Sam Bankman-Fried, FTX Promoters May Avoid Serious Consequences for Fraud, Experts Warn

The international scandal of the implosion of FTX, whose founder and former CEO, Sam Bankman-Fried, stands accused of all manner of fraudulent and reckless practices, could spur a regulatory overhaul aimed at curbing the excesses of the barely-regulated crypto space and preventing such fiascos in the future, experts on finance and law have told The Epoch Times.

But the opportunity may well be lost if lawmakers treat FTX’s blow-up as the financial shenanigan du jour and let those complicit in the deceptive marketing and trading practices of FTX off the hook, the experts warn.

In the aftermath of the exchange’s insolvency and Chapter 11 filing, parties ranging from the U.S. Justice Department to the government of the Bahamas, where FTX and Bankman-Fried are based, to private former clients of FTX, have launched investigations or filed lawsuits, with many more expected in the weeks and months to come.

“There’s going to be a time and place for me to sort of think about myself and my own future, but I don’t think this is it,” Bankman-Fried said.

It is wise to keep things in perspective and not exaggerate the liability for the malefactors in a financial world where the politically well-connected have many tricks and resources to put to use to escape the consequences of their malfeasance, believes Jeffrey Hooke, a former vice president of investment banking at Lehman Brothers who now teaches at the Johns Hopkins Carey School of Business.

“I don’t see much blowback. This is how things are done in D.C. on this ‘inside baseball’ type of regulatory matter. The rich companies hire a bunch of lobbyists and essentially write their own legislation,” Hooke told The Epoch Times.

“I think there will be some kind of bipartisan legislation proposed to rein in the crypto companies and exchanges. We may need a few more bankruptcies to move it along. Did you notice how little happened until a big failure occurred?” Hooke said.

Hooke sees the FTX implosion as the latest in a long line of financial scandals and shenanigans that may have triggered short-term outrage without fundamentally altering the way things are done.

“No one knows yet, it’s way too early, but by my operational assessment, based on public information, is that it’s headed towards a Madoff-style pursuit of assets, taking place around the world,” the source said.

The situation is particularly unfavorable to unsecured creditors, who will have to undertake recoveries pari passu, or in lockstep with one another, the source predicted. The fact that lenders are spread out around the world poses further complications for those who seek redress under the provisions of the U.S. bankruptcy code, the source added.

“A predatory lender in India, with no ties to the U.S., dealing with a Bahamian entity also with no ties to the U.S., could snub their nose at an American bankruptcy court,” the source said.

With more than a million former FTX customers facing the prospect of never recovering investments totaling billions of dollars, and with $3.1 billion owed to the top 50 creditors alone, according to a recent court filing, the close interrelationship of the Democrat Party—a purported populist organization representing the interests of marginalized and disenfranchised members of society—and FTX and its founder are potentially extremely problematic for the party, some observers believe.

The losses suffered by hundreds of thousands of unsophisticated or “Main Street” investors could come back to haunt the Democrats, they say, and the opportunity is the Republicans’ to lose.

“If Republicans handle this right, it could reap big dividends. Even though both parties received campaign donations, the Democrats are far more entangled in FTX,” Keith Naughton, the principal of Silent Majority Strategies, a consultancy based in Germantown, Maryland, told The Epoch Times.

“As a bonus, big parts of the Democrats’ institutional coalition, including media outlets and academia, were praising Bankman-Fried and even trying to excuse his behavior,” Naughton added.

Naughton sees the current situation as particularly advantageous to the GOP given that Republicans have long sought to make inroads among a voting bloc that has tended to favor the other party.

“As a majority of retail crypto investors and traders are millennials, Republicans have a chance to break into this demographic if they make investigating FTX a priority,” Naughton said.

The Epoch Times has reached out to FTX for comment.