Reaction Paper 11 on FTX Crypto

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Nov 24, 2024

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1 Reaction Paper 11 on FTX Crypto Student’s Name Student’s Id Name of the Institution Course Name Due Date

2 Ref #1: Trautman, L. J. (2022). The FTX Crypto Debacle: Largest Fraud Since Madoff? Available at SSRN 4290093 . Trautman (2022) reports that Senator Warren has requested that Treasury Secretary Yellen investigate the dangers associated with the digital asset market. The prosperous company FTX, which Sam Bankman-Fried owns, then plummets precipitously, prompting bankruptcy and SEC and Department of Justice investigations. The failure is ascribed to a limited cohort of influential yet feeble individuals. This paper covers the following: the evolution of cryptocurrencies, potential risks to national security, the downfall of FTX, the bankruptcy proceedings, unintended harm to the crypto ecosystem, the regulatory functions of the Federal Reserve, SEC, and CFTC, congressional investigations, the repercussions of regulations, the deficiencies of corporate governance, and the likelihood of prosecution and litigation. Ref #2: Lawrence J. Trautman, Bitcoin, Virtual Currencies and the Struggle of Law and Regulation to Keep Pace, 102 MARQ. L. REV. 447 (2018), https://ssrn.com/abstract=3182867 . Lawrence J. Trautman (2018) analyzes the societal ramifications of virtual currencies and bitcoin while also analyzing the obstacles law enforcement and regulatory bodies have encountered to keep pace with these developments. The article discusses the FTX coin scandal and attributes its demise to an overabundance of authoritative figures. The global ramifications of the bankruptcy proceedings in the United States are expected to be experienced, mirroring the cascading effect within the Bitcoin industry. The bankruptcy declaration of FTX was attributed to deficient management practices, according to the organization's CEO. This article illustrates the challenge that legal frameworks face in keeping pace with the dynamic nature of the Bitcoin market.

3 Ref #3: David Yaffe-Bellany, ‘No Cooperation’: How Sam Bankman-Fried Tried to Cling to FTX, WALL ST. J., Nov. 29, 2022, https://www.nytimes.com/2022/11/29/technology/sam- bankmanfried-fix-bankruptcy.html David Yaffe-Bellany of the Wall Street Journal writes on November 29, 2022, regarding Sam Bankman-Fried's efforts to retain control of FTX despite the company's bankruptcy. The paper above provides an extensive analysis of the FTX incident, encompassing its historical background, the potential threats to national security presented by cryptocurrencies, the eventual bankruptcy and collapse of FTX, the consequential damage to the cryptocurrency ecosystem, and additional factors such as regulatory oversight, congressional investigations, corporate governance shortcomings, regulatory ramifications, the Federal Reserve, the SEC, the CFTC, and collateral damage to the cryptocurrency ecosystem. A thorough analysis has been conducted to gain insight into the FTX collapse and its potential ramifications for global financial system participants and investors. Ref #4: Pantin, L. P. (2023). Financial Inclusion, Cryptocurrency, and Afrofuturism. Northwestern University Law Review , 118 (3), 621-690. Pantin (2023) focuses on the intersection of cryptocurrencies, Afrofuturism, and the financial system access of African Americans. The appeal of African Americans to the decentralized nature of cryptocurrencies, despite their exclusion from conventional financial systems, is investigated. While the paper acknowledges the potential for wealth accumulation through cryptocurrencies and blockchain technology, it raises concerns about the ability of a decentralized system to effectively tackle racial and economic disparities without rectifying historically discriminatory financial practices. Pantin presents an Afrofuturist framework emphasizing the necessity of incremental rather than systemic changes and prudent policy

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4 formulation to ensure genuine financial inclusion through utilizing Bitcoin without endangering already marginalized individuals. Ref #5: Ajunwa, I. (2020). An Auditing Imperative for Automated Hiring Systems. Harv. JL & Tech. , 34 , 621. Ifeoma Ajunwa's 2020 study provides a framework in which numerous scenarios are offered to demonstrate the real difficulties faced by job seekers in the setting of automated recruiting processes. The story begins with a woman having trouble using the computerized calendar system to indicate that she is available for a potential job opportunity in the retail industry. In the second case, a person is faced with the possibility of discrimination because the computerized system can only display graduation dates from recent years. The case studies presented above provide examples of candidates' difficulties in real-world situations, highlighting the necessity of audits and correcting prejudices in automated hiring systems to provide fair employment chances. Ref #6: Burke, J. J., Hoitash, R., & Hoitash, U. (2019). Auditor response to negative media coverage of client environmental, social, and governance practices. Accounting Horizons , 33 (3), 1-23. Burke, Hoitash, and Hoitash (2019) study investigates auditors' reactions to media critiques of their client's environmental, social, and governance (ESG) initiatives. The findings indicate that auditors take adverse media coverage of ESG-related issues seriously as an indication of an elevated risk of material misstatement. Firms possess monetary motivations to abstain from detrimental environmental, social, and governance (ESG) practices, as evidenced by the increased likelihood of auditor resignations and audit fee increases triggered by such media

5 attention. This implies that auditors are incorporating environmental, social, and governance (ESG) information from the media into their risk assessments, highlighting the importance of ESG factors in existing clients' pricing and customer retention decisions. Ref #7: Schulp, J. J. (2022). Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers. FTX Trading Ltd. initiated bankruptcy proceedings in November 2022 because of technical complications affecting its cryptocurrency exchange platform. The insolvency petition arose due to the occurrences that ensued after Binance, an alternative exchange, hosted FTX CEO Sam Bankman-Fried's critical tweet. Several customers withdrew their payments, and the value of FTT tokens declined due to allegations linking FTX to Bankman-Fried-affiliated Alameda Research. As a result of the asset embargo imposed by the Bahamas Securities Commission, FTX filed for Chapter 11 bankruptcy on its own. The situation is still under investigation by a multitude of organizations. The importance of more advanced regulatory approaches and vulnerabilities associated with centralized cryptocurrency exchanges are underscored. Ref #8: Lawrence J. Trautman, Following the Money: Lessons from the “Panama Papers,” Part 1: Tip of the Iceberg, 121 PENN ST. L. REV. 807 (2017), http://ssrn.com/abstract=2783503 . In his 2017 paper, Lawrence J. Trautman analyzes the "Panama Papers," a notable breach from 2016 that brought to light widespread financial impropriety on a global scale. Disclosure by the International Consortium of Investigative Journalists reveals how some heads of state and other affluent individuals have amassed fortunes illicitly by utilizing tax havens. More than

6 214,000 organizations representing 200 countries had their offshore assets compromised. Trautman draws attention to the disproportionate impact of offshore banking on national income by emphasizing the regulatory environment in the Bahamas that is conducive to cryptocurrency enterprises. The essay elucidates the interconnections among cryptocurrency enterprises, offshore banking, and regulatory intricacies, underscoring the importance of addressing global financial crime and promoting transparency. Ref #9: Lawrence J. Trautman, Scott Shackelford, Brian Elzweig & Peter C. Ormerod), Cyber Threats to Business: Identifying and Responding to Digital Attacks, https://ssrn.com/abstract=4262971 . Certain national governments and transnational organized crime favor cryptocurrency transactions due to their perceived anonymity, according to a study by Lawrence J. Trautman, Scott Shackelford, Brian Elzweig, and Peter C. Ormerod. Criminal organizations utilize cryptocurrencies for a variety of purposes, including drug purchases, human trafficking facilitation, ransom payments, fraudulent activities, and fundraising. According to the Department of Justice, cryptocurrency is being used to finance nation-state threat actors and terrorist organizations. The Department of Justice cites instances in which bitcoin was utilized to sabotage the fundraising efforts of the Russian GRU intelligence agency, ISIS, al-Qaeda, al- Qassam Brigades, and al-Qaeda. This underscores cryptocurrencies' substantial function in facilitating illicit operations and cyber threats. Ref #10: Alexander Osipovich, FTX Asks To Offer No-Broker Crypto Trading, WALL ST. J., July 7, 2022 at B1, https://www.wsj.com/articles/ftx-presses-for-crypto-derivatives- approval-agitating-legacyexchanges-11657084236.

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7 Following its acquisition of LedgerX, FTX US Derivatives is submitting a regulatory approval request to permit leveraged bitcoin wagers via derivatives for individual investors. Opposition to this alteration stems from traditional exchanges and financial sector organizations, as it diverges from the conventional practice of investors conducting derivatives transactions via intermediaries. The CEO of CME Group, Terrence Duffy, is concerned about the impact that increasing market risk would have on market stability. While FTX asserts that its scheme employs cutting-edge technology and risk management techniques, consumer advocates are concerned that inexperienced investors might be exposed to potentially catastrophic derivatives in the event of a market collapse.

Reaction Paper 11 on FTX Crypto

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