Custodia CEO Slams US Government Over Broad Crackdown, Lack of Regulatory Clarity in Crypto Industry

Caitlin Long, CEO of crypto bank Custodia, criticized the U.S. government for its handling of a massive crypto fraud that occurred months before the company’s collapse. She made her remarks in a blog post after disclosing evidence to law enforcement. Long’s post followed Custodia’s unsuccessful application to become a member of the Federal Reserve System, which was denied by the Federal Reserve Board.

Executives of digital currency and blockchain companies are displeased with the U.S. government’s crackdowns and lack of regulatory clarity. Brian Armstrong, CEO of Coinbase, has called on Congress to pass clear legislation on cryptocurrencies, and Jesse Powell, CEO of Kraken, has echoed that message. On Feb. 17, Caitlin Long, CEO of Custodia, published a blog post explaining that she had given evidence to authorities about a crypto fraud case months before the company collapsed, leaving its millions of customers with losses.

In her blog post titled “Shame on Washington, DC for Shooting a Messenger Who Warned of Crypto Debacle,” Long argues that the current enforcement actions are a misguided crackdown on the entire industry. “Calls for a crackdown today are coming from many of the same policymakers who were charmed by the fraudsters,” Long wrote. It is well known that senior members of the U.S. Securities and Exchange Commission (SEC), the White House, and the Commodity Futures Trading Commission (CFTC) met with Sam Bankman-Fried (SBF) and high-ranking FTX officials.

Additionally, an estimated one in three members of Congress received a direct contribution from SBF and his inner circle. “In a 180-degree turn, [policymakers are] now throwing the baby out with the bathwater,” Long wrote in her blog post. The Custodia CEO also mentioned that government officials likened her crypto bank’s operation to FTX’s misconduct and collapse, resulting in an ambush on the crypto industry by officials.

“Custodia Bank recently found itself in the crosshairs of Beltway Politics at their worst,” Long stressed. “Custodia was simultaneously attacked by the White House, the Federal Reserve Board of Governors, the Kansas City Fed, and Senator Dick Durbin (who conflated our non-leveraged, 100-percent liquid and solvent bank with FTX in a Senate floor speech, in which he attacked two companies run by female CEOs — Fidelity and Custodia — implicitly comparing us to a 29-year-old accused fraudster who is now wearing an ankle bracelet).”

The Custodia CEO added:

Custodia tried to become federally regulated – the very result bipartisan policymakers claim to want. Yet Custodia has been denied and [is] now disparaged for daring to come through the front door.

After Long published her blog post about the situation, Jesse Powell, CEO of Kraken, responded to her Twitter thread on the subject. “I can’t tell you how infuriating it is to have pointed out massive red flags and obviously illegal activity to regulators only to have them ignore the issues for years,” Powell tweeted. “‘They’re offshore. It’s complicated. We’re looking at everybody.’ FOR YEARS. Then to be used as their example.”

The complaints from Long, Armstrong, and Powell come after the SEC’s enforcement action against Terraform Labs and CEO Do Kwon, nine months after the entire Terra ecosystem collapsed. The U.S. securities regulator was criticized for being late to the game, and many believe the SEC is simply throwing spaghetti at the wall to see what will stick.

What is your opinion on the criticisms from Custodia’s CEO regarding the U.S. government’s handling of the recent enforcement actions in the crypto industry and the red flags she pointed out before a crypto company’s collapse? Share your thoughts on this topic in the comments section below.