Can FTX's Cryptic Implosion Be Prosecuted?

FTX’s SBF lost $16B in a day & is now exposed to losing his freedom in a New York Minute as Manhattan’s US Atty sees potential in low hanging fruit aka “criminal fraud” thanks to crypto exchange’s sudden collapse …

What’s that old saw in the financial markets? Something about “if it’s too good to be true, hold on to your wallet”? For months now, the WSJ suggests, FTX had gotten to the top of head of the alt-money or crypto craze thanks to its Bahamian offshore status and willingness to keep American traders off its exchange; those unusual features allegedly shielded the company and SBF aka Sam Bankman-Fried from the scrutiny of strict US laws governing trading and how investments can be sold to the public. All that changed suddenly for SBF when FTX imploded last week amid a liquidity crunch triggered by “reports that it used customer funds to back an affiliate’s risky venture investment”. We’re not hearing “Son of Ponzi” scheme yet, but attorneys specializing in criminal law are telling the paper the company & its founder are very much going to have to lawyer up to fend off prosecutors.

The Manhattan US attorney’s office, e.g., is looking at “reports FTX lent customer funds to Alameda Research, a crypto-trading firm that traded on FTX” … and was owned by SBF. As the WSJ explained, using customer funds to make money for yourself without consent is generally “forbidden in the regulated securities markets.” While no such customer-protection rules exist in the unregulated crypto market, “still, using customer funds for a purpose that wasn’t disclosed can constitute fraud or embezzlement.” Especially in so high profile a case affecting so many investors standing to lose their shirts.

Davd Soul