Why hasn’t Sam Bankman-Fried been arrested?

Good question.

Why does Gary Gensler still have his position as head of the Securities Exchange Commision (SEC)?

Even better.

Why aren’t the politicians who let Bankman-Fried essentially steer proposed crypto legislation facing intense scrutiny?

Getting hot.

Why isn’t Joe Biden (5 million), Maxine Waters (special meetings with SBF) and the Democrat Party (anywhere from 40 million to as much as 127 million) facing investigation for the cronyism and possibly much deeper corrupt financial circle-jerk with FTX?

Ding ding ding, we might just have a winner.

FTX, the “most compliant” crypto exchange operating in the U.S….the poster child of how the crypto sector was supposed to ingratiate itself and feed the troughs of the elites, gaining advantage in return…collapsed into bankruptcy this week.

The Ponzi FTT, token used to suck in money that was transferred in the billions to a sister investment company called Alameda Research—run by SBF’s gf—went into a death spiral, following leaked docs about Alameda’s cooked balance sheets. 

It’s a sorry story for sure. But despite the crypto angle, it’s not really new. In fact, it’s very much the same old web.

And the center of that web is governmental and political graft.

Crypto’s Central Elitist Was In Bed With DC Elites

Our profile from several weeks ago, “SAM BANKMAN-FRIED, CRYPTO’S CENTRAL ELITIST?” (1 Nov 2022) didn’t forecast how badly his centralized crypto exchange FTX would fail and shake the crypto industry, as it has done over the past week.

But we did point to warning signs of Bankman-Fried’s powerful political ties and spending, his “crypto-cynic views,” and his “tell” that there was trouble at FTX: a recent admission that he was looking to shore up weaknesses of his company by possibly merging with another exchange.

Our article noted that Bankman-Fried had courted government regulators and sought to position itself as the most compliant crypto exchange. 

Now comes scrutiny of a significant March 2022 meeting with no less than SEC chair Gary Gensler, that may well have been carving out special regulatory allowance of FTX’s use of its FTT token to engage in risky investment and leveraging maneuvers.

SBF also spent tons of money fueling Democrat campaign coffers during the 2022 election cycle, and putting the FTX name on sports arenas, etc.

He was Number 2 overall funder for the party during the mid-term cycle. That money bought, at the very least, a cozy seat at the table in formulating crypto legislation.

Is that legislation a poison well now?

Gambling With A Pot of FTT Tokens

It turns out that Bankman-Fried was overextending his company, leveraging the FTT token.  The token, purchased by users with fiat or cryptos like Bitcoin and Eth, allowed for lower trading fees on that platform.  FTT was also on other exchanges as a token with perceived value as an investment in itself.

That “value” was put to use by funneling tokens to Alameda, and using it as a venture investment slush fund.

When Almada’s balance sheets were leaked by crypto news outlet Coindesk, a “bank run” on assets being held on the FTX exchange ensued–slowly at first, as they say, then all at once.

Coindesk broke the news on 2 November, just one day after our Bankman-Fried profile.  The outlet reported:

“[E]ven though they are two separate businesses, the division breaks down in a key place: on Alameda’s balance sheet, according to a private financial document reviewed by CoinDesk. (It is conceivable the document represents just part of Alameda.)

“That balance sheet is full of FTX – specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace. While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto.” 

In the following days, FTX initially denied any solvency issues, then admitted problems. 

The World’s Largest CEX Added Fuel To The Fire

Binance, the largest international centralized crypto exchange in the world, and a competitor to FTX, added to the chaos with several moves.

On 6 November, for example, Binance CEO Changpeng Zhao (“CZ”) announced very publicly that his company would sell its entire FTT holdings.  CZ defended the move, noting “recent revelations that have come to light.”

Binance and FTX then announced intentions to merge, which appeared to steady a plunging crypto market.  But Binance subsequently backed out of the deal.

By 9 November, FTX effectively shut down, unable to process the run on withdrawals from its exchange.

Overall, the actions of Binance in the saga deserve their own scrutiny. U.S. regulators (and others, including Japan), and politicians were already promising action.

Representative Maxine Waters (D-CA), Chair of the House Financial Services Committee, issued a statement on 10 November saying the FTX debacle was the latest example “involving the collapse of cryptocurrency companies” that showed the need for more government regulation to protect consumers.

She didn’t go into details concerning her own relationship with SBF.

Generally pro crypto Senator Cynthia Lummis (R-WY) noted the effect of Binance’s pronouncements and moves regarding the situation, as well as FTX’s activities, commenting:

“Market manipulation, lending activity, and whether customer funds and assets were appropriately safeguarded are just a few of the many issues my colleagues and I need to consider in the coming days.”

And Rep. Tom Emmer (R-MN) tweeted criticism of SEC Chairman Gary Gensler “running to the media” after formerly working closely with FTX to give the exchange an imprimatur of being one of the most compliant exchanges authorized to operate in the U.S.:

“Interesting. @GaryGensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We’re looking into this.” 

By Friday, FTX declared bankruptcy, and Bankman-Fried resigned.

SEC Clown Show

As Emmer pointed out, Gensler rushed to CNBC’s Squawk Box to claim the SEC was doing its job.  But when questioned about his confirmed past meetings with Bankman-Fried, and pursuit of much smaller enforcement actions, while totally missing what was going on at FTX and Alameda, he had no credible answers.

Even mainstream media outlets like Fortune weren’t carrying Gensler’s water.

Some crypto commentators covering the story pointed out that Bankman-Fried was probably the most connected crypto exchange operator to Federal regulators, politicos and traditional financial institutions and players, bar none.

At the very least, his position as an elite insider appears to have shielded his business dealings from closer scrutiny—until those Alameda documents curiously leaked.

One wonders whether any of those many millions in political donations from the FTX founder will be given back to scammed consumers.

Those consumers shouldn’t hold their breath.

For related reading, see:

Late Updates:

  • Alameda was apparently buying up crypto tokens just before they were newly listed on the FTX exchange. The Wall Street Journal reported on the matter based on analysis of public blockchain data from analytics firm Argus. According to that data, Alameda accrued some 60 million in fiat value worth of tokens, from 2021 to March of 2022.  SBF contends Alameda was just acting on publicly available knowledge.

FTX owned Japanese crypto exchange Liquid halted all fiat and crypto withdrawals from its platform, citing requirements of FTX’s U.S. bankruptcy filing, according to Cointelegraph.

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