Will SBF face the consequences of FTX’s mismanagement? Don’t count on it

Will former FTX CEO Sam Bankman-Fried be held accountable for his mismanagement of investor funds?

After most entities tied to its cryptocurrency exchange became insolvent last week, blockchain analysts concluded that the insolvencies resulted in part from the fact that the exchange’s trading house, Alameda Research, had spent nearly $10 billion in cash that technically belonged to FTX customers. To date, the company has declined to elaborate on the contractual details that made the arrangement possible – or legal.

The day after The collapse of FTX, skeptics wondered if the elite – in Washington or elsewhere – would be motivated to investigate the situation with any rigor. Tesla, SpaceX and Twitter CEO Elon Musk suggested in a Nov. 13 tweet that he was among those critics, sharing an image that links Bankman-Fried — also known as “SBF” — to the president. of the Securities and Exchange Commission, Gary Gensler. Bankman-Fried is a graduate of the Massachusetts Institute of Technology, the image notes, where Gensler served as a professor. And he’s been romantically linked to Alameda Research CEO Caroline Ellison, a Stanford graduate whose father, Glenn Ellison, also teaches at MIT.

There are also more serious reasons to wonder who might be interested in holding SBF accountable – like a November 14 glowing interview with SBF published by New York Times writer David Yaffe-Bellany. Noting that SBF had been “compared to financial titans like John Pierpont Morgan and Warren Buffett,” Yaffe-Bellany says that SBF “did, however, agree with critics in the crypto community who said it had broadened its business interests too quickly across a wide swath of industry.

OK, but what about the allegation that Alameda used more than half of FTX’s $16 billion in customer deposits to complete failed trades? “He said the size of the position was several billion dollars but declined to provide further details,” The Times noted before continuing.

Related: The Market Isn’t Up Anytime Soon – So Get Used To The Dark Times

What about new blockchain evidence that indicates Alameda used advanced knowledge of the assets FTX would list in order to inform its purchases? Such “front-running” is a form of insider trading – one that a lawyer might consider illegal. The Times didn’t even address the issue.

The enthusiasm for the media is not the only advantage enjoyed by SBF. As some observers — not the New York Times, but others — have noted, he also wields some political clout resulting from hours spent patronizing Capitol Hill, in addition to the tens of millions he has spent on contributions. His donation of $5.2 million to President Joe Biden’s 2020 presidential campaign made him its second largest CEO donor. He gave another $39.8 million political action committees and primarily Democratic-affiliated candidates in 2022.

Related: Let’s move on from the FTX meltdown and back to basics

Of that, $27 million went to a group called Protect our Future. The group reported spend about $24 million directly on candidate races — including $250,000 in Support newly elected New Jersey Rep. Robert Menendez Jr., whose father serves on the Senate Banking Committee and the Senate Finance Committee. (As some may recall, a federal jury dropped corruption charges against Menendez Sr. in 2017 after failing to reach a verdict. A spokesperson for Menendez said in October that he faced a new federal investigation into similar allegations.)

It is perhaps understandable that some observers wonder whether SBF has faced the appropriate level of regulatory scrutiny – or whether it will in the future. “I want to know how many whistleblower complaints have been filed with the SEC advising them of the FTX fraud,” Blockchain Association Chief Policy Officer Jake Chervinsky wrote in a Nov. 15 tweet. , before referring to a March 23 meeting between Gensler and SBF. “I want to know how many were deposited before FTX met with Chairman Gensler’s office to talk about a romance deal. I want to know why our ‘beat cop’ was blind to this.

Helius Labs co-founder Mert Mumtaz made a similar comment in a tweet a day earlier. For context, it came in response to an exchange between Democratic Rep. Alexandria Ocasio-Cortez and Barron reporter Tae Kim, who alluded to SBF rank in a game called League of Legends. “Apparently SBF is worse at playing video games than @AOC,” Kim tweeted, to which Ocasio-Cortez replied, “VCs [venture capital firms] were impressed with Bronze III? ?)

Mumtaz expressed his opinion by referring to Alexey Pertsev, the developer imprisoned this year for writing the code that enabled the Tornado Cash crypto-anonymization service. “American politicians when someone writes an open-source crypto protocol: straight to jail,” Mumtaz wrote. “American politicians when someone literally scams people out of billions while running a drugged polycule: ‘haha, he’s bad at the league.'”

Of course, there are things regulators and elected officials could do to prove the skeptics wrong. For example, lawmakers with whom SBF has a connection — like the Menendez clan — could recuse themselves from participating in the inevitable congressional hearings related to the FTX crash.

Second, Gensler and other regulators could aggressively – and publicly – investigate the links between FTX US and FTX’s international operations. They might refrain from dishonestly seizing the moment to target completely unrelated projects in decentralized finance (DeFi) – which are just pieces of code created and sometimes maintained by developers, such as Tornado Cash. The inherent dishonesty of using failed platforms as an excuse to target competitors has previously led to claims that SBF was a “federal” that intentionally tarnished cryptocurrency. While these claims have been mostly lighthearted so far, it seems almost certain that they will snowball into real conspiracy theories.

Finally, lawmakers tackling cryptocurrency and finance issues could focus on crafting rules that prevent industry leaders from using and abusing their customers. That would represent a welcome pivot from the approach taken by congressional Democrats, who have focused much more on crafting rules targeting the most broke Americans. Take, for example, the Biden administration’s failed proposal to require banks to report data on bank accounts with more than $600 in annual transactions.

We will soon find out if the American ruling class decides to adopt any of these measures by ejecting SBF from the industry and cracking down on copycats. But if the past is a prologue, do not hope.

Rudy Takala is the Opinion Editor at Cointelegraph. He previously worked as an editor or reporter at newsrooms such as Fox News, The Hill and the Washington Examiner. He holds a master’s degree in political communication from the American University in Washington, DC.

The opinions expressed are those of the author alone and do not necessarily reflect the views of Cointelegraph. This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice.

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