Lawmakers are grappling with the sheer scale of FTX’s missing billions

Lawmakers are grappling with the sheer scale of FTX’s missing billions

Lawmakers are grappling with the sheer scale of FTX’s missing billions


Lawmakers on Wednesday attempted to address the stunning collapse of cryptocurrency exchange FTX a day after federal prosecutors filed a case of blatant financial crimes allegedly perpetrated by its former CEO, Sam Bankman-Fried, who is being held by state authorities. Bahamas.

Bankman-Fried, often known as “SBF,” was arrested Monday at his luxury compound in Nassau at the request of the U.S. government, and was charged with multiple felonies including conspiracy, fraud, money laundering and financing violations of the electoral campaign.

The Justice Department, the Securities and Exchange Commission and the Commodity Futures Trading Commission said Bankman-Fried, 30, used consumer deposits on his FTX platform to fund risky bets through his hedge fund Alameda Research.

Senate Banking Committee members in a Wednesday hearing reviewed proposals to regulate cryptocurrency markets, including enforcing stringent conditions like those on gambling, classifying cryptocurrencies as securities, and lobbying agencies federal governments to extend existing regulations for banks and brokerage firms to the cryptocurrency markets.

Senate Banking Committee Chairman Sherrod Brown (D-Ohio) accused cryptocurrencies of being “easy, too easy” for corruption and savaged celebrity endorsers, saying they duped investors with glitzy commercials and online ads of the Super Bowl.

Senator Patrick J. Toomey (Pa.), the top Republican on the Senate Banking Committee and a leading cryptocurrency advocate in Congress, has called for a more lenient response to the FTX crisis and warned against punishing the cryptocurrency industry for problems in a trade.

He compared the FTX meltdown to the subprime mortgage crisis of 2008. “Have we decided to ban mortgages?” asked Toomey, who will leave the Senate in two weeks after failing to seek reelection. “Obviously not.”

He suggested that cryptocurrencies could protect against inflation and allow for private financial transactions.

“Let’s remember to distinguish between human failure and the tool with which the failure occurred,” Toomey said. “In this case, the tool is software and a code has committed no crime.”

Prior to its collapse, FTX had been the third largest cryptocurrency exchange in the world by volume. The company’s slump began last month, when Changpeng Zhao, chief executive officer of rival cryptocurrency exchange Binance, announced that he would sell an FTX-issued crypto token worth $530 million. Bankman-Fried relied on the native token to secure his companies’ sizable debts.

The move sparked panic, with FTX customers rushing to withdraw $5 billion worth of deposits from the platform. In a last-minute offer to meet the demands, Bankman-Fried asked Zhao for help, and the Binance CEO agreed to buy FTX. Ma Zhao reneged the next day, saying a review of FTX’s books revealed “client funds mismanaged.” Two days later, Bankman-Fried resigned and the company declared it was filing for bankruptcy.

“One put the other out of business intentionally,” Kevin O’Leary, an entrepreneur and “Shark Tank” TV personality who was paid $15 million to promote FTX, told the Senate jury.

FTX clients are filing a class action lawsuit against O’Leary and 10 other FTX celebrity endorsers – including Tom Brady, Gisele Bündchen, Larry David and Naomi Osaka – arguing that such personalities should take responsibility for luring consumers into a bad deal.

An O’Leary spokesperson did not respond to a request for comment on the lawsuit. Representatives for the other 10 defendants did not respond to requests for comment or declined to comment.

Other witnesses included Hillary Allen, a law professor at the American University of Banking and Securities Regulation; Jennifer Schulp, who studies financial markets at the conservative Cato Institute; and Ben McKenzie Schenkkan, actor and star of TV hits “The OC” and “Gotham.” McKenzie Schenkkan has become one of the unlikely but most prominent critics of the cryptocurrency industry, arguing that it is a bubble full of evildoers. He is cowriting a book on the industry to be published this summer.

When Brown asked witnesses whether “carelessness, misconduct or worse” similar to FTX was present in other cryptocurrency companies, McKenzie Schenkkan replied that it was “endemic”.

Brown said, “FTX and Alameda Research have capitalized on the cryptocurrency industry’s appetite for speculation.”

The hearing came as Brown signaled a desire to work with top financial regulators to create federal regulation for the cryptocurrency industry. Other panelists have their own proposals, and Sen. Elizabeth Warren (D-Mass.) is adding to them with a bill — co-sponsored by Sen. Roger Marshall (R-Kan.) security risks posed by cryptocurrency. The measure seeks to more rigorously apply anti-money laundering standards already imposed on traditional financial institutions to cryptocurrencies.

“Crypto doesn’t get a pass to help the world’s worst criminals, no matter how many TV ads they run or how many political contributions they make,” Warren said during the hearing.

If convicted, Bankman-Fried faces up to 115 years in prison over charges brought by regulators and prosecutors. He appeared to fight the US extradition request during an appearance in a Bahamian court on Tuesday. A judge ordered him to be held without bail after local prosecutors argued that he was a flight risk and that he may have hidden money in other countries.

Bankman-Fried’s attorneys countered that their client suffered from depression and had dietary restrictions that could not be met in prison. They also promised that Bankman-Fried would appear in future proceedings.

Wednesday’s Senate proceedings came a day after the House Financial Services Committee held a hearing that included John J. Ray III, the new CEO of FTX, who was brought in to clean up the company’s finances . radius he called Bankman-Fried’s actions “plain old embezzlement”. Ray said it would take “months, not weeks” to recover lost consumer deposits, noting that “we won’t be able to recover all losses here.”

US officials called Bankman-Fried’s actions “one of the largest financial frauds in American history,” during a press conference Tuesday, and hinted that more charges against other FTX officials and Bankman-Fried associates could be forthcoming. .

The Justice Department indictment, filed in the Southern District of New York, involves “known and unknown” co-conspirators. The SEC complaint includes details of home purchases and loans for Bankman-Fried, his parents and FTX executives worth at least $2 billion allegedly derived from ill-gotten gains.

“Neither the fact of the loans and purchases, nor the poor documentation of significant corporate liabilities and expenses, have been disclosed to investors,” the complaint said.

Prior to the collapse of FTX, Bankman-Fried pursued political and pop culture influence. He was the second-largest Democratic donor in the 2022 midterm elections, billing himself as the top cryptocurrency industry surrogate in Washington. His mass of hair and philanthropic pledges — an approach known as effective altruism — have endeared him to legions of followers online.

But FTX has also pursued major marketing ploys to boost consumer confidence in the industry. Bought advertising space on Major League Baseball umpire uniforms. The National Basketball Association’s Miami Heat said it would terminate its $135 million arena naming rights deal with FTX following the company’s collapse. The agreement, signed in 2021, was to last 19 years.

After FTX’s collapse, politicians struggled to distance themselves from Bankman-Fried. In the two years leading up to the November midterm elections, the crypto executive gave $40 million to federal candidates and constituencies, according to federal records. Most of his money went to Democrats, though Bankman-Fried hinted at further undisclosed contributions to Republicans.

Two of Bankman-Fried’s biggest beneficiaries in 2022 were the House Majority PAC and the Senate Majority PAC, which help elect Democrats to their respective houses. Those organizations alone have received about $7 million from him in the past two years, federal data shows.

Damian Williams, the US attorney for the Southern District of New York, called the Bankman-Fried donations “dirty money” used to attempt to influence political decisions.

On Tuesday, two key lawmakers, Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.), confirmed that their offices have donated or will donate money received from Bankman-Fried to charity. The two had been working side-by-side with the now-fallen cryptocurrency tycoon on legislation seen as friendly to the industry.

Even before his arrest, though, some lawmakers had begun looking to part ways with a man who had once been in their best graces.

Rep. Hakeem Jeffries (DN.Y.), who will become the House Minority Leader in the upcoming Congress, made his contributions to the American Diabetes Association several weeks ago, according to an aide. Sen. Joe Manchin III (DW.Va.) contributed his monies to a local food bank before Thanksgiving, the office said. And Senator Kirsten Gillibrand (DN.Y.), a longtime advocate for cryptocurrencies, gave her donation last month to a nonprofit that fights poverty, according to a spokesperson.

Leave a Reply

Your email address will not be published. Required fields are marked *