In truth the whole cryptocurrency industry was a co-defendant in the New York trial of wunderkind Sam Bankman-Fried, the 31-year-old founder of FTX convicted last week on seven counts of fraud and money laundering totalling up to €10 billion. Prosecutors say he orchestrated “one of the biggest financial frauds in American history”.
The collapse in November 2022 of FTX, the world’s second largest crypto trading platform, came after the discovery of an $8 billion hole in its accounts and its inability to honour withdrawal requests from thousands of customers spooked by a market downturn. The subsequent charges against Bankman-Fried spurred a blitz of enforcement cases from US regulators and numerous company collapses. .
The gloss had gone off the cryptocurrency market, more casino than bank, and by then also strongly associated with criminal money laundering or terrorism funding. Between 2021 and 2022 the crypto market lost roughly $2 trillion – two thirds of its value . Although it has since partially recovered, many of the leading survivors have since rebranded to remove “crypto” from published material. At the height of Bankman-Fried’s power, as FTX achieved a $40 billion valuation and was embraced by lawmakers and celebrities alike, he became the poster boy for the industry, welcomed at the White House and on Capitol Hill. Now he represents all that is wrong with it and may face decades in prison.
Behind the bohemian façade and public commitments to giving all his wealth to good causes, he siphoned off billions of dollars of investors’ cash through his hedge fund to live a lavish lifestyle with a small number of cronies who would eventually turn state’s evidence against him.
Before his fall from grace Bankman -Fried had urged greater oversight of the industry. “The authorities should be able,” he told the Economic Club of New York,”to strike a balance between fostering economic growth and providing consumer protection and protecting against systemic risk and financial crimes.” Indeed.