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Greg Sanders is fine. He’s not a guy who needs sympathy, he told me. He is in his thirties and has a college education, with a stable job in a company. He has enough money to pay his bills. His wife is not angry with him. His friends are still his friends. He knew investing was risky and investing in crypto in particular. But Sam Bankman-Fried stole just under $10,000 from him, he told me. And he wants his money back.
Sanders was one of the esteemed 9 million customers who have kept some or all of their crypto holdings with Bankman-Fried’s Bahamas-based exchange group, FTX. Last fall, rumors that the company had become insolvent spread on social media, prompting customers to withdraw their funds and leading to the business collapse. Since then, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the U.S. Attorney’s Office for the Southern District of New York have charged Bankman-Fried with a long list of crimesarguing that FTX was a straightforward Ponzi-type fraud: its executives embezzled client funds and used the money to fund trades in a failing hedge fund as well as their lavish lifestyle, Bankman-Fried’s penchant for sleeping on a bean bag in the office notwithstanding.
In the press, at least, these alleged crimes sometimes present themselves as victimless. Although thousands of people lost an estimated total of $8 billion in the debacle, only a handful of stories about those who were defrauded surfaced in the press. And Bankman-Fried, commonly known as SBF, continues to get a remarkably friendly and in-depth hearing. He argues that what appears to be theft was just a messy bookkeeping and poor risk management. This enrages Sanders. “If this happened in any other sector, it would be a national emergency,” he told me.
But it happened in crypto. And while the federal government has succeeded in protecting the US and global financial systems from contagion, it hasn’t stopped tens of thousands of people from getting ripped off. Indeed, the regulatory environment that kept crypto on the fringes of American finance was what left so many individual investors vulnerable and, in the case of Sanders, cheated thousands of dollars, which he attempted to move from FTX to his bank account in November. Part of the money appeared. Some did not.
Sanders, who lives in northwest Arkansas, began picking stocks while in college. “I had a little savings and started buying Tesla stock,” he told me. He first bought bitcoin in 2017, during his first big skyrocketing prices. He did well, he told me, but he was always a buy-and-hold type. He focused on the long term and knew the risks associated with holding highly volatile financial instruments.
He was also well aware that bitcoin and ether were not regulated in the same way as stocks and bonds, and required a particular degree of vigilance. “I was diverse. I had assets in Coinbase and Robinhood “- two other trading platforms -” and I even had a few in cold room,” he told me. “I had been trading long enough to understand the risk of not your keys, not your coins“-a popular phrase among crypto investors, warning them against leaving the currency they buy in exchange accounts and urging them to take absolute control of their digital assets instead.
He feared his crypto would be stolen. It never occurred to him that the culprit would be the company ostensibly protecting him for him. “FTX has been legitimized in the public eye,” he told me. “I saw the Tom Brady commercials. I saw the Major League Baseball Umpires. His name was on the Miami Heat Arena. There was so much legitimation from the public, and it gave credence to this idea that it was a safe place.
FTX itself certainly tried to convince people that it was a safe place. According to government documents, the the company said that “direct deposits” were “stored individually FDIC-insured bank accounts” and that the inventory was held in “SIPC-insured brokerage accounts. (FTX has refuse misleading customers.) Its terms of service promised that customer funds would never be used as collateral for transactions: “You control the digital assets held in your account,” the company said. “Title of your digital assets will remain with you at all times and will not transfer to FTX Trading.” Additionally, Sanders knew that FTX was based in the Bahamas, but believed that it was subject to US financial regulations because it did business in the United States. “They specifically had an FTX US version,” he told me. “That’s what got me to thinking, Hey, I’m doing this the right way. I follow the laws and I follow the rules.”
He saw the value of his crypto assets skyrocket during COVID, then saw their value plummet early last year. “I started to get quite worried when I saw the feud” in November between Bankman Fried and Changpeng Zhao, the head of FTX rival Binance, he said. “That’s when I knew I had to withdraw my funds.” He converted his crypto to dollars and started making withdrawals. Sanders provided me with financial records showing that a few of these transactions took place. The bigger one didn’t. He’s still waiting for nearly $10,000 to arrive, and it will probably be forever.
It turned out that his crypto was not FDIC or SIPC insured, as the government does not insure digital currencies. Additionally, FTX did not comply with US financial regulations or corporate accounting standards. It was also not about protecting customer funds, of course. He used them to buy real estate, fund SBF nonprofits and donate to political candidates, prosecutors said. And that was margin trading with the funds — that is, buying financial assets with borrowed money — leaving a multi-billion dollar sinkhole on its books.
Sanders blames himself. He accuses SBF. And he blames US regulators. “I’m quite disappointed with the government’s response,” he told me. “I know they are investigating, but they let it come to this. Many ordinary people have had their money stolen, and it looks like the administration should restore the funds for affected US citizens. He said he was particularly frustrated with American officials and elected officials who had met with SBF, which he called the “crypto Chapo”. “It was never Tom Brady’s job to protect me,” he said. ‘This is the job that Gary Gensler, Caroline Pham and Maxine Waters all signed up for,’ referring to SEC chief, CFTC commissioner and Democrat who chaired the House Financial Services Committee during the last Congress .
Why have the victims received so little attention? Perhaps because many of them have lost more money to crashing crypto prices than to corporate malfeasance. Maybe because crypto is such a fringe, fraudulent, volatile and anarchic part of the financial industry. Indeed, what has kept FTX from harming the entire US financial system is precisely what has allowed FTX to defraud investors like Greg Sanders. US lawmakers and policymakers never created a regulatory infrastructure that would have allowed financial firms on Wall Street or Main Street to engage in extended crypto trading; many of the largest US banks have negligible crypto holdings on their books and offer little to no crypto products to their customers. Yet this also means that individual crypto investors had little protection. And studies show that many have not fully understood the risks of crypto.
Sanders understands these risks better in hindsight, he told me. He will be fine, even if FTX’s bankruptcy administrators never get his funds back. But he is still furious. As for SBF: He is awaiting his trial and faces 115 years in prison.
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