Charges Against SBF Shed Light On Approach Of A Potential Crypto Clampdown

• Charge sheet against SBF shows authorities are desperate to make some of them stick
• A combination of crypto-specific and mainstream offences is referenced
• Crypto might not be regulated, but that doesn’t mean SBF’s actions were legal

To the relief of many, Sam Bankman-Fried, founder of FTX, has been arrested and charged by US Federal authorities. His once much-lauded FTX exchange, at one time the third-largest crypto exchange in the world by trade volume, has imploded, and now SBF faces a long list of charges.

Bankman-Fried is facing a hefty list of charges, but FTX investors are unlikely to get their cash back. However, how the charges are laid out offers an interesting take on how the authorities are closing in on the crypto sector.

Federal Authorities Pull the Trigger on SBF Charges

At the core of the indictments against SBF is the accusation he moved billions of dollars illegally from FTX to its sister-firm Alameda. One headline-grabbing development is that prosecutors state on the charge sheet that “dirty money” was used by Bankman-Fried “to buy bipartisan influence and impact the direction of public policy in Washington.”

That political lobbying might take centre stage as the House Financial Services Committee presses on with its hearing into FTX’s recent demise. But more importantly, it sheds light on the innovative approach of the authorities. As SBF was charged in the Bahamas and lined up for extradition to the US, the legal team trying to pin him down was developing a clever cocktail of charges.

The reason that the Justice Department’s 30 charges against SBF have been so carefully tailored is that there is a risk FTX’s co-founder could use loopholes relating to the ambiguity of the crypto sector. Despite SBF’s efforts to try and project the impression that his firms were operating within the law, the fact remains that crypto assets are unregulated, so few crypto-specific laws exist.

Instead, the crimes SBF is charged with committing include breaching more mainstream protocols. The SEC and CFTC both focus on the fraud element. Still, the Justice Department’s decision to also charge SBF with money laundering, conspiracy, and violation of campaign finance laws, shows how determined the authorities are to make at least some of the charges stick.

Any court case involving Bankman-Fried and his FTX team can be expected to be high-profile. The sub-plot will be how crypto exchanges could suffer from the worst of both worlds. Stigmatised by the fact they are unregulated, but at the same time facing the full force of the law.

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About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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