After the Department of Justice decided not to pursue a campaign finance charge against former crypto mogul Sam Bankman-Fried, a Bitcoin.com analyst raised concerns about double standards in federal agencies’ approach to policing the crypto industry. Ben Friedman questioned the “cushy treatment” Bankman-Fried seems to be receiving throughout his legal proceedings in light of the harsher treatment other crypto exchanges are facing for allegations that boil down to whether digital assets are securities or commodities.
"It’s hard not to notice the different enforcement priorities when it comes to cryptocurrency exchanges. While exchanges like Binance and Coinbase faced regulatory action, FTX seems to have dodged similar consequences despite the serious allegations against its founder," Friedman wrote in a opinion piece for Bitcoin.com. "This inconsistency makes us wonder if all crypto exchanges are held to the same standards."
Bankman-Fried was facing a charge of violating campaign finance laws for allegedly directing more than $100 million from his hedge fund, Alameda Research, to political donations to hundreds of recipients, AP News reported July 27. The charge, which carried a maximum penalty of five years in prison, was reportedly dropped because it was not included in the warrant of surrender sent to Bahamian authorities during the process of Bankman-Fried's extradition.
Bankman-Fried's attorneys sought to have the charge dismissed in May, arguing that pursuing the charge would set a "concerning precedent that would enable prosecutors to engage in a bait-and-switch” by adding additional charges against a defendant after extradition, AP News reported.
Bankman-Fried is still facing seven charges from his original indictment, which include defrauding FTX customers and investors, according to a July 31 AP News report. His first trial will begin in October, and he is also scheduled for a second trial in February 2024, where he will face additional charges that were filed in a superseding indictment. The charges in the superseding indictment include conspiracy to defraud the Foreign Corrupt Practices Act's anti-bribery provisions.
Friedman wrote in his opinion piece that Bankman-Fried's legal situation raises concerns about "double standards" and how "connections and money" can impact legal proceedings. Friedman highlighted Bankman-Fried's "close ties" with the Securities and Exchange Commission, as well as the "substantial political donations" he made to "prominent" public figures including Joe Biden and Elizabeth Warren.
In June, the SEC filed lawsuits against major crypto exchanges Binance and Coinbase. Financial analyst Matt Levine wrote in his Money Stuff newsletter that after reviewing the complaints against both companies, the SEC is simply accusing the firms of operating cryptocurrency exchanges.
“I am tempted to read yesterday’s lawsuit as kind of an endorsement of Binance by the SEC,” Levine wrote in the newsletter. “The SEC, and before it the CFTC, investigated Binance carefully and wrote a 136-page complaint about every bad thing it could find, and all it could find is that Binance is running a crypto exchange.”
Summing up the SEC lawsuits, Levine concluded, “For the most part the Binance complaint is the same as the Coinbase complaint: Binance is accused of operating a crypto exchange that was open to U.S. customers and that listed crypto tokens that are securities, without registering as a U.S. securities exchange. Just being a crypto exchange in the U.S. is, in the SEC’s eyes, illegal.”
In response to the SEC's lawsuits, the CEOs of both Binance and Coinbase highlighted the lack of legal certainty for crypto companies operating in the U.S., Federal Newswire previously reported.
"We're proud to represent the industry in court to finally get some clarity around crypto rules," Coinbase CEO Brian Armstrong said in the Federal Newswire story. "Instead of publishing a clear rule book, the SEC has taken a regulation by enforcement approach that is harming America."
Binance CEO and founder Changpeng Zhao (CZ) wrote in a blog post saying, "Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry. Today’s action is another in a line of examples where, as with other crypto projects facing similar suits, the Commission has determined to regulate with the blunt weapons of enforcement and litigation rather than the thoughtful, nuanced approach demanded by this dynamic and complex technology," Federal Newswire reported.
As FTX's crisis unfolded in November, Binance published its wallet addresses and announced new Merkle tree proof-of-reserves would be available soon, Bitcoin.com reported. "All crypto exchanges should do Merkle-tree proof-of-reserves,” CZ said at the time. “Banks run on fractional reserves. Crypto exchanges should not...Full transparency."
Attorney Coy Garrison, a former regulator who is now a partner at Steptoe & Johnson LLP, said in February regulatory agencies were stepping up their enforcement actions in the crypto industry as a result of the collapse of FTX, The Trusted Professional reported. "There is a political incentive to bring bigger cases post-FTX to be viewed as the responsible cop on the beat,” Garrison told the Wall Street Journal, as reported by the NYS Society of CPAs.
CZ said on an episode of the Bankless podcast shortly before the SEC's lawsuit against Binance that when FTX collapsed and the public discovered Bankman-Fried was a fraud, lawmakers and regulators felt their trust had been betrayed and are now lashing out at other players in the industry, regardless of how transparent and eager to comply those players are.
"They missed the bad guy, and now they're punishing all the remaining good guys," CZ said during the podcast.
