Soon after the troubled cryptocurrency exchange platform FTX filed for bankruptcy protection on Friday, Sen. Elizabeth Warren implored her fellow members of Congress as well as federal regulators to crack down on the digital asset industry that has cost customers billions of dollars while wrecking the planet.

«The implosion of FTX must be a wake up call for Congress and financial regulators to hold this industry and its executives accountable,» Warren (D-Mass.) tweeted. «Too much of the crypto industry is smoke and mirrors. It’s time for stronger rules and stronger enforcement to protect ordinary people.»

Erstwhile FTX chief executive Sam Bankman-Fried, a 30-year-old multi-billionaire, resigned from his position but is expected to remain at the company during a transitional period of unspecified length.

As The Wall Street Journal reported: «FTX is the latest in a string of crypto companies seeking bankruptcy protection this year. Months ago, Mr. Bankman-Fried served as a lender of last resort to his industry, following the failure of other crypto companies. Its fortunes reversed in the past 10 days, after a CoinDesk report showed the depth of the relationship between FTX and Alameda, triggering a loss of faith in the platform by amateur and professional investors.»

According to the newspaper, which in another article cited unnamed sources familiar with the matter: «FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call… All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda.»

«FTX, Alameda, and other affiliates estimated in their bankruptcy filings that they have more than 100,000 creditors,» noted the Journal. «FTX and its affiliates, including Alameda, estimated their assets are between $10 billion and $50 billion and reported the same range for its liabilities, which would make it the largest crypto-related bankruptcy ever filed.»

The U.S. Department of Justice and the Securities and Exchange Commission are reportedly investigating FTX in the wake of its sudden collapse this week.

Just days ago, «FTX had agreed to be taken over by rival exchange Binance, which walked away from the deal following a review of the company’s finances,» the Journal reported. «The crypto exchange is facing a shortfall of up to $8 billion

After Binance revealed its since-jettisoned plan to acquire FTX, Public Citizen president Robert Weissman said Tuesday in a statement: «To the extent this announcement signals that the cryptocurrency Ponzi fad is fading away, it’s something to be celebrated.»

«It’s time, once and for all, to silence the utopian-libertarian gibberish, recognize that crypto has provided no social utility while worsening the climate crisis, and acknowledge that the crypto industry’s investment scams have cost retail investors billions,» said Weissman. «On the other hand, crypto has proven great for money launderers and tax dodgers.»

«At this moment, Congress needs to take heed and ensure it doesn’t let a failing, scam-based industry lobby its way to a legislative bailout,» Weissman added. «Existing financial statutes for banking, securities, commodities, and consumer protection agencies already provide a robust foundation for regulators to address many of the problems facing investors and consumers, and Congress should not interfere with regulators’ current authorities.»

According to the Journal:

FTX was previously seen as a rising star in the digital asset world. It attracted nearly $2 billion of investments from high-profile venture-capital funds, hedge funds, and the Ontario Teachers’ Pension Plan. Many investors face a wipeout of their equity stakes in FTX as the exchange heads to the bankruptcy court. Venture-capital firm Sequoia Capital said on Wednesday it is writing down its $150 million investment in FTX to zero.

Bankruptcy means that it could be a long time before individual investors and others owed their funds are able to potentially recover any of them, if ever. Creditors to Mt. Gox, the Japanese crypto exchange that failed following a 2014 hack, are still waiting for their funds almost a decade later.

«Crypto investors may find an uphill battle to get their crypto deposits back in bankruptcy proceedings,» the Journal explained, «because their investments are likely to be treated as unsecured claims without collateral rights.»

FTX’s new CEO, John J. Ray III, «was chairman of Enron Corp.’s successor company, Enron Creditors Recovery Corp., and oversaw the energy-trading company’s liquidation after it filed for bankruptcy in late 2001,» the newspaper reported. «The recovery rate for Enron creditors as of 2008 was about 52 cents on the dollar, the company said at the time. Mr. Ray’s successes included securing a $1.7 billion settlement with Citigroup Inc. in 2008, which he had accused of helping Enron mislead investors.»

By Kenny Stancil

Source: commondreams.org