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FTX Bankruptcy Sends Tremors Through Crypto Regulation

By Steven Salkin
December 01, 2022

It seemed like something out of an old episode of 20/20 from the 1980s: the CEO of a company is just about to be caught doing shady financial deals that bankrupts the company and flees in the middle of the night to a country that has no extradition treaties with the U.S., leaving investors in the lurch. Add in the fact that this latest episode starred the CEO of a leading cryptocurrency company and you have a recipe that could damage the entire industry.

Even those who believe in cryptocurrency and invest in it have to be questioning how safe their crypto really is. Plus, there are enough people left (and admittedly probably those of a certain generation) who remain skeptical about cryptocurrency in general that the bad press resulting from (now former) FTX CEO Sam Bankman-Fried's "escape" will likely turn those people off to virtual currencies for good.

The sudden and spectacular crash of crypto-exchange FTX will send long-lasting tremors through both the nation's financial regulatory and bankruptcy landscapes, according to partners at international law firm O'Melveny. Regulators — including at the Securities and Exchange Commission (SEC) and the Commodities Future Trading Commission (CFTC) — will be emboldened to shine a light on everything that touched FTX Sam Bankman-Fried, while using FTX's dramatic demise as justification for expanding federal protection of crypto investors. Bankruptcy courts, meanwhile, will be tied up for years in a closely watched process of untangling FTX's collapse, with billions of dollars in investor funds at stake.

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