On Dec. 13, the House Financial Services Committee held Part One of its “Investigating the Collapse of FTX” hearings, where current FTX CEO John J. Ray III testified and Samuel Bankman-Fried, the founder and former CEO of the failed crypto exchange, was scheduled to appear remotely until his arrest in the Bahamas on Monday interfered.
NTD interviewed three members of the Financial Services Committee—Reps. Ritchie Torres (D-N.Y.), Juan Carlos Vargas (D-Calif.), and Barry Loudermilk (R-Ga.)—to hear their perspectives on cryptocurrency regulation and the timing of the indictment and arrest of Bankman-Fried.
Bahamian authorities arrested Bankman-Fried on Dec. 13 at the request of the U.S. government, based on a sealed indictment (pdf) filed by the Southern District of New York, which was unsealed the following day. The 13-page indictment shows that Bankman-Fried was charged with eight counts, ranging from wire fraud and conspiracy to commit fraud to money laundering to federal campaign finance law violations, starting at least as early as 2019.
That same day, Bankman-Fried appeared before Bahamian Magistrate Court and was denied bail and, instead, sent to the medical unit of HMP Fox Hill, a notoriously overcrowded and unsanitary prison, where he’ll be jailed until Feb. 8, 2023, CNBC reports.
“The timing of this is incredible,” Loudermilk told NTD, speaking of Bankman-Fried’s arrest. “I mean, you can’t help but be a little suspicious that within hours of him making his first full sworn testimony to Congress that he was arrested. So, I think we do need to look into that.”
“But not to get deterred from the primary issue, we are very disappointed that he is not able to be here,” he said. “There’s a lot of unanswered questions that I think was imperative that Congress asked before any formal indictment would come down.”
Vargas felt that Bankman-Fried should have been apprehended earlier and echoed Loudermilk’s sentiments about the unfortunate timing of the arrest. “It’s sad that we didn’t get to question him today,” he told NTD. “But the truth of the matter, he should be behind bars. … He needs to be behind bars and answering real questions.”
Torres also bemoaned Bankman-Fried’s absence. “His testimony was critical to uncovering the facts leading up to and surrounding the collapse of FTX,” he told NTD. “It hamstrings our ability to cross-examine him under oath.”
SEC Files Charges
Meanwhile, the U.S. Securities and Exchange Commission (SEC) filed its own charges on Dec. 13 in a civil complaint (pdf) against Bankman-Fried, alleging that he orchestrated “a massive, years-long fraud” while “diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” all the while portraying “himself as a responsible leader of the crypto community.”
The complaint went on to chronicle how Bankman-Fried gained the trust of “customers around the world” who sent “billions of dollars to FTX, believing their assets were secure on the FTX trading platform.” But in reality, he was diverting “those funds to his privately-held crypto hedge fund” known as Alameda and proceeded to use “those customer funds to make undisclosed venture investments, lavish real estate purchases and large political donations.”
Eventually, Bankman-Fried’s “house of cards began to crumble,” the filing said, when crypto assets started plummeting in May 2022 and “Alameda’s lenders demanded repayment on billions in loans” and it was unable to do so.
The SEC claims that Bankman-Fried engaged in “false and misleading statements” when he “repeatedly cast FTX as an innovative and conservative trailblazer in the crypto markets,” telling both investors and prospective ones that FTX had “top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges.”
Cryptocurrency Regulation
The scandal surrounding FTX has inspired some lawmakers to push for legislation to better police the cryptocurrency industry.
“I remain concerned that this collapse is an indication of broader challenges to the long-term viability and security of the digital assets industry as a whole,” Chairwoman of the House Financial Services Committee Maxine Waters (D-Calif.) said in a Dec. 13 statement.
“It’s clear that the time to act was yesterday,” she said. “We must not only investigate, we must legislate.”
Torres agrees with Waters. “Crypto should be more carefully regulated,” he told NTD. He went on to list the safeguards that he believes should be put in place such as protections against “lending, leveraging or commingling” of customer funds and having a chief financial officer or chief risk officer employed in every crypto company “because at the heart of the FTX scandal was a catastrophic failure of corporate governance.”
Vargas believes that “much stronger” regulation is necessary but also acknowledged that cryptocurrency would be “very hard to regulate.”
“I understand that people want to know every transaction and be able to follow it,” he told NTD. “But, again, I’d make the point, if I go to the store, and I buy something, [and] they give me one dollar back, I really don’t care who had that dollar previous to me. I just want to make sure that that’s an authentic dollar. So, I don’t get blockchain to begin with.”
When asked what he would say to those who are concerned with governmental overregulation of cryptocurrency, he remarked, “I’m not concerned about over-regulation here. I’m concerned about under-regulation, as we just saw.”
Loudermilk expressed a more conservative approach to regulation.
“The reality is, there were laws on the book that he violated. Otherwise, he wouldn’t be under indictment and under arrest right now,” he told NTD.
“We don’t need to rush to overregulate. That’s something that government tends to do. We need to take a step back. We need to look at what happened.” He went on to add that he has questions about the role that the SEC played or didn’t play in the scandal because, in theory, it should have had “oversight and authority” over FTX.
“Since FTX was an exchange, .. the Security and Exchange Commission, where were they on this? Were they asleep at the wheel?” he said. “Or are they too focused on their … woke policies that they’re trying to implement on several companies? Are they too focused on that instead of actually doing the regulatory job that they should be doing?”
“Had there been any meetings between Mr. Fried and the SEC or the SEC chairman?” he continued. “These are some of the things that we need to look into before we just rush to regulate.”
