The future for crypto following the FTX case

On 2 November 2023, Sam Bankman-Fried was convicted of seven counts of wire fraud and conspiracy to launder money. The fraud was one of the biggest in US history; Bankman-Fried was found to have used billions of customer funds from FTX’s sister company, Alameda Research, in order to keep it solvent, without customers’ knowledge.  

After his conviction, US attorney Damian Williams said “Sam Bankman-Fried perpetrated one of the biggest financial frauds in American history – a multibillion-dollar scheme designed to make him the king of crypto – but while the cryptocurrency industry might be new and the players like Sam Bankman-Fried might be new, this kind of corruption is as old as time,” 

On 28 March 2024, Bankman –Fried was sentenced to 25 years in prison and ordered to forfeit $11bn in assets. On 11 April 2024 he appealed his convictions, although it is not yet clear on what grounds the appeal is based and it could take years for the appeal to be concluded. 

Background 

FTX was launched in 2019 and became one of the leading exchange platforms for crypto trading and was reportedly once valued at $40 billion. Bankman-Fried co-founded and act as CEO of FTX. At his peak he was one of the richest individuals in crypto through FTX and Alameda Research and attracted millions of customers to the platform.  

Bankman-Fried himself had used his customers’ money to make large political donations in his name. FTX also had big name celebrity endorsements. However, rumours of financial issues sparked mass withdrawals from FTX which ultimately exposed the fraud.  
 

At the sentencing hearing, Bankman-Fried said “I’m sorry about what happened at every stage.” However, the judge felt that he had shown no real remorse. Prosecutors sought a 40+ year sentence whilst the defence argued for a term in the region of 6 years. The 25 years imposed ultimately represents a lengthy sentence and time will tell how this will affect those operating in the sector and more specifically exploiting it by way of crypto fraud both within and beyond the US. 

The future for crypto 

Following the collapse of FTX, the need for stricter regulation of crypto currency has once again become a hot topic. The previous lack of regulation of a multi-billion-pound industry has created concerns that the sector is primed for exploitation through criminal activity.  

The UK is taking its own stance on this and proposed legislation has been set out to improve transparency in the cryptocurrency sector. 

The UK has made plans to introduce a treasury backed stable- coin. Stable-coin is a crypto currency which fixes its price to an underlying financial asset and will avoid fluctuations of the other crypto currencies.  

Last year, The Financial Services and Markets Act 2023 was passed which included measures for crypto and stable coins to be treated within the scope of regulated activity in the UK. Economic Secretary Bim Afolami recently said at the Innovate Finance Global Summit that “a whole host of crypto asset activities, including operating an exchange, taking custody of customers’ assets and other things, will come within the regulatory perimeter for the first time.” 

The fact remains that crypto currency is not restricted to one country and transactions take place on an international basis. It is also not going to disappear and confidence in the sector appears resolute despite cases such as FTX, which those in favour of crypto becoming even more of the norm, would suggest should be looked upon as a minor aberration on the sector. That being said, anyone involved in crypto currencies must be aware of the risks including those of crypto crime which can take many forms including fraud, cybercrime and money laundering.  

The steps taken by the UK government show that they are not taking crypto currency and associated fraud lightly. This is likely to be followed by further legislation as the government looks to increase scrutiny of the crypto sector and those involved need to be mindful of the changing regulation of the sector. 

Investigations may be conducted by the Financial Conduct Authority (FCA), the Serious Fraud Office (SFO) and HM Revenue & Customs (HMRC). An investigation can cause major issues for individuals or businesses. Our specialist solicitors can provide advice and consultancy to businesses who are concerned about ensuring they are compliant with any current or upcoming regulations around cryptocurrency.