From SBF to CZ, Crypto’s Key Men Tell Its Story

In this edition of the Bloomberg Crypto newsletter, Annie Massa views crypto through the lens of two of its leading characters 

Founders’ keepers

This week, US regulators sued a market-leading crypto exchange and its founder, alleging they misused customer money and violated trading rules. 

Does this story sound familiar? It should. Except this time around, the target was the world’s largest digital-asset exchange, Binance, and its CEO Changpeng “CZ” Zhao taking regulatory heat.

The Securities and Exchange Commission filed a highly anticipated lawsuit against BINANCE and Zhao on Monday, accusing the exchange of operating illegally and selling unregistered securities. The suit caps just one of the open inquiries into Binance in the US, and it follows a similar action against the exchange and its founder in March from the Commodity Futures Trading Commission.

For its part, Binance called both suits “disappointing” and vowed to defend itself — which may set the stage for a long and drawn-out legal fight. But the actions, in also naming their high-profile CEO as a defendant, underscore the outsize role played by crypto leaders like Zhao in the inner workings of companies that mushroomed in just a handful of years from tiny startups to sprawling conglomerates.

Nowhere was that more evident than at the now-defunct exchange FTX, where co-founder and fallen crypto executive Sam Bankman-Fried not only embodied the company and its aims, but also tried to be an ambassador for the industry as a whole — until it all came crashing down.

Bankman-Fried is the subject of a new podcast series from Bloomberg and Wondery. You’ll find CZ played his own dramatic role in the rise of FTX — and in the exchange’s operatic downfall too.

Of course, FTX's situation stands out for its messy bankruptcy proceedings and Bankman-Fried's upcoming criminal trial. But regulators are putting the entire industry on notice —  from Zhao and Binance to other embattled crypto exchanges like Coinbase, which the SEC also sued this week. (Like Binance, COINBASE plans to fight back in civil court.) 

Bankman-Fried confronts the prospect of life in prison over allegations that he committed a range of crimes, which he denies. Prosecutors claim that he ran a years-long fraud and used billions of dollars of FTX customer funds for risky investments, personal expenses and political donations. 

Bankman-Fried’s unraveling began last year. Since then, he has been busy under house arrest, preparing his legal defense after pleading not guilty to a 13-count indictment. 

While Bankman-Fried hurtles toward his October trial date, a trail of unanswered questions from FTX’s collapse remains.

What motivated him? How did he establish what prosecutors call “one of the biggest financial frauds in American history”? What did his closest confidantes know?

Interviews with Bankman-Fried’s early friends, colleagues, investors and other contacts reveal striking patterns that help answer these questions. Reaching back into his past, we reveal what shaped this onetime crypto ringleader — including an appetite for risk-taking and strategic deception.

“Spellcaster: The Fall of Sam Bankman-Fried” takes you on a journey deep inside the crypto skunkworks. We trace the arc of Bankman-Fried’s epic rise and collapse, and make sense of why so many people believed in his promises. The first two episodes are available now.

As for the rest of crypto’s leading characters, time will tell how their stories play out. 

Counting it out

Hearing them out

What we’re reading (and writing)

• Coinbase Faces a ‘Life or Death’ Battle With the SEC
• Circle Begs Congress: Please Regulate Us (Forbes)
• Korean Prosecutors Seek Crypto Millions Tied to Do Kwon and TerraUSD
• Binance Money Trail Reveals $70 Billion Flowing Through Silvergate, Signature
• The Hullabaloo of Zuzalu: Inside the Secret Pop-Up City of Vitalik Buterin’s Dreams (The Information)
• Matt Levine’s Money Stuff: When Is a Token Not a Security? (Bloomberg Opinion)

  We welcome all feedback at [email protected].

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— With assistance by Yueqi Yang and Emily Nicolle