In Bankman-Fried’s alleged FTX scam, they obviously perceive such an opportunity — a multibillion-dollar implosion, easily portrayed as one of those crises that should never be permitted to go to waste.
But here’s the thing: The schemes described in the Justice Department’s indictment and the SEC’s civil complaint against Sam Bankman-Fried reflect run-of-the-mill fraud — “old-fashioned embezzlement,” was the apt description offered by John Ray III, the new CEO brought in to clean up the FTX mess. Sure, the dollar amounts are prodigious, but it’s not like we’ve never seen even bigger numbers before — remember Enron, WorldCom, Bernie Madoff, and so on.
The FTX scandal arises out of the crypto sector, but it does not stem from the opaque nature of cryptocurrency. If what the government is alleging proves true, then you hardly need a Ph.D. in blockchain to grasp it: SBF tricked investors into trusting him with their funds, and then diverted them to his own use through his hedge fund, Alameda. To carry off the scheme, he used a series of internal accounting tricks to conceal what he was doing and how deeply in hock Alameda was to FTX customer funds. Finally, the clock struck midnight, as it inevitably does with Ponzi-type schemes. People grew suspicious, demanded their money back, and Bankman-Fried couldn’t pay them.
Crypto happened to be the context, but a scheme such as this could have arisen in any asset class. Investors could instead have been gulled into parting with their dollars, stock, fine art: You name it. Consequently, the FTX scandal should not be a clarion call for a suffocating degree of cryptocurrency regulation.
[I have been pointing out the same thing all along. No cryptocurrency collapsed in the FTX/Alameda scam. The *exchange* collapsed through old-fashioned fraud. — Ed]
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