During Sam Bankman-Fried\u2019s monthlong fraud trial, prosecutors presented damning evidence that the fallen crypto founder knew full well what he was doing from the beginning. He knew that Alameda Research borrowed billions in customer funds from FTX. He knew his fellow executives fabricated balance sheets<\/a> to send to lenders. He knew FTX wasn\u2019t fine<\/a> when he told customers it was.<\/p>\n<\/div>\n In cryptoland, the response to these revelations was largely to condemn Bankman-Fried and FTX as an aberration. When the truth about FTX came out, Binance CEO Changpeng \u201cCZ\u201d Zhao<\/a> slammed Bankman-Fried, saying he \u201clied to everyone.\u201d Similarly, Coinbase CEO Brian Armstrong wrote on X (formerly Twitter)<\/a> that \u201ceven the most gullible person should not believe Sam\u2019s claim\u201d that the missing funds stemmed from an accounting error.<\/p>\n<\/div>\n But as Bankman-Fried awaits sentencing after being convicted on seven criminal counts<\/a>, including wire fraud, the rest of the industry has been left to take stock of its future. FTX may have been one of the most brazen fraud operations in recent years, but it\u2019s far from the only embarrassing crypto collapse. While some of the decisions Bankman-Fried made might have been unique to FTX, it\u2019s one of the multiple cases where no one on the outside caught on until it was too late \u2014 and in the wake of Bankman-Fried\u2019s trial, it may take work to convince the public he was an outlier.\u00a0<\/p>\n<\/div>\n Before his fall, Bankman-Fried was a poster child for an upstart industry. The 31-year-old power broker maintained the scruffy, somewhat quirky appearance of the kid in your computer science class that you would probably ask for help. (This particular look, according to his ex-girlfriend<\/a> and former Alameda CEO, Caroline Ellison, was carefully crafted.) He became crypto\u2019s golden boy, appearing on the cover of Fortune<\/em> magazine<\/a> and getting profiled in Forbes<\/em><\/a>. He testified about his operation\u2019s safety in front of Congress. While other firms collapsed last year, FTX appeared strong, with Bankman-Fried inviting comparisons to JP Morgan while bailing out other struggling firms.<\/p>\n<\/div>\n Some media outlets continued to burnish his representation even after FTX crashed and burned. <\/em>The Washington Post<\/em><\/a> highlighted Bankman-Fried\u2019s contributions to pandemic research (some of which apparently came from customer funds<\/a>). Then, The Wall Street Journal<\/em><\/a> focused on how Bankman-Fried\u2019s \u201cPlans to Save the World Went Down in Flames\u201d and said FTX\u2019s collapse \u201cwiped out his wealth and ambitious philanthropic endeavors.\u201d (The ambitions of FTX customers were presumably not headline material.) The information we know now lets us see past that persona \u2014 but it also gives the crypto-curious a lot to chew on.<\/p>\n<\/div>\n Other crypto companies seem to think that picking out the one bad apple will be good for the rest of the industry. In a statement provided to CoinDesk<\/em><\/a>, Paul Brody, the head of blockchain at financial consulting firm EY, calls the outcome of Bankman-Fried\u2019s trial a \u201cwonderful moment for crypto,\u201d and Yat Siu<\/a>, the chairman of blockchain gaming company Animoca Brands, says it marks a \u201cnew beginning\u201d for the industry.<\/p>\n<\/div>\n \u201cOver the past year, our industry took a reputational hit in Washington, but Sam Bankman-Fried\u2019s crimes had nothing to do with the technology underpinning digital assets,\u201d Kristin Smith, the CEO of the Blockchain Association, tells The Verge<\/em>. \u201cThe trial was about a crook \u2014 not crypto. And while the trial hasn\u2019t been a net positive for the industry, it has refocused minds on the fundamental promise of decentralization.\u201d<\/p>\n<\/div>\n Indeed, a lot of Bankman-Fried\u2019s misconduct is not inherently related to cryptocurrency \u2014 like falsifying his firm Alameda Research\u2019s finances and spending other people\u2019s money without permission.<\/p>\n<\/div>\n But much of this appears to have been possible because there was so little meaningful oversight of the crypto industry and so much acceptance of companies playing fast and loose. It\u2019s hard to say if the crypto companies left standing are free from all of FTX\u2019s flaws, or how closely they\u2019ve looked over their partners. And then there\u2019s the simple, inconvenient fact that so many of them are under legal scrutiny.\u00a0<\/p>\n<\/div>\n Earlier this year, the Securities and Exchange Commission sued Terraform Labs<\/a>, the crypto firm behind the stablecoin that vaporized billions in customer funds<\/a> when it collapsed last year, for allegedly perpetuating \u201ca fraudulent scheme.\u201d After that, the Federal Trade Commission arrested the CEO<\/a> of now-bankrupt crypto lending company Celsius over claims he made millions off the lies he spread about the firm\u2019s token.<\/p>\n<\/div>\n There\u2019s also the crypto influencer<\/a> Richard Heart, who the SEC accused of spending at least $12 million in customer funds to purchase sports cars, luxury watches, and a 555-carat black diamond. Other major firms, including Coinbase<\/a>, Binance<\/a>, Genesis, and Gemini<\/a>, also face lawsuits from the SEC.<\/p>\n<\/div>\n That I can so easily fill two paragraphs with an (incomplete) list of legal issues the crypto industry is facing doesn\u2019t exactly inspire confidence. This uncertainty is already affecting regulations that the \u201cgood\u201d companies in crypto want passed. The industry favors a bill that would limit the SEC\u2019s oversight<\/a> of the industry, for instance, while granting more power to the Commodity Futures Trading Commission. However, the outcome of Bankman-Fried\u2019s trial could ultimately harm its success. Sen. Elizabeth Warren (D-MA) has told Politico<\/em><\/a> that the industry \u201chas serious problems with fraud, and the public no longer has confidence that it\u2019s on the up and up.\u201d<\/p>\n<\/div>\n Witness testimonies and a plethora of evidence have revealed a whole range of things that can and could\u2019ve gone wrong. What would\u2019ve happened if CoinDesk<\/em> never published the article that revealed the massive hole<\/a> in FTX\u2019s balance sheet? Would Bankman-Fried continue to go about his business \u2014 doling out billions in stolen funds to save sinking crypto companies, donating to politicians<\/a>, and sponsoring sports teams<\/a>? Would he have kept spending FTX customers\u2019 funds until it either all crashed for some other reason, or until one of his bets \u2014 like an investment in the AI company Anthropic \u2014 hit big enough to clear the books? Alameda\u2019s unlimited amount of credit<\/a> makes it seem like a possibility.<\/p>\n<\/div>\n Sam Bankman-Fried wanted to prove the world could trust the cryptocurrency industry. Now, the industry hopes to leave him behind. But he might be far from the last bad actor cashing in on crypto \u2014 and the crypto world has yet to prove it can spot them before catastrophe strikes.<\/p>\n<\/div>\n<\/div>\n