Crypto exchange FTX is under intense regulatory scrutiny after collapsing this week and some observers say founder Sam “SBF” Bankman-Fried may have benefited from relationships linked to U.S. regulators now investigating his companies.
After facing a liquidity crunch, FTX, its sister firm Alameda Research and 130 affiliated companies under the FTX Group banner have filed for bankruptcy, according to a Nov. 11 company statement posted on Twitter. The statement also announced that Sam Bankman-Fried, CEO of FTX, would step down as CEO.
The Securities and Exchange Commission and Justice Department are investigating FTX, a person familiar with the matter told the Wall Street Journal. The SEC enforces civil investor-protection laws while the DOJ prosecutes criminal violations such as fraud.
The crypto community has questioned the relationship between SBF and SEC Chairman Gary Gensler. Many say they think it’s shady, Cryptoslate reported.
Gensler has been a professor at the MIT Sloan School of Management since 2018.
Some speculate that SBF sought regulation to control the crypto space in a way that would give him a monopoly. Some also speculated that Gensler was influenced by relationships at MIT, Cryptoslate reported.
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SBF met with Gensler earlier this year. It’s not unusual for regulators to meet with crypto leaders but it drew attention to SBF’s donations to politicians.
RH Cult tweeted that Gensler’s boss at MIT was Alameda CEO Caroline Ellison’s father. SBF, 30, graduated from MIT in 2014.
“It looks like there is an MIT Crypto Mafia run by the SEC’s Gary Gensler that includes his old boss at MIT Glenn Ellison as well as his daughter Caroline Ellison…the current CEO of Alameda Research of FTX fame!” said Bix Weir, a gold enthusiast, critic of current financial policies and creator of the Road to Roota theory.
Caroline Ellison has not commented publicly on FTX’s crisis, Coindesk reported.
U.S. Rep. Tom Emmer (R-MN) tweeted that he had received reports Gensler had allegedly been helping SBF and FTX before the implosion to “work on legal loopholes to obtain a regulatory monopoly.”
Emmer provided no details or evidence for his allegations in his Nov. 10 tweet, but criticized Gensler for “run[ning] to the media” amid FTX’s liquidity issues, causing ripples throughout the crypto market.
Crypto lawyer Jake Chervinsky tweeted that FTX was close to making a deal with the financial regulator, which would have set a harmful precedent for everyone else. Chervinsky thanked Rep. Emmer for looking into these allegations.
Meanwhile, reports revealed that U.S. lawmakers are pushing the SBF-backed bill forward with plans to increase oversight over the crypto space. Several crypto industry leaders criticized the bill, Cryptoslate reported.
U.S. regulators are investigating the relationship between SBF’s trading company Alameda Research and FTX to determine whether customer funds were mishandled.
In a Nov. 2 article, crypto news site CoinDesk reported that much of Alameda’s balance sheet was comprised of FTT, the native token of FTX. The FTT coin is relatively illiquid, meaning it’s difficult to trade without affecting the price.
This triggered rumors that FTX could be the next crypto implosion. The CoinDesk report showed a suspiciously close relationship between Alameda and its supposedly independent sister company FTX. While there are no rules banning a trading firm from owning piles of its own token, it signaled to investors that Alameda was banked heavily on a coin its own sister company had created—as opposed to a truly independent asset, such as fiat currency or another crypto token—raising concerns that the firm was built on a house of cards, Fast Company reported.
The SEC investigation, already underway for months, focuses on U.S. subsidiary FTX.US, which lists dozens of crypto tokens and its crypto-lending activities. Agency officials believe some may constitute securities that, under U.S. law, should have been registered with the SEC before being sold to investors, the person said. If that is the case, then the company’s handling of customer assets might also violate laws governing U.S. exchanges, Wall Street Journal reported.
“We will continue to do our job as a cop on the beat,” Gensler said Wednesday at a Healthy Markets Association event. “The runway is getting shorter for some of these intermediaries, I have to say.”