Federal prosecutors and regulators lowered the boom this week on Sam Bankman-Fried, the architect of the meteoric rise and catastrophic fall of the FTX cryptocurrency exchange.

The Department of Justice obtained an eight-count indictment against Bankman-Fried, charging him with fraud and money laundering for allegedly using billions of investors’ money in FTX to fund his Alameda Research LLC, a hedge fund. After the FBI arrested him in the Bahamas, the Securities and Exchange Commission and the Commodity Futures Trading Commission filed civil cases.

All of the cases focus closely on FTX, Alameda and Bankman-Fried, and will do nothing to establish a broader framework to protect investors and consumers.

Due to that lack of regulation, Bankman-Fried was able to operate far outside the regulatory boundaries that apply to all other elements of finance. He allegedly fabricated balance sheets and showed different ones to different parties, depending upon how it suited his own needs. That created a situation in which no one knew the value of FTX and, therefore, the amount of money actually lost to those that Bankman-Fried allegedly defrauded.

Federal law does not classify cryptocurrency as a security or a commodity. In their court filings against Bankman-Fried, the SEC and the CFTC did not claim jurisdiction any broader than that relating to him and his companies. The SEC did not even use the word “securities” in its filing.

It’s clear that Congress must protect investors and consumers by defining cryptocurrency for regulatory purposes and ordering a regulatory regime to police it.

— Tribune News Service