Former FTX Chief Executive Sam Bankman-Fried arrives at the Manhattan federal court in New York City, U.S. March 30, 2023.

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How one of China’s biggest digital fraudsters led to Sam Bankman-Fried’s latest indictment


Photo Credit: REUTERS/Amanda Perobelli


As if Sam Bankman-Fried did not have enough legal problems, US prosecutors lodged another explosive charge against him at the end of March. The fallen cryptocurrency champion was indicted by federal authorities for allegedly conspiring to bribe Chinese officials with $40 million to unfreeze $1 billion in cryptocurrency and hedge fund accounts.

The irony of the situation is that the Chinese authorities had earlier frozen those accounts in a wave of crackdowns on digital financial fraud, recognizing the problem years ahead of the United States. Indeed, one of the biggest Chinese perpetrators of digital fraud, a buccaneer entrepreneur and Ponzi scheme perpetrator named Ding Ning, bears an uncanny resemblance to Bankman-Fried and his company, FTX.

Like Bankman-Fried, Ding attracted billions of dollars in investments with much-hyped claims of financial innovation, creating a veneer of respectability fueled by expensively bought political connections and media prominence—all of it covering up a low-tech mess of fraud and sham bookkeeping. Lurid details emerged, like intimate relationships between employees and spending sprees fueled by millions of stolen client money. The swindling caught up with Ding in 2016, when he was busted for his role in a Ponzi scheme called Ezubao and led away in handcuffs. He was sentenced to life imprisonment the following year.

Both FTX and Ezubao failed after taking in money from around a million investors. Ezubao harvested $7.6 billion from Chinese investors, while the FTX balance sheet Bankman-Fried shared had an $8 billion hole from its “hidden, poorly internally labelled” fiat account. Ezubao hosted its annual meeting with high ranking officials at the Great Hall of the People in Beijing, roughly equivalent to the Capitol in Washington. Bankman-Fried, like FTX, became a major donor to both political parties and appeared on stage with former presidents and prime ministers. Glowing profiles of Bankman-Fried abounded across US media, while favorable coverage of Ding in China’s state media led investors to trust him with their savings.

It is almost directly thanks to Ding that prosecutors recently alleged that Bankman-Fried had paid a $40 million bribe to Chinese officials.

Ezubao’s collapse in 2015 led to massive protests across China among people who lost money, demonstrating the dangers of purported financial innovations to Chinese authorities who until then had taken an encouraging, hands-off attitude to fintech. It took years of “rectification” to put the genie back in the bottle, but by late 2021, China had wound up a multibillion-dollar online lending sector and definitively banned cryptocurrency trading and mining in the country.

During the time that some crypto activity was still legal in China, Bankman-Fried’s hedge fund, Alameda Research, had over $1 billion in accounts with counterparties in China that was frozen as a result of a government investigation into the soon-to-be banned sector. Prosecutors allege that after Bankman-Fried paid the bribe, Alameda money was unfrozen, leading to millions more transfers of cryptocurrency to one or more officials in China.

The stories of Ding and Bankman-Fried have important lessons about financial innovation and how the United States may not be as different from China as we might think.

First, as my book The Cashless Revolutionargues, cases like Ding’s taught Chinese policymakers to be skeptical of claims of financial innovation that could fail at enormous cost, and that effective regulation required taking a whole of government approach to cryptocurrency. Their ban on crypto in 2021 imposed jointly from ten government departments was a more concerted approach than the largely fragmented US effort at regulation, in which varying elements of the cryptocurrency market have been supervised by a plethora of state and national authorities without a unified, coherent legal framework.

The crypto industry often argues that stronger regulation can hamper innovation. But it is hard to see at this point any useful innovations that China is missing out on from its ban of cryptocurrency, especially because China has remained positive about other applications of blockchain technology and become a pioneer in other forms of digital currency. What China has clearly missed out on is the fallout of failed exchanges like FTX, crypto lenders like Celsius and Genesis, and hedge funds like Three Arrows. These failures have spread losses through the so-called decentralized finance, or “DeFi,” sector offering financial services based on public blockchains instead of traditional intermediaries and led to a “crypto winter” of depressed cryptocurrency prices as the sector licks its wounds.

Second, the bribery allegations against Bankman-Fried show the prevalence of corruption in China and in the cryptocurrency sector. Despite years of a systematic anti-corruption campaign, officials in China stuck their necks out to unfreeze a highly conspicuous pile of Bankman-Fried’s money because they hoped that being paid in crypto would make their corruption invisible. In Ding’s case, authorities left corruption out of the charges, most likely nervous about implicating the state in his fraudulent activities.

In the United States, Bankman-Fried has not been accused of corruption. But his enormous political donations should spark serious thinking in Washington about whether large-scale political donations can help protect fraudulent businesses until it is too late.

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This publication does not include a replication package.

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