Hi, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. Today is March 28, 2023, and I want to make a quick video to talk about something that just came up from Cooper and Kirk. Let me go ahead and share my screen.
Cooper and Kirk is a respected law firm based in D.C., and they wrote a document that is about 30 to 35 pages long. This document describes "Operation Choke Point" and what's been happening in the cryptocurrency industry. One of the things we've noticed with this administration is that they tend to lie by default about everything, particularly regarding financial regulation. Their default answer for everything is, "Oh, we're not doing that," and then when presented with evidence, they claim that the evidence doesn't exist.
What I really like about this document that Cooper and Kirk has put together is that they meticulously outline what has been going on and why it is unconstitutional. The document is addressed to Congress and provides specific recommendations for how Congress can fulfill its duties. I won’t read the entire thing, but I will read the executive summary and highlight some key points.
Recent stories in the financial press have uncovered a coordinated campaign by prudential bank regulators to drive crypto businesses out of the financial system. Bank regulators have pushed informal guidance documents that single out cryptocurrency and its customers as a risk to the banking system. Businesses in the cryptocurrency marketplace are losing their bank accounts or access to the ACH network suddenly and without explanation. The owners and employees of cryptocurrency firms are even having their personal accounts closed without explanation.
Over the past two weeks, federal regulators have shut down a solvent bank that was known to be serving the crypto industry. Although it is required to resolve banks through the least-cost resolution to the deposit insurance fund, the FDIC chose to shutter the bank rather than sell the part that serves digital asset customers, costing the fund billions of dollars. This pattern of events is not random; we have seen it before.
This is not the first time that federal bank regulators, working with their state-level counterparts, have abused their supervisory authority to label businesses unworthy of having a bank account and worked in secret to purge disfavored lines of commerce from the financial system. Beginning in 2012, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System carried out a coordinated campaign to weaponize the banks against industries that had fallen out of favor with the administration, including gun stores, pawn shops, tobacco stores, payday lenders, and a host of other brick-and-mortar businesses. That campaign was called Operation Choke Point.
Our firm successfully challenged Operation Choke Point, and it was brought to a halt. The current bout of regulatory overreach against the cryptocurrency industry is illegal for much the same reasons as its predecessor. By the way, the same people who were involved in Choke Point 1.0 are back in power thanks to the Biden administration for Choke Point 2.0.
Operation Choke Point 2.0 deprives businesses of their constitutional rights, due process, and violates the Fifth Amendment. It is well settled that when a federal agency attaches a derogatory label to an individual or business, and this stigmatizing label causes the business to lose a bank account or broadly precludes them from pursuing their chosen trade, the agency has violated the due process clause of the Fifth Amendment unless it first affords the individual or business a right to be heard. This is precisely what the federal bank regulators responsible for Operation Choke Point 2.0 have done by labeling crypto businesses a threat to the financial system, a source of fraud and misinformation, and a risk to bank liquidity.
Operation Choke Point 2.0 also violates both the non-delegation doctrine and the anti-commandeering doctrine, depriving Americans of key structural constitutional protections against the arbitrary exercise of government power. By leveraging their authority over banks to acquire the power to pick and choose the customers that banks may serve, the bank regulators have exceeded their statutory authority. They are charged with supervising the safety and soundness of the banks, and their effort to anoint themselves as the gatekeepers of the financial system and the ultimate arbiters of American innovation cannot be permitted to stand.
Furthermore, the bank regulators are refusing to perform their non-discretionary duties when doing so would benefit the cryptocurrency industry. State banks that are statutorily entitled to access the Federal Reserve System are being denied their rights solely because they choose to serve the crypto industry. The federal bank regulators are not free to pick and choose which statutory obligations they wish to perform.
The federal bank regulators are evading the notice and comment rulemaking requirements of the Administrative Procedures Act by imposing binding requirements on the banking industry through informal guidance documents. This is undemocratic since it deprives the public of the right to comment on proposed rules and runs contrary to the principle of judicial review, as courts lack the power to review informal agency actions.
Finally, the federal bank regulators are acting in an arbitrary and capricious manner by failing to adequately explain their decisions, failing to engage in reasoned decision-making, and failing to treat like cases alike. It is difficult to imagine a more arbitrary and capricious agency action than simultaneously placing a solvent bank into receivership solely because it provided financial services to the crypto industry while permitting insolvent institutions not tied to the crypto industry to continue operating.
We therefore urge Congress to perform its oversight role and hold these agencies accountable. In Section 4 of this paper, we propose a series of questions that need to be answered and a series of steps that Congress should take to obtain these answers.
First, Congress should require the bank regulators to produce their communications with supervised financial institutions and state regulatory agencies regarding the denial or regulation of access to the financial system by crypto businesses and banks that serve the crypto industry.
Second, Congress should require the federal bank regulatory agencies to explain the basis for their conclusion that the safety and soundness of the financial system require the exclusion of banks from blockchain technology, customers who operate in the crypto space, and state-chartered depository institutions currently serving those customers.
Third, Congress should clarify to the federal bank regulators and all federal agencies that the notice and comment rulemaking requirements of the Administrative Procedures Act are not optional.
Fourth, Congress should investigate the role of federal regulators in the New York Department of Financial Services' decision to shutter Signature Bank and determine the FDIC's role in excluding bidders who wish to acquire Signature's digital asset businesses from the bidding process.
Fifth, Congress should investigate whether bank regulators are acting to stifle private sector innovation in order to clear the field of competition for the benefit of existing federally regulated banks or federal cryptocurrency alternatives.
The persistent unwillingness of the nation’s bank regulators to follow the law and obey the Constitution calls for congressional action. Cracks are starting to form in the American financial system as its regulators increasingly abuse their power to achieve aims outside their authority and beyond their competence.
This is not a letter written by some cryptocurrency advocate; it is a letter written by a serious law firm, Cooper and Kirk. They have extensive footnotes and go through the details of Operation Choke Point and what the regulators are actually doing. It’s a fascinating read, and I highly recommend you look into it.
I have put the link in the show notes, so if you go to my YouTube channel, you can find it there. I also encourage you to print it out and send a copy to your congressman and senator. It’s a simple and effective way to raise awareness about this regulatory abuse and the risks involved.
Thank you all for listening. I hope you find value in this information, and I’ll tweet the link for you to share with your congressman and senator. Cheers!
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