CRIMINAL CRYPTO CAPITALI$M

Crypto's 'Tornado Cash' fans money laundering fears, may be 'tip of the iceberg'

David Hollerith

·Senior Reporter

Sun, 30 January 2022,

On January 17th, with cryptocurrency prices being widely routed by risk aversion, Crypto.com flagged a "security incident" that caused the operation to freeze withdrawals.

Days later, the Singapore-based exchange announced that hackers had stolen at least $15 million worth of Ethereum (ETH) tokens — and potentially as much as $33 million, according to independent estimates — but pledged to reimburse those affected. Crypto.com faulted some accounts for a lack of 2-factor authentication for the breach, but didn't provide many other details.

However, information security specialists and amateur blockchain sleuths on Twitter were already tracing the hacked funds, with almost half pointing to a non-custodial Decentralized Finance (DeFi) mixing service called Tornado Cash. That's where the trail goes cold.

Tornado Cash (TORN), itself a smart contract token, is one of a few legal cryptocurrency mixing (or "tumbling") protocols that can be used to obfuscate transaction history.

It can also wash crypto proceeds in ways that are raising alarm among investors and law enforcement — already grappling with a rise in the sector's illicit activity amid a sharpening debate over how to provide regulatory oversight to the booming digital coin movement.

Experts say blockchain mixing services aren't necessarily illicit, even though hackers use them. While part of the growing crypto ecosystem, mixers offer a handy way for criminals to launder funds without being explicitly classified as money laundering.

Still, in December, hackers used Tornado Cash to wash $196 million of crypto stolen from Bitmart, a crypto exchange. According to Victor Fang, CEO and Founder of blockchain analytics firm Anchain.AI, Tornado Cash uses zero knowledge proof.

"This is advanced cryptography, Turing-awarded work from MIT, the highest award in computer science" explained Fang, who chuckled in awe of the technology underpinning the protocol.

Over the past year, Tornado Cash serviced over $10 billion worth of crypto transaction according to Anchain, with a rising number of criminal cases being managed by Fang's firm involving the protocol.

“Privacy is not criminal but criminals are seeking these privacy solutions. This is the tip of the iceberg, the beginning of the future we’re going to see play out,” he added.

Billions in loot being laundered

Money laundering, especially the digital coin variety, is notoriously difficult to track. The United Nations estimates that around 2-5% of global growth (roughly $2 trillion) gets laundered in fiat currencies each year, but the figure is not regularly updated.

Currently, crypto's market capitalization tops $1.7 trillion, and experts insist crime is a shrinking margin of those flows. However, there's still $8.6 billion in blockchain-based loot getting laundered, according to a report released Wednesday by blockchain analytics company Chainalysis.

The firm previously found that crypto-based crime hit an historical high at $14 billion, but at 0.15% of all sector transactions is relatively low. Chainalysis tracked crypto money laundering over the past year, but did not count funds coming from mixing services as illicit, according to Chainalysis' director of research Kim Grauer.

Yet billions in laundered funds were up 30% in 2021 compare to the prior year, and represent the amount of money sent from a crypto wallet that the firm marked as illicit. Those funds then went to another platform for trading, gambling, DeFi, mixing, or other purposes.

And according to Grauer, tracking illicit flows come only from “multi-decade-long and hard-won investigations” into specific financial firms. The rise of the use of digital ledgers, however, could make it easier, some say.

“We can’t say cryptocurrency is better for fighting crime but there’s no equivalent data set for measuring criminal activity in fiat currencies," Grauer told Yahoo Finance.

Mixing services still represent a slim margin for the destination of illicit crypto funds according to Chainalysis data. Yet based on conversations with compliance officers, Grauer said that customer funds sent from a mixing service can be a “red flag,” with firms receiving a significant amount of funds from mixers.

The "blank check"

A representations of cryptocurrency Ethereum is seen in front of a stock graph and U.S. dollar in this illustration taken, January 24, 2022. REUTERS/Dado Ruvic/Illustration

While algorithmic tools offer precise data, curbing crypto laundering relies on coordination between law enforcement and private companies, which in the eyes of regulators need improvement.

The DeFi boom has also fed money laundering, with illicit wallet use up from 2% in 2020 to 17% over the past year, reflecting the sector's high rate of theft. Still, crypto exchanges remain the primary method for thieves to wash hot money, with those receiving 47% of total illicit funds tracked over the last year, largely because of scams.

One way to halt illicit crypto flows hinges around blocking, or at least monitoring exit points, out of the cryptocurrency economy that give criminals on- and off-ramps chance to convert their loot into less traceable cash. Increasingly, regulators want to shore up their surveillance and reach at these critical junctures.

Congress is debating a measure that grants the U.S. Treasury broad authority to prohibit or freeze certain digital asset, particularly if they relate to foreign banking institutions, transactions or if "1 or more types of accounts is of primary money laundering concern."

Amid a broad debate about crypto regulation, some market players see the provision as a "blank check" for regulators to muzzle crypto's privacy and commerce benefits. Two of the largest cryptocurrency exchanges, FTX and Binance, both qualify as foreign banking institutions though they both have U.S. subsidiaries. In theory. they could run afoul of Treasury's interpretation of that statute, some argue.

If cryptocurrency is ever going to get "traction, there has got to be more regulatory constructs around it," according to David Cass, a former crypto and stablecoin researcher at the Federal Reserve who's now a partner with Law and Forensics, a legal and investigations firm.

The marketing of Tornado Cash and other crypto mixers may affect how regulators "facilitate cooperation with those services, Daniel Garrie, Law and Forensics' co-founder, told Yahoo Finance.

“They can say if you are found to interact or engage with this, you're not allowed to participate in the U.S. banking system, something like that but there are a lot of caveats,” Garrie said.

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.

CRIMINAL CRYPTO CAPITALI$M
EXPLAINER: What's happening at bankrupt crypto exchange FTX?


Sun, November 13, 2022 

The imploding cryptocurrency trading firm FTX is now short billions of dollars after experiencing the crypto equivalent of a bank run.

The exchange, formerly one of the world's largest, sought bankruptcy protection last week, and its CEO and founder resigned. Hours later, the trading firm said there had been “unauthorized access” and that funds had disappeared. Analysts say hundreds of millions of dollars may have vanished.

The unraveling of the once-giant exchange is sending shockwaves through the industry. Here's a look at the company's collapse so far:

WHY DID FTX GO BANKRUPT?

Customers fled the exchange over fears about whether FTX had sufficient capital, and it agreed to sell itself to rival crypto exchange Binance. But the deal fell through pending Binance’s due diligence on FTX’s balance sheet.

FTX had valued its assets between $10 billion to $50 billion, and listed more than 130 affiliated companies around the world, according to its bankruptcy filing.

FTX and dozens of affiliated companies — including CEO Sam Bankman-Fried's hedge fund, Alameda Research — filed the bankruptcy petition in Delaware on Friday.

This week’s developments marked a shocking turn of events for Bankman-Fried, who was hailed as somewhat of a savior earlier this year when he helped shore up a number of cryptocurrency companies that ran into financial trouble. He was recently estimated to be worth $23 billion and has been a prominent political donor to Democrats.

WAS IT HACKED, TOO?

FTX confirmed Saturday there had been unauthorized access to its accounts, hours after the company filed for Chapter 11 bankruptcy protection.

A debate formed on social media about whether the exchange was hacked or a company insider had stolen funds — a possibility that cryptocurrency analysts couldn’t rule out.

Exactly how much money is involved is unclear, but analytics firm Elliptic estimated Saturday that $477 million was missing from the exchange. FTX's new CEO John Ray III said it was switching off the ability to trade or withdraw funds and taking steps to secure customers’ assets.

IS FTX UNDER INVESTIGATION?

The Royal Bahamas Police Force said Sunday it is investigating FTX, adding to the company’s woes. The police force said in a statement Sunday it was working with Bahamas securities regulators to “investigate if any criminal misconduct occurred” involving the exchange, which had moved its headquarters to the Caribbean country last year.

IS ANYONE ELSE INVESTIGATING?

Even before the bankruptcy filing and missing funds, the U.S. Department of Justice and the Securities and Exchange Commission began examining FTX to determine whether any criminal activity or securities offenses were committed, according to a person familiar with matter who spoke to The Associated Press last week on condition of anonymity because they could not discuss details of the investigations publicly.

WHAT ARE THE REPERCUSSIONS?

Companies that backed FTX are writing down investments, and the prices of bitcoin and other digital currencies have been falling. Politicians and regulators are calling for stricter oversight of the unwieldy industry. FTX said Saturday that it was moving as many digital assets as can be identified to a new “cold wallet custodian,” which is essentially a way of storing assets offline without allowing remote control.

The Associated Press

FTX saga unravels more after the crypto exchange's bankruptcy filing

FTX collapse is ‘slow-motion train wreck running into a dumpster fire full of black swans’: Analyst

David Hollerith
·Senior Reporter
Sun, November 13, 2022 

The bankruptcy filing of crypto exchange FTX on Friday did not stop the chaos surrounding the once prominent and trusted crypto trading venue.

Since the filing that included 135 affiliated companies, millions of dollars in crypto have been stolen from the company, which is facing a shortfall between $6 billion and $10 billion. Bahamian officials are also probing the matter.

“I don’t think it's an understatement to predict that the FTX bankruptcy will be the most complex in U.S. history," Caitlin Long, founder and CEO of Custodia Bank, told Yahoo Finance Live. "These were leveraged players who were just rolling the dice. This was a casino. Good riddance to them."

From Friday to Sunday, the global market capitalization for crypto assets is down 3% from $856 billion to $831 billion. Since November 1, it has fallen by 18% from a little over $1 trillion, according to Coinmarketcap.

Here's what's unfolded over the weekend.

FTX logo with crypto coins with 100 Dollar bill are displayed for illustration. FTX has filed for bankruptcy in the US, seeking court protection as it looks for a way to return money to users. 

(Photo illustration by Jonathan Raa/NurPhoto via Getty Images)

Friday’s FTX heist

On Friday night, approximately $663 million in crypto mysteriously flowed out of wallets linked to the now bankrupt exchange.

John Jay Ray III, the new chief restructuring officer and CEO who was appointed less than 24 hours before, said in a statement Saturday morning: “Unauthorized access to certain assets has occurred.”

Of the total outflow, about $477 million is estimated to have been stolen, while the remaining has been moved to cold storage by FTX for safeguarding, according to blockchain analytics firm, Elliptic.

“Process was expedited this evening - to mitigate damage upon observing unauthorized transactions,” FTX US's general counsel, Ryne Miller, said on Twitter.

FTX declined to comment further on the matter.



Meanwhile, the thief has been identified trying to transfer and sell funds through U.S.-based crypto exchange Kraken, the company’s chief security officer said Saturday.

“We are committed to working with law enforcement to ensure they have everything they need to sufficiently investigate this matter,” Kraken said.

How much of those stolen funds will be returned matter. The Financial Times reported that FTX held approximately $900 million in liquid crypto and $5.4 in illiquid venture capital investments against $9 billion in liabilities the day before it filed for bankruptcy.

FTX in the Bahamas

The Bahamas security regulator froze assets of FTX Digital Markets Thursday. On Saturday, the regulator announced FTX had begun processing withdrawals of Bahamian funds for which had not been authorized.

On Sunday, the Bahamian police have also gave a statement declaring they are working with the country's securities regulator to probe FTX for criminal misconduct.

A person familiar with the matter confirmed with Yahoo Finance that Bahamian law enforcement "are forcing [Sam Bankman-Fried] to stay in the Bahamas" as of Saturday night. This followed speculation that Bankman-Fried and the company's other top executives — chief technology officer Gary Wang and head of engineering Nishad Singh — were attempting to flee.

Under Chapter 11

FTX will deal with the same “big legal question” as crypto lenders Celsius Network and Voyager, Greg Plotko, a legal partner with Crowell & Moring, told Yahoo Finance. That's whether crypto held in customer accounts belongs to the customers themselves or the bankruptcy estate.

Unlike Celsius and Voyager, where the line of ownership was less clear, the terms of service on FTX.com states to customers that “none of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading.”

“There’s also almost certainly massive amounts of criminal fraud that led to this scenario and as a result, we can expect this will be a very messy public trial that will lead to bad publicity and regulatory backlash for the [crypto] industry,” Haseeb Quershi, a managing partner with venture firm, DragonFly Capital, told Yahoo Finance.

Like Quershi's firm Dragonfly, several larger name crypto hedge funds and market makers have assets trapped on FTX, including Galaxy Digital, Multicoin Capital, Jump Trading, Wintermute, and Galois Capital.

"When you have these situations, there are a lot of institutions that want to exit their positions. They don't want to be stuck in a bankruptcy for two years, waiting for payouts," Plotko said. There's already a lot of holes as to where all the money went. Institutions and individuals may want to sell out."

FTX's bid for Voyager Digital's assets is over

In September, bankrupt crypto lender Voyager announced that FTX through its U.S. subsidiary (FTX US) had made the winning bid for its assets. But that "$1.4 billion offer to buy customer accounts of Voyager Digital is now in serious jeopardy," Jason DiBattista, head of legal analysis with LevFin Insights, told Yahoo Finance.

Voyager Digital has reopened the bidding process for its assets, according to a press release Friday from its unsecured creditors committee.

At the time of FTX’s bankruptcy filing, Voyager held approximately $3 million worth of crypto tokens it is unable to withdraw.
BlockFi?

Crypto lender BlockFi has also gone silent since officially announcing a freeze on customer withdrawals Thursday night. Since then, a number of customers have noted their BlockFi credit cards no longer work.

While BlockFi isn't included in the FTX Chapter 11 filing, the firm is expected to be a major creditor after it took an emergency $400 million line of credit from FTX in late June.

As recently as Monday, BlockFi attempted to relaunch its yield product. On Tuesday, COO Flori Marquez announced the firm was "fully operational." BlockFi did not respond to comments on its status through the weekend.

FTX Faces Criminal Misconduct Probe by Bahamas Authorities

Katanga Johnson
Sun, November 13, 2022



(Bloomberg) -- The Bahamian police said they’re working with the Bahamas Securities Commission to investigate whether there was any criminal misconduct in the collapse of the crypto exchange FTX.

“In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd., a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred,” a police spokesperson said in a statement Sunday. FTX is registered in the Bahamas.

FTX co-founder Sam Bankman-Fried was interviewed by Bahamian police and regulators on Saturday, according to a person familiar with the matter. In the Bahamas, law-enforcement inquiries don’t necessarily mean someone will be arrested or charged with a crime.

On Friday, more than 130 entities tied to FTX.com, FTX US and trading firm Alameda Research Ltd. were listed in bankruptcy filings at federal court in Delaware. Bankman-Fried resigned as chief executive officer of FTX Group as part of the filing.

The US Securities and Exchange Commission is investigating Bankman-Fried for potential violations of securities rules as the regulator deepens its probe into his crumbling FTX crypto empire, a person familiar with the matter said last week. The Justice Department is also looking into the situation.

Funds vanish at bankrupt crypto exchange FTX; probe underway

Sat, November 12, 2022 



NEW YORK (AP) — Collapsed cryptocurrency trading firm FTX confirmed there was “unauthorized access” to its accounts, hours after the company filed for Chapter 11 bankruptcy protection Friday.

The embattled company’s new CEO John Ray III said Saturday that FTX is switching off the ability to trade or withdraw funds and taking steps to secure customers’ assets, according to a tweet by FTX’s general counsel Ryne Miller. FTX is also coordinating with law enforcement and regulators, the company said.

Exactly how much money is involved is unclear, but analytics firm Elliptic estimated Saturday that $477 million was missing from the exchange. Another $186 million was moved out of FTX’s accounts, but that may have been FTX moving assets to storage, said Elliptic’s co-founder and chief scientist Tom Robinson.

A debate formed on social media about whether the exchange was hacked or a company insider had stolen funds, a possibility that cryptocurrency analysts couldn’t rule out.

Until recently, FTX was one of the world’s largest cryptocurrency exchanges. It was already short billions of dollars when it sought bankruptcy protection Friday and its former CEO and founder, Sam Bankman-Fried, resigned.

The company had valued its assets between $10 billion to $50 billion, and listed more than 130 affiliated companies around the world, according to its bankruptcy filing.

The unraveling of the once-giant exchange is sending shockwaves through the industry, with companies that backed FTX writing down investments and the prices of bitcoin and other digital currencies falling. Politicians and regulators are calling for stricter oversight of the unwieldy industry. Experts say the saga is still unfolding.

“We’ll have to wait and see what the fallout is, but I think we are going to see more dominoes falling and an awful lot of people stand to lose their money and their savings,” said Frances Coppola, an independent financial and economic commentator. “And that is just tragic, really.”

The timing and the extent of access that the assumed hacker appeared to achieve, siphoning money from multiple parts of the company, led Coppola and other analysts to theorize that it could have been an inside job.

FTX said Saturday that it’s moving as many digital assets as can be identified to a new “cold wallet custodian,” which is essentially a way of storing assets offline without allowing remote control.

“It does look as if the liquidators didn’t act fast enough to stop some kind of siphoning off of funds from FTX after it filed for bankruptcy, and that’s bad, but it just shows how complex this thing is,” Coppola said.

Initially, some people were hoping that perhaps all the missing funds were liquidators or bankruptcy administrators trying to move assets to a more secure spot. But it would be unusual for that to happen on a Friday night, said Molly White, cryptocurrency researcher and fellow with the Library Innovation Lab at Harvard University.

“It looked very different from what a liquidator might do if they were trying to secure the funds,” she said.

White also said there are signs of possible insider involvement. “It seems unlikely that someone who is not an insider could have pulled off such a massive hack with so much access to FTX systems.”

The collapse of FTX highlights the need for cryptocurrency to be regulated more like traditional finance, Coppola said.

“Cyrpto isn’t in the very early stages anymore,” she said. “We’ve got ordinary people putting their life savings into it.”

Cathy Bussewitz, The Associated Press

Bankman-Fried: From Crypto King to King of Tech Bubble’s Losers

Emily Nicolle and Katie Greifeld
Sat, November 12, 2022 





(Bloomberg) -- Few could have anticipated the sudden collapse of Sam Bankman-Fried’s multibillion-dollar crypto empire.

Yet for all the twists, revelations and anguished Twitter threads, it’s a fall from grace with an unmistakable ring of familiarity.

A week that began with two crypto CEOs tweeting barbs ended with the bankruptcy of FTX, one of the largest and most prominent crypto exchanges, along with around 130 other companies that it owned. The business had been trying to cover a shortfall of as much as $8 billion, with the specifics of its failure -- now subject to multiple investigations -- yet to be revealed.

This much is clear: an intoxicating brew of easy money, wishful thinking and hyped innovation contributed to an implosion that while spectacular was also nothing new when considered next to scandals like Enron, WorldCom and Lehman Brothers before it. The particulars differ, but common to each were hubris, regulatory weakness and the realities of an economic cycle with plenty of precedent.

“We’ve had an industry that was really built primarily on FOMO and easy money, and now that governments around the world are raising interest rates and that restricts easy money, you’re just surviving on FOMO,” said Hilary Allen, a law professor at American University in Washington. “It’s not as appealing anymore.”

While blame is in no short supply, the arc of the FTX’s fortunes can also be seen as a garden-variety consequence of Federal Reserve policy. FTX, along with crypto itself and a host of other market gimmicks, from meme stocks to stay-at-home tech fads and special purpose acquisition companies, flourished as the Covid-19 pandemic spurred the Federal Reserve to cut interest rates to zero and leave them there for two years.

Now, up against the Fed’s most aggressive tightening cycle in four decades, shaky empires are evaporating as fast as the liquidity that propped them up. FTX’s demise is a calamity, to be sure, unique in many respects, in which billions of dollars in paper wealth and trading profits are likely to be torched. But the failure of FTX is far less extraordinary when considered next to 11 months of wreckage in technology stocks and centuries of asset-bubble history.

FTX’s scandal has notable parallels with what befell Enron. Both were led by messianic figures in Bankman-Fried and Jeff Skilling who dazzled faithful with feats of technical wizardry. Both bathed in near-universal adoration from the press and the financial establishment. Both also seem to have made basic financial mistakes in trying to keep the party going. The crypto empire reportedly allowed its balance sheet to rest precariously on a token tied to its own fortunes, hearkening to Enron’s use of its own stock to prop up its financing structures.

In the end, a doomed hope that rising markets would hide mismanagement or outright fraud became the epitaph of a once-flourishing enterprise. When Bankman-Fried stepped down from his position as CEO of FTX.com Friday, his replacement was John J. Ray III -- the former chairman and president of Enron left to pick up the pieces of its bust in the early 2000s.

The boom-overbuild-bust cycle looks familiar to Bokeh Capital Partners Chief Investment Officer Kim Forrest. It’s happening in the whole economy at the moment, but the tech industry is the posterchild, she said. Where is crypto in that metaphor? “Ground zero.”

“I was a software engineer in the late 90s, I saw the excesses, ‘wow they’re hiring way too many people,’” Forrest said. “These companies had not been productive in hiring too much, not getting enough output and not showing the return of capital.”

For its own part, FTX had raised around $4 billion in funding across its network of affiliated companies, which included Alameda Research, a trading house co-founded by Bankman-Fried, FTX Ventures and a separate exchange for American investors.

While more spectacular, FTX’s collapse shares storylines with much that has gone amiss in markets and the technology space in the pandemic era. Besides its obvious resemblance to fellow crypto casualties Three Arrows Capital, the Terra ecosystem and Celsius Network, its demise was fueled by complacency and belief in its own genius that bears hallmarks of the crises afflicting Meta Inc. and Twitter Inc. at present.

As far as bubbles go, few were as enthusiastically foretold as this one. Along with meme stocks, the crypto craze has been ridiculed by securities industry veterans almost since the moment it began, with the pitch of the critique growing along with the price of Bitcoin in 2020. Charlie Munger once said he admired the Chinese for banning it, while Black Swan author Nassim Nicholas Taleb likened Bitcoin to a “tumor.”

They came off as cranks then. Now those predictions are coming true as the Fed tightens the screws. Meme stocks are little more than a sideshow, save for the occasional pop in the likes of AMC Entertainment Holdings and GameStop Corp. Highly speculative growth shares have crumbled, dragging Cathie Wood’s Ark Innovation exchange-traded fund -- one of the highest-fliers of the pandemic era -- to its lowest level since 2020.

A bull market masks a lot of sins, only to be laid bare by a turn of the cycle. History is littered with such examples, perhaps none more famous than the demise of Bernard Madoff’s massive Ponzi scheme, which hummed along for at least 15 years before plunging equity markets in 2008 led clients to seek more withdrawals than he could accommodate.

“You need to have a degree of volatility in financial markets because that will prevent overlevering and taking advantage of the system,” said Michael O’Rourke, chief market strategist at Jonestrading. “Madoff was only exposed because of the global financial crisis.”

Even with regulation seemingly on the horizon for the crypto industry, the off-shore location of many crypto firms (FTX included) has left authorities like the Securities and Exchange Commission with their hands tied. Hester M. Peirce, an SEC Commissioner, said that questions around lack of jurisdictional clarity are “partly our fault” given investors and businesses had asked the watchdog “time and time again to provide more clarity about where our jurisdiction lies and we’ve not done so.”

As a result, the financial playground that is crypto has been allowed to flourish with limited oversight. “There isn’t a holistic digital asset regime that is accepted globally, and that that creates massive opportunities,” said Jay Wilson, investment director at London-based venture capital firm AlbionVC.

The cost is clear to Bokeh’s Forrest: this will happen again. The players and details will be different, she said, but human psychology will be the same.

“People don’t change. People just don’t change,” Forrest said. “As much as we’d like to think we learn from the past -- we may learn not to invest in WorldCom, but we don’t know to not look for another one.”

Crypto Markets Take a Breather as FTX Heist Unfurls


Emily Nicolle
Sat, November 12, 2022 




(Bloomberg) -- Prices across cryptoassets were broadly flat on Saturday, as traders weighed their next move following a market selloff in the wake of failed crypto exchange FTX.com’s plunge into bankruptcy.

The two largest tokens by value, Bitcoin and Ether, were largely unchanged at 5 p.m. New York time at around $16,800 and $1,260, respectively, after steep declines during the week. One standout on the upside was Dogecoin, which jumped more than 10% after Tesla boss Elon Musk touted the coin on a Twitter Spaces conversation.

Among losers, Solana and Serum -- two coins tied to the Solana blockchain, which was backed by Bankman-Fried -- sagged 5% and 9%, respectively, according to data compiled by Bloomberg and CoinMarketCap. The Financial Times reported Saturday that the biggest asset on FTX’s balance sheet just before it filed for bankruptcy was $2.2 billion worth of Serum, a token used on the decentralized derivatives exchange of the same name, which was co-founded by Bankman-Fried and runs on Solana.

Notably, the crypto market’s convulsions have largely been contained within the digital-asset realm. Even Bitcoin has managed to hold up better than some analysts might have expected given the circumstances.

“Bitcoin’s price has been illogically stable in recent weeks given volatility in other markets,” said analysts at Morgan Stanley in a note on Friday. “We are in the midst of another deleveraging event in the crypto ecosystem and it is so far having limited spillover to broader equity markets beyond sentiment, as crypto institutions lent to each other.”

FTX, one of the industry’s largest crypto trading platforms, filed for bankruptcy on Friday after a week of rescue talks, token turmoil and the launch of several US investigations. The exchange appeared to suffer a heist in the early hours of Saturday, in which $473 million in tokens were stolen and others moved for safekeeping.

Altcoin Solana, an ecosystem partly backed by FTX’s Sam Bankman-Fried, was down almost 3%, continuing its steady decline following his empire’s collapse. The token made up a significant amount of holdings by Bankman-Fried’s Alameda Research, according to Riyad Carey, a research analyst at Kaiko.

Analysts at Morgan Stanley pointed to $12,500 as the next support level for Bitcoin, marking it as the token’s high in the third quarter of 2020.

Stablecoins maintained their 1-to-1 values with the US dollar, despite a brief de-peg for Tether’s USDT on Thursday. Trading was halted for GeminiUSD, a stablecoin issued by crypto exchange Gemini, on Coinbase on Saturday morning following an outsize move that pushed its price as high as $1.68 on that exchange alone. A statement by Coinbase on its status page said teams were investigating the issue.

FTX Latest: Dim Picture for Customers; Criminal Probe Possible

Sunil Jagtiani and Joanna Ossinger
Sun, November 13, 2022 

FTX Latest: Dim Picture for Customers; Criminal Probe Possible


(Bloomberg) -- For customers of FTX, there appears to be little chance of recovering much of their deposits from the collapsed crypto exchange.

The value of FTX’s key crypto assets has plummeted since Sam Bankman-Fried’s exchange filed for bankruptcy, while an estimated $477 million vanished in unauthorized withdrawals, according to blockchain analytics firm Elliptic.

FTX Trading International held just $900 million in liquid assets on Thursday -- the day before it filed for Chapter 11 bankruptcy -- against $9 billion of liabilities, according to sources familiar with the matter who viewed a limited version of a balance sheet. The sheet also referenced a negative $8 billion of a “hidden, poorly internally labeled” fiat currency account and noted $5 billion of withdrawals by users last week.

The Bahamian police are working with the Bahamas Securities Commission to investigate whether there was any criminal misconduct in FTX’s collapse. Bankman-Fried was questioned by Bahamian police and regulators Saturday, according to a person familiar with the matter.

(All time references are New York)

FTX’s Serum Project Is in Distress (1:05 p.m.)

Tokens issued by Serum, a liquidity infrastructure hub built by FTX and used by market makers and lending protocols on Solana, tumbled more than 23% on Sunday alone, pricing data from CoinGecko showed. FTX owned more than $2.2 billion worth of the token as of Thursday, the Financial Times reported, citing investor materials.

Developers attached to Serum split off the project’s code in a so-called fork amid concern that an upgrade key controlling the program could be compromised, a Solana spokesperson said.

Galois Confirms $40 Million Exposure (12:26 p.m.)

Crypto hedge fund Galois Capital is the latest company to confirm its exposure to the collapsed FTX cryptocurrency exchange. In a direct message to Bloomberg News, Galois said its exposure was between $40 million to $45 million. On Friday, Galois said on Twitter that it had “significant” funds in FTX. Galois was an early critic of the now failed Terra blockchain and its TerraUSD algorithmic stablecoin.

Bahamian Police Look Into Criminal Probe (11:53 a.m.)

A team from the Financial Crimes Investigation Branch is working with the Bahamas Securities Commission to investigate if any criminal misconduct occurred in the collapse of FTX.

Solana Slide Deepens; Bitcoin and Ether Stable (8:30 a.m.)

A three-day decline for crypto altcoin Solana deepened on Sunday, as developers considered spinning off one of the blockchain network’s most prominent and FTX-affiliated project. Solana fell as much as 14% to $12.86 as of 1:30 p.m. in London. Crypto bellwethers Bitcoin and Ether have lost a little over 1% each in the last 24 hours.

Other altcoins including Polkadot, Avalanche and Tron, typically more volatile than larger cryptocurrencies due to lower liquidity levels, lost between 1.7% and 5.4%.

Binance Stops Deposits of FTX’s Token FTT (3:30 a.m. Sunday)

Binance halted deposits of FTT, FTX’s token, “to prevent potential of questionable additional supplies affecting the market,” Binance CEO Changpeng “CZ” Zhao said on Twitter. Zhao said that he would encourage other exchanges to do the same thing. Justin Sun said Huobi Global would echo Zhao’s advice.

Zhao added that FTT contract deployers moved all remaining FTT supplies worth $400 million, “which should be unlocked in batches.” Binance followed up to say it had noticed a “suspicious movement” of a large amount of FTT by the token’s contract deployers.

Matrixport Says 79 Clients Affected by FTX, ‘No Risk of Insolvency’ (11:38 p.m. Saturday)

Crypto financial-services platform Matrixport “continues to operate normally and the company has no risk of insolvency with respect to the developments at FTX and Alameda,” according to Ross Gan, head of public relations.

Matrixport had 79 clients that incurred losses via exposure to three products on its platform that were linked to FTX, Gan said.

Kraken Freezes Accounts Possibly Related to FTX (11:33 p.m.)

Crypto exchange Kraken said it has frozen Kraken account access to certain funds it suspects to be associated with “fraud, negligence or misconduct” related to FTX. Kraken said in a tweet it’s in contact with law enforcement and plans to resolve each account on a case-by-case basis.

Bankman-Fried Interviewed by Police in Bahamas (9:42 p.m.)

Former crypto mogul Sam Bankman-Fried was interviewed by Bahamian police and regulators on Saturday, according to a person familiar with the matter. Bankman-Fried didn’t immediately respond to a request for comment.

The inquiries from Bahamian authorities add to the mounting legal pressure that Bankman-Fried is facing since his FTX empire crumbled over the past week. In the US, he is facing scrutiny from the Securities and Exchange Commission over whether he broke securities rules.

Bahamas Says it Didn’t Authorize Local Withdrawals by FTX Exchange (9 p.m.)

Bankrupt crypto exchange FTX’s move to allow withdrawals in the Bahamas was questioned by the nation’s securities regulator.

The Securities Commission of the Bahamas in a statement Saturday said that it hadn’t “directed, authorized or suggested” the prioritization of local withdrawals to FTX Digital Markets Ltd.

It added that such withdrawals could be clawed back.

Jump Crypto Says It Remains Well Capitalized After FTX Exposure (5:59 p.m.)

Jump Crypto, a cryptocurrency trading firm, told customers on Saturday it remains “well capitalized” after exposure to FTX. In a series of tweets, Jump said its exposure was “managed in accordance with our risk framework.” The company did not specify the exact nature of its exposure.

FTX to Seek Enforcement Aid on Unauthorized Withdrawals (1:46 p.m.)

FTX is launching an investigation with law enforcement into unauthorized withdrawals from some of its crypto wallets, a company executive said. The company, which filed for bankruptcy this week, said it is cooperating and coordinating with “law enforcement and relevant regulators.”

Liabilities Dwarfed Liquid Assets: FT (1:13 p.m.)

FTX Trading held $900 million in liquid assets against $9 billion of liabilities the day before the bankruptcy filing, the Financial Times reported, citing investment materials and a spreadsheet the newspaper had seen. Most of the recorded assets are either illiquid venture capital investments or crypto tokens that are not widely traded. The biggest asset as of Thursday was listed as $2.2 billion worth of a cryptocurrency called Serum.

(Recasts top with balance sheet)

CRIMINAL CRYPTO CAPITALI$M
Insurers shun FTX-linked crypto firms as contagion risk mounts


FTX logo and representation of cryptocurrencies

Sun, December 18, 2022 

By Noor Zainab Hussain and Carolyn Cohn

(Reuters) - Insurers are denying or limiting coverage to clients with exposure to bankrupt crypto exchange FTX, leaving digital currency traders and exchanges uninsured for any losses from hacks, theft or lawsuits, several market participants said.

Insurers were already reluctant to underwrite asset and directors and officers (D&O) protection policies for crypto companies because of scant market regulation and the volatile prices of Bitcoin and other cryptocurrencies.

Now, the collapse of FTX last month has amplified concerns.

Specialists in the Lloyd's of London and Bermuda insurance markets are requiring more transparency from crypto companies about their exposure to FTX. The insurers are also proposing broad policy exclusions for any claims arising from the company's collapse.

Kyle Nichols, president of broker Hugh Wood Canada Ltd, said insurers were requiring clients to fill out a questionnaire asking whether they invested in FTX, or had assets on the exchange.

Lloyd's of London broker Superscript is giving clients that dealt with FTX a mandatory questionnaire to outline the percentage of their exposure, said Ben Davis, lead for digital assets at Superscript.

"Let's say the client has 40% of their total assets at FTX that they can't access, that is either going to be a decline or we're going to put on an exclusion that limits cover for any claims arising out of their funds held on FTX," he said.

The exclusions denying payout for any claims arising out of the FTX bankruptcy are found in insurance policies that cover the protection of digital assets and for personal liabilities of directors and officers of companies that deal in crypto, five insurance sources told Reuters. A couple of insurers have been pushing for a broad exclusion to policies for anything related to FTX, a broker said.

Exclusions may act as a failsafe for insurers, and will make it even more difficult for companies that are seeking coverage, insurers and brokers said.

Bermuda-based crypto insurer Relm, which previously has provided coverage to entities linked to FTX, takes an even stricter approach.

"If we have to include a crypto exclusion or a regulatory exclusion, we're just not going to offer the coverage," said Relm co-founder Joe Ziolkowski.

D&O QUESTION

Now, one of the most pressing questions is whether insurers will cover D&O policies at other companies that had dealings with FTX, given the problems facing exchange's leadership, Ziolkowski said.

U.S. prosecutors say former FTX Chief Executive Officer Sam Bankman-Fried engaged in a scheme to defraud FTX's customers by misappropriating their deposits to pay for expenses and debts and to make investments on behalf of his crypto hedge fund, Alameda Research LLC.

A lawyer for Bankman-Fried said on Tuesday his client is considering all of his legal options.

D&O policies, which are used to pay legal costs, do not always pay out in cases of fraud.

Insurance sources would not name their clients or potential clients that could be affected by policy changes, citing confidentiality. Crypto firms with financial exposure to FTX include Binance, a crypto exchange, and Genesis, a crypto lender, neither of which responded to e-mails seeking comment.

While the least risky parts of the crypto market, such as companies that own cold wallets storing assets on platforms not connected to the internet, may get cover for up to $1 billion, a D&O insurance policyholder's cover may now be limited to tens of millions of dollars for the rest of the market, Ziolkowski said.

The FTX collapse will also likely lead to a rise in insurance rates, especially in the U.S. D&O market, insurers said. The rates are already high because of the perceived risks and lack of historical data on cryptocurrency insurance losses.

A typical crime bond -- used to protect against losses resulting from a criminal act -- would cost $30,000 to $40,000 per $1 million of coverage for a digital assets trader. That compares with a cost of about $5,000 per $1 million for a traditional securities trader, Hugh Wood Canada's Nichols said.

(Reporting by Noor Zainab Hussain in Bengaluru and Carolyn Cohn in London; Editing by Lananh Nguyen and Anna Driver)

OUT OF THE FIRE INTO THE FRYING PAN

This 26-year-old FTX customer lost access to $14,000 when Sam Bankman-Fried's exchange collapsed. Now he plans to keep his money in stocks.

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Phil Rosen
Mon, December 19, 2022

Daniil Pemberton, 26, lost access to about $14,000 in the collapse of FTX.

Daniil Pemberton

In an interview with Insider, Daniil Pemberton said the collapse of FTX has rattled his trust in companies within crypto sector.

The 26-year-old lost access to about $14,000 in his FTX account, which included bitcoin and ether.

Moving forward, he plans to stick to stocks and index funds.

On November 8, when Daniil Pemberton saw headlines on the collapse of Sam Bankman-Fried's crypto exchange, he tried to transfer funds out of his FTX account. He soon realized that wouldn't be possible.

Based in the Netherlands, the 26-year-old graduate student said he had 1.25 ether and 0.64 bitcoin saved on his account, which at the time were worth about $13,825 all together.

When he tried to initiate a withdrawal, the app showed the transaction was pending, but nothing happened beyond that. When Pemberton checked the cryptocurrency wallet addresses he tried to send the money to, his balance remained at zero. Insider has reviewed these documents.

"The tech itself, the crypto, seems fine, but the problem is the institutions around it," Pemberton told Insider. "They are the ones who undermine the trust, because at any point a platform could make a bad decision, which leads them to becoming bankrupt, and everyone loses. There's no safety net."

FTX filed for bankruptcy on November 11, and Bankman-Fried stepped down as CEO. The Securities and Exchange Commission has since alleged that he orchestrated a years-long scheme to defraud investors.

The new chief executive, John Ray III, has said that FTX had haphazard accounting and that there was "no record keeping whatsoever." FTX also reportedly transferred billions of dollars in customer funds to Bankman-Fried's Alameda crypto hedge fund.

"I lost faith in the companies within crypto," Pemberton said. "I'm skeptical on who to entrust with my funds."

While it's possible FTX users can recoup some of their funds during bankruptcy proceedings, experts warn it could months or years — if at all.

Pemberton said one of the main reasons he chose FTX to store his cryptocurrency was that everyone seemed to praise it, including many finance influencers on YouTube that he followed.

"The New York Times had wrote about Sam Bankman-Fried, and so did other prestigious publications and individuals. I thought surely they did their research and wouldn't praise him without due diligence," Pemberton noted.

He also found the promise of FTX's high interest-rate payments appealing, and that they remained high during a time when other platforms were giving lower yields on investments. "In retrospect it was a dumb decision. I had gotten greedy."
Pivoting to traditional investments

In the implosion of FTX, Pemberton said he lost approximately 60% of his total portfolio, including stocks and holdings across other exchanges, including Binance. Moving forward, he plans to put more weight in traditional equities.

"I'm going to pivot more to stocks," he said. "Stocks have more policies in place in case something goes wrong."

Johnson & Johnson, Coca-Cola, and the Vanguard S&P 500 ETF are all on his list as stable, long-term investments, Pemberton said.

"This whole thing shocked me so much that I don't want any more volatility. I'll invest in more index funds and bonds too."

Justice Dept’s crypto chief: Crypto thefts are 'serious national security concerns'

David Hollerith

·Senior Reporter

Mon, October 17, 2022

The amount of crypto stolen by hackers has risen by more than a quarter this year, even as the value of cryptocurrencies has plunged.

Blockchain thieves have nabbed as much as $3 billion of investor funds through 141 various crypto exploits since January, according to data from DeFi Yield, a 31% increase over the same period last year. That means 2022 likely will surpass 2021 as the biggest year for crypto hacks on record,

Of the nearly weekly occurrence's of crypto exploits this year, those involving “cross-chain” crypto bridges have accounted for as much as $600 million in October and $2 billion worth of stolen funds year to date, with at least $1 billion in exploits attributed to North Korean-linked hackers, according to Chainalysis estimates.

“These are serious national security concerns that really stretch beyond the fact that there are millions of dollars being stolen in single episodes that we see with the DeFi hacks and exploits,” Eun Young Choi, director of the National Cryptocurrency Enforcement Team (NCET), said at Yahoo Finance's All Markets Summit.

Effectively, Choi’s team - NCET - provides one possible link in the chain for how companies and investors might recover stolen funds.

Formed little more than a year ago, NCET is intended to act as a “one-stop shop” of the federal agency’s investigators specializing in crypto, according to Choi.

Working at times with other government agencies both in the U.S. and abroad, NCET has helped seize over $3.8 billion worth of stolen crypto this year with the bulk of that sum coming from a February indictment involving alleged money launderers of proceeds stolen in 2016.

Those billions won’t be returned to victims any time soon or at least not until the trial for the case reaches some conclusion.

HONG KONG - 2018/11/22: In this photo illustration, the Cryptocurrency electronic cash Bitcoin logo is seen displayed on an Android mobile device with a figure of hacker in the background. (Photo Illustration by Miguel Candela/SOPA Images/LightRocket via Getty Images)

On the flip side, during a record year for crypto exploits, illicit crypto earned by scams (-65%) and darknet markets (-43%) declined notably between January and July, according to a report from blockchain analytics firm, Chainalysis.

In April, an investigation by the Justice Department also led to the shutdown of the world’s largest darknet marketplace, Hydra market.

While also in part attributed the crypto market’s performance, rising exploits and dropping darknet flows illustrates how illicit use of crypto has changed in recent years.

“Early days, it was darknet markets and it was people buying and selling all sorts of contraband,” Choi explained. “These days, we're seeing [crypto] pop up in any every single type of criminal activity the department looks into.”

Although Choi admitted cases involving crypto can be different in nature, NCET prosecutes cases involving digital assets virtually the same way the Justice Department pursues criminal activity dealing in stocks, commodities, and other assets.

“These transactions can oftentimes be relatively frictionless and quick, but it also means that if we identify a particular transaction as being criminal, we can't go to some centralized, you know, financial institution and ask for that money to come back,” Choi said.

Nevertheless, Choi admitted her team has a role to play in reducing the high degree of crypto exploits plaguing the industry.

“We have to work with the private sector and ensure that they understand the ways in which we've identified particular tactics that bad actors might be using in order to exploit these types of platforms,” she said.

“The industry is still, in our view, in a maturation phase and in a lot of respects we're looking at companies and hoping that they will understand that doing things such as basic risk reduction, having robust compliance programs and ensuring that they are decreasing the opportunities for these types of exploits on their own platform is the first, best line of defense.”

—

David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers

CRIMINAL CRYPTO CAPITALI$M
Bipartisan bill targets crypto money laundering in wake of FTX collapse



Igor Bonifacic
·Weekend Editor
Wed, December 14, 2022

US Senators Elizabeth Warren and Roger Marshall have introduced a bipartisan bill designed to crack down on illegal uses of cryptocurrency. If passed, The Digital Asset Anti-Money Laundering Act would extend aspects of the Bank Secrecy Act (BSA), a Nixon-era law Congress passed to combat money laundering, to cover crypto entities such as wallet providers and miners. Specifically, the new legislation would apply so-called “Know-Your-Customer” rules to those entities by directing the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to treat them as money service businesses. Another BSA expansion would require US citizens to file a report with the Internal Revenue Service whenever they engage in transactions that involve more than $10,000 in digital assets.

Additionally, the legislation would direct FinCEN to implement a rule the agency proposed at the end of 2020 that would require financial institutions to report transactions involving “unhosted” digital wallets. Per CoinDesk, those are wallets where the user has complete control over the contents — rather than an exchange or other third party. The legislation would also prohibit financial institutions from using or transacting with digital asset mixers, which are frequently used to obscure the origin of funds.

“Rogue nations, oligarchs, drug lords, and human traffickers are using digital assets to launder billions in stolen funds, evade sanctions, and finance terrorism,” said Senator Warren. “The crypto industry should follow common-sense rules like banks, brokers, and Western Union, and this legislation would ensure the same standards apply across similar financial transactions. The bipartisan bill will help close crypto money laundering loopholes and strengthen enforcement to better safeguard US national security.”

The push from Senators Warren and Marshall to crack down on crypto money laundering comes a day after the Department of Justice, Securities and Exchange Commission and Commodity Futures Trading Commission announced civil and criminal charges against FTX founder and former CEO Sam Bankman-Fried. Due to time constraints, the likelihood of the bill passing in the current lame-duck session is low. Warren and Marshall will almost certainly need to reintroduce it next year.

Warren pushes bipartisan bill to regulate crypto firms after FTX collapse

Ed Pilkington
Wed, December 14, 2022 

Photograph: Elizabeth Frantz/Reuters

Elizabeth Warren is pressing Congress to adopt new bipartisan legislation which would force crypto firms to abide by the same regulations as banks and corporations in an attempt to crack down on money laundering through digital assets.

The Democratic US senator from Massachusetts is pushing for the new controls on the crypto industry in the wake of the spectacular collapse of the cryptocurrency exchange FTX. On Tuesday its founder and former CEO Sam Bankman-Fried was charged with eight criminal counts including conspiracy to commit money laundering.

Related: Five things we know about the collapse of FTX and Sam Bankman-Fried

Warren’s bill is being co-sponsored by the Republican senator from Kansas Roger Marshall. The Digital Asset Anti-Money Laundering Act would essentially subject the world of crypto to the same global financial regulations to which more conventional money markets must conform.

Under current systems, crypto exchanges are able to skirt around restrictions designed to stop money laundering and impose sanctions. Should the bill be enacted into law it would authorize the Financial Crimes Enforcement Network (FinCen) to reclassify crypto entities as “money service businesses” which would bring them under basic regulations laid out in the Bank Secrecy Act.

In a statement to CNN, Warren said that the “commonsense crypto legislation” would protect US national security. “I’ve been ringing the alarm bell in the Senate on the dangers of these digital asset loopholes,” she said, adding that crypto was “under serious scrutiny across the political spectrum”.

Bankman-Fried, 30, was indicted by prosecutors at the southern district of New York and is being held in custody in the Bahamas. The US Securities and Exchange commission (SEC) has also brought civil charges against him, accusing him of creating a firm that was a “house of cards”.

An ongoing area of interest to investigators was the vast political contributions made by Bankman-Fried to the Democratic party, as well as to Republicans in the form, he has said, of secretive dark money donations. The Wall Street Journal has calculated that he gave more than $95,000 in direct campaign donations to the same members of the US House financial services committee who are now investigating him.

Even before the implosion of FTX, the treasury department was focusing on the feared risks to national security posed by relatively unregulated digital currency exchanges. In August it moved against Tornado Cash, a virtual currency mixer which it accused of laundering more than $7bn in virtual currency since 2019.

The Treasury said that Tornado Cash was attractive to launderers of the proceeds of cybercrime, including the Lazarus Group, a hacking group sponsored by North Korea. The entity’s appeal to cybercriminals was that it could move digital assets around anonymously, obscuring the origin and destination of transactions and hiding the parties involved.

Warren is a former Harvard law professor and expert on consumer protection and economic inequality. She entered the Senate in 2013, where she established herself as a leading progressive critic of corporate largesse and a spirited opponent of Donald Trump.

She made an unsuccessful bid for the White House in 2020.

Senate crypto hearing yields big claims, possible regulation

Investor and star of "Shark Tank" Kevin O'Leary, testifies before the Senate Banking Committee about cryptocurrency and the collapse of FTX, at the Capitol in Washington, Wednesday, Dec. 14, 2022. (AP Photo/J. Scott Applewhite)


GLENN GAMBOA
Wed, December 14, 2022

Whether increased regulation would have prevented the spectacular collapse of cryptocurrency exchange FTX was fiercely debated at a hearing of the Senate’s banking committee Wednesday. However, new legislation is potentially on the way.

Sen. Elizabeth Warren announced at the hearing bipartisan legislation aimed at cracking down on cryptocurrencies being used in money laundering. The legislation, co-sponsored by Republican Sen. Roger Marshall of Kansas, would require cryptocurrency exchanges to verify customer identities like banks and other financial institutions do.

“Crypto has become the preferred tool for terrorists, for ransomware gangs, for drug dealers and for rogue states that want to launder money,” said Warren, the Massachusetts Democrat, adding that “crypto doesn’t get a pass to help the world’s worst criminals – no matter how many television ads they run or how many political contributions they make.”

Republican Sen. Cynthia Lummis, of Wyoming, said she and Democratic Sen. Kirsten Gillibrand, of New York, would reintroduce their bipartisan legislation, the Responsible Financial Innovation Act, next year. That act would require disclosures and consumer protection obligations from cryptocurrency issuers.

Lummis, like several other Republicans on the banking committee, said the alleged financial crimes of former FTX CEO Sam Bankman-Fried should not be used to target cryptocurrency more generally.

“Let’s separate digital assets from corrupt organizations,” she said. “FTX is good old-fashioned fraud.”

However, Democratic Sen. Sherrod Brown, chairman of the Senate Committee on Banking, Housing and Urban Affairs, asked the hearing’s four witnesses – two crypto proponents and two critics – whether fraud was systemic at other firms in the industry. They all indicated that it was – one of the few points of agreement in the entire hearing.

Hilary J. Allen, professor of law at the American University Washington College of Law, testified that the current environment cryptocurrency operates in is highly conducive to fraud.

“Sam Bankman-Fried may have engaged in good old-fashioned embezzlement,” she said, “but the embezzlement was able to reach such a scale and go undetected for so long because it was crypto – shrouded in opacity, complexity, and mystique.”

Entrepreneur Kevin O’Leary, best known as Mr. Wonderful on the TV show “Shark Tank,” disagreed with the characterization, even though the $15 million he earned as a paid spokesman for FTX is now essentially worthless.

“I am of the opinion that crypto, blockchain technology and digital payment systems will be the 12th sector of the S&P within a decade,” he said, referring to the S&P 500, a well-known benchmark for stocks.

O’Leary also testified that Bankman-Fried told him that the collapse of FTX was due to its battle with crypto competitor Binance, which also held a stake in FTX.

“These two behemoths that owned the unregulated market together… were at war with each other,” O’Leary said. “And one put the other out of business.”

Federal prosecutors say Bankman-Fried defrauded FTX customers and investors starting in 2019 and illegally diverted their money to cover expenses, debts and risky trades at the crypto hedge fund he started in 2017, Alameda Research. Bankman-Fried, 30, was arrested Monday in the Bahamas at the request of the U.S. government, and remains in custody after being denied bail.

Pennsylvania Republican Sen. Pat Toomey, the ranking member of the banking committee, said FTX’s actions do not reflect the business of cryptocurrency as a whole.

“There’s nothing intrinsically good or evil about software – it’s about what people do with it,” he said. “Code committed no crime.”

However, actor and author Ben McKenzie Schenkkan, best known for his role as Jim Gordon on “Gotham,” said his research shows cryptocurrency is built on “misinformation, hype and fraud” and that the estimated 40 million Americans who have invested in it were lied to.

“In my opinion, the cryptocurrency industry represents the largest Ponzi scheme in history,” he said. “The fact that it has roped in tens of millions of Americans from all walks of life, as well as hundreds of millions of people worldwide, should be of concern to us all.”

 

Democratic Sen. Sherrod Brown, Republican Sen. Pat Toomey

 

   

Kevin O’Leary Says Binance ‘Intentionally’ Killed FTX 😳 #crypto

 

FTX Spokesman, Shark Tank Co-Host Kevin O’Leary Blames Competitor for Firm’s Collapse in Senate Hearing

Brittany Bernstein
Wed, December 14, 2022 


Kevin O’Leary, an investor and judge on Shark Tank who was paid $15 million to act as a spokesman for FTX, testified before the Senate Banking Committee on Wednesday about the crypto exchange’s collapse.

O’Leary has said as an investor he lost all of the money he was paid to act as a spokesman for the exchange, which fell apart in November, costing investors millions in losses.

FTX founder Sam Bankman-Fried was recently arrested on charges that he misled investors and mishandled billions in funds. He has been accused of misusing customer funds deposited with FTX to boost his crypto hedge fund, Alameda Research.

O’Leary was among a group of celebrities, including Tom Brady and Larry David, who were sued by FTX investors for their promotion of the firm. He said he put roughly $9.7 million into crypto from the $15 million deal. The rest went to taxes and agent fees, he said.

Senator Pat Toomey (R., Pa.) asked O’Leary on Wednesday why he believes FTX failed.

O’Leary recounted reaching out to Bankman-Fried after the investor discovered his accounts were stripped of all of their assets and accounting and trade information.

“I couldn’t get answers from any of the executives in the firm so I simply called Sam Bankman-Fried and said, ‘Where is the money, Sam?'” O’Leary testified.

He said he then discovered that Bankman-Fried had spent between $2 billion and $3 billion to repurchase shares from Binance CEO Changpeng Zhao, who held 20 percent ownership in Bankman-Fried’s firm.

O’Leary said he asked Bankman-Fried what would compel him to do that. The founder replied that Zhao would not comply with regulators’ requests for data that would allow the firm to get licensed. The founder allegedly told O’Leary “the only option” FTX had was to buy Zhao out at an “extraordinary valuation” of close to $32 billion.

“That stripped the balance sheet of assets,” O’Leary said. “You ask me why it went bankrupt. Go to the last week. All of a sudden in social media, CZ is asking for another $500 million. He wants to do a block trade of FTT, or the proprietary token of FTX. He wants to convert it back to fiat. Why would you put that out there? You know it’s going to push down the value of that coin dramatically. That’s exactly what happened.”

O’Leary said the two “behemoths that own the unregulated market together” were at “war with each other and one put the other out of business intentionally.”

“Now, maybe there’s nothing wrong with that,” he said. “Maybe there’s nothing wrong with love and war. But Binance is a massive unregulated global monopoly now. They put FTX out of business.”

Binance was founded in China but quickly moved out of the country when the government announced it would impose regulations on cryptocurrency trading.

Despite the company’s founding in Shanghai, Zhao has said it “couldn’t be further from the truth” that Binance is run by the Chinese Communist Party or is a “Chinese spy.” Zhao was born in China but is a naturalized Canadian citizen.

Zhao argued in a blog post that it would be impossible for Binance to be a Chinese company today as Binance and other crypto exchanges “have been designated a criminal entity in China.”

VIDEO

Where is the money?: US senators grill FTX spokesperson Kevin O'Leary on collapse

 

Kevin O'Leary, paid to promote FTX, testifies about crypto collapse

   

CNBC O'Shares' Kevin O'Leary weighs in on FTX

  

Watch Elizabeth Warren Debate Crypto Investor Kevin O'Leary (FTX Congressional Hearing)