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Analysis

January 30, 2023

Everything You Need to Know About FTX, Sam Bankman-Fried, Crypto, the SEC, CFTC, the Revolving Door and the Influence Industry

As you know, there are many very fast-moving events related to these issues.  While we have lots of materials below capturing much of that, we will be updating this webpage regularly, but for our latest views and commentary check us out on Twitter:

  

For years now, too many leaders on Wall Street and Washington either looked the other way or blindly supported the crypto industry as it worked relentlessly to infiltrate our financial system and rewrite the laws and rules to benefit their special interests. This was all greased by tens of millions of dollars in campaign contributions and lobbying, including by too many former public officials selling out their public service and engaging in influence pedaling.

Leaders (including regulators at the CFTC, elected officials in Congress, and blue-chip venture capital firms) who should have known better simply accepted the pixie dust of “innovation,” the fairytale of crypto riches, and FTX founder Sam Bankman-Fried’s claimed “vision.”  They did so without doing the most basic due diligence or asking the most obvious questions if they thought it would make them rich or were already on FTX’s payroll directly or indirectly.  (Better Markets refused FTX’s bribe of “$1 million or more” to support their radical and dangerous efforts to undermine consumer, investor and financial stability protections.  Although that would have funded more than 25% of our annual budget, we stayed independent, clearly saw FTX’s troubling business plans and proposals, and aggressively opposed them at the CFTC and across Washington.)

The crypto industry followed the financial industry’s standard playbook of using all the levers of the influence industry to buy access and special treatment for its special interests at the expense of the public interest. One of the most corrupt aspects of that, which FTX used extensively, is a revolving door strategy of hiring former government officials, especially from the CFTC, to buy their unique inside knowledge, special access, and unfair influence at the agencies, in Congress and all across Washington to move FTX’s agenda.

Better Markets has stood against the crypto tidal wave of money, stood up to FTX’s powerful supporters (including at the CFTC and in Congress), asked the tough questions (including of Sam Bankman-Fried directly in our conference room), and aggressively opposed FTX’s radical and dangerous proposals. 

In the wake of FTX’s implosion, many are now criticizing FTX and casting about for scapegoats, while trying to distract from their prior support and shilling.  Don’t let them get away with it.  Look at what people said and did before FTX collapsed and compare it to what they are saying now.

Also, many in Congress, at the CFTC, and in the crypto industry are claiming that FTX’s collapse shows that new legislation is needed. Shockingly, they are still pushing legislation that FTX endorsed and was FTX’s number one legislative priority.  The CFTC Chair, who has been a high-profile, outspoken supporter of crypto and FTX, has gone so far as to irresponsibly say that such legislation should be passed “no questions asked,” even though most of the facts related to FTX’s collapse are not yet known.  Moreover, the current laws and rules are fully capable of addressing almost all of the lawlessness going on in crypto. In fact, regulators at the banking agencies and the SEC withstood enormous political and industry pressure to allow crypto access into the core of the financial and banking system, which has helped prevent contagion, more crashes, and taxpayer bailouts.

Finally, FTX was registered, licensed, and supervised by the CFTC, which was so busy promoting crypto and trying to expand its jurisdiction that it failed to properly regulate the company. Rather than being an industry cheerleader, the CFTC should have used the regulatory powers it already had and, if it had, it just might have uncovered some of the misconduct, lax controls, and financial weaknesses that led to its collapse and harmed so many people.  Better Markets suggested that they do that in its May 11, 2022 comment letter and in a June 16, 2022 letter to the CFTC Chair.

Below are resources on the FTX collapse, crypto, Washington’s revolving door and the role of regulators.

Key Materials

Dennis Kelleher Discusses FTX and the Future of Crypto on CNN (11/16/22)

Report: In a examination of the SEC’s work on crypto, our team details the facts of what the #SEC has actually done and why it has been as effective as possible under the circumstances. (1/24/23)

Blog: Our team examined the stunning impact of the revolving door between the CFTC and FTX. (12/26/2022)

Letter to Senate Agriculture Committee: We raised numerous concerns over an FTX endorsed crypto bill that would jeopardize investor, consumer, and financial stability protections. (1/10/23)

Fact Sheet: Before the Senate Agriculture hearing on a crypto bill that was FTX’s main priority, we asked the CFTC and Members of Congress to consider 10 key questions about the legislation. (11/30/22)

Fact Sheet: Setting the record Straight on Crypto, FTX and Sam Bankman-Fried, and Financial Regulators (11/29/22)

Fact Sheet: Before a CFTC roundtable on FTX’s application, we outlined the key questions that both the CFTC and FTX should address as they considered the company’s application. (5/24/22)

Press Release: We called on Congress to know the facts before considering legislation putting the underfunded CFTC in charge of the crypto Industry (11/21/22)

Letter: Our letter to the CFTC urged the agency to have a “transparent, robust, and meaningly inclusive” process for evaluating FTX’s application. (6/16/22)

Comment Letter: Better Markets Criticized FTX’s proposal before the CFTC, noting the threats posed to customer protection and systemic stability by cryptocurrency investments. (5/11/22)

Press Release: We called for an investigation of the CFTC’s FTX Failures and push for crypto-friendly legislation (11/15/2022)

Press Release: Our statement criticized the CFTC for failing to properly regulate or supervise FTX (11/14/22)

In the News: In “Washington Needs a Crypto Rethink” Dennis Kelleher tells The New Yorker’s John Cassidy about why the crypto industry wants the CFTC as its regulator (12/20/22)

In the News: The Financial Times citied Better Markets Fact Sheet on FTX in its piece on the CFTC’s failures. (12/15/22)

In the News: Dennis Kelleher tells the Washington Post that Congress should not rush a crypto bill endorsed by FTX, especially without knowing all the facts about its collapse. (12/1)

In the News: The Wall Street Journal Story covered FTX’s attempted bribe of Better Markets. (11/28/2022)

In the News: Vox’s piece “Sam Bankman-Fried tries to explain himself” – where he admits that he and his business were frauds. (11/16/2022)

Selected Additional Crypto Work

Fact Sheet: Crypto Carnage Shows Dangers of Unproven Technological Advancements in Finance and Need for Banking Regulators to Act (1/19/23)

Comment Letter: Federal Agencies Must Address the Rampant Fraud and Extreme Volatility Of Digital Assets to Protect Consumers, Investors, Businesses, and Markets (8/9/22)

Press Release: Better Markets Applauds SEC Prioritizing Investor Protection in Rejecting a Crypto ETF Due to Susceptibility to Fraud and Manipulative Practices (6/30/22)

Press Release: Bipartisan Crypto Bill Is Congress Playing with Fire and Repeating the Mistakes of the Past- Another Financial Crash and More Industry Bailouts (6/7/22)

Press Release: Better Markets and Leading Consumer Groups Support Labor Department’s Call For “Extreme Care” For Cryptocurrency Retirement Plan Options (4/26/22)

Fact Sheet: Cryptocurrencies—The Next Big Thing or The Next Goldrush? (3/9/22)

Selected Media

Los Angeles Times: Emails reveal Sam Bankman-Fried’s courtship of federal regulators (12/26/22) 

“These few emails show that the CFTC had an open-door policy to meet basically whenever FTX wanted to meet, including [with] the then-acting chair,” Dennis Kelleher, president of Better Markets, a nonprofit that advocates for financial regulation, told The Times. “FTX hired former CFTC officials for the purpose, obviously, to access and influence the CFTC, where FTX had a pending radical proposal to dramatically change the structure and operations of clearinghouses.”

Washington Post: Sam Bankman-Fried’s crypto empire imploded after a Washington charm offensive (11/14/22)

“Critics are now calling for a pause in Washington in the wake of FTX’s collapse. ‘We don’t need more legislation. We need more money and support for regulators to go after what is fundamentally a lawless industry,’ said Dennis Kelleher, the president of Better Markets, which advocates for tougher financial regulation. ‘We need elected officials to prioritize the public interest rather than campaign contributors and lobbyists.”

Fortune: The fiction of crypto was visible to all who wanted to see’: One of DC’s top financial reform voices tears into the ‘greed’ and ‘FOMO’ that led to the FTX collapse (11/14/22)

“No one should be shocked by FTX’s demise,” Kelleher wrote in a scathing statement released on Sunday. “The fiction of crypto was visible to all who wanted to see.”

New York Times: Inside Sam Bankman-Fried’s Quest to Win Friends and Influence People (11/22/22)

“FTX blurred the lines between corporate affairs and political activity, and prompted concerns among some involved about whether the money was being spent effectively and in compliance with strict campaign finance laws, while leaving some potential beneficiaries feeling like there was a quid pro quo.

“It was relentless and all-encompassing,” said Dennis Kelleher, the president of Better Markets, a nonprofit that fights for more regulation of financial firms.”

Dennis Kelleher Discusses Crypto Lobbying on Financial Times’ Tech Tonic Podcast (9/14/22)

The Financial Times Tech Tonic podcast covers the crypto lobby’s enormous influence in its series “A sceptic’s guide to crypto.” They spoke with our Dennis Kelleher about the stunning amount of money being spent and how it could impact our entire financial system.

The Atlantic: The Crypto Meltdown Could Have Been So Much Worse (11/12/22)

“Why is the contagion so limited? I asked that question of Dennis Kelleher, a co-founder of Better Markets, a nonprofit that advocates for financial regulation in the public interest. “The only reason we do not currently have a financial crisis, with a crash and with bailouts, is because regulators have withstood enormous pressure to allow interconnection and linkages between the crypto activities and the core of the financial and banking system.”

CNBC- Op-ed: FTX crash shows cryptocurrency market needs bank-like regulation  (12/5/22)

by Dennis Kelleher and Rob Nichols, president and CEO of the American Bankers Association

“Our organizations don’t always agree on banking policy. But today, as the warning lights blink on the economic dashboard and we confront both persistent inflation and the risk of a recession in the months ahead, we both agree that crypto companies and other nonbanks pose a significant and increasing risk to our financial system that needs to be better understood and regulated.”

LA Times: A young crypto billionaire’s political agenda goes well beyond pandemic preparedness (8/12/22)

The FTX proposal would encourage speculation, rather than finding stable prices, said Dennis Kelleher, president of Better Markets, a D.C.-based think tank that focuses on accountability, transparency and fairness in financial markets. The proposal “removes a historic layer of protection that has worked extremely well,” Kelleher said. “The markets are going to be transformed in a way that the interests of actual producers and purchasers are going to end up subordinated to speculators and financial products.”

Dennis Kelleher Takes Part in Brookings Panel on Crypto (11/15/22)

During the panel, Dennis focused on the revolving door of the crypto industry and the need to prevent the lawless crypto industry from infecting the entire banking system and economy.

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