Essential Politics: Sam Bankman-Fried and the Fall of a Crypto King

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Early Monday, Sam Bankman-Fried, the disgraced former CEO of cryptocurrency exchange FTX (and former billionaire), made a bold prediction. I don’t think I will be arrested, he said during an appearance on Twitter Spaces.

Hours later, Bankman-Fried was in custody.

Late Monday night, police arrested Bankman-Fried at his home in the Bahamas after charges were brought against him in the Southern District of New York. The Department of Justice is seeking extradition to the United States to face eight separate charges, including wire fraud, conspiracy to commit wire fraud, conspiracy to commit commodity fraud and securities, conspiracy to commit money laundering and, finally, conspiracy to defraud the United States. states and violate campaign finance laws.

It was a stunning, albeit seemingly inevitable, result in the dramatic rise and fall of the poster child of the cryptocurrency industry. After a number of bankruptcies and crypto exchange meltdowns in the spring, Bankman-Fried has become the face of the legitimate side of an industry that has been linked to money laundering and the financing of illicit activities.

He was a familiar sight on Capitol Hill and lobbied Congress on crypto regulation, pushing for the Commodities and Futures Trading Commission to be a smaller, less aggressive regulator than the SEC to oversee crypto markets. .

He also became famous for his political spending, much of which was for the Democratic primaries. In one instance, he spent over $10 million on an obscure race in Oregon, only to have his candidate lose in a landslide.

He often said his political spending was related to promoting pandemic prevention and had nothing to do with his lobbying efforts, but in August I wrote about how his donations were often made to same people responsible for regulating the crypto industry; and, sometimes, only a few weeks before he is supposed to testify before them.

Bankman-Frieds’ arrest came the day before he testified before the House Financial Services Committee, chaired by Rep. Maxine Waters (D-Los Angeles).

So how did we get here and what’s next for Bankman-Fried, the former king of crypto?

Hello, readers, I’m Freddy Brewster. I’m an intern in the Washington bureau of the Los Angeles Times. This week, we’re talking about cryptocurrencies, international criminal conspiracies, and the downfall of one of the biggest alleged crooks of millennials.

How did we come here?

Exactly how FTX has fallen so far so fast is what Rep. Waters and the House Financial Services Committee are trying to figure out in the series of hearings that began Tuesday. (If you miss the political drama of the January 6 Committee hearings, I’m sure these hearings will get your fix.)

Along with Bankman-Fried, the Financial Services Committee subpoenaed John J. Ray III, the current CEO of FTX, who was tasked with overseeing the bankruptcy proceedings of FTX and its affiliates. Ray has decades of experience restructuring failing businesses and oversaw Enron’s bankruptcy proceedings.

But, in the Rays experience, FTX is special.

Never in my career have I seen such a total failure of corporate controls at all levels of an organization, from the absence of financial statements to the complete failure of any internal controls or governance, a Ray said in written testimony.

The collapse stems from the total control of the company’s operations by a very small group of grossly inexperienced and unsophisticated individuals who have implemented virtually none of the systems or controls necessary for a company to be entrusted with the money. or other people’s assets, Ray said. .

Waters said FTX’s hearings will focus on four key areas: harm to customers; FTXs is tied to Alameda Research, a crypto trading firm co-founded by Bankman-Fried; Rays’ findings as he oversees the bankruptcy; and finally Bankman-Frieds’ illegal transfers to himself and his friends and family.

A number of California lawmakers sit on the Financial Services Committee, so Golden State voters can see exactly how their politicians are advocating for consumer protections.

I am the only member of the House to have earned an F from the only crypto organization that rates members of Congress, Rep. Brad Sherman (D-Northridge) said during Tuesday’s hearing. My take is that I do consider Sam Bankman-Fried to be one big snake in a crypto Garden of Eden. The thing is, crypto is a snake garden.

The United States has an extradition treaty with the Bahamas, but it could be weeks before Bankman-Fried is brought back for trial.

During a court appearance on Tuesday, Bankman-Fried did not waive his right to an extradition hearing.

Mr Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options, his lawyer said in a statement.

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