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MELBOURNE (Reuters Breakingviews) – Sam Bankman-Fried couldn’t be blamed for mulling over past financial scandals with a degree of envy. The former boss of bankrupt crypto exchange-cum-hedge-fund FTX was arrested on Monday in the Bahamas at the request of U.S. prosecutors. That hasn’t happened to many mainstream financial hall-of-shame executives in recent years. Questions of guilt aside, the decentralised nature of the product SBF was promoting may have played a role.
The financial world plays host to plenty of scandals and failures. UK authorities ran a seven-year investigation into banks colluding to fix the Libor rate. Jon Corzine, a former New Jersey governor and Goldman Sachs boss, ran MF Global into the ground in 2011, a congressional report found. And executives from Lehman Brothers to Bear Stearns to mortgage lender Countrywide Financial were all tainted by the actions that laid their banks low in the financial crisis.
No senior executives ended up facing criminal charges, or were hauled off in handcuffs even, though several Libor traders went to jail. The FBI did investigate Countrywide Financial Chief Executive Angelo Mozilo; he also agreed to settle civil fraud charges from the Securities and Exchange Commission, though without admitting or denying responsibility. Anton Valukas, who wrote the bankruptcy court’s report into Lehman’s 2008 failure, determined there could be a strong case – a “colorable claim”, to use the legal jargon – against former boss Dick Fuld and some of his executives. But that also went nowhere.
Part of the issue is that ineptitude and hubris by themselves aren’t against the law. Large, complex institutions, though, can also make it harder to trace precisely who did and said anything illegal, even in a relatively forensic investigation like the one Valukas undertook.
Crypto firms, by contrast, are generally relatively small – FTX had around 300 employees. Even without the “complete failure of corporate controls and … complete absence of trustworthy financial information”, as current FTX CEO John Ray characterised Bankman-Fried’s tenure, that ought to make it easier for prosecutors to pin the blame on individuals. Conversely when blow-ups are at larger, integrated firms stretching across numerous aspects of the financial universe, many people, even hundreds, can bear fault.
Sometimes, as with the financial crisis, the system is to blame too. Whether prosecutors pick the right targets, or are successful in court, is another matter. But recent history shows that running a systemically risky financial institution increases your chances of avoiding the slammer.
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CONTEXT NEWS
Sam Bankman-Fried, the former chief executive of now-bankrupt crypto firm FTX, was arrested in the Bahamas on Dec. 12. The attorney general’s office for the Caribbean state said it took Bankman-Fried into custody after receiving formal confirmation of criminal charges from U.S. prosecutors.
Damian Williams, the U.S. Attorney for the Southern District of New York confirmed the federal government had requested Bankman-Fried’s arrest based on “a sealed indictment” prepared by his office. Williams expects to unseal it on the morning of Dec. 13.
The U.S. Securities and Exchange Commission said on Twitter the same evening that it had authorised separate charges relating to his violations of securities law, and the changes would be filed publicly the following day.
(Editing by Lauren Silva Laughlin and Thomas Shum)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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