Reason Roundup

FTX's Sam Bankman-Fried Used Customer Assets to Fund Political Donations, Says SEC

Plus: moral panic about department stores, the obvious cause of homelessness, and more...

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Sam Bankman-Fried | edit Graeme Sloan/Sipa USA/Newscom
(edit Graeme Sloan/Sipa USA/Newscom)

Disgraced crypto king faces criminal charges and SEC lawsuit. Sam Bankman-Fried, founder and head of the popular cryptocurrency exchange FTX, has been arrested in the Bahamas at the behest of U.S. prosecutors, who have filed charges against him. Bankman-Fried also faces charges from the U.S. Securities and Exchange Commission (SEC).

Bankman-Fried's arrest follows revelations that FTX lent customer assets to Alameda Research, which he also owned, and that FTX had filed for bankruptcy.

"Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the US government, based on a sealed indictment filed by the [Southern District of New York]," said U.S. attorney Damian Williams in a Twitter statement on Monday night. "We expect to move to unseal the indictment in the morning and will have more to say at that time."

It's unclear precisely what charges Bankman-Fried faces, but authorities were looking at him for potential fraud charges.

"The SEC has authorized separate charges relating to his violations of securities laws, to be filed publicly tomorrow," said Gurbir Grewal, director of the SEC's Division of Enforcement, in a Monday night statement.

This morning, the SEC alleged that Bankman-Fried had been diverting customer funds from FTX to Alameda Research "from the start," and that he had also used customer assets to fund venture investments, real estate purchases, and even political donations.

Bankman-Fried was known to be a major donor to Democratic politicians (the second-largest in the 2022 election cycle, according to Forbes). Bankman-Fried has also stated that he secretly gave a lot to Republicans, too, though this hasn't been verified. "I've been their third-biggest Republican donor this year as well," but it's "not generally known," because "all my Republican donations were dark," he said in a recent YouTube interview.

Bankman-Fried "orchestrat[ed] a scheme to defraud equity investors in FTX Trading Ltd. (FTX), the crypto trading platform of which he was the CEO and co-founder," alleged the SEC in a press release, stating that he "commingled FTX customers' funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations."

Bankman-Fried has blamed incompetence for any crimes he may have committed. "I didn't knowingly commit fraud," Bankman-Fried told the BBC last weekend. "I didn't want any of this to happen. I was certainly not nearly as competent as I thought I was."

John Jay Ray III, who has been appointed CEO of FTX to oversee its bankruptcy case, said in court filings: "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information."

FREE MINDS

Virginia Postrel offers a fascinating history of how department stores helped liberate women—and moral panic. From her Wall Street Journal essay:

Urban shopping districts were where women claimed the right to dine outside their homes, walk unescorted and take public transportation without loss of reputation. Thousands of female sales clerks flowed out of stores in the evenings, when downtowns had previously been male territory. Department stores provided ladies' rooms that gave women places to use the toilet and refresh their hair and clothing. They offered female-friendly tearooms. Directly and indirectly, modern shopping enlarged women's public role.

Of course, this led to new levels of contact between men and women and that freaked a lot of people out:

Men known as "mashers" gathered in shopping districts to ogle and chat up women. Some were no more than well-dressed flirts, violating Victorian norms in ways that few today would find objectionable. Many contented themselves with what an outraged clubwoman termed "merciless glances." Others followed, catcalled and in some cases fondled women as they strolled between stores, paused to look in windows or waited for trams.

Postrel offers more details in her newsletter:

Newspapers launched anti-masher crusades and prominent women demanded stricter law enforcement and stern punishment.…The crusade against mashers, while based on a real problem, had a strong element of moral panic.

FREE MARKETS

The obvious cause of homelessness: not enough housing. Jerusalem Demsas with more in The Atlantic:

In their book, Homelessness Is a Housing Problem, the University of Washington professor Gregg Colburn and the data scientist Clayton Page Aldern demonstrate that "the homelessness crisis in coastal cities cannot be explained by disproportionate levels of drug use, mental illness, or poverty." Rather, the most relevant factors in the homelessness crisis are rent prices and vacancy rates.

Colburn and Aldern note that some urban areas with very high rates of poverty (Detroit, Miami-Dade County, Philadelphia) have among the lowest homelessness rates in the country, and some places with relatively low poverty rates (Santa Clara County, San Francisco, Boston) have relatively high rates of homelessness. The same pattern holds for unemployment rates: "Homelessness is abundant," the authors write, "only in areas with robust labor markets and low rates of unemployment—booming coastal cities."

[…] America has had populations of mentally ill, drug-addicted, poor, and unemployed people for the whole of its history, and Los Angeles has always been warmer than Duluth—and yet the homelessness crisis we see in American cities today dates only to the 1980s. What changed that caused homelessness to explode then? Again, it's simple: lack of housing. The places people needed to move for good jobs stopped building the housing necessary to accommodate economic growth.

And why don't many cities have enough housing? In large part because regulations have made it difficult:

Few Republican-dominated states have had to deal with severe homelessness crises, mainly because superstar cities are concentrated in Democratic states. Some blame profligate welfare programs for blue-city homelessness, claiming that people are moving from other states to take advantage of coastal largesse. But the available evidence points in the opposite direction—in 2022, just 17 percent of homeless people reported that they'd lived in San Francisco for less than one year, according to city officials. Gregg Colburn and Clayton Aldern found essentially no relationship between places with more generous welfare programs and rates of homelessness. And abundant other research indicates that social-welfare programs reduce homelessness. Consider, too, that some people move to superstar cities in search of gainful employment and then find themselves unable to keep up with the cost of living—not a phenomenon that can be blamed on welfare policies.

But liberalism is largely to blame for the homelessness crisis: A contradiction at the core of liberal ideology has precluded Democratic politicians, who run most of the cities where homelessness is most acute, from addressing the issue. Liberals have stated preferences that housing should be affordable, particularly for marginalized groups that have historically been shunted to the peripheries of the housing market. But local politicians seeking to protect the interests of incumbent homeowners spawned a web of regulations, laws, and norms that has made blocking the development of new housing pitifully simple.

Read the rest here.

FOLLOWUP

Bari Weiss has released the latest installment of the Twitter Files, for which Twitter CEO Elon Musk has granted access to internal documents to a small group of friendly reporters. Now on installment five, the "files" reveal more about Twitter's internal deliberation processes regarding things like de-amplifying accounts, the Hunter Biden laptop story and Hunter Biden dick pics, misinformation reports from law enforcement, and Donald Trump's account suspension. So far, the dispatches have contained some interesting and notable information, and also a lot of Musk-friendly spin and culture war hyperbole. Some other perspectives…

David French's take on the Twitter Files: "The picture that emerges is of a company that simply could not create and maintain clear, coherent, and consistent standards to restrict or manage allegedly harmful speech on its platform. Moreover, it's plain that Twitter's moderation czars existed within an ideological monoculture that made them far more tolerant toward the excesses of their own allies. In other words, Twitter behaved exactly like public and private universities in the era when speech codes ruled the campus."

Mike Masnick's take on the Twitter Files: "They are all written by people who appear to have (1) no idea what they're looking at (2) no interest in talking to anyone who does understand it and (3) no concern about presenting them in an extremely misleading light in an effort to push a narrative that is not even remotely supported by what they're sharing."

Yasha Levine's take on the Twitter Files: "One of the saddest things about them is that the people on both sides of this holographic media fight really are horrible, and yet we're supposed to get all emotionally involved in it and pick one oligarchic faction—either TEAM LIB or TEAM MAGA—and root for it like it's our lord and savior. All the while, nothing about this drama will have any real impact on anyone in America. It's just feeding the political-entertainment complex and the rich assholes and their hanger-ons that feed off of it."

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