First FTX Report Blames "Hubris, Incompetence, and Greed" for Downfall

FTX Failure Rooted in ‘Hubris,’ ‘Greed,’ Debtors Report Says

At the root of FTX’s spectacular collapse was “hubris, incompetence, and greed” on the part of Bankman-Fried and top executives, including former engineering director Nishad Singh and former chief technology officer Gary Wang, the report said.

“Despite the public image it sought to create of a responsible business, the FTX Group was tightly controlled by a small group of individuals who showed little interest in instituting an appropriate oversight or control framework,” the report said.

“These individuals stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, joked internally about their tendency to lose track of millions of dollars in assets, and thereby caused the FTX Group to collapse as swiftly as it had grown,” the report said.

KPMG, Goldman Sachs, Morgan Stanley and Bank of America Sued Over SVB Failure

KPMG LLP was sued as Silicon Valley Bank’s auditor, along with underwriters including Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley & Co. in an investor lawsuit based on alleged misstatements leading to the bank’s collapse.

Similar to previous suits, a complaint filed Friday in the federal court in San Francisco names Silicon Valley Bank Chief Executive Officer Greg Becker and other bank directors and officers as defendants. The complaint appears to be the first to target the bank’s auditors and underwriters.

Auditors Didn’t Flag Risks Building Up in Banks

When KPMG LLP gave Silicon Valley Bank a clean bill of health just 14 days before the lender collapsed, the Big Four audit firm flagged potential losses on loans as a so-called critical audit matter. But the audit opinion was silent on what actually brought down the bank—its unrealized bond losses and ability to hold them given a reliance on potentially flighty deposits.

“The auditors failed to mention the fire in the basement or the box of dynamite on the first floor, but they did point out the peeling paint on the flower box,” said Erik Gordon, a University of Michigan business professor. “How could they miss the interest-rate risk?”

The current banking crisis is the first big test of critical audit matters, a measure designed to help investors decode risks and uncertainties buried in financial statements.

 Elizabeth Holmes’ former partner ‘Sunny’ Balwani headed to prison after losing appealIn December, U.S. District Judge Edward Davila sentenced Balwani to a prison term of 12 years and nine months. Last month, Davila rejected Balwain’s request to remain free while he appeals his conviction.

He was scheduled to begin serving his sentence on March 16. However, just hours before he was supposed to surrender, Balwani’s lawyers filed a motion that automatically triggered a stay of his reporting date.

On Thursday, the three judges on the Ninth Circuit Court of Appeals found Balwani failed to provide enough evidence that his conviction is likely to be overturned.

Binance.US Struggles to Find Bank to Take Its Customers’ Cash

The U.S. affiliate of global crypto exchange Binance has struggled to find a bank for its customers’ cash after the failure of Signature Bank left it without a key banking partner, people familiar with the matter said.

Users’ dollar deposits were previously sent to either Signature Bank or Silvergate Capital Corp., according to Binance.US’s website. The failures of Signature and Silvergate, both seen as friendly to crypto companies, left many crypto firms rushing to find new banking partners.

As a stopgap, Binance.US is using at least one middleman to store funds on its behalf. Because money is held at the middleman’s banks, it can slow down the process of sending and moving funds, the people said.

The key difficulty for Binance.US is finding a bank to directly hold its customers’ dollars. At crypto exchanges, bank accounts for user deposits and trading are typically separate from those used for corporate operations, such as payroll and one-off expenses.

Coinbase Asks for $470,000 To Cover Fees, Costs From Insider Trading Case

In a letter dated April 3, a lawyer representing Coinbase asked for restitution to cover the costs it said occurred during the investigations by the Department of Justice and the SEC.

The total amount would fall under the Mandatory Victim Restitution Act which states that victims are entitled to both expenses and lost income from investigation participation of some offenses — including wire fraud.

Over $400,000 would cover ”five grand jury subpoenas served on Coinbase with 65 total requests (including subparts) for documents and information” from the DOJ’s investigation. Additionally, the exchange requested $60,000 in lost wages for employees who had to work alongside the Special Investigation and Security Departments of the DOJ.

U.S. Lawmaker Says SEC Chair Gary Gensler Is A Bad Faith Regulator

During an episode of Unchained Podcast with Laura Shin, Congressman Emmer described SEC Chair Gary Gensler as a “Warren Disciple”, a subtle hint at his pro-fiat and anti-crypto stance. The lawmaker added that under Gensler’s leadership, the Commission was more focused on enforcing regulation outside their jurisdiction rather than cracking down on bad actors in the industry.

“This guy in my mind is a bad faith regulator. He has been blindly spraying the crypto community with enforcement actions while completely missing the truly bad actors,” Emmer stated. The Commission has faced criticism from industry leaders as well as fellow regulators over its recent crackdown on the crypto industry.

Thanks Sam! How FTX Led to World’s Worst Crypto Policy

Among a string of “Thanks Sam” moments these past five months, this one takes the cake. You can argue that the crackdown against Kraken, Coinbase, Paxos, Binance and others was driven significantly by a desire to punish Sam Bankman-Fried, the erstwhile founder of FTX, whose mind-blowingly rapid collapse in November sent shockwaves through the crypto industry.

This is how one of my sources described the mindset of Biden Administration officials, and of lawmakers from both political parties: “You can’t come into their house, slosh that kind of money around, leave politicians with egg on their faces, and not expect to pay a huge price.” He was referring to the fact that before the FTX meltdown, politicians — mostly Democrats but also some Republicans — had been beneficiaries of more than $74 million in political donations from FTX and had forged connections with Bankman-Fried, who’d wooed progressives with his “effective altruism” commitments. (A CoinDesk investigation found that one third of Congress took money from SBF or his associates.)

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Forget regulation-by-enforcement; it seems we’ve entered a newly nutty standard of regulation-by-retribution.

The Real-World Costs of the Digital Race for BitcoinTexas was gasping for electricity. Winter Storm Uri had knocked out power plants across the state, leaving tens of thousands of homes in icy darkness. By the end of Feb. 14, 2021, nearly 40 people had died, some from the freezing cold.

Meanwhile, in the husk of a onetime aluminum smelting plant an hour outside of Austin, row upon row of computers were using enough electricity to power about 6,500 homes as they raced to earn Bitcoin, the world’s largest cryptocurrency.

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In Texas, the computers kept running until just after midnight. Then the state’s power grid operator ordered them shut off, under an agreement that allowed it to do so if the system was about to fail. In return, it began paying the Bitcoin company, Bitdeer, an average of $175,000 an hour to keep the computers offline. Over the next four days, Bitdeer would make more than $18 million for not operating, from fees ultimately paid by Texans who had endured the storm.