The arrest of FTX founder Sam Bankman-Fried has exposed the dire lack of regulatory guardrails in the crypto world; and without proper oversight, FTX will not be the last crypto exchange to collapse, Breitbart Economics Editor John Carney explained.
In an interview Tuesday on Larry Kudlow’s eponymously named Fox Business show, Carney noted that the timing of Bankman-Fried’s arrest the day before his scheduled testimony before Congress was “very unusual.”
“Normally, what you would do is you would invite somebody, get them sworn in, get them testifying to Congress, and then you might get perjury charges against them as well,” Carney explained. “Why go after him the day before? It didn’t make any sense at all.”
Even without possible perjury charges, the criminal and civil charges against Bankman-Fried are extensive. Carney highlighted in particular the charges listed in the Securities and Exchange Commission’s civil complaint.
“It is far worse than I thought,” Carney said. “The SEC complaint—which has a lot more information in it than anything else we’ve seen so far—makes it clear that [Bankman-Fried] was taking money [and] commingling accounts from the very beginning. This isn’t something that just happened in 2022. He said, ‘Oh, I had a bad month.’ But the SEC alleges that he has been dipping in for his own personal benefit since 2019.”
FTX founder Sam Bankman-Fried (second on left) is led away in handcuffs by officers of the Royal Bahamas Police Force in Nassau, Bahamas, on December 13, 2022. (MARIO DUNCANSON/AFP via Getty Images)
As Carney noted in Tuesday’s Breitbart Business Digest, the SEC complaint describes a “massive, years-long fraud” perpetrated by Bankman-Fried’s “crypto empire.”
“Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform. But from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations,” the SEC complaint stated.
“So, he was like out-Maddoffing Madoff. He was never legit,” Kudlow said, comparing Bankman-Fried to the notorious Ponzi scheme fraudster.
“This wasn’t your ordinary pump and dump scheme,” Kudlow continued. “This wasn’t even putting up the facade of a real fund. He was raising money from Silicon Valley fatcats and basically channeling it to Washington, mostly to progressive Democrats but also to Republicans. I think [it was] bribery efforts so they won’t be regulated. That’s the way I saw it.”
Tomas Philipson, the former acting Council of Economics Advisers chair, told Kudlow that the overall benefits of crypto should not be negated by one “bad actor.”
“I think you got to separate a bad actor. A Bernie Madoff, like you said, doesn’t make the asset management industry a bad industry,” Philipson argued. “I think there’s a lot of value in crypto. Crypto is a medium of exchange essentially that has very many advantages. One is it’s faster than the other medium of exchange, so you can transact much faster, which is good. The second is that you can do it anonymously, which is good for certain people but also bad because it’s illegal trade taking place in crypto. But that’s a very small share on the volume of crypto.”
However, Carney argued that crypto’s lack of transparency and oversight has damaged its credibility and the longterm viability of these exchanges.
“I don’t think we have very good visibility into the way these things operate, how they’re capitalized,” Carney said. “They’re clearly not regulated properly. So, I think that—while I agree the technology behind bitcoin and blockchain is very important—I think these financial institutions that have been built up around these are very questionable; and I think this is not going to be the last one to collapse, but it will be remembered as one of the first ones.”
Kudlow agreed, noting that even as a “free market guy,” he believes “there has to be some regulatory safeguards, guardrails, something.”
“Somebody has got to have some guardrails for the crypto story. Otherwise, everybody’s going to get fleeced,” Kudlow said.
