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The Atlantic
The Atlantic
Will Gottsegen

Sam Bankman-Fried Got What He Wanted

Alamy; the Atlantic

In the hours before Sam Bankman-Fried surrendered to police at his home on the Bahamian island of New Providence, he was still engaged in something like a last-ditch press tour: a final, desperate attempt to make amends after his $32 billion crypto empire unraveled last month. Asked during a Monday-afternoon roundtable on Twitter Spaces whether he thought the prospect of returning to the U.S. might result in his arrest, Bankman-Fried responded with a resounding no. In a sense, he was right—authorities didn’t even need to wait for him to make their move.

Ever since Bankman-Fried’s cryptocurrency exchange, FTX, suddenly collapsed after a run on deposits, there’s really only been one question: What now? It seemed like he had misled customers about what he was doing with their money, but legal consequences had yet to materialize. As Bankman-Fried—also known by the legacy-bloating initialism “SBF”—spent his days in the Bahamas publicly denying wrongdoing in front of strangers on the internet, it was hard not to wonder whether he would be better off using those hours to prepare for the eventuality that prosecutors might decide he was responsible for more than just a bad night at the casino.

Over the past two days, that’s exactly what’s happened. Shortly after SBF was arrested on Monday night, the U.S. Attorney’s Office for the Southern District of New York announced a litany of criminal charges against him, including wire fraud and “conspiracy to defraud the United States.” Yesterday, two separate federal agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission, followed with allegations of securities fraud, commodities fraud, and more—all just hours before he was supposed to testify before Congress as part of a hearing on his company’s implosion. After years spent fine-tuning his image as crypto’s consummate ethicist, the very picture of a rule-abiding executive, SBF will spend the holidays in Fox Hill Prison, awaiting an extradition hearing that’s almost certain to result in his return to the U.S. (Bankman-Fried did not respond to a request for comment.)

That every government agency with even a cursory relationship to crypto seems to be working overtime to string up SBF suggests that, after years of dallying, the powers that be are losing patience with this industry. This isn’t the first legal battle between regulators and a crypto firm, but the federal government is now engaged in what is probably the most high-profile, coordinated takedown of any crypto executive ever. For the first time, Congress and regulatory agencies seem collectively energized about making a real example out of someone. Lawmakers, like their constituents, are visibly, viscerally annoyed. And at the press conference elaborating charges against SBF, an attorney for the Southern District of New York made sure to note that more indictments are on the way.

Part of what’s remarkable about SBF’s indictments is just how far-reaching they are. Where the SEC and CFTC are going after Bankman-Fried mostly for defrauding investors and venture capitalists, the Justice Department is highlighting the damage done to consumers—even accusing SBF of violating campaign-finance laws by donating to politicians under someone else’s name.

In Congress, too, lawmakers on both sides of the aisle seem eager to nail Bankman-Fried to the wall. Yesterday’s hearing, which went ahead without the man of the hour, was a deeply bitter affair. Representatives seemed aggrieved by both the far-reaching financial impact of the situation and the idea that they’d been so thoroughly duped by SBF over the past few years. John Ray, the bankruptcy expert now overseeing FTX (who previously guided a dilapidated Enron through bankruptcy proceedings, in the early 2000s), testified to the profound mismanagement of the business—along with that of Alameda Research, the crypto trading firm SBF co-founded. Executives would simply send one another invoices on Slack, rather than filing them away. Billions of dollars’ worth of value was handled via basic software such as QuickBooks. At one point, Ray alleged, Bankman-Fried just loaned himself $1 billion, listing himself as both issuer and recipient. “We’re dealing with a paperless bankruptcy,” Ray said.

But although the arrest and the hearings have focused on SBF and his companies, they also function as a warning for the crypto industry as a whole. SBF makes sense as a harbinger for the end of regulatory laxity in part because his case is such a gimme: Bankman-Fried appeared to admit to all sorts of fraudulent behavior during his press tour, even as he explicitly denied intentionally defrauding customers. But even lower-level crypto wrongdoers have reason to start sweating, as brutal market conditions and robust investigative reporting threaten to weed out shady characters in this industry.

For years, crypto firms have been trying to reconcile the inherent contradictions between the tech’s anti-government, libertarian origins and the need to cooperate with existing legal systems in the U.S. and abroad. But the industry has moved far faster than the regulators supposedly keeping an eye on it, and some firms have seized on the opportunity, putting a variety of risky new financial products in the hands of unwitting investors. The undoing of Bankman-Fried has the potential to change that, as newly invigorated officials take a fresh look at old policy. Two days ago, Reuters reported that the Justice Department was considering capping its long-running criminal investigation into Binance, the crypto firm led by the notoriously elusive billionaire Changpeng Zhao, with a spate of new charges for alleged financial crimes. Jilted politicians are growing impatient with the rest of crypto too. Near the end of yesterday’s hearing, Representative Jesús García of Illinois, a Democrat, alluded to other instances of wrongdoing across the sector, specifically name-checking Do Kwon—an executive whose actions have been the subject of a months-long federal investigation. “It’s about an entire industry … that thinks it’s above the law,” he said. “It is not.” (Both Kwon and Zhao have denied wrongdoing.)

SBF would probably agree with that statement, given that, before his fall from grace, he poured significant resources into a more thoroughly regulated future for crypto—and even explicitly acknowledged that a more robust regulatory regime, and more attentive regulators, would be a detriment to his businesses. (This, at least, was the front he presented to the world before his schemes unraveled.) Ironically, his own alleged fraud may end up having a greater impact on lawmakers than his millions of dollars in political contributions. And because the fall of FTX was as much a failure of policy as a failure to see what John Ray described as “old-fashioned embezzlement”—something that is, obviously, already illegal—it could inspire stricter enforcement too. Just this morning, Senators Elizabeth Warren and Roger Marshall introduced a new bipartisan bill looking to get ahead of the next SBF.

It doesn’t matter whether Bankman-Fried, now taking in one last Bahamian breeze, still believes in the pro-regulation story he’s spent so much time peddling; his own downfall appears to have spurred this constellation of historically mystified regulators to finally start cracking down. To root for this sort of crackdown, and for an end to scams, isn’t to say the industry should be regulated out of existence; removing bad actors should be in everyone’s interest. And isn’t that exactly what Bankman-Fried wanted all along?

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