Follow Slashdot blog updates by subscribing to our blog RSS feed

 



Forgot your password?
typodupeerror
×
Bitcoin Government

FTX's Failure Is Sparking a Massive Regulatory Response (coindesk.com) 66

"The collapse of FTX will likely give rise to a number of criminal and civil actions against the exchange and its executives, like former FTX CEO Sam Bankman-Fried," reports CoinDesk, citing a number of legal experts. "It's also likely to push forward actual regulatory changes, either via lawmakers or through federal agencies themselves." An anonymous reader shares an excerpt from the report: FTX filed for bankruptcy last Friday, days after halting withdrawals and a little over a week after CoinDesk first reported that the balance sheet of FTX sister company Alameda Research held a surprisingly large amount of FTT, an exchange token issued by FTX. FTX was "fine," Bankman-Fried said in response to questions about his exchange's solvency, before a series of events showed otherwise. As a result, several state and federal agencies launched or expanded investigations into the company, including the U.S. Department of Justice, the U.S. Securities and Exchange Commission, the Securities Commission of the Bahamas and the Bahamas' Financial Crimes Investigation Branch. Members of the U.S. Congress from both political parties are also calling for further action as a result of the collapse. Some lawmakers are even talking about holding hearings, potentially by the end of the year, said Ron Hammond of the Blockchain Association.

The fact that regulators apparently had no view into some of the major projects that fell apart this year -- such as Celsius, Three Arrows, Luna and now FTX -- is "precisely the problem," said an industry participant who works closely with policymakers. Still, the individual told CoinDesk that they don't expect any major legislative action to occur this year. Most likely, Congress will look at bills like the Digital Commodities Consumer Protection Act, a bill that Bankman-Fried supported but was written prior to that, in the upcoming year. According to an attorney who requested anonymity, the SEC may have an easier time kicking off the investigation just due to its mandate. "The SEC is in a much better position to go to court and get a freeze [on assets] if they believe there's a reason to do that," the attorney said. "The SEC also has a less cumbersome process for subpoenaing testimony and freezing documents." The SEC and DOJ are likely to cooperate though, to the extent that DOJ investigators may sit in on SEC interviews.

FTX has various U.S. connections, which is all the SEC and DOJ need to assert jurisdiction for their investigations. FTX appears to be preparing for these investigations, with FTX US General Counsel Ryne Miller having already told the entire company to preserve documents. A former federal prosecutor told CoinDesk that the bankruptcy court may also shed light on the situation, thus assisting government investigators with their probes. "The bankruptcy court has the ability to now oversee the company and to obtain information from the company that, let's say the DOJ might not have been able to obtain as easily pre-bankruptcy, and they'll likely have access to a new trustee or an examiner and be able to learn in essentially real-time what's going on," the former prosecutor said. Executives like Bankman-Fried may also "be in a tough spot with respect to" deciding whether to cooperate or assert Fifth Amendment rights against self-incrimination, the former prosecutor added.
"A complicating factor -- for FTX anyway -- may be the fact that Bankman-Fried has tweeted his way through his company's collapse," adds CoinDesk.

"It's a complete nightmare," said Ken White, a former federal prosecutor and a partner at the Brown White & Osborn law firm. "This is a situation where all sorts of agencies are going to be looking at this, the SEC, the FTC, and probably the Department of Justice. There are all sorts of potential criminal and civil consequences -- lawsuits. Civil lawsuits are a certainty. And here he is sort of tweeting out his thoughts about it. It's every attorney's nightmare of what a client might do."

The main issue being that Bankman-Fried repeatedly took to Twitter to reassure users that everything was fine. "It creates new bases for criminal or civil claims against him just based on those tweets," White said. "So if he says that everything's fine, that their assets are real assets, and that's not true, then that can be securities fraud, and wire fraud, all sorts of other stuff, not to mention all sorts of civil causes of action ... It is just disastrously reckless."
This discussion has been archived. No new comments can be posted.

FTX's Failure Is Sparking a Massive Regulatory Response

Comments Filter:
  • don't drop the soap your looking at hard time for all of that + money laundering

    • by Anonymous Coward

      *you're?

  • Good going guys. (Score:5, Interesting)

    by fahrbot-bot ( 874524 ) on Monday November 14, 2022 @06:47PM (#63051665)

    FTX's Failure Is Sparking a Massive Regulatory Response

    So... One of cryptocurrency's goals was to avoid government oversight/regulation, but it's so horribly managed -- or superbly mismanaged -- that it's inviting government oversight / regulation. Nice. Don't know if this is karma or irony, but well done. [... *golf clap* ...]

    Perhaps this is obvious, but it's pretty interesting (aka: suspicious) that the people running these exchanges always seem to claim they got "hacked" right after all the money "disappears" and their company goes "bankrupt". Maybe it's true, but seems like a good scam.

    • Somehow multiple government agencies will be able to find multiple charges against whomever they decide to target, despite the absence of regulations. Very strange.

    • Re:Good going guys. (Score:5, Interesting)

      by Darinbob ( 1142669 ) on Monday November 14, 2022 @07:20PM (#63051747)

      But the lack of government oversight never eliminates the possibility of government prosecution for fraud when fraud happens, which it did in this case.

      No matter how intangible the assets, it's still theft if they're stolen. Trying to argue in court that they had zero intrinsic value isn't going to fly because people have spent real money on these (foolishly, but almost everywhere it is still illegal to steal from fools).

      • because people have spent real money on these (foolishly, but almost everywhere it is still illegal to steal from fools).

        Apparently not the first four or five times. And each time someone laughed, said "I'm not *that* dumb", "this time it's different", "Ok it's safe now", or "Great, bargain prices" and set themself up for the same thing.

        (yes I know there have been more mini-events than that, I'm just grouping them in mega events, by batches)

        Ok ok, I've had my laugh. You're right, it's legal to scam fools, just not to actually steal from them while explicitly stating you weren't going to directly steal from them. I guess FTX g

      • A fool and his crypto is soon parted.
    • You're generalizing. These are all different things:
      a) blockchain technology
      b) cryptocurrencies
      c) centralized brokerages, lending platforms, and custodians
      d) decentralization, self custody

      Related, but very different. Practically all of the problems in the crypto space have been with (c), and since people put all in the same pot without truly understanding any of it, (c) makes (a), (b), and (d) look bad.
      But for example Bitcoin, is just chugging along as usual creating a new block roughly every 10 minutes, do

    • by gweihir ( 88907 )

      Indeed. A complete and utter market failure. Only free-market fanatics that still have their head up their asses can claim differently. Also a market failure everybody with a clue expected.

      Perhaps this is obvious, but it's pretty interesting (aka: suspicious) that the people running these exchanges always seem to claim they got "hacked" right after all the money "disappears" and their company goes "bankrupt". Maybe it's true, but seems like a good scam.

      This is so common that there even is a name for it: "rug-pull". My take is that this not being a lie to cover a criminal act is actually the exception.

      • This is so common that there even is a name for it: "rug-pull".

        Reminds me of this from the movie Broken Arrow [wikipedia.org]:

        Secretary Baird: "Broken Arrow." It's a Class 4 Strategic Theater Emergency. It's what we call it when we lose a nuclear weapon.
        Giles Prentice: I don't know what's scarier, losing nuclear weapons, or that it happens so often there's actually a term for it.

    • So... One of cryptocurrency's goals was to avoid government oversight/regulation, but it's so horribly managed -- or superbly mismanaged -- that it's inviting government oversight / regulation. Nice. Don't know if this is karma or irony, but well done. [... *golf clap* ...]

      The more that *something* fights to avoid any form of government oversight, the greatest the chance that this *something* is bound to be mismanaged (or is intended to be mismanaged.)

  • I wonder how many (Score:4, Interesting)

    by jmccue ( 834797 ) on Monday November 14, 2022 @06:49PM (#63051667) Homepage

    I winder how many super rich lost lots of money. As we all know, that is the only way this response would happen.

    Me, I stayed out and though a response like this should have happened years ago.

    • by youngone ( 975102 ) on Monday November 14, 2022 @06:59PM (#63051695)
      I was wondering that too, because a quick look at Sam Bankman-Fried's Wikipedia page shows that his only real ability is to have been born to a pair of law professors at Stanford Law school, so he's just a male version of the Theranos lady.

      He clearly leaned nothing from his time working at Jane Street Capital.

  • by Sebby ( 238625 ) on Monday November 14, 2022 @06:56PM (#63051687)

    "DeFi" really stands for "Deregulated Finance", and FTX's story proves it yet again.

  • by rsilvergun ( 571051 ) on Monday November 14, 2022 @07:02PM (#63051703)
    It's entire worth is based on money laundering, ransomware, drugs and Ponzi schemes. It can't survive even modest and minimal regulation of the kind we do today. This is why Warren Buffett said he wouldn't spend $25 on all the Bitcoin in the world. It's just greater full theory and a way for criminals to have a ledger of sorts. Take that away and all your left with is the world's least efficient and slowest gift card program
    • And nothing of value was lost.
    • Warren Buffett said he wouldn't spend $25 on all the Bitcoin in the world.

      Then he's an idiot because if he owned all the Bitcoin then he could use that to purposely crash all the cryptocurrency markets which would have a sizable ecological impact by halting all crypto-mining operations.

    • Re: (Score:3, Interesting)

      It can't survive even modest and minimal regulation of the kind we do today.

      Thats the thing Im wondering about - just how big the crash will be once regulators do step in and 99% of all exchanges and other crypto entities (DAO etc) realise that they cant stand up under even a moments casual regulatory gaze, and as a result fold like a cheap suit.

      Now *thats* going to be interesting to watch - peeps think the past year has been bad, watch as most of the crypto market disappears literally overnight.

      • maybe $100 tops. That's where it was topping out from the "true believers" before somebody noticed you could use it for money laundering and ponzi schemes. The money laundering brought it to $10k and the securities fraud pumped it briefly to $64k and then has it hovering around $20k thanks to the exchanges manipulating the market to prevent it from crashing while they try to snag as much for themselves as they can.
    • by louzer ( 1006689 )
      Crypto bad. Government money good. Enjoy high interest rates, layoffs and inflation.
  • by greytree ( 7124971 ) on Monday November 14, 2022 @07:06PM (#63051709)
    Why does law enforcement only start looking at these dodgy companies when they start going bankrupt, not while they are still luring in the suckers?

    When are they going to go after all the NFT con artists?
    • When are they going to go after all the NFT con artists?

      Because they're not con artists. Someone gives them money in exchange for something. They aren't hiding anything, not doing bait-and-switch. An NFT might lost most or all of its value, but that is based on market conditions.

      Would you say the same thing about people selling Beanie Babies?

      • by Firethorn ( 177587 ) on Monday November 14, 2022 @07:28PM (#63051765) Homepage Journal

        I argue that a lot of them actually ARE "con artists" even if they don't do anything criminal, due to the level of misrepresentation about what is actually being sold in many cases.

        I won't say that all NFT sellers are con artists, but there are certainly those that are out there.

      • People gave them cryptocurrency and got nothing in return other than a receipt that said they had x amount of cryptocurrency. A large chunk of cryptocurrency was transferred out the night before the exchange filed for bankruptcy.

        Please elaborate on how you rationalise that this isn't a con artist at work and isn't illegal and was just a matter of the cryptocurrency losing value.

      • by Dwedit ( 232252 )

        If they presenting NFTs as if it is the sale of a unique copy of a creative work, and sell NFTs of *someone else's* creative work while doing so, then they are running a scam.

      • Conning is knowingly misrepresenting the worth of what they are giving you in exchange for your money.

        Telling you NFTS - links to images - are worth ANYTHING is misrepresenting their worth.
    • Why does law enforcement only start looking at these dodgy companies when they start going bankrupt, not while they are still luring in the suckers?

      Because it's not illegal to lure in suckers who want to part with their money. It's also not illegal to lose that money and go bankrupt, but the latter process prompts an investigation to see if something illegal was done in the process of going backrupt.

  • by quonset ( 4839537 ) on Monday November 14, 2022 @07:09PM (#63051713)

    Once enough people lose their shirts in crypto, everything will work itself out.

    • No, it won't. People will keep on trying. Just like with good old fashioned Ponzi schemes and pyramid schemes. People don't learn their lesson, and they don't learn the lessons of others. They keep trying to reinvent the same failed schemes over and over again.

      Ponzi schemes and pyramid schemes don't go away on their own without regulation, so neither will crypto.
    • Because letting criminals run free without any fear of prosecution will definitely stop them from any further criminal activity?

  • ... too late.
  • If everyone pulls their coins out of the market and into cold wallets isn't a cold market a self-fulfilling prophecy? Especially when the underlying thing has no intrinsic value?

  • Now we just have to wait for coinbase, crypto.com and kraken to fall apart and that'll be the end of it for sure.

  • With all the hate that SBF got from his proposed draft regulations I guess in the end he will get his wish fulfilled as a new wave of rules, regulations, and compliances will now come down on the crypto community. Maybe that was SBF's long game. ....

    Or maybe not. :D

  • Seriously Millenials (Score:5, Interesting)

    by Whateverthisis ( 7004192 ) on Monday November 14, 2022 @07:47PM (#63051793)
    I'm rarely one to jump into the ring of generational judgements, but there is one thing I see millenials do more often than not as a group: keep talking when they should be shutting up.

    I get exactly why Bankman-Fried keeps tweeting, but every tweet is likely another criminal act of wire fraud. The guy needs to shut down, get a damage control firm and some lawyers and stop talking.

    • one thing I see millenials do more often than not as a group: keep talking when they should be shutting up.

      This seems like a result of people growing up using social media is sharing information in excess.

      I get exactly why Bankman-Fried keeps tweeting, but every tweet is likely another criminal act of wire fraud.

      Never interrupt your enemy when they are making a mistake. White collar criminals are the enemy of all peoples.

    • Ah yes, like those well known millennials, Trump and Alex Jones.

      One couldn't stop tweeting or rambling.

      One couldn't stop rambling or repeating lies even when told off by a judge directly.

      Seriously, millennials.
      • Musk is another. But just because there are people in all generations that don't know when to shut their mouth doesn't mean it applies to the group. Baby Boomers are quite good at not talking (perhaps too much) for example.

        But I can't tell you how many times I talk to a millenial on my staff or just in a social situation where you just cringe. They have a point, they make it, then they just keep talking, diluting the point and losing their credibility. I don't know why I see that amongst many in tha

        • You're a nerd. Or at least an introvert.

          You've obviously never been around normal people, of all ages, in social situations, where they keep on talking even after the point is made. I'm a "millennial". I've been in many social situations with people in their 60s and 70s who behave as you claim only millennials do.

          Keeping a conversation going, no matter how inane, is what all normal people do.
    • but there is one thing I see millenials do more often than not as a group: keep talking when they should be shutting up.

      Got some data to back that claim? Is it corrected for the fact that there are more millennials alive than any other generation, and that boomers are struggling to use their smartphones without their reading glasses?

      I suspect you have a lot of observational bias in your classification of millennials as a problem group spouting bullshit on twitter. #covefe.

      • by Viol8 ( 599362 )

        "boomers are struggling to use their smartphones without their reading glasses?"

        Unless you're one of a small genetic minority, so will you be by the time you're 50.

  • by backslashdot ( 95548 ) on Monday November 14, 2022 @09:48PM (#63052003)

    What more is needed for the enabling act? A proven formula. We saw that after 9/11 when the "PATRIOT" Act was passed and torture, indefinite detention, was deemed acceptable. Politicians just wait for an opportunity, and when they get tired of waiting they manufacture one.

  • We can also have actual coins that you can put in a real actual wallet!
    But we can maybe write crypto on the side of the coin to make them look cool.
    That would make them as cool as those ugly Color-by-Number baboon pictures NFT crypto things.

He keeps differentiating, flying off on a tangent.

Working...