The FTX case, irrespective of Sam Bankman-Fried’s guilt or innocence, has ultimately sentenced the ex-FTX CEO to not less than twenty-five (25) years. The repercussions of it will go on even long after this seminal trial is over. In November, a NY state jury found the ex-CEO of the crypto exchange guilty of 7 counts, including mail fraud and international money laundering conspiracy.
In this trial, three ex-directors of FTX were among the witnesses. They told the court that Bankman-Fried directed FTX money for different purposes, such as paying Alameda’s debts, sending political donations, and purchasing expensive real estate in the Bahamas. They admitted to that deception, and they are going to face heavy punishment.
Crypto industry fallout and regulatory impact
In the course of his defense, Bankman-Fried confessed in his mistakes in risk management; yet, he kept denying any sort of misrepresentation or theft. Crypto dream was replaced by a nightmare fortune FTX, which was valued at $32 billion, just dissolved in late 2022 after being allowed to file for bankruptcy amid a wider cryptocurrency market crash. The reason for the company`s downfall was the misappropriation of client funds, which were sent for risky investments to a related trading company, Alameda Research.
Furthermore, a considerable portion of the fund available to FTX customers was employed on reckless ventures undertaken by Sam Bankman-Fried, the financial tycoon behind the failed crypto exchange. The court’s ruling records this as one of the primary issues contributing to the downfalls of the exchange. Other top crypto officials, including Bankman-Fried are not the only crypto figures facing legal problems. Just few months back, Terraform Labs together with its former CEO Do Kwon who is currently detained in Montenegro where he was arrested in early last year were found guilty of fraud in New York City.
The former CEO of Binance, now the US Department of Justice asks to imprison Changpeng Zhao till late April for failing to uphold anti-money laundering law protocols. He entered into an agreement with a $50 million financial penalty and the ceding of the position of Chief Executive Officer. This event shattered the confidence of the crypto market and started a series of events that hit its group hard. Nowadays, the exchange has still not completely recovered from it. Finally, the incident incremented regulatory surveillance and decelerated the people confidence in the digital currencies at the time when cryptocurrencies had just gained the public’s main attention.
Call for regulatory reform
When the prices of securities experience a significant increase, investors rarely undertake risk assessment. Bankman-Fried quickly gained popularity among crypto fans after the market blossom back in 2020 as corporations experienced an influx of new investors that came from traditional finance. The world marked the period when Michael Saylor’s investment of $250 million in Bitcoin marked yet another through the corner.
Crypto mess of VC investors which catches their entry is analyzed by the Sequoia FTX eulogy as not caring about the proper practice i.e. due diligence. Alameda Research’s biggest part of the capital was composed of FTT tokens, the assumption of FTT price was stable and FTX clients were not in a withdrawal situation. The issue was not that FTX’s customers and investors relied blindly on SBF and his partners without checking on them, but were just indifferent to it in the beginning.
That is the lack of a better solution of the problem – immediate adoption of the regulatory measures. As SEC Chair Gary Gensler emphasized following the FTX situation: The SEC chair noted that the sham of Mr. Bankman-Fried has made the crypto platform known that they should be subjected to a set of laws to comply. In this way, the funds of investors and also those interested in crypto business will not be at risk. Time-tested safeguards like customer fund protection and business line separation shall be put in place.
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