Editor’s note: Casey Michel is a writer and investigative journalist covering kleptocracy and dark money networks around the world. He is the author of “American Kleptocracy: How the US Created the World’s Largest Money Laundering Scheme in History,” and is working on a book investigating foreign lobbying in Washington, DC. The opinions expressed in this article are his own. Read more opinion on CNN.
On Tuesday, prosecutors for the Southern District of New York unsealed an indictment that revealed eight criminal charges against the former FTX boss. Sam Bankman-fried, including wire fraud and various conspiracy charges. And the Securities and Exchange Commission (SEC) accused him of defrauding clients and investors.
Authorities allege Bankman-Fried, 30, spent years lying about the financial health of FTX, a cryptocurrency exchange that collapsed in November in one of the most spectacular financial implosions in years. Bankman-Fried is currently in the Bahamas, where FTX operated from, and is awaiting a extradition hearing.
The whole fiasco is not surprising at all and in many ways could have been foreseen, as indeed some did. After all, this isn’t the first case of alleged fraud we’ve seen from a figure like Bankman-Fried. And contrary to what any lawyer would advise, SBF, as it is commonly known, did not remain silent. He went on an apology tour, tweeted, spoke to reporters and even took part in the annual event virtually. DealBook Summit in New York last month, where he said he “never intended to commit fraud against anyone.”
In some ways, these types of cases, many of which resemble traditional Ponzi schemes, are as old as American capitalism itself. They almost always combine a lack of regulation and supervision with promises of easy wealth schemes, all based on some kind of proprietary technology that seems to generate profit out of thin air.
Just look through American history, and the same story repeats itself, over and over again. In the early “Great Depression” in the United States, the Panic of 1873speculative investors operating without any oversight in the rail industry effectively collapsed the US economy, leading to a spiral of bank failures and widespread destitution.
Half a century later, in the late 1920s, the crash of the stock market, in which more Americans had invested funds, without any kind of supervision, prompted a series of bank runs that led to the current Great Depression. And in 2008, bad loans reimagined as unique financial products caused the Great Recession, with regulators asleep at the wheel along the way, all of which not only collapsed the economy, but led to a foreclosure crisis, the repercussions of which are still being felt. feel.
Time and time again, the US financial industry has seen new untested financial tools emerge (railroad bonds, stock purchases, mortgage derivatives) without any proper regulation and supervision. Time and time again, money has rushed in, seeking to take advantage of new industries and financial tools. And time and time again, others have taken advantage of new investors and plundered as much wealth as they could.
The details of the alleged Bankman-Fried fraud will likely take months, and possibly even longer, to unravel. But the larger story is relatively straightforward and familiar: He allegedly spent years scamming unsuspecting people. investors of huge sums of money, and then allegedly used that money not only to finance his lavish lifestyle, but also to set up tens of millions of dollars in illegal campaign contributions.
And meanwhile, he claimed that FTX maintained a “risk engine” that would keep the company’s finances healthy, and presented himself as the cautious and conservative face of the chaotic cryptocurrency industry. but as one SEC official said“That veneer was not just thin, it was fraudulent.”
Between the general lack of regulation and the entry of billions of dollars into the crypto industry Over the past year, the only surprising thing about the FTX crash is that it didn’t happen sooner.
In that sense, Bankman-Fried may be no different from its predecessors. Given the continuing lack of regulation and surveillance in the cryptocurrency industry, Bankman-Fried is not just a new take on an old story, but hopefully the start of a long-awaited change in the industry, with the kind of regulations and transparency needed to prevent than other scammers, scammers, and criminals just stepping in to replace Bankman-Fried.