As cryptocurrency rises, officials don’t want U.S. to be ‘left behind’
The first quarter of 2021 has brought a wave of announcements of major financial-services firms adopting cryptocurrencies.
This tide is unlikely to turn, so the public conversation is increasingly focusing on how to regulate these digital currencies, which include the popular Bitcoin.
Ray Dalio, founder of Westportbased Bridgewater Associates, the world’s largest hedge fund, has surmised about a potential ban, while some of the state’s elected officials are grappling with their roles as industry watchdogs.
“I think inevitably we’re going to get drawn more drawn into it,” U.S. Rep. Jim Himes, D-Conn., a member of the House Committee on Financial Services, said in an interview. “This is not something we’re going to be able to ignore.”
Visa announced Monday that it would become the first major payments network to allow customers to settle transactions with USD Coin, a “stablecoin” cryptocurrency whose value is linked directly to the U.S. dollar.
Two days later, CNBC reported that Goldman Sachs was “close to offering its first investment vehicles for Bitcoin and other digital assets to clients of its private wealth management group.”
In recent weeks, other financialservices headliners such as BNY
Mellon, BlackRock and Mastercard have made their own cryptocurrency announcements.
At the same time, cryptocurrencies have gained powerful backers such as Elon Musk, Tesla’s chief executive officer. He announced March 24 on Twitter that customers could buy his company’s electric vehicles with Bitcoin.
There is no universal definition of cryptocurrencies, but there are widely accepted descriptions.
“A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or doublespend,” according to the definition on investopedia.com. “Many cryptocurrencies are decentralized networks based on blockchain technology — a distributed ledger enforced by a disparate network of computers.”
Among Connecticut-based financial-services companies, Greenwich-headquartered Interactive Brokers Group allows customers to trade Bitcoin futures. It does not allow cryptocurrencies for transactions such as account funding or paying commissions.
Connecticut-based banks are taking a cautious approach. In a statement, Waterbury-headquartered Webster Bank said that “we currently are not accepting cryptocurrency as a form of payment.”
Other major financial-services providers were more tight-lipped.
Messages left this week for Stamford-based Synchrony, the country’s largest provider of private-label credit cards, and Bridgeport-based People’s United Bank, which announced last month that it would be acquired by M&T Bank, were not returned.
Himes said that he understands why cryptocurrencies are gaining momentum in financial services. But he also has major concerns about their potential misuse related to criminal and terrorist acts.
“One reason to be constructive and open about cryptocurrency is you don’t want the United States to be left behind,” said Himes, a seventh-term Congress member, who worked for 12 years at Goldman Sachs. “You don’t want the United States dollar replaced as a reserve currency by somebody else’s digital currency.
the bill and referred comment to the Sacklers who own Purdue.
Messages left this week for a spokesperson for the Sacklers were not returned. In previous statements, the Sacklers have denied any wrongdoing related to their ownership of Purdue.
Connecticut Attorney General William Tong told Hearst Connecticut Media this week that “the Sacklers should not be allowed to hide behind bankruptcy to escape accountability. The SACKLER Act has my full support, and I hope it passes.”
Asked about his position on the bill, Sen. Richard Blumenthal, D-Connecticut, said in an interview that “there should be no bankruptcy court order interfering with the pending lawsuits against the Sacklers — that principle I strongly and fully support.”
Blumenthal, who sued Purdue when he previously served as state attorney general, added that “I’ll consider introducing a similar measure, if necessary and appropriate, but I want to first see the exact wording in the SACKLER Act.”
Many activists such as Fernando Luis Alvarez, who led a protest last month outside Purdue’s downtown Stamford headquarters, also expressed their support for the legislation. Among their concerns, Alvarez and others who have protested against the company said that they are unsettled by the wealth of the Sacklers, whose family net worth was estimated at nearly $11 billion by Forbes in 2020.
“The so-called stay has benefited the family as they can use their wealth to further enrich themselves and continue to bribe politicians, hire the largest law firms in the country with influence all the way to the Department of Justice, and buy special-interest groups,” Alvarez said.
In previous statements, representatives of the Sacklers have denied that the owners have committed any financial fraud or engaged in any illegal or otherwise inappropriate dealings with government officials or other groups.
Fueling their discontent, Tong and Alvarez and other critics of Purdue and the Sacklers were outraged when settlements reached last year by the company and the owners with the Department of Justice — which entailed Purdue pleading guilty to three criminal charges — did not include any charges against the Sacklers.
“A company can be sanctioned, but if the Sackler family has shields from these lawsuits, it will feed the public perception that justice has not been served against them as individuals, but only against the company,” said Robert Bird, a professor of business law at the University of Connecticut.
Reflecting the widespread animus against the company, the Democratic-controlled House Oversight Committee has taken a prominent role in probing Purdue and its owners.
Last December, two of the Sacklers who own Purdue and the company’s CEO, Craig Landau, testified during a committee hearing. In that meeting, Landau, Kathe Sackler and David Sackler denied personal wrongdoing, but said they sympathized with the victims of the opioid crisis. But those statements did not persuade Maloney and other committee members.
“Most despicably, Purdue and the Sacklers worked to deflect the blame for all that suffering away from themselves and onto the people suffering with OxyContin addiction,” Maloney said during the hearing.
With the SACKLER Act, Maloney is focusing on the impact of the company’s bankruptcy on the Sacklers.
To resolve the lawsuits — which allege that Purdue fueled the opioid epidemic with deceptive Oxycontin marketing — the company filed for Chapter 11 bankruptcy in September 2019. Company executives and the Sacklers have denied the complaints’ allegations, but they have proposed a comprehensive settlement of the lawsuits that they value at more than $10 billion.
The Sackers did not personally file for bankruptcy, but they have offered to contribute approximately $4.3 billion to the settlement.
In a move aimed at advancing the settlement talks, the judge overseeing the case approved in October 2019 a Purdue-requested “preliminary injunction” that froze the pending cases. Judge Robert Drain has subsequently granted a series of extensions of the injunction — the latest of which runs until April 21. Individuals covered by the injunction include current and former Purdue executives and the Sacklers who own Purdue.
Non-debtor releases have sparked controversy in other cases, but they have certain advantages, according to Bob White, a practitioner-in-residence who teaches bankruptcy law at Quinnipiac University.
“In some situations, it gets money into the hands of the creditors more quickly,” White said. “On balance, I think it makes sense at least when non-debtors are accused of tortious action. I don’t think capping the injunction against suits at 90 days is helpful to putting money into the hands of creditors. The bankruptcy judge should have the power to extend the stay as he sees fit, so the pressure to settle remains on the non-debtor.”
Connecticut and the 23 other “non-consenting” states that have not agreed to settle their lawsuits against Purdue had been voluntarily complying with the injunction.
“When entering the injunction, the court stated that ‘one of the main purposes of the preliminary injunction is to enable the parties to analyze whether they would support’ a plan of reorganization that releases claims against the Sacklers,” the non-consenting states said in a court filing last month. “An explicit corollary to this instruction was for the parties to explore the terms on which they might support such a release.”
But the non-consenting states’ unhappiness with a reorganization plan filed last month by Purdue contributed to their decision to oppose the injunction’s latest extension. Among their misgivings, they cited concerns about releases for the Sacklers.
“Although the language of the proposed compulsory releases in favor of the Sacklers has not yet been incorporated into the (reorganization) plan and (related) disclosure statement, providing nonconsensual releases of state police power claims against the Sacklers extends beyond even the most aggressive application of Second Circuit law,” the non-consenting states said in the filing.