Monday, December 19, 2022
SBF was indicted and arrested in the Bahamas and is facing multiple counts of investor and consumer fraud in the United States, along with civil lawsuits filed by the Securities and Exchange Commission and Commodity Futures Trading Commission.
Sid Mody, a partner in O'Melveny's White Collar & Corporate Investigations Group, is a former federal prosecutor and member of the National Security, Cybercrime and Money Laundering Division of the U.S. Attorney's Office for the Northern District of Texas. He offered views on the charges against SBF and what might come next in prosecution.
Regarding SBF's media interviews, Mody said, "If there is even a 1 percent chance that you could be criminally indicted, the first rule is to keep your mouth shut. Anything you say or do will be held against you, and you better believe the DOJ and all the other regulatory agencies are going through his statements with a fine-tooth comb. While I was at the Department, anything you said was fair game, and I even used to include personal text messages between co-defendants in my indictment if it helped the general public better understand the fraud—and more importantly, the criminal intent at play."
Pertaining to sentencing guidelines for money laundering, Mody said, "I think adding the conspiracy to commit money laundering charge within the indictment is very important here. There are sentencing guideline benefits for the DOJ which could include a lengthier sentence for SBF and it gives the Department another forfeiture angle for assets connected to the fraud."
As for regulatory fallout for the crypto industry, Mody said, "I think anyone in the cryptocurrency industry going forward has to be a little concerned. It is clear that FTX struck a nerve in the eyes of regulators, and going forward they're going to be hypersensitive to anything crypto related. There was a time when banks wouldn't want to do business with you if you had any connection with crypto funds. The hope is that we don't fall back into our old ways and continue to look at the benefits of crypto in a positive light."
Anna Lou Tirol, a partner in O'Melveny's Fintech Group, is former deputy director of the Financial Crimes Enforcement Unit at the U.S. Treasury Department, with extensive experience investigating money-laundering and asset tracing. She shared perspectives on government actions, impact on banks and financial institutions, and warnings to the cryptoverse.
In looking at government actions, Tirol stated, "The three December 13 actions by DOJ, the SEC, and the CFTC, should be read side-by-side and together, as a complete picture. The regulatory actions provide an extraordinary amount of detail of witness accounts, internal information, and even allude to who did and didn't have knowledge of SBF's actions. This high level of close coordination among the three agencies is impressive, it demonstrates a sustained commitment to bring forth a comprehensive public accounting of this failure, and it strongly suggests the government's work will not end with the legal actions."
Commenting on the case's impact on banks and financial institutions, she said, "The regulatory impact of the FTX contagion will inevitably extend beyond Web2 and Web3 and reach into tradfi. Given the publicity around Silvergate's relationship with FTX and Alameda, banks and financial institutions will be re-examining their risk appetites, evaluating their existing risk assessments, and scrutinizing their current and future crypto relationships. This must—and should—impact how financial regulatory examinations are conducted."
Tirol also warned the cryptoverse, as follows: "Cryptoverse: take this part very, very seriously. It's not just about the SEC or CFTC. We heard FinCEN officials publicly state last week that they are 'looking carefully at decentralized finance and its potential to reduce or eliminate the role of financial intermediaries that play a critical role in our (anti-money laundering and countering the financing of terrorism) efforts.'
"Financial intermediaries, such as registered exchanges, report on suspicious transactions under the Bank Secrecy Act—they provide information about who, what, where and when. Without them, query who else will be able to provide the same or similar information? Factor in Senator Warren's new Digital Asset Anti-Money Laundering Act, and you're looking at a revived movement to examine whether current AML regulations are adequate and appropriate for the defi world." 
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