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Schneiderman Asking Questions of Cryptocurrency Companies

New York Attorney General Eric Schneiderman is asking for some information from cryptocurrency providers as part of what is office calls a fact-finding inquiry aimed at protecting consumers.

Schneiderman’s office sent questionnaires to thirteen virtual currency trading platforms requesting information on operations, internal controls, and safeguards to protect customer assets, a statement from the office said.

“As the letters explain, the Initiative seeks to increase transparency and accountability as it relates to the platforms retail investors rely on to trade virtual currency, and better inform enforcement agencies, investors, and consumers,” the statement said.

“With cryptocurrency on the rise, consumers in New York and across the country have a right to transparency and accountability when they invest their money,” Schneiderman said in the statement. “Yet too often, consumers don’t have the basic facts they need to assess the fairness, integrity, and security of these trading platforms. Our Virtual Markets Integrity Initiative sets out to change that, promoting the accountability and transparency in the virtual currency marketplace that investors and consumers deserve.”

The statement said it’s critical for regulators to ensure that investors and consumers fully understand what the cryptocurrency exchanges do, and what the risks are, “given reports of the theft of vast sums of virtual currency from customer accounts, sudden and poorly explained trading outages, possible market manipulation, and difficulties when withdrawing funds from accounts.”

From the questionnaire: “As you know, bitcoin, ether, and other virtual currencies have captured the imagination of millions of people worldwide. Representing a technological advance, a medium of exchange, and an investment opportunity all at once, virtual currencies are inspiring innovators, entrepreneurs, and investors—and are fueling an increasingly diverse ecosystem of companies and applications. But virtual currency is also a highly speculative sector, featuring significant volatility, instability, and risk. Moreover, published reports indicate the sector has attracted fraudsters, market manipulators, and thieves….

“As with other emerging sectors, the challenge with virtual currency is to prevent fraud and other abuses, safeguard market integrity, and protect individual investors—without stifling legitimate market activity or innovation,” the questionnaire said.

At least one company said it wouldn’t comply.

Kraken co-founder Jesse Powell said on Wednesday that the “resource diversion” required to answer the questions would be too much.

Powell said he realized, however, that “we made the wise decision to get the hell out of New York three years ago and that we can dodge this bullet. Ordinarily, we’re happy to help government understand our business, however, this is not the way to go about it.”

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