'Operation Choke Point 2.0' Is SEC's 'Chemotherapy' for $14B Ponzi Problem, BCB's CEO Says

AUSTIN, Texas — "Operation Choke Point 2.0," the alleged coordinated efforts by the Biden administration to cut the cryptocurrency industry off from the U.S. banking sector, is the Securities and Exchange Commission's "chemotherapy" for a $14 billion "Ponzi cancer," said Oliver von Landsberg-Sadie, founder and CEO of crypto banking firm BCB Group. He spoke during a panel at CoinDesk's Consensus 2023 conference titled "Crypto Banished From the Banking System."

It wasn't clear if Landsberg-Sadie's comments referred to Bernard Madoff’s infamous Ponzi scheme or the more recent, spectacular collapse of crypto exchange FTX, which was not a Ponzi scheme. However, he does think current efforts by U.S. regulators against crypto entities are hurting legitimate companies, such as Caitlin Long's Custodia Bank, which has been at odds with regulators. Long was another member of the panel.

Read full coverage of Consensus 2023 here.

"I think Choke Point is the SEC's chemotherapy for a giant gap, for a $14 billion Ponzi cancer, and healthy legitimate organs like Custodia Bank are getting hit," he said.

"It was a tragedy to see what happened, in this case a good actor [Custodia] getting the short end of the stick of a massive crime, that [the] SEC was right to attempt to address," Landsberg-Sadie added.

Read more: U.S. Banking Crisis May Be Vindication for Crypto Ecosystem: JPMorgan

Custodia Bank, a three-year-old special purpose depository institution in Wyoming, has been trying to push its way into the U.S. banking system. After a long wait, the Federal Reserve denied Custodia’s bid for system membership in January, citing concerns about the “safety and soundness” of the bank. Shortly after, the Kansas City Fed denied Custodia’s “master account” application. Wyoming is within the Kansas City Fed's jurisdiction.

The recent crisis sparked by the closing of Silvergate, Signature and Silicon Valley banks has narrowed opportunities for many U.S. crypto companies, pushing them to open bank accounts offshore. This has many in the industry questioning whether they can do business in the country.

"Events of the last six months have put a damper on entities wanting to bank this space [crypto]," said another panelist, Richard Booth, chief compliance officer of Fortress Trust Company. "But it's legal business and I think that every business in this country is entitled to access to banking rails." He added that "the regulation, I think, needs to be matured. Congress has clearly advocated what they're supposed to be doing and the regulators are struggling to keep up."

He also said that a "perfect model" for the crypto community for their banking needs would be a "trust model" as such financial institutions "can pretty much do everything that a bank does" and none of the assets are held on its balance sheet, which means "there's no single point of failure."

Read more: Silicon Valley Bank Crisis a 'Cyprus Moment' for Bitcoin: Crypto Observers