Cynthia Lummis says Democrats proposed a ten-year criminal-conviction restriction that Republicans accepted for Regulation Crypto. Existing SEC fundraising exemptions already contain bad-acto
Senator Cynthia Lummis has revived a dispute over the failed CLARITY Act, accusing Democrats of blocking legislation that incorporated their own proposal to prevent convicted financial criminals from raising capital through a new cryptocurrency fundraising exemption.
Democrats asked that bad actors banned from other securities offerings also be banned from crypto offerings. We made that change and incorporated it into the Clarity Act.
Democrats voted against keeping repeat offenders out of crypto.
— Senator Cynthia Lummis (@SenLummis) November 6, 2026
The Wyoming Republican said Democrats had proposed excluding individuals convicted within the previous ten years of felonies involving insider trading, money laundering, terrorist financing or financial fraud. Republicans accepted the restriction, she said, but Democrats subsequently opposed the broader legislation.
The claim highlights a contradiction in the negotiations, though not necessarily in Democrats’ position on financial crime. The Senate’s September 15 vote concerned whether to advance the entire market-structure bill, rather than whether to adopt that individual safeguard.
The official Senate roll call confirms that cloture on the motion to proceed to H.R. 3633 failed by 49 votes to 50, short of the required 60-vote threshold. Four Republicans joined the opposition, while one Democrat did not vote.
The criminal-conviction restriction would not have introduced an entirely new principle into U.S. securities regulation.
Under SEC Rule 506(d), certain criminal convictions, regulatory sanctions and court orders already disqualify issuers and other covered persons from relying on Regulation D’s Rule 506 exemptions.
The existing framework is more nuanced than a blanket ten-year prohibition.
For qualifying criminal convictions, Rule 506(d) generally applies a ten-year lookback to covered individuals, but a five-year period to issuers, their predecessors and affiliated issuers. Other disqualifying events, including certain regulatory orders, have different timeframes.
It also reaches conduct beyond criminal convictions. SEC disciplinary orders, relevant court injunctions and certain CFTC or state regulatory actions can independently trigger disqualification.
That distinction matters for Regulation Crypto.
Lummis’s description identifies four categories of felony offenses, but does not establish whether the proposed provision would cover the same range of directors, promoters, beneficial owners and intermediaries as Rule 506(d), or provide comparable exceptions and waiver procedures.
Those details determine whether the safeguard would be stronger or weaker in practice.
A narrowly drafted restriction could exclude a convicted promoter while failing to capture other sanctioned participants. Conversely, a broader provision might prevent an issuer from using the exemption even when the misconduct involved an individual no longer exercising control.
The appropriate benchmark is therefore not simply the length of the prohibition, but the people covered, disqualifying events and available enforcement mechanisms.
The dispute over convicted offenders was one element of a much larger negotiation.
On September 14, Lummis, Senate Banking Committee Chairman Tim Scott and Agriculture Committee Chairman John Boozman released revised legislation incorporating what they described as 126 substantive Democratic requests.
The changes addressed political ethics, state enforcement authority, decentralized finance and financial-stability risks associatedwith payment stablecoins.
The proposal also tightened Regulation Crypto’s fundraising limits. According to Lummis, Democrats requested a reduction in the annual ceiling from $75 million to $50 million and a $200 million lifetime cap, both of which Republicans accepted.
Yet the revised package failed to resolve the central political disagreements.
Democrats continued to seek stronger safeguards addressing conflicts of interest involving elected officials and their digital-asset businesses. Questions also remained over the division of regulatory authority between the SEC and CFTC, particularly for tokens whose characteristics change after issuance.
The Republican proposal would have expanded the CFTC’s role in digital commodity markets while retaining important SEC responsibilities for fundraising and securities-related activity.
That division has practical consequences. An issuer’s initial token sale may involve an investment contract under securities law even if subsequent transactions in the underlying asset receive different regulatory treatment.
The legislation sought to clarify that boundary, but disagreement over the accompanying protections prevented the Senate from advancing the framework.
The legislative stalemate does not eliminate existing routes for companies seeking to raise capital.
The SEC already provides several exemptions, although none automatically authorizes a cryptocurrency offering merely because its issuer meets a fundraising threshold.
Regulation D Rule 506(b) permits eligible private offerings without a federal dollar ceiling, but generally prohibits public solicitation. Rule 506(c) allows broader advertising, provided all purchasers are accredited investors and their status is reasonably verified.
Regulation A Tier 2 permits qualifying public offerings of up to $75 million over 12 months, subject to SEC qualification, disclosure requirements, audited financial statements and ongoing reporting obligations.
Regulation Crowdfunding provides another route for smaller qualifying offerings through registered intermediaries, with its own investor limits and bad-actor provisions.
These are securities-law mechanisms, not interchangeable crypto licenses.
For example, a token issuer using Rule 506(c) must still address whether the instrument constitutes a security, who may purchase it, resale restrictions and applicable anti-fraud obligations. Filing Form D is a notice requirement, not SEC approval of the offering.
An offshore sale may also require separate analysis under Regulation S and applicable foreign laws. Simply locating purchasers outside the United States does not automatically remove U.S. regulatory exposure.
The practical cost of the CLARITY Act’s failure is therefore continued uncertainty over the treatment of digital assets across their issuance and secondary trading.
A company may have a legally available fundraising exemption while still facing unresolved questions about exchange listings, broker-dealer requirements and whether later token transactions fall under SEC or CFTC jurisdiction.
With the November 3 midterm elections completed, Congress is entering its lame-duck period with limited time remaining to revive comprehensive cryptocurrency market-structure legislation.
The September procedural defeat leaves the CLARITY Act without a clear route to enactment before the current congressional term ends in January. Any renewed effort will have to address unresolved disagreements over political ethics, investor protection and the division of authority between the SEC and CFTC.
For issuers, the immediate priority remains compliance with existing securities law. For lawmakers, the unresolved challenge is designing a dedicated digital-asset framework whose safeguards are sufficiently comprehensive to secure bipartisan support.
Lummis’s criticism illustrates how negotiated investor protections can become casualties of a broader legislative disagreement. Whether the criminal-conviction restriction survives into a future bill will depend on the next round of negotiations, but its inclusion alone cannot settle the larger dispute over cryptocurrency regulation.
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