The Year That Cryptocurrency Somehow Didn’t Die

The lobby of the Daniel Patrick Moynihan United States Courthouse in downtown Manhattan could double as a museum of malfeasance. Hanging on its white marble walls are dozens of infamous courtroom sketches, a curated gallery of some of America’s worst hits and weirdest trials.

As I wandered the hallways in October, I beheld the renderings, stylized in various oil pastels and watercolors, of Martha Stewart and Imelda Marcos. I saw murderous mafia kingpins and litigious tree-shaped car air freshener corporations. I smirked knowingly at the legendary Tom Brady face from Deflategate. I noted the familiar names and likenesses of some once-invincible financiers who had pled guilty to financial crimes, like the Ponzi-schemer Bernie Madoff and the don’t-call-him-a-junk-bond-king Michael Milken. And I wondered which drawing they’d one day use to represent the trial I was there to see, United States v. Samuel Bankman-Fried.

A five-week case that incorporated crypto markets and celebrity Super Bowl commercials, the trial of FTX founder Sam Bankman-Fried featured old-school embezzlement and new-age investments. It pitted once-bffs and lovers against one another from the witness stand. It involved private jets, foreign bribes, driven prosecutors, and an unfooled jury that needed barely more than four hours to come to a seven-count guilty verdict related to the misappropriation and loss of, whoops, $8 billion in FTX customer funds. The trial drew the attention of Hollywood, professional sports leagues, and the ur-financial journalist Michael Lewis. How to encapsulate all this in one hastily drawn scene?

Probably, I guessed, they’d pick the sketch where Caroline Ellison, Bankman-Fried’s former colleague and girlfriend, was handed a tissue during her key testimony. Or maybe it would be an image showing Bankman-Fried’s failed Hail Mary attempt to take the stand himself, a scene that certainly spoke to his cocky and destructive core belief in betting, however outlandishly, on himself. (As his “legal architect” would later admit, that bet did not hit.) Whatever they chose, I thought, would make for not only an important addition to the canon in these halls of shame, but a timely historical document too, a primary source forged in the cold anti-crucible of this year’s crypto winter.

Bankman-Fried’s trial was just one of a number of high-profile crackdowns on, or collapses of, crypto-related ventures in 2023. Almost every month this year, industry leaders in charge of exchanges like FTX and Binance and Tron and Tornado and Gemini and Genesis were hit with inquiries and charges from the SEC or the Department of Justice. Yet calling 2023 a “crypto winter” feels incomplete, and even incorrect. As this year draws to a close, the dollar price of Bitcoin has more than doubled from 2022, based in large part on hopes that Bitcoin exchange–traded funds will be approved by the SEC in 2024 and generate a surge in investment demand. (As I write this, one Bitcoin is currently worth upward of $41,000 USD, up from around $20,000 in January.) And lately, even more speculative cryptocurrencies have seen boosts as well. One of them, Solana, has practically doubled since October.

Barely over a month ago, it felt like all the worst impulses and outcomes of the cryptoverse were being exposed to the public. But fast-forward to December, and you’ll find plenty of people seeking exposure to the big, bad blockchain once again. “Even very traditional investors, generally skeptical about crypto, should accept that it’s safer to have a small allocation to bitcoin than to ignore it,” wrote one Bloomberg columnist recently.

Such marked swings in opinion might feel like whiplash, but hey, that’s the market! And 2023 has served as a reminder that even a technologically advanced new asset class is beholden to the same ancient and powerful pulls that have driven markets for all of time: fraud, and the fear of missing out. Wherever you find money and people, you’ll find portraits of both.

After a cascade of crypto market collapses in 2022 led currencies to go bust and businesses to declare bankruptcy, 2023 rang in with headlines like January 3’s “Sam Bankman-Fried Arrives at Federal Court in New York.” And things didn’t get much sunnier from there. Old-school Berkshire Hathaway cofounder Charlie Munger opined about “Why America Should Ban Crypto” in a February Wall Street Journal column. “It Sure Looks Like the U.S. Is Trying to Kill Crypto,” observed a CoinDesk editor in March. That same month, panicked runs caused the failures of two of the country’s known-to-be-crypto-friendly banks.

The hits kept coming. “Is Crypto Dead?” asked The Atlantic in June. (“The most obvious issue: scams,” wrote Annie Lowrey. “In the world of crypto, big firms are scams. Little firms are scams. Stable coins are scams; exchanges are scams; NFT schemes are scams; initial coin offerings are scams; tokens are scams. Firms run by self-proclaimed altruists are scams. Firms run by the shadiest dudes you can possibly imagine are scams.”) In July, the journalist Jacob Silverman and the actor Ben McKenzie published Easy Money, a book that’s part takedown of the industry’s mystique and part travelogue. In September, Bloomberg’s Zeke Faux released Number Go Up, which began, perfectly, with a story about lies.

Earlier this month, in congressional testimony, JP Morgan CEO Jamie Dimon proudly crowed: “I’ve always been deeply opposed to crypto, bitcoin, etc,” adding that “the only true use case for it is criminals, drug traffickers … money laundering, tax avoidance.” Senator Elizabeth Warren, who doesn’t typically see eye to eye with the heads of big banks, strongly agreed. But 2023 wasn’t just about op-eds or statements or books—it was about actual action and enforcement, too.

“I promise we’ll have enough handcuffs for all of them,” said U.S. Attorney Damian Williams, standing in front of the Moynihan Courthouse in November and referring to “every fraudster who thinks they’re untouchable, that their crimes are too complex for us to catch.” Here is but a sampling of some of the cryptoworld people and places that were circled and/or formally charged by regulators or authorities this year:

The Winklevoss twins, those infamous Facebook sorta-founders who long ago pivoted to Bitcoin Billionaires–dom. The SEC brought charges against Gemini, the Winklevosses’ crypto exchange, in January, arguing that a yield-earning product it offered constituted the illegal sale of unregistered securities. New York attorney general Tish James also filed suit against Gemini in October, alleging the exchange fraudulently lied to investors.

Justin Sun, the owner of the blockchain platform Tron. Sun was charged by the SEC in March for the unregistered offer and sale of securities, wash trading violations, and undisclosed celebrity endorsement schemes. (A number of those celebs, like Lindsay Lohan and Soulja Boy, were also named as part of that case.)

Do Kwon, the once-swaggering cofounder of not-so-stablecoin project Terraform Labs. His legal issues are global in nature following the 2022 collapse of the Terra and Luna coin ecosystem. In March, Kwon was arrested at a Montenegro airport as he tried to fly to Dubai using supposedly falsified travel documents. “They’re still trying to figure out where to extradite him to,” CoinDesk managing editor Nikhilesh De told me. “The U.S. and South Korea both seem pretty intent on prosecuting him.”

Roman Storm, the cocreator of Tornado Cash, a product known as a “mixer” that helps blur crypto transactions such that the distinct flows can’t be traced. The Department of Justice arrested Storm and his colleague in August on charges of money laundering, noting that their product was used in, among other things, hacking efforts by North Korea.

Exchanges like Coinbase and Kraken, which continue to await regulatory clarity on how they can avoid charges of unregistered sale of securities.

Alex Mashinsky, the founder of the bankrupt and frozen Celsius exchange. Mashinsky was accused of fraud in January, in a lawsuit that mocked his description of himself as a “modern-day Robin Hood.” The Department of Justice added a heap of federal fraud charges to the mix in July.

Changpeng Zhao, a.k.a. “CZ,” the founder of crypto exchange Binance. A few days before Thanksgiving, CZ agreed to a plea deal in which he admitted to wrongdoing and agreed to step down from Binance. The company was also slapped with a $4 billion fine and now has to operate under the watchful eye of a court-appointed monitor. Lewis, who wrote a book about Bankman-Fried, called CZ the Darth Vader to SBF’s Luke Skywalker. Which brings us to …

Bankman-Fried, the FTX founder, about whom I won’t repeat myself. In November, SBF was found guilty of all seven fraud and conspiracy charges against him, and he awaits sentencing in March. (One former federal prosecutor I spoke with estimated that he’ll receive 20-30 years.) Bankman-Fried is also a defendant in a sprawling class action suit that includes endorsers and partners ranging from Steph Curry to Larry David to Major League Baseball to Formula 1. “One of the main reasons we’re bringing this case,” attorney Adam Moskowitz told me in a Zoom conversation this week, “is now, celebrities are going to have a lot more hesitation before they jump into, you know, sure, give me $1 million. I’ll endorse something quick. What’s the risk? Well, this is the case where there’s the risk.”

So yeah, what a year in this business! But also in some ways, it was just business as usual, warts and all. “While the cryptocurrency industry might be new and the players like Sam Bankman-Fried might be new,” U.S. Attorney Williams declared in November, “this kind of corruption is as old as time.” He had a point: The history of the financial markets is strewn with these sorts of figures, whose ambitious and innovative legacies are forever tangled up with their iniquities.

Back in 1934, during the long shadow of the great 1929 stock market crash, the United States Securities and Exchange Commission was formed as part of President Franklin Roosevelt’s sprawling New Deal reforms. And a man named Richard Whitney—a classmate of Roosevelt’s from Groton and Harvard—was not thrilled about it. Whitney, the president of the New York Stock Exchange who was once called “the Great White Knight of Wall Street,” resisted efforts to create a regulatory body. “You gentlemen are making a huge mistake,” he told FDR, according to The New York Times. “The exchange is a perfect institution.”

Within a few years, Whitney would be imprisoned at Sing Sing for embezzlement, having mishandled funds from his alma mater, his yacht club, his in-laws, and a NYSE pool of money whose funds were supposed to be bookmarked for widows and children. A few decades later, another flashy financier was sent to Sing Sing for similar reasons. Eddie Gilbert had been lauded as “one of Wall Street’s boy wonders” by Time magazine at age 35 following his savvy 1958 takeover of hardwood flooring manufacturer E.L. Bruce. But it wasn’t long before he was caught using company funds to help smooth over some personal market losses and margin calls. Going to federal prison didn’t dissuade him from trying his luck again, and in 1981, Gilbert was convicted of 34 counts of fraud for stock market manipulation and sent back to the slammer.

Then there was Bernie Cornfeld, who—well, I’ll just let his NYT obituary describe him: “A Brooklyn-reared salesman who became one of the most flamboyant and controversial figures ever to stride through the American mutual fund industry.” He created entities with names like “Investors Overseas Services” and “Fund of Funds”; he employed Diane von Furstenberg as a receptionist; he tantalized regulators, and was ultimately nabbed for long-distance phone charge evasion, an extremely 1970s crime. And yet some of the ways he shaped the mutual fund industry endure to this day.

“Every decade of excess in conjunction with a failure of regulation has delivered a marquee con man once the bubble broke,” wrote Vanity Fair’s Marie Brenner in 2009. She was writing about the criminal du jour, Bernie Madoff, but her point applied to any number of people she’d covered over the years, like the minds behind Enron, or like Milken, whose home she visited for dinner in 1989 as he awaited trial on charges of securities fraud, mail fraud, and conspiracy.

Liz Williams, a courtroom sketch artist who worked the SBF trial, also has experience with Milken and Madoff. In fact, Williams said Milken—the ingenious investment banker and bond savant whose firm, Drexel Burnham Lambert, had plunged into bankruptcy in 1990—was her first major financial court case. (The Southern District of New York’s presiding U.S. attorney at the time was one Rudolph Giuliani—who would, decades later, write a letter advocating for Milken’s pardon by Donald Trump.) But according to Williams, Madoff’s case was the “most explosive” because many of his victims showed up to the courtroom en masse.

Marc Litt, an attorney and former federal prosecutor in the Southern District of New York, agrees, saying the very presence of court artists at Madoff’s first appearance in December 2008—not even a trial, just a brief audience before a magistrate judge—was a sign that this case was something particularly major. (He called his wife to say she might want to turn on the news.) Madoff, a former head of the NASDAQ exchange, had gathered his sons and confessed to them that his $64 billion fund was, well, a house of cards.

When Litt was assigned to prosecute Madoff, he had only just wrapped up nine weeks of litigating a different trial that involved fraud and high society—the case of the braggadocious opera aficionado and financier Alberto Vilar. Like Madoff, Vilar was heralded as a billionaire. Like Madoff, his fund was, if you squinted, a once-legit operation that had veered all the way off the rails. Speaking over Zoom, Litt held up a piece of evidence from the Vilar case that was so brazen he almost fell out of his chair the first time he saw it. “It was the single most incriminating document I had ever found,” he says: a letter authorizing the transfer of a quarter-million dollars from the actress Phoebe Cates’s mother’s account—which clearly showed that her signature had been crudely cut from another piece of paper and Scotch-taped onto the letter so that it could be photocopied by a Vilar henchman. Sometimes the stunts people…

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