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**NOVEMBER 14, 2022**
Kuttner on TAP
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**** Sam Bankman-Fried: A Common Crook
With luck, his fall will take the whole crypto sector with him.
What has almost gotten lost in the Sam Bankman-Fried saga is that the
former billionaire's scam was a fundamental violation of the
securities laws-using customer funds to place his own bets. His
personal control of both the exchange FTX, and his investment company,
Alameda, and the comingling of their funds, puts Bankman-Fried right up
there with Ponzi and Madoff as common crooks and outright felons.
Bankman-Fried's disgrace will have some salutary side effects. It will
derail the effort, heavily promoted by Bankman-Fried himself in his
political giving and his lobbying, to take most crypto regulation away
from the Securities and Exchange Commission in favor of the light-touch
Commodity Futures Trading Commission. This ploy was shamelessly welcomed
by the CFTC chair Russ Behnam and his patron, Sen. Debbie Stabenow,
whose Senate Ag Committee stood to gain jurisdiction (and fundraising
opportunities). That caper is now kaput.
Another side effect will be to cast grave doubt on the entire fable that
crypto is either useful or reliable. If we are fortunate, it will sink
the entire sector before more damage is done. The irony is that an
innovation promoted for its transparency is in fact a dark playpen for
insiders at the expense of investors. This is why we have securities
laws in the first place. The abuses just keep repeating themselves in
new forms.
But Bankman-Fried's fall should not obscure some questions about his
rise. When Bankman-Fried amassed his billions by creating a platform,
FTX, that he personally controlled and incorporated offshore, this was
widely seen as merely a clever business model. In fact, it violated the
core premises of securities and exchange regulation dating back to FDR.
Any exchange that is someone's personal property is a scam waiting to
happen. Incorporating it offshore compounds the damage. The New York
Stock Exchange was a not-for-profit until 2007.
Defenders of crypto are trying to scapegoat SEC chair Gary Gensler, who
is the one real hero of this mess. Some (Pat Toomey) are charging him
with having been too aggressive, driving crypto offshore; others (Andrew
Ross Sorkin <[link removed]>) charge him
with being too lax. The fact is that the SEC, somewhat hamstrung by
hostile court rulings, has been doing its best to crack down on abuses
that keep ramifying. Matt Stoller has a terrific summary
<[link removed]>
of the attempt to blame the one tough, honest, and knowledgeable cop.
One bizarre aspect of this story has been the remarkably gentle coverage
of Bankman-Fried in
**The New York Times**. The
**Times** piece last Wednesday
<[link removed]>,
as Bankman-Fried's efforts to raise money were collapsing, seemed to
blame investors and rival crypto-scamster Changpeng Zhao more than
Bankman-Fried himself, compared FTX's woes to a bank run, and didn't
even mention the fraud at the heart of Bankman-Fried's business model.
A
**Times** story yesterday, touchingly titled "FTX's Collapse Casts a
Pall on a Philanthropy Movement
<[link removed]>,"
took at face value that Bankman-Fried's interest in the "effective
altruism" movement was sincere and not just an effort to burnish his
reputation and access. The story reported: "Mr. Bankman-Fried went into
finance with the stated intention of making a fortune that he could then
give away. In an interview with The New York Times
<[link removed]>
last month about effective altruism, Mr. Bankman-Fried said he planned
to give away a vast majority of his fortune in the next 10 to 20 years
to effective altruist causes." The piece played Bankman-Fried's
collapse as a tragedy for philanthropy.
When a prior generation of robber barons engaged in philanthropy, at
least they were good for the money and managed to stay inside the law.
Just based on what is already on the public record, Bankman-Fried
deserves a long prison term.
~ ROBERT KUTTNER
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The 2022 Midterms <[link removed]>
Ed Burmila comes on to discuss Democrats' surprising performance. BY
PROSPECT STAFF
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