U.S. Senator Elizabeth Warren (D-MA) faces reporters during a break in a bipartisan Artificial Intelligence (AI) Insight Forum for all U.S. senators at the U.S. Capitol in Washington, September 13, 2023.
Julia Nikhinson | Reuters
Two senior congressional Democrats have asked multiple regulators to look into the propriety of meme coins issued by President Donald Trump and first lady Melania Trump.
Sen. Elizabeth Warren and Rep. Jake Auchincloss, both of Massachusetts, raised issues regarding the first couple using their respective offices for enrichment, along with the potential for “rug-pull” scams similar to what has happened with the other such tokens, as well as possible conflicts of interest.
“We write with deep concern about the decision by President Trump and First Lady Melania Trump to launch two meme coins, $TRUMP and $MELANIA, that allow them to earn extraordinary profits off his Presidency,” the pair said in a letter obtained by CNBC.com.
“These coins do not create new faster, cheaper, and safer payments rails. These coins do not help people borrow more affordably. They do not improve the financial system in any way for consumers,” they added.
The digital tokens have already generated billions of dollars on paper for the Trump family.
The website for $TRUMP coin says 80% of the supply is held by the Trump Organization and affiliates.
The digital token, which launched Friday night, almost immediately boosted the president’s personal net worth by tens of billions of dollars on paper. It is now trading at about $37, a drop of 50% from its peak shortly after launch. Similarly, the $MELANIA token has plunged 80% from its weekend high, currently trading below $3.
Meme coins are a subset of cryptocurrencies tied to internet meme culture. They carry no intrinsic value and often experience rapid price surges due to celebrity endorsements. While popular among crypto traders, these tokens are notoriously volatile because they lack any underlying assets to support their value.
The legislators cited some high-profile volatile meme coins such as Hailey Welch’s “Hawk Tuah” offering as well as dogecoin, pikamoon and bonk.
Before the First Family launched their tokens, the New York Department of Financial Services released a Consumer Alert warning about “sentiment-based virtual currencies,” or meme coins, highlighting their extreme volatility, lack of regulation, and high risk of fraud, including pump-and-dump schemes. The department cautioned that these coins are often controlled by a small group of insiders, created on unlicensed platforms, and prone to significant price manipulation.
To prevent an immediate selloff, the $TRUMP and $MELANIA coins are subject to a multiyear vesting schedule, ensuring that the majority of tokens cannot be liquidated all at once. But even without selling any tokens, former Coinbase executive and crypto analyst, Conor Grogan, estimates that the Trump team generated $58 million in trading fees on the first day alone.
“This meme coin could hurt the very people President Trump says he is working to help,” Warren and Auchincloss wrote, adding that the president and his associated business entities could dump their coins during the three-year unlocking period, “generating huge sums for themselves while crashing the price of the coin for his supporters left holding the bag.”
CNBC.com has reached out to the Trump camp for comment.
Owners’ rights and other concerns
The Democratic leaders also point out that the terms and conditions of both meme tokens “prevent purchasers from joining class action lawsuits against the coin or its issuers.”
The letter, which is addressed to the leaders of the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Department of Treasury, and the U.S. Office of Government Ethics, highlights potential conflicts of interest, as well.
As president, Trump is responsible for nominating leaders of key financial regulatory agencies including the SEC and the CFTC, which enforce laws against crypto companies.
“This creates an unavoidable conflict of interest, as he will be in a position to both benefit directly from the sale of the tokens while also setting the policy on how these markets are regulated,” added Warren and Auchincloss.
Since his victory in November, Trump has focused on appointing government leaders who support the cryptocurrency sector.
Paul Atkins has been nominated to chair the Securities and Exchange Commission. Atkins, a former SEC commissioner, is known for advocating market-friendly policies and opposing heavy-handed regulation. If confirmed, he will succeed Gary Gensler, whose aggressive enforcement of crypto regulations made him a divisive figure in the industry.
Earlier this week, the SEC announced the formation of a new “crypto task force,” to be led by Commissioner Hester Peirce. Trump’s picks to lead Commerce and Treasury have also been pro-crypto in their business dealings.
Beyond the financial risks, the letter also flagged concerns about national security.
The global and largely anonymous nature of cryptocurrency markets could allow foreign actors to purchase large amounts of $TRUMP or $MELANIA coins to gain influence with the administration. The lawmakers warned that this could violate the emoluments clause of the Constitution, which prohibits government officials from accepting payments or gifts from foreign entities without congressional approval.
“But nearly anyone in the world can buy these coins, raising concerns about the coins’ use by foreign individuals and governments to buy influence over President Trump and his family,” the letter said.