According to the Straits Times, FTX founder Sam Bankman-Fried was finally found guilty last Thursday on charges of defrauding customers of his now-bankrupt cryptocurrency exchange in one of the biggest financial frauds in history; it was a verdict that literally confirmed the 31-year-old former billionaire’s fall from grace.
The verdict came short of one year after FTX had filed for bankruptcy in a swift corporate meltdown that shocked financial markets and erased his estimated US$26 billion personal fortune.
Apparently, the jury reached the verdict after just over four hours of deliberations with US District Judge Lewis Kaplan setting his sentencing for March 28, 2024: in total the counts carried a maximum sentence of 110 years!
According to the report, the jury heard 15 days of testimony, where Former Alameda chief executive Caroline Ellison and former FTX executives Gary Wang and Nishad Singh, testified for the prosecution after entering guilty pleas; they had said that Bankman-Fried had directed them to commit crimes, including helping Alameda loot FTX and lying to lenders and investors about the companies’ finances.
Unfortunately, for the celebrated ex-crypto moghul, worse is yet to come as he is also set to go on trial on a second set of charges brought by prosecutors earlier in 2023, including for alleged foreign bribery and bank fraud conspiracies.
Once the darling of the crypto world, Bankman-Fried – who was known for his mop of unkempt curly hair and for wearing shorts and T-shirts rather than business attire – has instead now joined the company of admitted Ponzi schemer Bernie Madoff, Wolf Of Wall Street fraudster Jordan Belfort and insider trader Ivan Boesky as notable personalities convicted of major US financial crimes.
It was reported that prosecutors had argued during the trial that Bankman-Fried syphoned money from FTX to his crypto-focused hedge fund, Alameda Research; this was in spite of proclaiming on social media and in television advertisements that the exchange prioritised the safety of customer funds.
Apparently, Alameda had then used the funds to pay its lenders and to make loans to Bankman-Fried and other executives – who in turn made speculative venture investments and donated upwards of US$100 million to US political campaigns, said to be mostly to Democrats, in a bid to promote cryptocurrency legislation the defendant viewed as favourable to his business, according to prosecutors.
As for its possible negative repercussions in Malaysia, when news of FTX's collapse hit our shores in November 2022, Malaysia's own Securities Commission (SC) was quick to respond; it gave its assurance that cryptocurrency investors who invested through regulated digital asset exchanges (DAX) within the country are not exposed to the aftershocks of the collapse.
In fact, the SC had emphasised that all “licensed” platforms in Malaysia are always monitored vigorously for misconducts, thereby ensuring that investors’ funds are safe.
Moreover, according to them following the FTX debacle, the surveillance of local DAXs was intensified even further to get full assurance that Malaysian investors are unaffected.
For the record, FTX – which used to be one of the largest crypto exchanges in the world – collapsed in mid-November 2022 after it was exposed for improper use of customer funds. It subsequently filed for bankruptcy protection in the United States.
Meanwhile, in the aftermath of the fall, SC has warned Malaysian investors who still have strong appetite for cryptocurrencies to go to regulated operators; this is so that those who are now trading at unregulated space, can have some protection.
In fact, SC added that they cannot offer this protection if investors are performing transactions on platforms that are outside of its regulatory regime; it also shared that, to play it safe, all DAXs operating in Malaysia are obliged to segregate their clients’ money from operators’ own money.
Furthermore, SC also acknowledged the necessity for "moderation" in imposing regulations so that there is always a balance between regulating innovation and facilitating innovation as overly strict guidelines will tend to kill off innovation.
While this balanced and pragmatic approach in the crypto industry seems to make sense, shouldn't it also be applied to other sectors with high levels of innovations and tech such as e-commerce and social media where regulation (read: moderation) is virtually non-existent and where scams flourish at the expense of innocent consumers?
For sure, without transparency and moderation in the equation it's not going to be easy to track FTX-type business models - until its too late!
(Source: Straits Times/The Edge Malaysia)
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