Home Tech From crypto brother to elected Commerce secretary: Howard Lutnick’s obvious conflict of interest

From crypto brother to elected Commerce secretary: Howard Lutnick’s obvious conflict of interest

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From crypto brother to elected Commerce secretary: Howard Lutnick's obvious conflict of interest

“What interests me deeply are the interests of the United States.”

Howard Lutnick, chairman and CEO of Wall Street investment bank Cantor Fitzgerald and Donald Trump’s nominee to become the next commerce secretary, was speech to an audience of cryptocurrency enthusiasts last April.

“They can’t buy me. OK? There’s just no chance of someone coming up and saying, ‘Hey, I’ll give you a dollar and can you do this, that or the other?’” he said. “What interests me is what is good for the United States. And the dollar is fantastic for the United States.”

As senators contemplate Lutnick’s confirmation in the coming weeks, they will be asked to let one of banking’s bitcoin barons run an agency with a major role in the world of cryptocurrencies. The commerce department shapes both national economic policy and international trade policy, and has a “huge impact on the crypto industry,” said Tonya M Evans, a law professor at Penn State specializing in financial technology and author by Digital Money Demystified. He added that the conflict of interest should give people pause.

“Ultimately, it is important that public confidence in our leadership is not undermined by serious conflicts or even the slightest hint of wrongdoing,” he said. “Trust in the government – ​​as well as in cryptocurrencies – is very low. And the industry has a golden opportunity to reshape the image of cryptocurrencies. “Clear and ethical governance is critical, not only for innovation but also for the long-term stability of the crypto economy and the US economy as a whole.”

Lutnick’s relationship with cryptocurrencies indicates how things may change. The Biden administration has regulated, with the massive fraud of FTX, once one of the largest cryptocurrency exchanges in the world, and the fall of its disgraced founder Sam Bankman-Fried, at the top of their minds.

But Lutnick has established himself as one of the most prominent proponents of cryptocurrencies in global finance and one of the industry’s leading proponents of a type of cryptocurrency called a stablecoin. your signature Cantor Fitzgerald is a banker of the world’s most widely used stablecoin: Tether, which uses blockchain technology to allow people around the world to transfer funds in dollar-denominated units.

“Lutnick’s deep knowledge and experience in the crypto industry is unquestionable, but his deep ties to Tether and his interest in its success raise real concerns about potential or actual conflicts of interest, especially given the role not only central, but essential of Tether in DeFi”. Evans said, referring to decentralized finance. “As a result, we can expect cryptocurrency skeptics in the Senate, especially those who sit on the banking and market oversight committees, to aggressively question him during confirmation.”

Tether represents the most traded cryptocurrency in the world (more than even bitcoin) and is currently the third largest cryptocurrency by market capitalization. Around $137 billion in Tether coins circulate digitally. Tether’s market capitalization grew by 50% last year, Tether reported.

Bitcoin’s value fluctuates wildly, but a unit of Tether, called $USDT in cryptocurrency markets, was designed to mitigate that volatility by being pegged to the dollar. Tether claims that every dollar of its currency is backed by a dollar of reserves in banks around the world.

Cantor Fitzgerald keeps his Treasury bills in the United States. Regulators have been after Tether to show that it has the reserves that its founder and CEO, Italian computer scientist Paolo Ardoino, says it has.

From 2021 Tether has been providing a detailed, publicly available breakdown of its reserve assets, the company said. Those reservations have not yet been subject to a third-party public review. Ardoino said that getting an external audit “remains a high priority”.

“Despite the growth of the sector, crypto companies have struggled to gain access to bank accounts and services that traditional financial companies take for granted,” a company spokesperson said. “The lack of global standards and regulations makes audits of cryptocurrency companies a major risk for the Big Four accounting firms, especially since the collapse of FTX.”

Paolo Ardoino speaks in Paris, France, on April 9, 2024. Photograph: Nathan Laine/Bloomberg via Getty Images

The nature and quality of Tether’s reserves has long been an issue among its critics.

“It is intended to be collateralized by a variety of relatively liquid assets and historically there have been some misrepresentations about the quality of those assets,” said Bennett Tomlin, head of research at Protos Media, a Tether watcher and critic.

“At this point, it appears that Tether has many more assets, and people like Howard Lutnick have been willing to publicly attest to both the quality and quantity of those assets.”

Over the years, Tether has come under fire from federal regulators who have been cracking down on the use of stablecoins in secondary markets to finance terrorism, facilitate cybercrime, money laundering and the sale of chemical precursors for the manufacture of illicit drugs.

But since Tether has started cooperating With federal criminal investigations into illegal activities (and as the interest rate environment has made holding Treasuries more financially profitable), questions about Tether holdings began to fade.

A Tether spokesperson noted that the company had been ration law enforcement, freezing more than $2 billion of assets in concert with 220 law enforcement agencies in 51 jurisdictions.

Lutnick has made no secret of how he has done everything he can to prop up Tether, even as rivals have tried to undermine the currency. Bankman-Fried, the imprisoned former billionaire FTX CEO, tried to catch Tether in a liquidity trap in 2022 by redeeming $10 billion worth of Tether at a time, Lutnick told bitcoin investors last year at a conference in Nashville. Because Cantor is one of the U.S. government’s top 24 dealers of U.S. Treasury bonds, it was able to instantly meet the ransom demand, Lutnick said.

That event, and Lutnick’s approval of its holdings last year, appears to have dispelled market questions about Tether’s assets.

“From what I’ve seen – and we’ve done a lot of work – they have the money they say they have,” Lutnick told Bloomberg TV last year.


Cantor Fitzgerald lost two-thirds of his New York workforce in the 9/11 attacks, including Lutnick’s brother. The suggestion that Tether facilitated terrorism This left Lutnick outraged, he said.

“We would never, ever partner with a company that has anything to do with jihad. And it disgusts me,” he said at a bitcoin conference last year. “Tether will seize any amount of currency in illicit activities.”

Diane Massaroli holds a photograph of her late husband, who worked at Cantor Fitzgerald in the World Trade Center, as his name is read during a memorial ceremony in New York on September 11, 2009. Photograph: Chris Hondros/Getty Images

Lutnick and Trump have been friends for a long time. Lutnick raised money for Trump’s 2020 and 2024 reelection campaigns. Discussions about Lutnick’s appointment as chief of staff or Treasury secretary abounded before Trump announced his Commerce nomination.

As chairman of the Trump transition team, Lutnick has speak in terms of personal loyalty to ensure that administration appointees have fully committed to Trump’s agenda.

“You can argue all you want and discuss it, but when the boss says this is what we’re going to do, do you have a problem doing what the boss says they’re going to do? You always have two options. You can quit or you can execute the plan.”

Lutnick intends to hand over control of a special purpose investment firm in Cantor Fitzgerald to his son Brandon, 26, who has been working at Tether.

“The incoming administration is not particularly concerned about conflicts of interest,” Tomlin said. “In many cases, I think conflicts of interest are almost a prerequisite… Passing the business to your son seems like an unsatisfying way to ensure that you’re disconnected from how your executive decisions affect that business.”

As Commerce Secretary, Lutnick would be in charge of carrying out Trump’s tariff agenda. He argued that tariffs are a bargaining chip to attack protectionist trade policies in Europe and Asia. But the Commerce Department also has a regulatory role in the cryptocurrency business that could put Tether and other stablecoins at a competitive disadvantage if the federal government issues its own digital currency.

Joe Biden had issued an executive order in March 2022 that began an exploratory process to issue digital dollars, a central bank digital currency.

Lutnick argues that a formal government digital currency created by the US government would be banned in many countries as a means for espionage or to directly undercut the local currency. But the current alternative is an opaque private company owned by foreign investors with no direct accountability or oversight from any US government entity.

Howard Lutnick at Mar-a-Lago in Palm Beach, Florida on December 16, 2024. Photograph: Andrew Harnik/Getty Images

Notably, Tether announced plans to move its headquarters to El Salvador on Monday. El Salvador has adopted cryptocurrencies as a competitive advantage, moving its own economy and currency to cryptocurrencies.

Last year, Senators Kirsten Gillibrand and Cynthia Lummis wrote the Lummis-Gillibrand Payment Stablecoin Act of 2024that would regulate stablecoins.

State agencies would regulate stablecoins with less than $10 billion in assets, while larger offerings, such as Tether and its rival Circle, would be regulated by the Treasury department’s office of the comptroller of the currency. It would require stablecoins to hold reserve assets in cash or cash equivalents on a one-to-one basis, demand redemptions on demand, and require monthly asset reporting.

That bill did not advance last year.

Lutnick said he believed dollar-denominated stablecoins expand American influence and was concerned that regulation in Europe and elsewhere would limit the expansion of Tether and other dollar cryptocurrencies.

“If a dollar-based stablecoin was backed by the euro, then they should go to hell,” he said. “How does that help us?”

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