Hindsight is 20/20 and the red lights were still clear. Sam Bankman-Fried’s FTX Crypto Club for Crypto Brethren is a mismanaged medusa of companies rife with problems — including client funds with its own.
There were little or no management companies and minimal financial statements were published. However, there were many famous people – well-known personalities. In that sense, FTX nailed the marketing piece.
Yes, we see you Tom Brady.
SBF now faces up to 30 years in prison on multiple federal charges, including wire fraud and money laundering. People are wondering how this happened and what steps should be taken to prevent it from happening again.
The revelation of the FTX dumpster fire (the equivalent of a good old-fashioned Ponzi scheme) highlights the fact that many parts of the digital asset industry are blindly operating in murky regulatory zones. Lawmakers and regulators should call for much-needed regulation.
Protection of Client Assets
Many cryptocurrency companies have failed because they failed to protect their clients’ assets. For example, FTX gave customer funds to its sister company. Hedge fund Alameda Research (conveniently run by SBF’s supposed sweetheart, Caroline Ellison) – which Technically Illegal.
However, the Securities and Exchange Commission There is a rule to protect the assets of the customers. However, this does not apply to crypto customer accounts, as the industry opposes registration with the SEC, arguing that the tokens do not qualify as securities.
Gary Gensler, SEC chairman and friend of SBF, has a different opinion. So did his predecessor Jay Clayton during the Trump administration. They both recognize the litmus test from a 1946 Supreme Court decision that states that an asset can be prosecuted by the SEC when people finance a company with the goal of making more money from the efforts of its leadership. In other words, almost all tokens are securities according to the SEC.
According to James Cox, a Duke University law professor specializing in securities law, Congress can significantly characterize the cryptocurrency landscape by classifying most cryptocurrencies as securities. Doing so would give limited assets access to off-the-rack regulatory protocols and the common law surrounding those rules, he says.
Commodity futures The Trading Commission has established certain rules for crypto derivatives. However, their regulation applies only to swaps and futures – not commodities.
Keep them separate
Some crypto projects have offered a variety of offers and services that confuse the rules and adversely affect customers. Crypto exchanges are the most obvious example. These platforms enable various functions like market making, trading, custodianship and securities lending.
Gensler and his ilk say the system is riddled with contradictions. In contrast, general financial institutions offering various services usually register their individual business branches under responsible governing bodies. According to experts, this should be practiced in crypto as well.
Open the books
Exposure to risk is fundamental to financial direction in US markets. However, these expressions are mainly absent in crypto. Knowledge of FTX’s dozens of non-US divisions is almost entirely absent. Much is known about the US division, FTX US, but it is a privately owned company so it is difficult to determine what else there is.
Current SEC rules for issuers and financial advisers reduce crypto’s anonymity, but Congress should strengthen them. “I need more knowledge about how the tokens were created,” says Southern Methodist University’s Reiss to find out if coders can control token prices.
Truth in advertising
Crypto companies like FTX attract a lot of people with their flashy ads featuring celebrities like Tampa Bay quarterback Tom Brady and comedian Larry David. This year, crypto businesses aired promotional content during the Super Bowl, which drew more than 112 million viewers.
The SEC already has regulations prohibiting the promotion of securities. Celebrities like Kim Kardashian have been fined
Autonomy will not work
One of the major failings of FTX is the complete lack of corporate governance. John Ray III, now heads FTX (and filled the same role post-Enron collapse). The Delaware court handling the company’s bankruptcy proceedings cautioned against relying on any of their financial statements. Ray also noted that most FTX companies do not hold board meetings. However, they are said to be very capable Stealing investor funds.
Erica Williams, head of the SEC’s Public Accounts Committee, recently warned that no US government agency could legally examine the audits of private crypto companies like FTX. In other words, he recommends that investors be cautious and ask more questions when dealing with cryptocurrency projects and trading platforms. In fact, the SEC promotes a buyer-beware program.
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