James Warns CLARITY Act Weaks State Fraud Powers

New York Attorney General Letitia James has warned Congress that the CLARITY Act could weaken state fraud powers and interfere with state investor protection laws. According to her testimony, state and local law enforcement agencies conduct about 98.8% of arrests nationwide, compared to roughly 1.2% by federal agencies.

James argued that the bill would neuter state and local law enforcement by preempting states and preventing them from fully prosecuting rampant fraud and violations of law in the cryptocurrency marketplace.

The CLARITY Act aims to establish a broader federal market structure for digital assets and divide oversight responsibilities between the Securities and Exchange Commission and the Commodity Futures Trading Commission. However, Democratic senators have objected to giving the Department of Justice sole responsibility for enforcing provisions that restrict digital asset activities by public officials.

James has asked Congress to add stronger investor protection, anti-money-laundering, and ethics safeguards to the legislation. The fate of the bill remains uncertain as Senate Republicans face a 60-vote hurdle to advance the legislation through the cloture process.