FTX collapse was led by several key issues

Vision is 20/20 yet red light was clear. Sam Bankman-Fried’s FTX crypto club for crypto bros was a poorly-managed Medusa of companies riddled with issues – pooling customers’ funds with their own.

There were few or no administrative institutions and minimal financial statements were issued. However, there were many notables – loads of well known personalities. In that regard, FTX had its share of marketing.

yes we are watching you tom brady,

It did not age well- Source: youtube

With SBF now faces up to 30 years in prison on multiple federal charges including wire fraud and money laundering. People are wondering how this could happen and what steps should be taken to prevent it from happening again.

The revelation of the FTX dumpster fire (which is the good old fashioned equivalent of a Ponzi scheme) has exposed the fact that many parts of the digital asset industry are operating blind in murky regulatory areas. Inspire lawmakers and regulators to demand much-needed regulation.

protect client assets

Many cryptocurrency companies have failed because of their failure to protect their customers’ assets. For example, FTX loaned customer funds to its affiliate. hedge fund Alameda Research (conveniently run by SBF’s alleged girlfriend, Caroline Ellison) – which is technically illegal.

still, Securities and Exchange Commission There is a rule to protect the assets of customers. However, this does not apply to crypto customer accounts as the industry resists registering with the SEC, arguing that tokens do not qualify as securities.

Gary Gensler, chairman of the SEC and friend of the SBF, has a different opinion. His predecessor Jay Clayton did the same during the Trump administration. Both of these recognize the litmus test from the Supreme Court’s decision in 1946, which stated that an asset would be prosecuted by the SEC when people finance a firm with the goal of gaining more money than their leadership efforts. . In other words, almost all tokens are securities according to the SEC.

According to james coxCongress could significantly address the crypto landscape by classifying most cryptocurrencies as securities, said a Duke University law professor specializing in securities law. He says that doing so would give defined assets access to off-the-rack regulatory protocols as well as the common law surrounding those regulations.

Thing futures The Trading Commission has established certain rules for crypto derivatives. However, their regulation only applies to swaps and futures – not commodities.

keep them apart

Some crypto projects have supplied a wide range of offerings and services that flouted the rules, adversely affecting the customers. Crypto exchanges are the most obvious example. These platforms carry out various functions, such as market making, trading, custodianship and securities lending.

Gensler and his ilk believe the system is riddled with contradictions. In contrast, specialized finance companies that provide diversified services usually register their individual business branches under responsible governing bodies. According to experts, the same should be practiced in crypto.

open books

Risk aversion is fundamental to financial direction in the US markets. However, these revelations are not primarily present in crypto. Information about the dozens of non-US divisions of FTX is not nearly as complete. It is more known of FTX US, the American entity, but it is difficult to determine what still exists as it was a private company that was privately owned.

Existing SEC rules for issuers and financial advisors will reduce crypto’s anonymity, but Congress may have to strengthen them. “I need more information about how tokens are created to determine if code authors can control token prices,” says Southern Methodist University’s Reyes.

truth in advertising

Crypto firms such as FTX have thrived by attracting many individuals through their flashy advertisements featuring celebrities such as Tampa Bay quarterback Tom Brady and comedian Larry David. This year, crypto businesses aired promotional material during the highly watched Super Bowl, which attracted over 112 million viewers.

The SEC already has rules that forbid anyone from taking securities public without disclosing whether any payment has been received. Fines have been levied for notable people like Kim Kardashian

self-governance doesn’t work

One of the major failings of FTX was its complete absence of corporate governance. John Ray III, who now heads FTX (and held a similar role after the collapse of Enron). warned the Delaware court dealing with the firm’s bankruptcy proceedings not to rely on any of his financial statements. Ray also mentioned that most FTX entities never hold board meetings. Although they were reportedly very good theft of investor money,

Erica Williams, who chairs the SEC’s Public Accounts Board, recently warned that no US government agency can legally oversee audits of private crypto firms like FTX. In other words, she is suggesting that investors should be careful and ask more questions when dealing with cryptocurrency projects and trading platforms. In fact, the SEC is promoting a buyer-beware program.

disclaimer

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