New York AG Says CLARITY Falls Short on Fraud, Ethics Rules

In a 27 Jul written testimony submitted to the Senate Permanent Subcommittee on Investigations, James said the crypto bill would interfere with states' roles in enforcing investor protection laws. She also argued that its ethics rules do not go far enough to address conflicts of interest involving elected officials, including President Donald Trump, and their ties to crypto industry. 

The CLARITY Act currently is awaiting a vote on the Senate floor after more than a year in Congress. One of the bill's key goals is to establish federal rules for digital assets and clarify which US regulator oversees different parts of the crypto market, the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC). 

James' testimony comes as lawmakers continue negotiating key ethics provisions in the legislation after a revised draft released last week failed to win over Democrats, who argued that its restrictions on senior officials' crypto interests did not go far enough. 

Senate leaders have meanwhile prioritized federal nominations and other legislation, including a Russia sanctions bill. The delay makes a vote before next week's August recess increasingly unlikely, but gives lawmakers more time to seek a compromise. 

James' call for stronger safeguards 

In her testimony, James urged Congress to require crypto companies to do more to prevent fraud. and preserve states' power to protect investors and enforce their own laws against the crypto industry.

"Congress is considering legislation that will reduce the number of cops on the beat by restricting state and local law enforcement," James said about the CLARITY Act. "This is a mistake. State and local law agencies do the lion's share of law enforcement work in this country." 

James said crypto-related complaints received by her office have nearly tripled over the past three years. She cited Federal Bureau of Investigation (FBI) data showing Americans lost $11.4bn to cryptocurrency fraud in 2025, up 22% from the previous year.

She also noted that the president's family's cryptocurrency businesses have sparked additional concerns about conflicts of interest as the president earned more than $1.4bn from his crypto businesses in 2025. 

Crypto has rapidly become one of Trump's biggest business ventures, with Forbes estimating that his net worth increased from about $2.3bn in 2024 to around $6bn in 2026, with crypto contributing significantly.

James's statements should not come as a surprise to the crypto industry, as she has been one of its most active state regulators. She sued KuCoin in 2023, arguing that certain digital assets were securities under New York law, and filed separate lawsuits against Coinbase and Gemini in April over their prediction-market businesses. She has also been engaged in long-running litigation involving President Trump.

A growing divide

The legislation is also exposed a growing divide on Wall Street, with major asset managers and investment firms backing the crypto market structure bill while major banks and banking groups continue pushing lawmakers to change key provisions. 

The latest support came from the world's largest asset manager, BlackRock, which called the legislation "an important step" for establishing a regulatory framework for digital assets. The firm joins Fidelity, Franklin Templeton and Goldman Sachs in backing the bill.

Major financial firms say it would provide long-needed regulatory clarity, while banking groups argue that some provisions could hurt traditional lending markets. The differing positions show how sharply views of the bill diverge across the financial services industry and how difficult it may be for lawmakers to satisfy both sides.

BlackRock voices support

The backing of BlackRock, which oversees more than $15tn in assets, marks a significant endorsement for the bill as the asset manager has become one of the biggest traditional finance players in digital assets through its spot Bitcoin and Ether exchange-traded funds (ETFs) and tokenization efforts.

Another major asset manager, Franklin Templeton, framed the bill as a way to give both investors and firms clearer rules. "Investors would know what protections apply. Firms would know which regulators they answer to," the firm said in a 27 Jul X post calling on lawmakers to pass the bill.

Financial services firm Fidelity has also urged the Senate to vote the bill, saying just few days earlier that clear rules would provide more certainty for businesses. Investment bank Goldman Sachs CEO David Solomon said last week in an interview with Politico that he supports the bill even while saying it's not perfect.

Banks seek changes

Banking groups have taken a different view as entities like the American Bankers Association, Bank Policy Institute, Consumer Bankers Association and Financial Services Forum say they support federal rules for cryptocurrencies but want lawmakers to consider revisions. 

One of the biggest concerns is that the bill could leave a loophole that allows stablecoin issuers and others to offer rewards or yield to customers. Stablecoins are digital tokens that are pegged 1:1 to fiat currency, such as the US dollar, to main a steady value. 

The banking groups argue that this could encourage people to move money out of bank accounts and into stablecoins, leaving banks with fewer deposits to fund loans.

"The banking industry strongly supports establishing clear and rational rules of the road for digital assets, so consumers, the financial system and the economy are protected," the groups said in a joint 22 Jul statement. "Unfortunately, the latest version of the Digital Asset Market Clarity Act released today in the Senate still puts at risk the local lending that drives economic activity in the US."

JPMorgan Chase CEO Jamie Dimon has also been very vocal in criticizing the legislation, warning that some provisions could create an uneven playing field between crypto companies and traditional banks. Dimon's opposition to the legislation is noteworthy, because JPMorgan has become one of the largest traditional financial institutions involved in digital assets, developing blockchain payment networks, tokenized deposits and other services.

The Senate is expected to return to the bill after considering other legislation. If senators approve changes to the House version, lawmakers from both chambers would need to agree on a final bill before sending it to Trump to sign.

Sandmark reached out to BlackRock, Goldman Sachs, Fidelity and the American Bankers Association for comment but did not receive a response by publication time.