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Sam Bankman-Fried, the disgraced founder and former CEO of FTX, has had a bad week. A bad week that follows a bad month.
Bankman-Fried, known as SBF in the crypto world, was arrested on Monday and charged by three different U.S. authorities — the Department of Justice, the SEC, and the CFTC — on Tuesday.
As alleged in the SEC's complaint, the offshore crypto exchange SBF claimed to have built was a mirage, or as SEC Chair Gary Gensler said: "A house of cards [built] on a foundation of deception while telling investors that it was one of the safest buildings in crypto."
During his brief turn as the industry's star, SBF was a regular presence in D.C. As outlined in the DoJ's indictment, SBF, as well as "others known and unknown," allegedly made campaign donations that exceeded federal limits.
The business of FTX, it seems, was mostly about how to create something legitimate out of something that wasn't.
The crypto industry has wanted to both disrupt the traditional financial world and have new rules made at a rapid clip to cement its standing in that world.
But just as Gensler and others insist crypto regulations are a problem for the crypto industry, so too have this year's events shown that problems for the crypto industry are not problems for the broader investment world. Which seems to be the outcome SBF — and most everyone else — wanted to avoid.
In a hearing before the House Financial Services Committee on Tuesday, current FTX CEO John J. Ray III was asked to answer for many of SBF's sins.
And though Congressional hearings are always political shows (because what else would they be?), the undertone of the proceedings on Tuesday sounded exactly like what the crypto industry fought against over the last several years, which is the notion posed by skeptics that crypto promises one thing, then does another.
Throughout the hearing, Ray — who led the liquidation of Enron, among other corporate failures — made it clear he has not interacted with SBF. Ray's task is not to defend or explain SBF, but to get customers and investors as much of their money back as possible.
On that front, Ray has concerns, saying Tuesday: "At the end of the day, we're not going to be able to recover all the losses here." A serious endeavor taken up by a serious lawyer for a serious failure.
Since the swift collapse of FTX, a common cry in the crypto community has been to ask where the authorities are and where the regulators have been. On Tuesday, they arrived.
For years now, the crypto industry has called for more clarity regarding regulations for cryptocurrencies. Gensler has been insistent that existing securities laws are clear, adequate, and available to be followed by the industry.
Meanwhile, in the absence of making clear rules for crypto specifically, we've seen several exchanges go bankrupt, about two trillion dollars in market value disappear, and billions in customer funds swindled away.
None of which shook confidence in the global banking system or the real economy, which in turn dials back whatever urgency regulators may (or may not have) felt about setting new rules for crypto.
Another situation the industry had hoped to avoid.
• None 7:00 a.m. ET: MBA Mortgage Applications, week ended Dec. 9 (-1.9% during prior week)
• None 8:30 a.m. ET: Import Price Index, month-over-month, November (-0.5% expected, -0.2% during prior month)
• None 8:30 a.m. ET: Import Price Index excluding petroleum, month-over-month, November (-0.5% expected, -0.2% during prior month)
• None 8:30 a.m. ET: Import Price Index, year-over-year, November (3.2% expected, 4.2% during prior month)
• None 8:30 a.m. ET: Export Price Index, month-over-month, November (-0.5% expected, -0.3% during prior month)
• None 8:30 a.m. ET: Export Price Index, year-over-year, November (5.7% expected, 6.9% during prior month)
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