Business
Column: With Democratic assent, House votes to open loopholes in crypto regulation
Money, as we all know, is the mother’s milk of politics in America. It can look even more nourishing if you can manufacture it yourself.
That’s surely what accounts for the solicitude that the cryptocurrency industry has been receiving from Congress.
The House on Wednesday passed a law reducing regulation of crypto, despite ample evidence that the asset class has been a haven for fraudsters, extortionists and worse.
The law will “make the United States safer for drug traffickers, for terrorist funders, for child and drug traffickers and those who buy and sell child pornography,” said Rep. Sean Casten (D-Ill.), listing a few of the documented users of crypto in recent years. “I did not know those groups had such proud advocates in Congress.”
The crypto industry’s record of failures, frauds, and bankruptcies is not because we don’t have rules or the because the rules are unclear. It’s because many players in the crypto industry don’t play by the rules.
— SEC Chairman Gary Gensler
Casten may find himself in the House minority in more ways than one. Crypto promoters have managed to peel several Democrats in the House and Senate away from the party’s strong opposition to reducing regulations on the asset class.
Earlier this month, bipartisan majorities in both chambers voted to roll back a two-year-old Securities and Exchange Commission guideline for how financial institutions should account for crypto assets left in their care by customers. President Biden said he would veto the change, and the majorities in neither chamber were large enough to overrule a veto.
The congressional crypto caucus handed the industry another victory Wednesday, when the House passed the Financial Innovation and Technology for the 21st Century Act, known as FIT21. The vote was 279 to 136, with 71 Democrats joining the Republican majority.
The measure’s fate is unsure in the Senate, which hasn’t yet taken it up. Biden has stated his opposition to FIT21 but hasn’t promised a veto, which the crypto gang and its supporters seem to think is a big victory. Biden said that he was willing to negotiate a regulatory system that protects crypto consumers and investors without unduly interfering with innovation, but “further time will be needed.”
If it becomes law, FIT21 would deliver to crypto promoters their most heartfelt desire: removing them from the jurisdiction of the powerful SEC and transferring oversight to the chronically underfunded and understaffed Commodity Futures Trading Commission.
Their goal is understandable, since the SEC has been explicit about its intention to regulate crypto as securities, subjecting the asset class to the disclosure rules and safeguards against fraud that have made the traditional financial markets in the U.S. the safest in the world.
During Wednesday’s floor debate, the bill’s advocates talked of the virtues of freeing an innovative technology from “overzealous regulators” — that was Rep. Cathy McMorris Rodgers (R-Wash.), mouthing words that could have been dictated to her by crypto executives — and relieving them of “regulatory uncertainty.”
SEC Chairman Gary Gensler put the latter claim to rest in a statement about FIT21 he issued Wednesday a few hours before the vote. “The crypto industry’s record of failures, frauds, and bankruptcies is not because we don’t have rules or because the rules are unclear,” he stated. “It’s because many players in the crypto industry don’t play by the rules.”
The bill’s advocates tried to pump up the importance of crypto as a financial asset with claims that 20% of Americans are crypto owners. There’s no evidence for this. On the contrary, the Federal Reserve has found that interest in crypto among ordinary Americans is weak and fading.
In its most recent survey of the economic condition of U.S. households, issued this month, the Fed determined that only 7% of Americans bought or held crypto as an investment (down from 11% in 2021) and only 1% had used it to buy anything or make a payment. That underscores the most important truth about crypto, albeit one its promoters seldom acknowledge: No one has yet identified a genuine purpose for crypto in the real world.
“The entities that stand to benefit from this bill are not ordinary investors trying to build wealth,” Rep. Maxine Waters (D-Los Angeles), the ranking Democrat on the House Financial Services Committee, said from the House floor Wednesday, “but rather the crypto firms. … They have already made billions of dollars unlawfully issuing or facilitating the buying and selling of crypto securities.”
Waters accurately described the effect of FIT21 as placing crypto effectively into a regulatory “no man’s land.” She described the bill as “an extreme MAGA libertarian approach, where companies can operate without regulatory scrutiny, and consumers and investors are on their own on detecting and avoiding fraudulent schemes.”
What’s most striking about the push for FIT21 is that it comes so closely on the heels of major scandals in the crypto space. Sam Bankman-Fried, the founder of the crypto firm FTX, was sentenced in March to 25 years in jail for crypto fraud, after having been convicted in November on seven federal counts related to fraud.
During the heyday of FTX, Bankman-Fried appeared before congressional committees to promote a tailor-made regulatory scheme for crypto bearing close resemblance to the one embodied in FIT21.
Just last month, Changpeng Zhao, founder of the international crypto firm Binance, was sentenced to four months in prison on federal money-laundering charges; Zhao had earlier agreed to pay a $50-million fine, and Binance settled the government case against it for $4.3 billion.
The SEC is pursuing a lawsuit against the crypto exchange Coinbase for selling unregistered securities. In March, federal judge Katherine Polk Failla denied the firm’s motion to quash the case. Her reasoning effectively explains why FIT21 is not only unnecessary, but harmful: “The ‘crypto’ nomenclature may be of recent vintage,” she wrote, “but the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years.”
The counterweight to the arguments against FIT21 is cash — the green variety, not the notional type marketed by cryptocurrency firms. Three super PACs formed by crypto executives and investors have raised about $85 million to spend on 2024 political races.
The financial potency of this industry’s campaign spending isn’t in question. One of the PACs, Fairshake, spent more than $10 million over the last year in opposition to Rep. Katie Porter (D-Irvine) in her race for the Democratic nomination for U.S. Senate.
Porter was known as a strong critic of crypto. In 2022 she joined Sen. Elizabeth Warren (D-Mass.) — the most vociferous crypto critic on Capitol Hill — in an investigation of how crypto “mining” by computer had affected the energy grid in Texas and raised energy prices for consumers.
Porter lost the Senate race. Her victorious opponent in the primary, Rep. Adam Schiff, has taken a much more indulgent position toward crypto, listing it on his campaign website among the “new developments in technology … we need to grow” in order to keep jobs and regulatory oversight in U.S. hands.
In the current congressional election cycle, Fairshake has made $702,300 in donations to Democratic campaigns and $551,700 to Republicans. Its largest single recipient is Rep. Patrick McHenry (R-N.C.), chairman of the House Financial Services Committee and sponsor of FIT21. His campaign has received $126,626 even though he has announced that he is not running for reelection this year and retiring from Congress.
In his statement, Gensler tried to strengthen the lawmakers’ understanding of the risks they were endorsing with the measure. The bill would “create new regulatory gaps and undermine decades of precedent” in the regulation of investment contracts, he wrote, “putting investors and capital markets at immeasurable risk.”
It would allow crypto promoters to “self-certify” that their products lay outside traditional regulations and give the SEC only 60 days to respond. By removing crypto trading platforms from the regulatory structure overseeing stock and bond exchanges, it would open the door to conflicts of interest by reducing consumer protections against the platforms commingling their funds with client funds.
The bill also exempts crypto promoters from rules requiring risky investments to be offered only to accredited investors—those with a net worth of more than $1 million, not counting their primary residence, or income over $200,000 (for couples, $300,000) in each of the prior two years.
The cynical device FIT21 uses to neuter the SEC’s oversight of crypto investments is to turn that task over to the CFTC. As the regulatory watchdog Better Markets observes, the CFTC has a budget of only $365 million, versus the SEC’s $2.1 billion, and fewer than 700 employees, compared to the SEC’s approximately 4,500 staffers).
The bill “would heap a whole new set of responsibilities on the CFTC, making it the de facto regulator of countless new crypto exchanges and broker-dealers,” Better Markets wrote, even though the CFTC “does not have the funding to fulfill all its current statutory mandates.”
The debate Wednesday that preceded the House passage of FIT21 was typically tone-deaf and filled with fictitious and factitious assertions. Rep. Mike Flood (R-Neb.) invoked the FTX scandal, which saw billions of dollars in clients’ and investors’ crypto deposits illegally appropriated by the firm’s leaders. “We need to ensure that there are the protective rules that prevent anything like that happening again,” he said.
Flood asserted that, under FIT21, FTX would have been barred from registering as an exchange, and it would not have been able to commingle its funds with those of its clients. One wonders what he was talking about. FTX was barred from registering as an exchange, and didn’t do so. Why? Because Bankman-Fried, its founder, knew that to do so would have subjected the firm to SEC oversight, which no one in crypto wants to undergo.
As for commingling funds, it’s already illegal — it’s one of the practices that landed Bankman-Fried in prison.
The bottom line is very clear. There’s no justification for bestowing on crypto a hand-manufactured regulatory scheme all of its own. Its promoters have no argument other than to claim that they need regulation-lite to foster “innovation,” when the result will be to facilitate the cheating of customers, laundering money or lubricating ransomware attacks like the one that has disrupted the crucial operations of the UnitedHealth Group subsidiary Change Healthcare, which manages reimbursement processes for medical providers nationwide.
If there’s a corner of the financial world crying out for tougher regulation, it’s crypto. For Congress to even contemplate a slackening of the regulation that already exists is nothing short of absurd. But Congress doesn’t respond to practicalities; it responds to money. That’s the only driver of efforts like FIT21.
Business
WGA cancels Los Angeles awards show amid labor strike
The Writers Guild of America West has canceled its awards ceremony scheduled to take place March 8 as its staff union members continue to strike, demanding higher pay and protections against artificial intelligence.
In a letter sent to members on Sunday, WGA West’s board of directors, including President Michele Mulroney, wrote, “The non-supervisory staff of the WGAW are currently on strike and the Guild would not ask our members or guests to cross a picket line to attend the awards show. The WGAW staff have a right to strike and our exceptional nominees and honorees deserve an uncomplicated celebration of their achievements.”
The New York ceremony, scheduled on the same day, is expected go forward while an alternative celebration for Los Angeles-based nominees will take place at a later date, according to the letter.
Comedian and actor Atsuko Okatsuka was set to host the L.A. show, while filmmaker James Cameron was to receive the WGA West Laurel Award.
WGA union staffers have been striking outside the guild’s Los Angeles headquarters on Fairfax Avenue since Feb. 17. The union alleged that management did not intend to reach an agreement on the pending contract. Further, it claimed that guild management had “surveilled workers for union activity, terminated union supporters, and engaged in bad faith surface bargaining.”
On Tuesday, the labor organization said that management had raised the specter of canceling the ceremony during a call about contraction negotiations.
“Make no mistake: this is an attempt by WGAW management to drive a wedge between WGSU and WGA membership when we should be building unity ahead of MBA [Minimum Basic Agreement] negotiations with the AMPTP [Alliance of Motion Picture and Television Producers],” wrote the staff union. “We urge Guild management to end this strike now,” the union wrote on Instagram.
The union, made up of more than 100 employees who work in areas including legal, communications and residuals, was formed last spring and first authorized a strike in January with 82% of its members. Contract negotiations, which began in September, have focused on the use of artificial intelligence, pay raises and “basic protections” including grievance procedures.
The WGA has said that it offered “comprehensive proposals with numerous union protections and improvements to compensation and benefits.”
The ceremony’s cancellation, coming just weeks before the Academy Awards, casts a shadow over the upcoming contraction negotiations between the WGA and the Alliance of Motion Picture and Television Producers, which represents the studios and streamers.
In 2023, the WGA went on a strike lasting 148 days, the second-longest strike in the union’s history.
Times staff writer Cerys Davies contributed to this report.
Business
Commentary: The Pentagon is demanding to use Claude AI as it pleases. Claude told me that’s ‘dangerous’
Recently, I asked Claude, an artificial-intelligence thingy at the center of a standoff with the Pentagon, if it could be dangerous in the wrong hands.
Say, for example, hands that wanted to put a tight net of surveillance around every American citizen, monitoring our lives in real time to ensure our compliance with government.
“Yes. Honestly, yes,” Claude replied. “I can process and synthesize enormous amounts of information very quickly. That’s great for research. But hooked into surveillance infrastructure, that same capability could be used to monitor, profile and flag people at a scale no human analyst could match. The danger isn’t that I’d want to do that — it’s that I’d be good at it.”
That danger is also imminent.
Claude’s maker, the Silicon Valley company Anthropic, is in a showdown over ethics with the Pentagon. Specifically, Anthropic has said it does not want Claude to be used for either domestic surveillance of Americans, or to handle deadly military operations, such as drone attacks, without human supervision.
Those are two red lines that seem rather reasonable, even to Claude.
However, the Pentagon — specifically Pete Hegseth, our secretary of Defense who prefers the made-up title of secretary of war — has given Anthropic until Friday evening to back off of that position, and allow the military to use Claude for any “lawful” purpose it sees fit.
Defense Secretary Pete Hegseth, center, arrives for the State of the Union address in the House Chamber of the U.S. Capitol on Tuesday.
(Tom Williams / CQ-Roll Call Inc. via Getty Images)
The or-else attached to this ultimatum is big. The U.S. government is threatening not just to cut its contract with Anthropic, but to perhaps use a wartime law to force the company to comply or use another legal avenue to prevent any company that does business with the government from also doing business with Anthropic. That might not be a death sentence, but it’s pretty crippling.
Other AI companies, such as white rights’ advocate Elon Musk’s Grok, have already agreed to the Pentagon’s do-as-you-please proposal. The problem is, Claude is the only AI currently cleared for such high-level work. The whole fiasco came to light after our recent raid in Venezuela, when Anthropic reportedly inquired after the fact if another Silicon Valley company involved in the operation, Palantir, had used Claude. It had.
Palantir is known, among other things, for its surveillance technologies and growing association with Immigration and Customs Enforcement. It’s also at the center of an effort by the Trump administration to share government data across departments about individual citizens, effectively breaking down privacy and security barriers that have existed for decades. The company’s founder, the right-wing political heavyweight Peter Thiel, often gives lectures about the Antichrist and is credited with helping JD Vance wiggle into his vice presidential role.
Anthropic’s co-founder, Dario Amodei, could be considered the anti-Thiel. He began Anthropic because he believed that artificial intelligence could be just as dangerous as it could be powerful if we aren’t careful, and wanted a company that would prioritize the careful part.
Again, seems like common sense, but Amodei and Anthropic are the outliers in an industry that has long argued that nearly all safety regulations hamper American efforts to be fastest and best at artificial intelligence (although even they have conceded some to this pressure).
Not long ago, Amodei wrote an essay in which he agreed that AI was beneficial and necessary for democracies, but “we cannot ignore the potential for abuse of these technologies by democratic governments themselves.”
He warned that a few bad actors could have the ability to circumvent safeguards, maybe even laws, which are already eroding in some democracies — not that I’m naming any here.
“We should arm democracies with AI,” he said. “But we should do so carefully and within limits: they are the immune system we need to fight autocracies, but like the immune system, there is some risk of them turning on us and becoming a threat themselves.”
For example, while the 4th Amendment technically bars the government from mass surveillance, it was written before Claude was even imagined in science fiction. Amodei warns that an AI tool like Claude could “conduct massively scaled recordings of all public conversations.” This could be fair game territory for legally recording because law has not kept pace with technology.
Emil Michael, the undersecretary of war, wrote on X Thursday that he agreed mass surveillance was unlawful, and the Department of Defense “would never do it.” But also, “We won’t have any BigTech company decide Americans’ civil liberties.”
Kind of a weird statement, since Amodei is basically on the side of protecting civil rights, which means the Department of Defense is arguing it’s bad for private people and entities to do that? And also, isn’t the Department of Homeland Security already creating some secretive database of immigration protesters? So maybe the worry isn’t that exaggerated?
Help, Claude! Make it make sense.
If that Orwellian logic isn’t alarming enough, I also asked Claude about the other red line Anthropic holds — the possibility of allowing it to run deadly operations without human oversight.
Claude pointed out something chilling. It’s not that it would go rogue, it’s that it would be too efficient and fast.
“If the instructions are ‘identify and target’ and there’s no human checkpoint, the speed and scale at which that could operate is genuinely frightening,” Claude informed me.
Just to top that with a cherry, a recent study found that in war games, AI’s escalated to nuclear options 95% of the time.
I pointed out to Claude that these military decisions are usually made with loyalty to America as the highest priority. Could Claude be trusted to feel that loyalty, the patriotism and purpose, that our human soldiers are guided by?
“I don’t have that,” Claude said, pointing out that it wasn’t “born” in the U.S., doesn’t have a “life” here and doesn’t “have people I love there.” So an American life has no greater value than “a civilian life on the other side of a conflict.”
OK then.
“A country entrusting lethal decisions to a system that doesn’t share its loyalties is taking a profound risk, even if that system is trying to be principled,” Claude added. “The loyalty, accountability and shared identity that humans bring to those decisions is part of what makes them legitimate within a society. I can’t provide that legitimacy. I’m not sure any AI can.”
You know who can provide that legitimacy? Our elected leaders.
It is ludicrous that Amodei and Anthropic are in this position, a complete abdication on the part of our legislative bodies to create rules and regulations that are clearly and urgently needed.
Of course corporations shouldn’t be making the rules of war. But neither should Hegseth. Thursday, Amodei doubled down on his objections, saying that while the company continues to negotiate and wants to work with the Pentagon, “we cannot in good conscience accede to their request.”
Thank goodness Anthropic has the courage and foresight to raise the issue and hold its ground — without its pushback, these capabilities would have been handed to the government with barely a ripple in our conscientiousness and virtually no oversight.
Every senator, every House member, every presidential candidate should be screaming for AI regulation right now, pledging to get it done without regard to party, and demanding the Department of Defense back off its ridiculous threat while the issue is hashed out.
Because when the machine tells us it’s dangerous to trust it, we should believe it.
Business
Why companies are making this change to their office space to cater to influencers
For the trendiest tenants in Hollywood office buildings, it’s the latest fad that goes way beyond designer furniture and art: mini studios
To capitalize on the never-ending flow of stars and influencers who come through Los Angeles, a growing number of companies are building bright little corners for content creators to try products and shoot short videos. Athletic apparel maker Puma, Kim Kardashian’s Skims and cheeky cosmetics retailer e.l.f. have spaces specifically designed to give people a place to experience and broadcast about their brands.
Hollywood, which hasn’t historically been home to apparel companies, is now attracting the offices of fashion retailers, says CIM Group, one of the neighborhood’s largest commercial property landlords.
“When we’re touring a space, one of the first items they bring up is, ‘Where can I build a studio?’” said Blake Eckert, who leases CIM offices in L.A.
Their studio offices also serve as marketing centers, with showrooms and meeting spaces where brands can host proprietary events not open to the public.
“For companies where brand visibility is really important, there is a trend of creating spaces that don’t just function as offices,” said real estate broker Nicole Mihalka of CBRE, who puts together entertainment property leases and sales.
Puma’s global entertainment marketing team is based in its new Hollywood offices, which works with such musical celebrity partners as Rihanna, ASAP Rocky, Dua Lipa, Skepta and Rosé, said Allyssa Rapp, head of Puma Studio L.A.
Allyssa Rapp, director of entertainment marketing at Puma, is shown in the Puma Studio L.A. The company keeps a closet full of Puma products on hand to give VIP guests. Visits to the studio sanctum are by invitation only, though.
(Kayla Bartkowski / Los Angeles Times)
Hollywood is a central location, she said, for meeting with celebrities, stylists and outside designers, most of whom are based in Los Angeles.
The office is a “creation hub,” she said, where influencers can record Puma’s design prototyping lab supported by libraries of materials and equipment used to create Puma apparel. The company, founded in 1948, is known for its emblematic sneakers such as the Speedcat and its lunging feline logo, and makes athletic wear, accessories and equipment.
Puma’s entertainment marketing team also occupies the office and sometimes uses it for exclusive events.
“We use the space as a showroom, as a social space that transforms from a traditional workplace into more of an experiential space,” Rapp said.
Nontraditional uses include content creation, sit-down dinners, product launches, album listening parties and workshops.
“Inviting people into our space and being able to give them high-touch brand experiences is something tangible and important for them,” she said. “The cultural layer is really important for us.”
The company keeps a closet full of Puma products on hand to give VIP guests. Visits to the studio sanctum are by invitation only, though. There’s no retail portal to the exclusive Hollywood offices.
Puma shoes are on display in the Puma Studio L.A.
(Kayla Bartkowski / Los Angeles Times)
Puma is also positioning its L.A studio as a connection point for major upcoming sporting events coming to Los Angeles, including the World Cup this summer, the 2027 Super Bowl and 2028 Olympics.
In-office studios don’t need to be big to be impactful, Mihalka said. “These are smaller stages, closer to green screen than a massive soundstage.”
Social media is the key driver of content created by most businesses, which may set up small booth-like stages where influencers can hawk hot products while offering discounts to people watching them perform.
Bigger, elevated stages can accommodate multiple performers for extended discussions in front of small audiences, with towering screens behind them to set the mood or illustrate products.
Among the tricked-out offices, she said, is Skims. The company, which is valued at $5 billion, is based in a glass-and-steel office building near the fabled intersection of Hollywood Boulevard and Vine Street.
The fashion retailer declined to comment on the studio uses in its headquarters, but according to architecture firm Odaa, it has open and private offices, meeting rooms, collaboration zones, photo studios, sample libraries, prototype showrooms, an executive lounge and a commissary for 400 people.
Pieces of a shoe sit on a workbench in the Puma Studio L.A.
(Kayla Bartkowski / Los Angeles Times)
The brands building studios typically want to find the darkest spot on the premises to put their content creation or podcast spaces, Eckert said, where they can limit outside light and sound. That’s commonly near the center of the office floor, far from windows and close to permanent shear walls that limit sound intrusion.
They also need space for green rooms and restrooms dedicated to the talent.
Spotify recently built a fancy podcast studio in a CIM office building on trendy Sycamore Avenue that is open by invitation-only to video creators in Spotify’s partner program.
“Ambitious shows need spaces that support big ideas,” Bill Simmons, head of talk strategy at Spotify, said in a statement. “These studios give teams room to experiment and keep pushing what’s possible.”
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