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What Does the Fraud at FTX Mean for You?

Transparency and Ethics Are the Keys to Holding the Cryptocurrency Markets Accountable?

FTX was considered to be a very stable point in a very volatile world. Having them collapse—or having them conduct fraudulent activity—that is what’s really shocking many people and having a huge negative effect on the entire crypto world.

From time to time, I post a guest blog when it contains important information. Today's blog is by Charlie Fletcher. She tackles the complex world of cryptocurrencies in the aftermath of the demise of FTX. You can contact her at: [email protected].

What Caused the Downturn?

In November 2022, the Futures Exchange (FTX), one of the biggest digital currency exchange platforms, collapsed due to the criminal charges placed on its founder, Samuel Bankman-Fried.

Bankman-Fried was responsible for multiple criminal acts, including wire fraud, money laundering, securities fraud, and multiple counts of conspiracy to commit fraud and money laundering to take advantage of the Federal Election Commission

The actions by Bankman-Fried caused the downfall of FTX, which led to losing billions of dollars in investor and lender accounts.

FTX and FTX.US crashed due to a lack of liquidity and mismanagement of funds, followed by a large volume of withdrawals from rattled investors. The value of FTT plummeted, taking other coins down with it including Ethereum and Bitcoin, which reached a two-year low as of Nov. 9, 2022. Other exchanges have been affected by the FTX collapse including BlockFi, which filed for bankruptcy on Nov. 28.

It’s important to learn from this disaster and stay alert to the potential fraud that can happen with your investment dollars. The intent of analyzing the Bankman-Fried case is to learn from our mistakes and exercise better caution with future companies that assume the risk when they handle consumer financial accounts.

Let’s explore some of those precautions for the future now.

The Threat to Investors and Customers

First off, we should establish what makes up an insider threat and how it applies to the FTX scandal.

Insider threats typically involve a user inside an organization with the power or ability to abuse sensitive data by either being negligent or for their own gain.

In the case of Bankman-Fried, it was for personal gain.

The types of threats are probably innumerable, but the general range of threats usually involves:

  • Digital hacking: Either by insider threats or invited into the entity by the insider (either by accident or deliberately).
  • Harassment or sabotage: Usually attempted by an employee.
  • Negligence: On the part of a trusted third party that mishandles the company’s data (i.e., credit card information.

One can anticipate potential insider threats by monitoring the activity of sensitive data and the users that handle that data. Any suspicious patterns of activity should be heavily scrutinized to ensure no one within the organization is behaving in a way that could compromise the whole organization.

Accessing company networks at unusual times of day, browsing data that is not pertinent to their role, and extracting and putting large amounts of data onto personal devices are all red flags that should be closely looked into.

Risks To Bear in Mind with Trusting Financial Groups

With the events that went on at FTX, it now warrants higher standards of caution and security when choosing to trust financial handling companies with investor dollars along with any other business risk.

It’s glaringly apparent that the lack of regulations in the world of cryptocurrency trading, buying, and selling has opened the door to bad actors who try to manipulate monies entrusted to them, usually to the detriment of the investor.

Apart from the types of fraud and embezzlement risks we’ve already touched on, there are also aspects of strategic risk that we place in the hands of investment companies. With the trading of cryptocurrency being so new, it’s tough to trust that investment agencies are actually as knowledgeable as they say they are. For this reason, any investment strategy should be thoroughly outlined with clear expectations and an understanding of the risk involved. It should be transparent how the investor dollars are being used and that they aren’t being mixed with other assets to negotiate deals. 

It’s also worth investigating the cyber security measures utilized by any entity that you choose to entrust with your digital assets. If an agency lacks a robust digital data defense system, that’s probably another risk not worth taking with that group, no matter how intelligible they seem to be. Hackers are getting more and more clever, and stolen data is often unrecoverable. 

Digital Asset Regulations

There are several issues related to cryptocurrencies and digital assets. One of the bigger factors causing concern is the lack of regulations on the ownership of digital assets. It’s very easy to maintain anonymity, which makes it hard to track back to an owner. Because of this, and the fact that cryptocurrencies still are not considered a legal form of tender, it makes laws and rules surrounding cryptocurrencies immensely difficult to police and enforce.

More governments are working to introduce regulation, but there’s no cohesive structure yet that connects each system’s way of handling potential fraud or abuse with it.

As long as cryptocurrency is transacted with the addition of third parties that stand to gain a profit from handling the transaction, there needs to be a governing force that protects the initial two parties involved.

According to Bloomberg Law, "Recent turbulence in the cryptocurrency industry has enlivened an ongoing debate about which agency should be the lead federal regulator of crypto going forward: the Commodity Futures Trading Commission or the Securities and Exchange Commission."

Their answer is that "Both agencies should continue to exercise their regulatory authority over crypto assets and activities provided by existing law, and any new legislation should grant exclusive authority to the CFTC regarding spot market crypto assets—those that are traded for immediate delivery."

Future Safety with Digital Currencies

Like with any stock investments, it is important to understand the element of risk when we engage in cryptocurrency transactions. The moment you introduce a third party to help you as the buyer, you should realize that your potential for gain may be compromised. You lose an aspect of control and transparency may be lacking because your investments are in the hands of others, which is especially problematic given the complexity of crypto transactions.


Be sure to research the party to whom you will entrust with your monies. Do an online search to check on their reputation. Look to see if there have been any regulatory actions against them.

Look at the fundamentals like network usership to increase safety.

Remember to check out their practices, their code of ethics, their leadership style, governance, risk assessment procedures, and their measures to ensure your data’s privacy and security.

Blog by Charlie Fletcher posted by Dr. Steven Mintz, The Ethics Sage, on February 8, 2023. You can sign up for Steve’s newsletter and learn more about his activities at: Follow him on Facebook at: and on Twitter at: