Sam Bankman Freed and Chao Changpeng: Two crypto giants sentenced

This is part 1 of a 3-part series interview with William Quigley, cryptocurrency and blockchain investor and co-founder of WAX and Tether, exclusively by Selva Ozelli for crypto.news It was carried out. Part 1 is about the prison sentences of Sam Bankman Freed and Chao Changpeng. Part 2 is about cryptocurrencies and banking. Part 3 is about his future with NFTs.

1) For crypto.news readers, please tell us about your career path to becoming a successful technology-focused venture capitalist.

After graduating from the University of Southern California with honors in accounting and an MBA from Harvard Business School, I was named a Kaufman Fellow and worked as a senior consultant in Arthur Andersen's Financial Services Group (“Andersen”). I did. . At Andersen, he supported asset securitization and risk segmentation efforts for banks and his S&Ls. He also advised Japanese banks on their entry strategies into the U.S. market.

After Andersen, I spent seven years in business planning and new business roles at The Walt Disney Company (Disney), the world's largest consumer product licensor. My tenure at Disney included finance and operations roles at Euro Disney, the Disney Store retail chain, and Disney Consumer Products. He also oversaw strategic planning and financial operations for the Disney license.

After Disney, my career as a technology-focused venture capitalist began when I became Managing Director at Idealab. Capital Partners (“ICP”) is the world's first consumer Internet venture whose capital firm has made early investments in some of the major companies of his Web era, including PayPal, Netzero, MP3.com, and Goto.com. is. He then co-founded his $700 million early-stage venture capital firm, Clearstone Venture Partners, which invested intensively in communications and consumer technology companies. I also co-founded and co-managed Crypto Currency Partners, a blockchain equity investment fund. There, Coinbase, Kraken, Bitfury, Authy, Changechip and Circle.

I co-developed the first crypto derivatives used for pre-release Ethereum trading. I am also involved in many other innovative innovations, including Tether, the first fiat-backed stablecoin and the world's most traded cryptocurrency, and GoCoin, the pioneering crypto payment processor. co-founded a crypto company. I co-founded WAX, a blockchain built for video games and NFT virtual item trading.

I was also an early investor in PayPal, but I highly doubt that the payments giant will bring much innovation to the stablecoin space.

2) What are your thoughts on Sam Bankman Freed's 25-year prison sentence? The former CEO of FTX was found guilty of six counts of fraud and one count of money laundering.

After CoinDesk published Alameda's flawed balance sheet in November 2022, Sam Bankman Fried, who at one time had a personal net worth of more than $26 billion, was removed from his position among the top three crypto giants. fell rapidly. The result was industry-wide panic and concern about FTX. Centralized cryptocurrency exchanges and their liquidity. FTX traded highly leveraged spot, derivatives, options, and commodities.

As the story unraveled, it turned out that FTX's losses were much larger than many originally thought. Bankrupt FTX and Alameda executives stole more than $10 billion in customer funds in 2021 during a bull market for cryptocurrencies and NFTs. Sam Bankman Fried was convicted of fraud for stealing at least $10 billion from customers and investors and was sentenced to 25 years in prison in March 2024 and ordered to pay a fine of $11 billion. Ta. Sam Bankman Freed appealed his prison sentence.

I would like to touch on multiple factors that may have contributed to the Sam Bankman Freed fraud. Sam graduated from the Massachusetts Institute of Technology (MIT) with a degree in physics and a minor in mathematics. He is a former international exchange traded fund (ETF) trader at Jane Street Capital. When he founded both FTX and cryptocurrency trading firm Alameda Research in 2018, he had little to no practical experience with cryptocurrencies, blockchain, or derivatives. He would like to point out that ETFs are not derivatives. They are an investment fund that was just approved to invest in BTC by the Securities and Exchange Commission (SEC) earlier this year. As a result, SBF is ill-equipped to manage highly leveraged cryptocurrency exchanges and hedge funds, and the hedge funds will declare Chapter 11 bankruptcy on November 11, 2022, resulting in the largest financial fraud in U.S. history. It became one of the FTX's failure shocked the volatile crypto market, resulting in billions of dollars in losses at the time and a valuation of less than $1 trillion.

SBF's rapid rise to fame in the cryptocurrency industry was fueled by the media, influencers, and celebrity spokespeople who catapulted him into this investing genius, likening him to JP Morgan and Warren Buffett, and commenting on his hair. He was unkempt and looked like a beach bastard. It can be said that mainstream media influencers were complicit in SBF's wrongdoing and provided him with extensive coverage even after FTX's bankruptcy. Consider: Michael Lewis’ book, “Going Infinite: The Rise and Fall of the New Tycoon” was released on October 3, 2023, the same day the criminal trial against Sam Bankman-Freed began in Manhattan federal court.

In June 2023, dozens of lawsuits against Sam Bankman Fried and his associates, FTX investors, celebrity spokespeople, and influencers were combined into one legal proceeding, with more lawsuits still pending. Not woken up. Some of these class actions are being settled. And Sam Bankman Freed has agreed to help FTX clients target celebrity promoters and influencers with flips.

But FTX investors were also complicit in Sam Bankman Fried's fraud. In addition to Binance, these FTX investors include top venture capital firms such as NEA, IVP, Third Point Ventures, Tiger Global, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Temasek, Thoma Bravo, and Paradigm Operations. It contains. These investors likely did not perform due diligence on FTX and Alameda Research's financial statements, which were prepared on Quick Books.

3) I'm glad you brought up the role of investors in FTX's fraud, which hasn't been brought up before. In February 2023, Robbins Geller, a prominent class action law firm, filed a first-of-its-kind lawsuit against the venture capital firms that backed FTX.

These venture capital firms employ untrained young people who know nothing about cryptocurrencies, derivatives, financial risk, blockchain, or Satoshi Nakamoto, British judge James Mellor said last month. , ruled that Craig Steven Wright is clearly not Satoshi Nakamoto (as is the state of the industry) and is extremely young. Untrained young venture capitalists who can't even read financial statements are impressed by Sam Bankman Freed based on the heavily orchestrated hype in the media about him. Ta.

For example, when a venture capitalist at Sequoia Capital, the legendary company that funded Apple, Google, and Instagram, met Sam Bankman Fried, he was not sure about the technology or his cryptocurrency financial statement risk exposure. I read an article that said they didn't talk much about it. About the exchange, FTX, or his hedge fund, Alameda Research. SBF talked about bananas, yellow fruits. Sam Bankman Freed is said to have said the following: You can buy Bitcoin. Send money to your friends in any currency, anywhere in the world. You can buy bananas. You can do anything with money from within FTX. ” Frankly, if I heard nonsense like this at an investment conference, I would run away. Instead, Sequoia's venture capitalists liked what Sam Bankman-Fried had to say and promoted FTX and its services to help customers increase the value of their significant investments in FTX through crypto trading and investing. led us to use the FTX platform.

Therefore, the backing and active support of venture capitalists was essential to FTX's fraudulent scheme. Venture capitalists invested in FTX knowing that the company would use the funds for banana trading and other misleading activities that violate the law. And they actively support these efforts by promoting FTX through their websites, social media feeds, public interviews, and appearances at industry events, encouraging investors that the FTX platform is trustworthy and secure. expressed to homes and consumers.

4) I would like to hear your opinion on another lawsuit related to Sam Bankman Freed. Sam's parents, Joseph Bankman and Barbara Freed, are both professors at Stanford Law School, one of the best law schools in our country. They were the recipients of fraudulent cash transfers and $26 million worth of real estate from Sam Bankman Freed. In September 2023, the debtors of FTX and Alameda Research sued Sam's parents in a clawback lawsuit seeking damages.

Yes, Sam's parents, Stanford Law School professors Joseph Bankman and Barbara Fried, say the FTX lawsuit attempts to exploit the “absolute fact” that their son was a founder and executive at FTX. ”, but they have never proven they were in power or while accepting $26 million worth of ill-gotten gains payments from their son without question. They recognized the problems that led to the collapse of the company. So far, Sam Bankman Freed's parents have not been charged with anything related to FTX, Alameda Research, or their son's criminal activities. If Sam were my son, as a legal parent, I would at least ask how he could have gifted me $26 million in cash and real estate, and perhaps ask some questions about FTX's apparent role as a money laundering operation. right. .

But I'm not a lawyer, especially not one who teaches at Stanford Law School. I'm also not Sam Bankman Freed's father. While stealing $10 billion of investors' funds is not the same as killing a teenager in a school shooting, I would like to mention Oakland County Attorney Karen McDonald. As a mother, I'm angry. As a prosecutor, he feels indignant. As someone who lives in this prefecture, I feel angry. ” Three days after the mass school shooting that killed four teenagers and injured seven others, she stood at a press conference and accused her son of grossly neglecting his duties as a parent by not avoiding the obvious danger he posed. The government announced that it would file charges against the parents of the shooter. The person directly responsible for her son's shooting incident. The prosecutor won the first case of its kind. The parents of a school shooter were found guilty of manslaughter despite not pulling the trigger on their son's gun. These parents are the first U.S. parents to be charged in a school shooting committed by their children.

5) William, your final question for part one of our interview series is again about sentencing. Today, Mr. Zhao Changpeng was sentenced to four months in prison. Any thoughts on one of the billionaires being sentenced to prison on money laundering charges?

Binance founder Chao Changpeng, who is estimated to be worth $33 billion, resigned from Binance in November 2023 after pleading guilty as part of a settlement with the U.S. Department of Justice. As part of the agreement, CZ waived the right to appeal any sentencing. Up to 18 months in prison. CZ also agreed to pay a $50 million fine. Binance agreed to pay a $4.3 billion fine.

Prosecutors had asked for CZ to be sentenced to three years in prison, twice the sentencing guidelines of 18 months, stating that “the scope and impact of CZ's misconduct at Binance was enormous.'' Today, it was revealed that Changpeng Zhao will serve a four-month prison sentence for violating the Bank Secrecy Act while working for Binance, which seems minimal.