Is the FTX Scandal Something New?

The brief answer is no. Many years ago, as a young lawyer, my then boss, Phil Hoblin Sr. taught me that the method of the fraud doesn’t change, the instruments change.

So did SBF come up with a new method to defraud people. He did not. He simply used crypto to commit his fraud. You take in people’s money and tell them they it is invested and you use it for yourself.

Now the SEC, DOJ and CFTC don’t like crypto and think it should go away. The way they want to do that is by regulation. So, they are going to make a big deal that this particular fraud involved crypto. But there are a couple of things to keep in mind. First, regulation in and of itself cannot prevent fraud. Second, crypto did not create this fraud SBF and his cronies allegedly did.

SBF could have done the same thing with securities or real estate or oil futures. The possibilities are endless. Crypto is just the flashy new asset.

As for regulation people evade regulation all the time. I must get at least 10 SEC Litigation Alerts a month about people selling securities to unsuspecting people, without being registered with the SEC as a broker-dealer. Of course there is always Bernie Madoff, who in fact did have some entities registered and was examined by the SEC.

So will this be the end of crypto, no by a long shot. Will it all be fraudulent? Probably not. Will the SEC eventually regulate it? Probably and they should.

© Sharon M. Davison 2022

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