Bay Area legislator wants more consumer protection for cryptocurrency investors

ByMichael Finney and Randall Yip KGO logo
Sunday, February 12, 2023
Should crypto companies be required to get a license in California?
The much-publicized bankruptcy of FTX has put new attention on this multi-trillion-dollar industry. Here's what one Bay Area legislator is proposing.

SAN FRANCISCO (KGO) -- Should the wild, wild west be tamed? That's the question being asked in California about the crypto industry -- a financial sector that prides itself in being independent of most government regulators. But some want to change that.

Patrick Duffy knows his numbers.

The CPA decided recently to dip his toes into the crypto market. He's glad he moved slowly.

"It went down, and it was going further down. So I said, 'Well, I think it's time to cut my losses,'" Duffy said.

MORE: Cautionary tale for investors after Bay Area native Sam Bankman-Fried charged with fraud, conspiracy

Duffy originally invested $500.

That shrunk to $230 in just nine months.

He withdrew his money, but the company kept $40. That's something he still doesn't understand.

"I figured the ease of going in should be the ease of going out," Duffy said.

Numerous others who contacted 7 On Your Side complained about the fees as well.

MORE: CONSUMER CATCH-UP: Metallica warns fans of impostor crypto scams, Robinhood launches IRAs on app

"Since the (January) 4th, I have not been able to withdrawal any funds," wrote one viewer. "The company support personnel are telling me that I have to pay a security deposit of 10% because my account's under review for fraudulent activity."

Another wrote: "To take out $1,000, $10,000 or $100,000 or $300,000, I first have to pay them $30,000 in advance."

A new bill, Assembly Bill 39, from Assemblymember Tim Grayson of Concord, would require cryptocurrency companies to be licensed in California to do business here.

The bill is being supported by the Consumer Federation of California.

MORE: FTX bankruptcy filing: Why the $32B crypto company collapsed, what it means for the future

"This is really an industry where it's sort of 'buyer beware' on steroids," said Robert Herrell, executive director of the Federation.

New York in 2015 became the first in the nation to require crypto companies to get a license they call a "bitlicense."

It declined to license the now-bankrupt FTX.

"And literally when FTX collapsed, because of the protections that people in New York had, New Yorkers were better protected when FTX collapsed than California was," Herrell said.

MORE: Scammers hack into Bay Area victims' phones accessing photos, camera and location in crypto fraud

Last year the legislature passed a similar licensing bill in California but Governor Newsom vetoed it, saying it would be too costly and the state should see what federal regulators do.

Duffy disagrees and says more oversight is needed.

"If they're regulated, at least the state can come in and say something to them. They can be audited. They can be looked at," he said.

Overall, the cryptocurrency market lost $2 trillion in 2022.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

7OYS's consumer hotline is a free consumer mediation service for those in the San Francisco Bay Area. We assist individuals with consumer-related issues; we cannot assist on cases between businesses, or cases involving family law, criminal matters, landlord/tenant disputes, labor issues, or medical issues. Please review our FAQ here. As a part of our process in assisting you, it is necessary that we contact the company / agency you are writing about. If you do not wish us to contact them, please let us know right away, as it will affect our ability to work on your case. Due to the high volume of emails we receive, please allow 3-5 business days for a response.

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