time on that. when securities are offered in a way you did a good job what might look like a commodity with a test but a lot of time when people go to market, these are not like shares in a company. if you think of them as a sort of an equity. they're non-voting shares and some of them are not even committed to a dividend. those committed to have some sort of return in their

structure, how is it that i make money for it, in some ways it looks almost like a bond. could you say if we were filing for securities which people have not done that, part d, part s, what does that look like, treated as a security in common frame of reference for folks? >> thank you, congressman. first iat would start out by saying there are several developers who have sold their tokens through reg-d filings and they're not selling the tokens in that case. they're selling a promise, an investment contract in the true meaning and spirit of the howie test wherein they're going to make efforts, people will rely on thosese efforts and the outce will be something profitable. but the outcome in many of these cases iss brand new decentralizd computing system that has baked into it, tokens which can achieve some sort of

functionality. once that system is built and the investors who bought in say a reg d offering are given the tokens, those tokens to me, assuming that the network is functioning that people are now relying on the blockchain instead of issuer, they are relying on the a blockchain issuer created and proof of ownership and functionality of that blockchain creates at that point it looks like commodity. maybe you can do something with the token, use at engine for cloud storage or computation or hold it like a scarce commodity like gold or salt or things like that. >> thank you. in that sense shares have many ofat same features and they're treated as securities. mr. rosenblum, i want to spend a lot of time talking about a lot of companies that raise this capital are early stage companies. historically one of the paths to capital for early stage companies is venture. venture is often considered smart money.

you get the benefit of lots of experience of helping small early stage companies navigate, scale up. ic. -- icos don't always have those features. it is estimated that investors raised $4 billion inat icos. can you talk a little bit about the concerns with respect to venture versus icos? >> thank you, congressman. actually let me say one quick thing. only one on the panel who has not been asked about securityng versus commodity. if somebody at some point wants to ask me you will get a different answer from me than the other panelists. so answer your yes, sir, one of the things we see in the ico market to date has been a large number of people, a large number of companies raising money in ways that any securities lawyer would have told you, truthfully told you shouldn't do. so for example, dr. bruner's

suggestions to improve a white paper, i understand the notion but no rational securities lawyer will ever advice their client to sell off white paper. a private placement l memo or disclosure document. we have always risk factors. we take all the steps you need for p ico in exactly the same wy we do in a private placement for any other security right? soso one of the things we've se, and then i know time is short, sir, one of the things weave seen are market practices that have been detrimental to the long-term development in the ico market. >> thank you for that and i think a very good distinction, and i like you hooked back in this notion of a white paper and how soft that is versus a private placement men dumb. to your point if i could hear perspective on private placement versus security.

>> the notion to decide what is a security and what isn't a security is something that would lead the market to distraction. if you, if you take the notion once something becomes functional, once a platform becomes functional, you no longer have a security has got to be wrong. could you still be relying very extensively on the efforts of the promoters. trying to draw a line when it is that you're no longer significantly relying on the efforts of promoters is so very difficult and so convoluted and so open to second-guessing, my suggestion is, don't even bother. come up with a simple, easy system to use eventually that will apply to all of these things regardless of whether they're a security. >> thank you. thank you, chairman, for the additional minute, seconds. i yield. >> gentleman's time expired. with that, gentlelady from missouri is recognized, miss wagner, for five minutes. >> i thank the chairman very

much. mr. lempres in your testimony, you stated and i quote, which ned to be sure we're not killing goode, innovation brought abouty new technology and good actors. for example the state of new york requires a bit license which has been unpopular, causing companies to end their business relationships in the state. mr. lempres, let me start off by asking you two questions. since coinbase is one of four companies who have received a bit license, do you believe new york's model was appropriate for all industry participants and secondly, what lessons can we learn from new york's attempt to regulate virtual currency market? >> thank you for asking. we're one of four companies that received it. think, obvious lesson new york made, it was very ambitious effort by the state to regulate in this space. the fact that they have only

issued four licenses answers the question to a certain extent, swere has not been, they chilled activity in the state of new york. having said that when you're at the scale we're at now and the number of individuals and institutions we're dealing with now, we do benefit from the comprehensive regulatory scheme new york has put in, people do trust us more. we're doing kind of things they want to see. when people are used to dealing with the financial institutions and state of new york is treating through its bit license the way they treat us and other companies the way they treat financial institutions that sends a message to the market. for aan company of our size, the are four that have the license we found benefits dealing with the stateai of new york on this. ii would note there are hundreds or thousands of companies in our space and obviously only four are operating in new york under

that authority. >> what do other state laws that regulate cryptocurrencies? >> so we have 40 licenses in 38 states. they're primarily money transmission. licenses we deal with. >> okay. >> they lead to full exams. we i believe have had 28 exams of current, various states coming into our office. >> switching topics, somewhat, i wanted to talk about compliance a little bit. as a registered m sb, coinbase is required to submit suspicious activities reports or sars to fincen. i understand coinbase includes block chain analytics when filing their sars. would you explain how fincen is getting a more complete picture what is going on? >>ti yes. thank you. so, you're correct in all of your parts there, yes, we do file sars with fincen and we do

include blockchain analytic information where it is helpful inle that sar and the reason weo that do everything we can to put in context the information we have. we have access to information that many federal agencies dont see on a day-to-day basis. we see it all the time. we try to tie it together to present as accurate and complete picture as we can, so if further investigation is warranted they have the broader context which it is operated. >> to follow up, can you talk about how coinbase coordinates with law enforcement and know your customer programk was developed? >> sure. so we're quite proud of our involvement with law enforcement. we have a group, our global intelligence unit that focuses, exclusively on law enforcement coordination and education. we train, i believe more law enforcement agencies globally than anyone. we trained hundreds of state and local agencies. when i talk about training essentially how the blockchain

works, how cryptocurrencies work, what information is there and how a case is put together if they need to put a case together. >> mr. van valkenburg, in your testimony you said there is mismatch between new technology and old regulatory structures when it comes to state by state money transmission regulation. can you explain, sir, how the current state regulatory approach poses issues with regard to cryptocurrency exchanges. >> yes, thank you. first thing i'd say, these are naturally global technologies. on the internet, so when people use them they necessarily cross borders and a company like say coinbase, will have customers not only in every state butrd probably across the world and that means that compliance more done at local level is burdensome and often redundant. the 40th background check your company get will probably not make you less likely or more likely to be secure or to have,

you know, a good reputation. it l is just, it is extra. now, the other friction between mismatch and money state licensing and technologies at the state level, that money transmission licensing relatively, exclusively focuses on the idea of transmission a to b, not on the idea of custody as clearly defined but on the idea of transmission and there are all sorts of people in the world who are developing these technologies who facilitate transmission because they write highly innovative software that develop blockchain technologies they're critical to the innovation and they don't take custody of consumer fund of the they don't actually put customers in risk, but depending how a state money licensing statute is drafted you could interpret it to say that software writing activity is included as money transmission. the penalties for being

unlicensed money transmitter are very grave. if we could p clean up the statutory language to be clear, people that hold people's bitcoin, like myag colleague's companies coinbase are licensed but people don't hold it are not subject to licensing requirement. that would be a very positive signal from the u.s.. we're willing to protect innovation where it doesn't endanger consumers. >> thank you all for your testimony. my time is way expired. thank you for indulgence. >> we have been generous, knowing how you unravel this in minutes. weil we're in the first round, we welcome mr. sherman for five minutes. >> thankco you. currency is both aut store of value, one you hope appreciates and a medium of exchange. let's focus on the medium of exchange. is there any reason why i would

need a cryptocurrency to pay for my groceries or anything else. that wouldn't adequately be served without using dollars? >> yes. thank you, congressman. not yourself, i believe, sir. because you and i -- >> you're assuming i'm not a terrorist or v criminal. i thank you for that. >> no, i'm assuming you're american citizen which is safe assumption. >> that is safe. the other two are questionable. go ahead. >> you and i have benefit of well functioning important financialav infrastructure that surrounds us every day of credit cards and bank accounts. most americans do find it not too difficult to become banked. we have unbanked problem in this country but not nearly as profound in other parts of the world. >> is there anycu part of the world where the unbanked couldn't just as easily have access to transactions in real currencies rather than

cryptocurrencies? >> there areil parts of world cure remember sys in those countries being debased by their governments, hyper inflated or don't have actual purchasing power. >>nt right. you could use dollars, euros, swiss francs, why are those not adequate substitutes? >> you can find access to cash in your region of world, u.s. dollars, those are mediums of exchange but those are premiums. crypto are financial tools only on basic precondition someone has a smartphone and internet connection. i think there are regions of the world people will soon have smartphones and internetconnections then they will have access to valuable and secure financial services from companies. >> i wonder if someone else can comment on that. i don't think, nepal mountain of tibet there is somebody with 100-dollar bill they're holding on to and in every cell phone there is a way to use dollars or

euros. does someone else have a comment? >> mr. sherman, thank you for the questions. i want to divide your question into two different parts. one are, one is, one part relates to things like bitcoin andd other currencies which is what you're discussing. the second part relates to tokens and similar types of things, instruments that have specific purposes on specific platforms thatre people earn and generate in ways you could not do with cash. >> just focus -- i have limited time, focus what can't you do with cash? >> well in a platform, for example, where we are, where we buyer of property, sellers and then we have third parties who are performing important services to the platform, to help the platform run, to help validate services, to help do other function. >> why can't these platforms use dollars? >> because therere is no place, nobody who is going to pay them. what happens on these platforms the platform itself --

>> wait aol minute. i have a bank, i pay them one way or another. >> t tough find a source. you have to find somebody who would be in the business of paying them and that costs money. so what you see in these platforms, what you see -- >> sir, i have lived my whole life, i'm as old as almost anybody in the room. >> very kind of you to say but -- >> and, various intermediaries handled my financial transactions my entire life, none of them have gone hungry. >> we're talking about a very different businessna model. that is one of the things so important about this and important about this discussion. >> we know this is a good method for terrorists, criminals and taxbo evaders. the question is, is there some great social purpose that can not be met in any other way and, i want to hear from a different witness and i don't see one volunteer.

>> honestly i think it is an important question because you're getting ultimately to this question as to whether or not many of these crypto currencies, i think vast majority of cryptocurrencies tied to icos is means you're raising capital as opposed to currency. i will say -- >> raising capital but unregulated. >> absolutely. >> calling it ipo but calling it a ico. >> one of the key responses way interests was trying to make for mr. rosenblum, discussing adequate disclosures, and disclosures one would like to see in a white paper, precisely so the white papers are more compliant and expectation of our securities law. which is a expectation all securities lawyers would enjoy. i'm very sympathetic to that. >> but if i go buy an ico and the companywy sells great pizza and eventually makes billions, i dent get any of that, right? i'm not a stock holder? >> important thing on the tokens

the company that creates the platform may not have any financial success on the platform. the fact that the platform becomes very successful may not redown to the t benefit of the entity that created the platform. >> perhaps we'll have another hearing after some major terrorist event financed by cryptocurrencies and i yield back. >> gentleman yields back. e with that the gentleman from mr. connecticut mr. heinz is recognized for five minutes. currently pass we have people potentially in transit, if it is okay with my colleagues i would like to go on to a second round, which means i get to ask another question finally after having number of them. mr. rosenblum, you asked for it, the differences between commodity and a security? >> so in this case as i said beforehe it is very difficult to know where one bee against and

one ends. the notion of saying something has usage, if we go back to citrus groves at issue in the howie test, there is no doubt that the citrus groves had usage. they produced a citrus fruit that people really sold. didn't mean the participation in those were anything other than securities. the problem that we faceru is tt we can, i can day fine, draw a line for you that says, when the promoters efforts on the platform become less important than the commercial usage of the platform driving token value it is not a security under howie. what i can tell you, good set of factors, that i can look at tell you with any great certainty that get to you that point. what i keep suggesting to people is t i think in the long run we shouldn't worry about that issue. we shouldn't worry about the distinction between this is a commodity, this is a security and how they travel back and

forth between each other but instead have a simple system, move to a environment where we have a simple system that works for both and we don't have to have lawyers like me argue with other lawyers and argue with courts and argue with the sec over which side of the line it is. . then you end up in t the worldf obscurity. however, i would say there is aa difference in terms of how commodities are regulated under the cea and how securities are

regulated. securities regulators tend to put more emphasis on disclosure. the relationship the sec has participants. there's a different level of reliance in the commodities world versus the securities world. these are things that you as committee ought to take into consideration when you're drafting any potential legislative response. i'd like to also emphasize when we think about a commodity one of the commonalities between commodities world and securities world is an awareness that digital things tend to be more abstract and, therefore, they tend to bess a little bit harder to understand and as a result there is a bit more of attention that is focused and placed on those products. gold is the quintessential commodity because it's fine that. people tend to like shiny objects, and it is universally identified as something that has

value. we are debating a lot of that and as a result of military authorities -- >> based on the freighter authorities and resolve my colleagueul talk on the bit abo, i see the natural tension to get people say theree is no way i want any governmental regulation on this. in fact, we came up with it, get out of it. this is a free fire zone and we like it that way. government bureaucracy and agency cannot view the world through those lenses. and i think there's a certain governmental responsibility to protect those investors versus a no investor or a unique investor that is sophisticated in that. and i've got one minute left and of going to be tight on this five minutes, but i am curious anybody can answer this. will a governmental central bani in any system recognize and utilize a cryptocracy? i think until that point this is

going to be a bit of an outlier. whether it would be some small country or some others, it seems medially weathers going to be an ultimate legitimization of cryptic arts is whether a central bank somehow recognizes it. anybody? >> mr. chairman, several countries in europe and latin america have always thought about and are already considering digitizing their currency. so i think that is something that may very well happen. i wonder though where, whether to att least speedy that's a little different. that's a governmental created currency versus a nongovernmental currency at this point, right? >> that's right, but it was what the difference is. once we've moved away from the bretton woods treaty and once wa have countries flowing free with each other. in one sense we were bitcoin isn't backed by state actor and that's about it.

>> with that the gentleman from george is recognized for five minutes. >> thank you very much, mr. chairman. again, i'm so excited about this new cutting-edge what i call the new frontier of our financial services industry, and it's an exciting time for us. but let me give you on this scenario. we've got millions of new investors or literally pouring their savings into virtual currencies. and it is a wonderful thing. as i said, it is burgeoning up, billions of capital in -- big raise. but then these facilities are facilities that store and they

transfer these digital assets for investors which are known as digital wallets. but here's the problem. these digital wallets have become targets for hackers. and hackers are using social media, phone calls and adds on search engines to full investors and tome providing them with sensitive personal information that they could use to gain access to accounts that digital wallet providers and steel literally thousands of dollars worth of virtual currencies. hackers have also targeted the digital wallets themselves, exploiting the vulnerabilities in their cybersecurity systems. this was brought to my attention

by the sec chairman clayton, who pointed out that digital wallets storing or transacting digital assets that are securities can trigger other registration requirements under the federal securities laws, including broker-dealer, transfer agents or clearing agency registration. so panel, what am i to ask you, what are the benefits to investors of digital wallets, registry withh the sec? with that help to defer? these are the kinds of technical and complex questions that present us as members of congress because it all falls on our shoulders. and most certainly we want to be responsive. and as i i said before as chairman, cochairman of the caucus, i'm very proud of this

industry, , but i also know, for example, the occ may come. they arere doing a special order charter for fentex and then you have all these regulators boxing around how to identify. but all this comes to our lap. and if they are registered with the sec should these digital wallets be subject to enhanced cybersecurity protocols, such as chairman clayton said as the chgulatory e systems compliant d integrity of regulations sci. i mean, we are dealing here with an opportunity to get it right before we get it wrong. so tell me.

>> thank you center. i think the testimony is extremely important to take a look at to think about how those two regulators are construing the space. chairman clayton as you rightly said talked about tokens that are securities, is because the token does represent a legal agreement. it's a company sings these are share of our stock or because it's a speculative promise the future efforts. chairman clayton also talked about what he called pure critical to. >> use the term on several different occasions and the chairman suggested that those are outside of sec jurisdiction and easily one of his responses to the questions, he said did not misconstrue me sing that is outside of our jurisdiction as asking for more jurisdiction. and i think that's probably because the calling sitting to his left was chairman carlos of the ftc, an organization that is expertise in policing markets for scarce commodities, which

your cryptocurrencies i would argue very much are. i think what to look to the institutional competencies of these two different agencies to protect investors and that means the cftc will use its existing authority to police spot market for fraud and manipulation if the spot market is l trading commodities,es and the sec will ensure only tokens that are securities are traded only on ats or national security exchanges will have to go through all those cybersecurity requirements. where there might be a gap if there's any gap is the fact the spot market for cryptocurrencies are policed by the cftc ex post, not supervised by the cftc ex ante for things like transparency, cybersecurity standards and the like. instead they are supervised by the state and the patchwork approach that includes the bit license and others. it might be time to rationalize and federalize that supervision of crypto currency markets. >> if you saw those -- >> the time of the gentleman has

expired. >> thank you. >> with that, the gentleman from north carolina is recognized for five minutes. >> thank you, mr. chairman. and again thanks to each of you all for being here today. peter, i want to publicly thank you for the private briefing that you and jerry gave several weeks back and just sell helpful that was an just to encourage any other members, staff on either side of the owl to reach out. you guys been very helpful in bringing us up to speed on this, so thank you again. so i want to make a statement and then ask a few questions. one, regulation in the space is something that the u.s., we have to get right. because poor are rushed policy with respect to crypto currency and tokens, in my opinion, really threatens america's leadership in finance and in technology. we have to be careful to avoid missteps. this technology has the potential to become something quite so i justo think we should

move with caution. on that note i'm curious about an idea i've heard and being floated around as as a potentil regulation scheme for cryptocurrencies. this idea would divide cryptocurrencies into securities and knowledge securities, with security coins being regulated as securities and knowledge security coins being regulated as commodities. so the obvious difference between the two being the security coins would offer dividends or equity or anything that did not would bend of the second would be on the commodities side. countries to get your thoughts on this idea first and then dr. brummer, if you have any thoughts, you could answer that is all. >> thank you, congressman. the first thing i would point out this is a global technology as you rightly said, and the u.s. laws are not a good fit for both the innovators and the investors as far as protecting them at also enabling markets, these technologies will move to other jurisdictions.

the congressman is i think correct that a sensible way of dividing these markets is between things that are more commodity like and more security like. in the u.s. the flexible test for security, the tool for doing that. but it is not the tool globally. in europe, for example, there's more of a black letter law approach and a flexible test. certain things have been identified in various european jurisdictions as securities and they are more of you suggested, things that could offer a dividend or some sort of capital return on investment. finding a more bright line test may bee useful, although the flexibility with the howie tool can be very helpful in going after schemes that pertain to not be securities by not offering those formal things. finding a way forward is not easy and probably worth considering because at the moment you see many more of these i think truly innovative capital formation opportunities

moving over to your pick you see a lot in switzerland pictures a lot in germany and these are not countries with lax security regulation refuser countries with a more certain legal test. i think i'd something sec as to how they will interpret the test with respect to token sales, they've already had about a very deliberate statement said been very helpful but for the guidance might be helpful especially with respect to exactly how you draw the line. it might look more like what europe is doing these days. >> i guess my first response is that europe, europe's approach on this is very much uncertain, number one. number two, they don't have definition in place for only for virtual currencies under european regulations and rules. they are grappling with the same issues just as we are today and there's an enormous amount of uncertainty as to that's going to play out.

i think when it comes to the commodity securities question, i agree with peter. maybe there's a little bit more of a difference of tone. institutional competence is extremely important when thinking about who should be regulating different financial products. my testimony today emphasized the question of disclosure, and i think that even, i think that bitcoin is not the same as gold and i think that people intuitively understand it a lot less. and so this creates important questions as to what kind of disclosures should be related to even sort of pure cryptocurrencies that may legally under current law resemble a commodity or be classified as a commodity as opposed to a security. because the disclosure process available under the cea is more or less a kind of just by beware

approach, versus amo much more wholesome approach adopted under the fcc. a decision has to be made as to not just the competence but even under existing rules no matter which side of the coin you may follow, there will would be sod of subsequentmp rulemaking required in order to adapt and adopt your existing migratory processes to ail virtual curren. i think it's important people recognize this, that there's going to the work that will have to be done both on the sec's as well as under the cftc in order to get it right. >> thank you. i yield back. >> the time of the gentleman has expired. the gentleman from connecticut is recognized. >> thank you, mr. chairman. i yield my time to mr. scott. >> thank you very much. i appreciate that. mr. van valkenburgh, you hit it on the head as to what i think

we have an obligation, both to this burgeoning industry here as well as to the safety of the american people. all this technology that we have being applied in very sensitive areas in makes us become almost the servants of the machine technology that was created to serve us. and we've got to get this right in terms of what i think is a delicate balance of the right kind of regulation that really helps solve the problem. we got hackers out there that are at work and damaging great careers and jobs and just allies of the american people, and to look tog us here in congress to try to solve at. so when i brought that issue, you brought up how the cfc, the

cftc and the sec would work together in working with this. with present another problem that we have, let me ask you in that situation the great need for harmonization, because that's the problem we have. when we have these regulators involved and you have several regulatory agencies, it puts your industry in a somewhat an awkward position try to figure out and try to make sure that they're they are both coming at it the same way. so would you recommend whatever we do know if these agencies that congress put in whatever we do a rule for harmonization?

>> yes. i do think harmonization is critical. chairman carla when he talked about releasing authority over these spot markets for commodities, emphasizes they don't have any ex ante authority. they don't have the ability to supervise before in. they are not the regulator on point. as i was resisting the regular on point is largely the states, whether it's through the bit license with the money transmission licensing. it's not just anarchic as between federal agencies potentially. it's anarchic as between federal agencies and various states regulars. state-by-state money transmission licensing is both the biggest impediment to the technology because of the profound and redundant and nonproductive costs that it impose on the industry and ecosystem, and it also is not an adequate way to protect investors.or we need tot start a conversatin in congress about federal preemption of state money

licensing law. that would also include sensible investor protections for those who become licensed by a federal authority. chairman carlo in his testimony before the agriculture community, that the banking committee in the senate, said what i will look like be data reporting, capital requirements, cybersecurity standards, measures to prevent fraudd and price manipulation and anti-money-laundering and know your customers protection. that is the sensible package to require fromud intermediaries in our cryptocurrencies base and i think the low hanging fruit from a harmonization standpoint, what congress can do soon. >> take it very much, mr. chairman. >> gentleman yield back the time. so i i would like to thank our witnesses for today. i thought this was illuminating in so many various areas and completely befuddling in others, which, welcome to congress i guess. but it was very helpful, and thank you for this.

i believe that this is probably how low, not goodbye. we're going to be continuing to have this conversation. i do have without objection i would like to spend a following statement for the record a statement from liquid capital incorporated, without objection so moved. without objection all members will have five legislative days within which to submit additional written questions for the witnesses to the chair which i will then forward on to you all. i would just ask our witnesses to please respond as promptly as possible. without objection all members will have five legislative days within which to submit extraneous materials for the chair for inclusion into the record ass well. again, thank you very much for your time, your attention to this entry insight, and this hearing is adjourned. [inaudible conversations]

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>> i think -- it might have. there is so much material to cover here, that's the frustration with the structure we have with five-minute questioning. you've got to move on so quickly. you could've spent 30 minutes, you know, questioning each one of the witnesses, but this was our first sort of formal conversation that we are having as a committee. >> will there be more? >> i hope to come yes.co certainly, whether it's in a committee form or not, they're certainly going to be those conversations going on. as you saw brad sherman saying, literally it's like a scam, to tom saying i'm not sure that government really should have a touch on this at all because this is sort of outside of the

proper lanes of government. i mean, there's a lot of divergent, and it mixes up in and among -- >> you did not mention the banking regulators. do they have a role or not? >> i don't know that they don't have a role. certainly i think treasury is going to have some of that i think those also part of my opening statement, talking about treasury, i don't know the specific niche in the working group but i know we alluded to treasury be being engaged and involved in this. certainly between treasury, cftc, sec, the alphabet soup of regulators are fully engaged. what i have seen this whole lot of coordination on that and what we haven't identified is who is that lead coordinator. some of that is frankly our job. that is the job of oversight that congress has into all of these things, but we got some jurisdictional issues between the ad committee dealing with

futures and cftc predominantly and as deal with the security and exchange commission specifically our subcommittee here. what is that role and it gets down to what a significant amount of time was spent on, which is what is it? is it a cat or is it a? a city security or is it a future? and, therefore, then how it is defined is very important as to out it's dealt with. those are some of the things, one of the reasons why we had the hearing today was to explore some of those things, and as i said kind of in my final farewell, i think this is how low and not goodbye. this will not be the end of the conversation. >> do you agree with brad sherman? >> i think by its nature, no. has a n been used to defraud people? yes. we know that. we know there is been problems. i don't believe it was, i don't believe it was invented as,

cryptocurrencies was not intended as a ponzi scheme. which distinguishes it differently. i think it is moving towards a real need the same people have identified, whether it's the efficiencies that are in it. again, the currency in my mind is a vehicle for the technology of blockchain. that blockchain technology is really the gold that needs to get mind, and have there been problems? yes and no. anti-money-laundering, dealing with illicit terrorism financing of those kinds of things.bl again, this tool has potential been used in an illicit passion. >> when you sit moving to a real need, elaborate on that. >> again, i think what i was sayingng was the real need on blockchain technology. having a distributed ledger, and

that technology, you know, again, the currency is the vehicle that the technology is being brought about. i'm not sure that i agreed with the panelists that, and mr. rosenblum had touched on that about come after he got challenge, i think it was by mr. sherman again or maybe it was mr. scott about sort of, well, do we really need this, right? clearly, , mr. rosenblum was arguing yes, the full 45 seconds or whatever he was allotted to answer it. mr. sherman was basically as i interpret what he was saying was hey, no, we don't really need is this. we that third-party intercessors in this already, bank tellers and people that handle actual currency. so no, we don't need that. i think one of the questions that still was a result in my mind but continues to work some

exploration and conversation is, okay, how is this different than apple pay or a technology that utilizes a commonly recognized and utilize currency, hard currency, central bank currency versus creating a crypto currency or any kind of, you know, fiat currency like that. that was what i was so giddy at on the very last question i had, was okay, so ultimately is this going to be fully integrated and less there's some sort of central bank system, whether it's, theoretically could be switzerland and i know switchman has looked at that. they backed off. could it be a smaller nonplayer now trying to become a player? you know, think of all kinds of, whether it's attack shelter isle of man situation or whether somebody in the middle east or

in asia or latin america trying to assert themselves in a way to have traditionally. >> and ask a a quick question? you have any other insight on the subpoenas? i know you guys talk a lot with the agencies. >> other than they feel the necessity to get information, and as i understand it is really trying to figure out whether there is fire where the smoke is, right? >> do you know which companies? >> i don't. >> you a link to this but should you guys be we think about legislation to clarify regulatory responsibilities, how the sector gets -- what role are you playing in this right now? >> that is, you know, your question isn't should we. the adjective the ages. we always need to be asked explore that, through the out where the boundaries are.s that was the original question, which was, and i think that was

part of what we wanted to get and i didut not hear consensus s to whether vc ftc's and the sec's current structure is adequate to address that so far. i think the regulating agencies believe that it is. you had mr. rosenblum sort of assert that and that's why i ran to the okay, they are trying to do theirir job, you say that the need to change their practices to make sure these i ceos are moving smoothly but we don't need legislative fix. how does that all work? >> why did you anybody from cftc or the sec of their. >> what we wanted to get the spam out of first and then we will be having sec folks. we got enforced the folks that are supposed to be g here on friday and we're we are working through all the department heads to have been in, and this will be part of whatever they had. this wase intended be kind o