The Crypto Ponzi Scheme Is Too Lucrative For Criminal Types For It To Have Vanished With SBF

That's the #3 Republican in the House-- Minnesota criminal Tom Emmer (click to hear him in action)

On Tuesday, Timothy O’Brien noted that “Every generation produces a financier or businessperson who personifies how easy it can be to part fools from their money, part smart people from their senses and part the media from skepticism. There’s a long list of exhibits in that genre, from Charles Ponzi to Bernie Madoff. [How could O’Brien, fall people, not mention Señor Trumpanzee?] Does Sam Bankman-Fried belong in that pantheon? There’s lots of evidence suggesting he does. He— and the cryptocurrency empire he built— are the subjects of sprawling fraud and money-laundering probes. His company, FTX, is bankrupt, and federal prosecutors in New York have indicted the 31-year-old former billionaire for a range of financial crimes. SBF, as he’s known, maintains that he is innocent of any wrongdoing and that he still gets to have his day in court.” He enlisted a Bloomberg News colleague Hannah Miller, who overs crypto, “to discuss this epic mess. [She] is the host of a new podcast, Spellcaster, about the life and times of SBF. The adjacent episode with O'Brien: Sam Bankman-Fried vs. The Crypto Grift.

The SBF media feeding frenzy is over and he’s kind of disappeared from the headlines, although a government-connected friend of mine has told me that

a- The Justice Department is finally starting to get serious about the politicians from both parties SBF bribed

b- The BBC is well into a film about SBF that may be out by the end of the year

However, while we’re waiting, there was another spectacular crypto-arrest yesterday, this one starring Alex Mashinsky, former CEO of failed crypto lending platform Celsius Network, and three of his cronies, co-founders Shalomi Daniel Leon and Hanoch “Nuke” Goldstein, and Roni Cohen-Pavon, Celsius’s former chief revenue officer. The prosecutors from the Southern District of New York are calling it an “orchestrated a scheme to defraud customers” and noted that Mashinsky, 57, “lined his own pockets to the tune of $42 million.” Besides the Justice Department, there are now charges filed by the SEC, the Commodity Futures Trading Commission and the Federal Trade Commission.

Mashinsky says he's innocent; he isn't

Crypto firms have armed themselves with well-connected lobbyists and spent $21.6 million in 2022 alone.

Nearly two-thirds of the crypto industry’s 278 lobbyists are so-called “revolving door” hires, meaning they held jobs at the federal government before making the switch to represent the crypto industry’s interests. Six of those lobbyists were former members of Congress.

After former Rep. Mike Conaway (R-TX) announced he would not seek reelection in the 2020 election cycle, he founded the Conaway Graves Group, which lobbied for FTX, Ripple and Association for Digital Asset Markets last year. Former Rep. Joseph Crowley (D-NY), who held office for two decades until making the switch to a lobbying firm in 2018, lobbied for the digital asset exchange Bullish US in 2022. Other former members of Congress who lobbied in crypto’s favor last year include former Sen. Blanche Lincoln (D-AR), Rep. Ron Klein (D-FL), Rep. Bart Gordon (D-TN) and Rep. Phil English (R-PA), who all left Congress over a decade ago.

Before making the switch to a private interest firm, three lobbyists held jobs in Senate Minority Leader Mitch McConnell’s (R-KY) office. A McConnell-aligned super-PAC, the Senate Leadership Fund, received $1 million from Bankman-Fried just days before FTX declared bankruptcy.

Another three registered crypto lobbyists previously worked for Senate Majority Leader Chuck Schumer (D-NY), for whom Coinbase, the largest U.S.-based crypto exchange, hosted a virtual fundraiser in March 2022. Schumer has called on the Environmental Protection Agency to review a New York crypto mining facility’s permits in 2021 due to environmental concerns, and Coinbase has determined him to be against crypto. Three other lobbyists previously held staff positions with Sen. John Cornyn (R-TX), who has often taken his support of the virtual currency to Twitter and shared snippets of his tour around a bitcoin mining facility.

…Democratic members of the 118th Congress reported receiving more than $1.2 million from the crypto industry during the 2022 election cycle, while their Republican colleagues reported receiving nearly $1.1 million.

“Here in Congress, crypto is not partisan,” Rep. Tom Emmer (R-MN), one of the top recipients of crypto industry contributions during the 2022 election cycle who is ranked “very supportive” by Coinbase, said during the Digital Assets Subcommittee hearing.

…A new subcommittee on the House Financial Services Committee laid bare partisan divides on just how lawmakers are approaching regulation of the industry. The Digital Assets Subcommittee held a hearing entitled “Coincidence or Coordinated? The Administration’s Attack on the Digital Asset Ecosystem.”

Republicans criticized what they characterized as regulatory overreach by the SEC they say harms innovation. But the Democratic committee ranking member, Rep. Stephen Lynch (D-MA), criticized his Republican colleagues for parroting what he called “industry talking points on regulatory overreach.”

“This attack on the SEC is a tactic employed by the crypto industry to evade compliance with the laws because the crypto industry knows it would not meet the justifiably high standards that make our financial system the envy of the world,” Lynch said.

Miranda Nazzaro reported that “In an indictment unsealed Thursday by federal prosecutors, Mashinsky faces seven counts of fraud. Roni Cohen-Pavon, Celsius’s former chief revenue officer, is charged as a co-conspirator, according to the Justice Department. Federal prosecutors allege Mashinsky falsely portrayed Celsius as a safe and secure institution, leading Celsius’s customer base to grow exponentially, with many retail investors rather than large institutions. The U.S. Attorney’s Office for the Southern District of New York said the company went on to become one of the largest crypto platforms in the world, with around $25 billion in assets at its peak.”

“Mashinsky and Cohen-Pavon, and others working at Celsius,” wrote Nazzaro, “also orchestrated a yearslong scheme to mislead customers and market participants regarding the market value and interest in Celsius’s proprietary crypto token CEL,” the U.S. Attorney’s Office said in a statement.

In what led to the company’s “pause” of Celsius customer withdrawals on June 12, 2022, federal prosecutors allege Mashinsky continued to assure customers the company was in a strong financial position, having enough liquidity to meet the withdrawal demands. Meanwhile, Mashinsky removed around $8 million worth of his non-CEL crypto assets from the platform.

Separately, the Securities and Exchange Commission (SEC) has sued Celsius and Mashinsky for allegedly defrauding customers and misleading them about the core aspects of the company.

And according to a separate complaint filed Thursday by the FTC, Mashinsky and co-founders, Shalomi Daniel Leon and Hanoch “Nuke” Goldstein, are accused of tricking customers into transferring cryptocurrency to the platform with the false promise that deposits would be safe and always available. The FTC complaint alleges the platform engaged in risky investments and not telling investors when those investments failed.

The FTC reached a proposed settlement with Celsius that will “permanently ban the companies from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets.” It sets a judgment at $4.7 billion.

“Celsius touted a new business model but engaged in an old-fashioned swindle,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection, in a statement. “Today’s action banning Celsius from handling people’s money and holding its executives accountable should make clear that emerging technologies are not above the law.”

The New Jersey-based company marketed its cryptocurrency products and services, which included interest-bearing accounts, personal loans secured with cryptocurrency deposits and a cryptocurrency exchange.

The FTC complaint said Mashinsky, Leon and Goldstein told customers their platform is safer than banks because “we have less risk, much less risk.”

It alleges the former executives misappropriated a total of $4 billion of customers’ deposits instead of securing them as promised. The complaint said the company used these funds for its operations, paying rewards to other customers, borrowing money and making high-risk investments, which the company admitted sometimes lost money.

“The FTC says the company and its top executives deceived users by falsely promising them that they could withdraw their deposits at any time, that the company maintained a $750 million insurance policy for deposits, that it had sufficient reserves to meet customer obligations, and that those in its Earn program could earn rewards on deposits of cryptocurrency assets as high as 18 percent annual percentage yield (APY),” the FTC wrote in a statement.

According to the complaint, the company did not hold the $750 million insurance policy and only had a small capital reserve allowing a fraction of its customers to withdraw their cryptocurrency within one week. The complaint said it was not until mid-2021 when the platform used a system to track its assets and liabilities.

The company filed for Chapter 11 bankruptcy protection in 2022 after it halted its operations in June.

Celsius was offering as much as 17% interest rates for customers who wanted to “lend” their crypto assets. That should have been a clue to run in the other direction. Instead… fools rushed in. I have no sympathy for the greedy gamblers who got burned— as less for the crooked politicians enabling this behavior, particularly Patrick McHenry, chair of the House Financial Services Committee, Tom Emmer, GOP Majority Whip, Josh Gottheimer (D-NJ), Warren Davidson (R-OH) and Ritchie Torres (D-NY).