Former FTX CEO, Sam Bankman-Fried, has been found guilty of all seven counts of fraud and conspiracy to commit fraud. The jury reached its verdict in less than 10 minutes after hours of deliberation, causing Bankman-Fried’s parents to fall silent in the packed courtroom at the Southern District Court of New York.
Throughout the lengthy trial, I couldn’t help but wonder how Bankman-Fried ended up in this situation. Could all of this damage have been avoided? What can we do to prevent another FTX?
Some argue that existing financial regulations could have prevented the collapse of FTX. If Bankman-Fried had been required to comply with regulatory requirements, he would never have been able to mix and embezzle customer funds.
Bankman-Fried’s defense described FTX’s use of Alameda Research as a “payment processor.” One of Alameda’s subsidiaries, Northern Dimension, had been receiving deposits from FTX customers since the exchange’s inception. However, without any corporate control, the funds of these companies were mixed together.
Mixing funds may not always involve fraudulent intent, but it can still be problematic due to the lack of transparency and accountability. In fact, it’s considered a “dirty word” in securities law, as explained by an attorney observing Bankman-Fried’s trial.
On the other hand, embezzlement typically involves intentional and fraudulent actions and occurs when someone in control of funds uses the money for personal gain or unauthorized purposes. According to prosecutors, Bankman-Fried used billions of dollars from venture capital investments, real estate acquisitions, and political donations for personal gain, despite none of these funds belonging to him.
Without proper corporate controls, Bankman-Fried’s defense was unable to prove that the $8 billion missing from clients’ accounts was a result of the market downturn rather than the misappropriation of funds.
Bankman-Fried had lofty ambitions, including dreams of becoming the President of the United States. He believed that growing FTX would be the only way to cover the billion-dollar deficit on its balance sheet. However, it was too late for FTX. As Warren Buffett wisely said, “You only find out who is swimming naked when the tide goes out.”
In the end, Bankman-Fried was caught not for cryptocurrency fraud, but for traditional fraud. In theory, regulatory safeguards could have prevented him from mixing and embezzling funds. However, the law cannot stop someone who believes they are untouchable from doing wrong.
This article provides general information and should not be considered legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.