The DOJ is suing Samuel Bankman-Fried, but where are all the other crypto lawsuits?

The financial crash of 2007-2008 caused the worldwide loss of untold billions in assets, massive unemployment, millions of homeowners foreclosed and their credit demolished, bankruptcies or bankruptcies of entire nations like Iceland, the mass extinction of many small and large banks and financial corporations like Bear Stearns and Lehman Brothers, and general economic misery across the planet. The cause of the accident was, basically, widespread fraud. The fraud started at the lowest level with fake loan applications known as “liar loans”, spread upwards into the fraudulent bundling of mortgage-backed securities loans, received the endorsement by fraudulent ratings given by rating agencies, and ultimately resulted in the biggest investment fraud in world history when this toxic junk was sold to investors as AAA rated “safe” products, including debt-backed bonds (CDOs).

The fraud was widespread, the fraud was extreme, the losses due to fraud amounted to trillions, and the fraud caused serious suffering to tens of millions of people around the world. More importantly, the fraud was criminal. Yet, in the end, really only one guy, Kareem Serageldin, went to jail for all of this ― and for conduct that was, at worst, nowhere near the scale of the criminal activity in which the main players engaged. And even he only got 30 months in a minimum-security Club Fed facility.

The failure of U.S. regulators to hold one of the key players criminally accountable was the greatest failure of government regulation ever recorded in world history (even the USSR-obsessed cover-up ended up publicly condemning the six those most directly responsible for the Chernyobl disaster). In particular, the United States Securities & Exchange Commission, once one of the world’s most respected regulators, has failed spectacularly and is now seen as little more than the bumbling and clueless Barney Fife of the regulatory world. financial and now has all the prestige of the local DMV office. But it was arguably the DOJ that failed most with its conviction alone in a target-rich environment where the sentiment of ordinary people acting as jurors would likely have salted several hundred lead perpetrators with little sympathy.

Those failures are a thing of the past, and there is now so much spilled milk under the bridge. But now we are faced with another financial meltdown, albeit on a somewhat smaller scale, but where the type of fraud was just as bad, if not worse in many ways: the so-called crypto crisis.

Just forget about the SEC, whose main job is to prevent investment fraud, but which did absolutely nothing when substantial evidence showed that the entire crypto industry was little more. than a giant Ponzi scheme. To no one’s surprise, the SEC has failed yet again. It’s time to face the reality that the SEC is little more than an electronic repository for securities filings, ensuring broker-dealers meet their continuing education requirements and chasing the occasional market manipulator out of small fry, the insider dealer and the nickel & dime Ponzi schemer. Otherwise, the SEC only gives the appearance of investor protection without actually providing such protection in any meaningful sense.

The DOJ is another matter, since its job in financial fraud cases is to investigate and prosecute those who have committed serious financial fraud, especially when it occurs (as they all do) through the wires. federal. Prosecuting such crimes is their job, and they got off to a good start by announcing the lawsuits against Samuel Bankman-Fried of the infamy of FTX and Alameda Research. Presumably, others involved with FTX, Alameda Research and other related companies will also be investigated and prosecuted. Everything is fine.

What’s not so good is that FTX and Alameda Research are just a few of the major crypto players, and other companies and people, through their own misconduct, have caused losses to investors while just as serious, if not worse. For example, Celsius
Network, which filed for bankruptcy on July 13, 2022is the same supposedly owes its investors and depositors about $4.7 billion, of which about $1.2 billion is simply missing. There are allegations from these depositors and investors that Celsius Network operated itself as a Ponzi scheme towards the end by artificially backing its values ​​in an attempt to attract new investors whose money was then used to make against takeovers. Where are the Celsius network lawsuits?

The bigger truth is that the entire crypto industry was basically operating like a giant investment scam, with companies investing and buying each other’s proprietary tokens in an attempt to inflate their own values. The entire crypto industry amounts to one big criminal organization much like the mafia of yore where certain “families” staked their particular ground and everyone kept to those boundaries – except here it was done with proprietary tokens. Additionally, many of these companies have seen a large amount of assets that simply disappeared or have been diverted for personal gain, while making shocking misrepresentations to their investors and depositors about the true nature of the risks of investment incurred. How does the DOJ compare to these other frauds?

Of course, the ensuing civil litigation will do justice to the perpetrators of these crypto schemes, though investors and depositors will even then have the chance to recoup more than a small portion of their losses. Class action lawyers will also go after the enablers of these schemes, including the (usually small and shady) auditing firms that were supposed to watch the books. But that’s really not enough to satisfy one of the main purposes of criminal law, which is deterrence.

If the DOJ doesn’t pursue a lot of crypto scammers, but just stops with Samuel Bankman-Fried and a few of his flaky cohorts, it will send a message to the next generation of investment fraudsters that they too are likely to make billions and get away with it. It will then only be a matter of time before the next wave of get-rich-quick schemes hits and ordinary people once again lose vast amounts of wealth in what will be presented to them as “safe” investments. That is to say, the widespread lawsuits within the crypto space have a chance to prove that crime doesn’t pay, something that currently seems lost across large swathes of the alternative investment industry.

The problem of financial corruption is not simply a moral problem or a desire for revenge from society. On the contrary, the place of the United States as the center of global financial transactions is primarily due to the fact that the United States has historically hosted a tightly regulated market where financial misappropriation is minimized and those who engage in nefarious behavior are regularly pursued. But a series of contemporary scandals – Worldcom, Enron, the crash of 2007-2008 and, more recently, the crypto companies – seriously threaten this reputation. The only way to keep this reputation intact is to vigorously pursue the perpetrators and their accomplices. It’s a “charge everybody and let juries sort out the innocent” moment for American justice.

Finally, it should be noted that there is one final victim of crypto frauds, which is the American public. Civil litigation over these schemes will require extensive judicial, regulatory, and prosecutorial resources, and most of that cost will ultimately be borne by US taxpayers with no realistic prospect of financial reward. The fault here lies with Congress, which should have imposed licensing fees and crypto taxes early on, but failed to do so largely due to the large political contributions made by crypto companies to prevent such regulations and taxes (and what contributions were ultimately another act of embezzlement against their investors and depositors).

At the very least, the American public should have the satisfaction of seeing all these people go to jail. Please don’t let 2007-2008 repeat itself where there is only one “show” chase but everyone skates.


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