Crypto27 July, 20262 min read
Letitia James Urges Congress To Strengthen Digital Asset Market Clarity Act Oversight
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Digital Asset Market Clarity Act could preempt state investor protection laws. Act could weaken state crypto enforcement and restrict regulators.
James targets CLARITY Act
New York Attorney General Letitia James urged Congress to strengthen oversight of cryptocurrency companies, warning that the proposed Digital Asset Market Clarity Act could weaken states’ ability to investigate scams and hold platforms accountable. In written testimony submitted Monday to the Senate Permanent Subcommittee on Investigations, James said the bill would override state regulation of digital asset markets and shift oversight to the Commodity Futures Trading Commission. James argued that this shift would undermine state and local enforcement, adding that complaints about crypto scams received by her office have tripled over the past three years and that reported losses totaled nearly $500 million over five years.
She called for crypto platforms to comply with anti-money laundering, know-your-customer, and cybersecurity requirements, and to conduct surveillance for suspicious activity and market manipulation. James also urged Congress to make platforms and intermediaries financially liable when they fail to protect customers from fraud and to prohibit the conversion of mixer-linked or otherwise untraceable crypto into US dollars.
State enforcement vs preemption
James warned that the CLARITY Act could preempt state investor protection laws and weaken local enforcement, writing, “This is a mistake,” as lawmakers negotiated the federal crypto bill. In her testimony, she said state and local law enforcement agencies account for about 98.8% of arrests nationwide, compared with roughly 1.2% by federal agencies. The dispute became a Senate sticking point as some Democratic senators objected to giving the Department of Justice sole responsibility for enforcing provisions that restrict digital asset activities by public officials.
The Crypto News account also described the bill’s structure as dividing oversight responsibilities between the Securities and Exchange Commission and the Commodity Futures Trading Commission. Republicans faced a 60-vote hurdle to advance the legislation through cloture, with Senate Majority Leader John Thune considering starting the floor process before lawmakers leave Washington for the August recess.
Ethics and enforcement stakes
Beyond enforcement structure, James urged Congress to prohibit the conversion of mixer-linked or otherwise untraceable crypto into U.S. dollars and to preserve existing state money transmission, commodities and securities laws. She also proposed barring elected officials and recent government officials from regulating crypto when they may have financial interests in the industry, framing the issue as a conflict-of-interest risk for public oversight. Democracy Defenders Action and Transparency International U.S. condemned the CLARITY Act and called on the Senate to provide real ethics reform, arguing the updated bill language lacked meaningful reform and enforcement mechanisms.
Virginia Canter, chief counsel and director of ethics and anti-corruption at Democracy Defenders Action, said, “Legislative ethics without real enforcement is nothing more than a green light for corruption,” while Scott Greytak, Deputy Executive Director at Transparency International U.S., warned, “You can regulate an industry, or you can profit from it—but you can’t do both.” The stakes, as described in the sources, include who can prosecute crypto fraud and how ethics rules apply to officials overseeing the digital asset marketplace, with the Senate’s floor timeline tied to the August recess.