Monday’s arrest of Sam Bankman-Fried in the Bahamas, followed by a scathing indictment, have increased calls for further regulations in the opaque cryptocurrency space, and prompted an investigation into whether stolen money was donated to American politicians – a severe violation of campaign finance laws.
Importantly, as laid out in the indictment, Bankman-Fried’s actions involve corruption at the highest levels of our financial and political system.Should Bankman-Fried be convicted on all counts he is charged with, he faces up to 115 years in prison – in effect, a life sentence.
Ultimately, the revelation of the full scope of Mr.Bankman-Fried’s crimes demand nothing less than massive oversight of the cryptocurrency environment, along with the Super PAC’s funded with crypto’s “dark money.”
In what the DOJ and others have described as a “house of cards,” Sam Bankman-Fried is alleged to have presided over an unprecedented criminal enterprise, and he now faces eight criminal charges including wire fraud, conspiracy to defraud the United States, and using stolen money to buy political influence.
Indeed, Damian Williams, the U.S.attorney for the Southern District of New York recently alleged, “Dirty money was used in service of Mr.
Bankman-Fried’s desire to buy bipartisan influence and impact the direction of public policy in Washington.”
Put simply, John J.
Ray, FTX’s new CEO, who is shepherding the company through bankruptcy proceedings and further litigation, testified before Congress that FTX and Bankman-Fried committed, “old fashioned embezzlement,” by “taking money from customers and using it for your own purpose.”
While these allegations and more will continue to be litigated in the coming months, it’s important to analyze the implications of FTX’s collapse and Bankman-Fried’s arrest given their magnitude on the crypto industry generally and Bankman-Fried’s mega political donations.
In terms of the impact on the crypto industry, companies that operate crypto exchanges like FTX, companies that trade crypto, and companies that generate their own crypto tokens, among others, should expect a sea-change in the regulation of their businesses.
The Biden administration is clearly behind the 8-ball on such regulations, having released its first and only proposal for what crypto regulation should look like just three months ago.
The administration’s calls for the traditional financial services industry to make international transactions easier, while also still cracking down on fraud in the digital asset space are well-intentioned and would be a positive foundation for crypto regulation.
Given the stakes though, this is clearly too-little, too-late for investors and customers of exchanges like FTX who have seen their accounts wiped out this year and leaves major questions for those with money or investments at other crypto firms.
It’s no surprise that Sam Bankman-Fried himself regularly met with lawmakers on Capitol Hill to lobby against such regulation.He also contributed nearly $40 million, mostly toward Democratic candidates or Democratic-leaning PAC’s during the 2020 and 2022 elections.
It is even more troubling that Rep.Maxine Waters – who chairs the House Financial Services Committee – originally planned to not subpoena testimony from Mr.
Bankman-Fried, prompting intense criticism of the lawmaker, given that last month, she avoided answering questions about whether Democratic lawmakers and the DNC should give back tainted-donations.
Based on the sheer incompetency of FTX’s operation, it strains credulity that Bankman-Fried or FTX played by the rules on Capitol Hill when it came to the source of these donations, and politicians who accepted his money deserve the criticism they receive.
Right now, there is only one viable piece of legislation drafted in Congress to regulate the crypto industry, the Digital Commodities Consumer Protection Act (DCCPA), which Bankman-Fried ardently supported and personally lobbied for.
To be sure, Bankman-Fried and crypto entrepreneurs like him who set the priorities in this bill wanted to give the Commodity Futures Trading Commission (CFTC) oversight of crypto trading, rather than the much larger Securities & Exchange Commission (SEC), which is entrusted with regulating traditional investment markets.
Based on the more limited resources and tools at the CFTC’s disposal, the DCCPA would not have done anything to enable them to prevent a collapse of FTX’s magnitude from happening.
Looking forward, it’s clear that the CFTC would also lack the capability or bandwidth to regulate any other crypto firm because that was Bankman-Fried and other’s design: saddle the weakest regulator possible with the entire crypto industry and continue to carry out fraud at private firms.
Regardless of one’s opinion on the investment value of any crypto currency or token, it is crucial to learn how and where Bankman-Fried lobbied lawmakers and regulators alike in order for American consumers to have any confidence in the crypto industry in the future.
At the same time, capable regulators need the authority and power to protect investors from these multibillion dollar collapses which are coming to define the crypto industry.
Douglas Schoen is a longtime Democratic political consultant..