Casey Michel: An old tale of a fraudster, a titan in the era of financial regulation, and a rising tide of transparency and regulation in the crypto industry
Editor’s Note: Casey Michel is a writer and investigative journalist covering kleptocracy and dark money networks across the globe. He is the author of “American Kleptocracy: How the US Created the World’s Greatest Money Laundering Scheme in History,” and is at work on a book investigating foreign lobbying in Washington, DC. The opinions expressed in this article are his own. Read more opinion at CNN.
Alameda was allowed to invest client assets by FTX at Bankman- Fried’s direction and used FTX customer funds to make riskier investments than treasuries.
The entire fiasco is completely unsurprising, and in many ways could have been foreseen — as indeed some did. Bankman-Fried is a figure we have seen other cases of alleged fraud from. And, as opposed to what any lawyer would advise, SBF, as he is commonly known, didn’t remain silent. He went on an apology tour, tweeting, speaking to reporters and even virtually participating in the yearly DealBook Summit in New York last month where he said he “didn’t ever try to commit fraud on anyone.”
In some ways, these kinds of cases, many of which resemble traditional Ponzi schemes, are as old as American capitalism itself. They almost always pair a lack of regulation and oversight with promises of easy wealth schemes, all predicated on some kind of proprietary technology that seems to generate returns out of thin air.
Look at the history of the United States and you will see the same story over and over again. The American economy was ruined in the initial Great Depression of the 1870s by speculative investors that were not regulated by the railroad industry.
Between the overall lack of regulation and the influx of billions of dollars into the crypto industry over the past year, the only thing surprising about the FTX collapse is that it didn’t happen sooner.
In that sense, Bankman-Fried may be no different than his predecessors. Given the continued lack of regulation and oversight in the crypto industry, Bankman-Fried is not only a new version of an old story, but hopefully the start of long-overdue change in the industry, with the kinds of regulations and transparency needed to prevent other scammers, fraudsters and criminals from simply stepping in to replace Bankman-Fried.
Ms Ellison and Mr. Wang did not agree with Mr. Bankman-Fried. The documents filed yesterday by the authorities claim that Bankman-Fried was not aware of what was happening at Alameda.
Three days before Christmas 2020, the US Securities and Exchange Commission charged a San Francisco-based company that provides infrastructure for cross-border payments, and two of its executives with conducting a $1.3 billion unregistered securities offering. The same day, Ripple announced it would “fight.”
The SEC defines securities as contracts that amount to “an investment of money, in a common enterprise, with a reasonable expectation of profit, to be derived from the efforts of others.” The classification brings with it a range of regulatory and disclosure requirements. If stablecoins were universally determined to be securities, issuers would be required to register them with the SEC, giving the agency a chance to reject coins. Stable coins could be subject to enforcement action.
When the SEC Charged Ripple and its Executives XRP to a Non-Security Contract had a Judgment
After more than two years of protracted legal conflict, all of the evidence has been heard, and there remains nothing left but for Judge Analisa Torres of the Southern District of New York to issue a verdict. Those with a stake in the outcome, which will reverberate throughout the crypto sector, have been attempting to divine when a judgment might land, based on the judge’s past ruling patterns. Some believe a resolution is only days away.
When the SEC charged Ripple and its executives, it declared that XRP met these criteria and that, by raising funds through the sale of XRP, the company was in violation of federal securities law.
The lawyer that provided expert testimony on the case for holders of XRP, John Deaton said that it would be very bad news for the businesses in the space.
There is no law in the US that tells us whether or not we should treat the assets as securities for purposes of the Howey test. Under the test, an investment contract (in this context, a security) is defined as “an investment of money, in a common enterprise, with a reasonable expectation of profits, to be derived from the efforts of others.”
Although Ripple is not itself the issuer of XRP, which sits atop the open source XRP Ledger, some of its executives were part of the group that developed the token. The firm sold off some of its stake in 2010 after receiving a donation of 80 billion XRP, which is worth around 30 billion at the moment.