Analysis-Bankman-Fried fraud charges sidestep debate over how U.S. law sees crypto

That is because Manhattan federal prosecutors’ charges against the founder of now-bankrupt crypto exchange FTX have largely sidestepped an ongoing debate as to whether cryptocurrencies should be regulated as securities or commodities, legal experts told Reuters.

Bankman-Fried, 30, was indicted on two counts of wire fraud and six conspiracy counts last month in Manhattan federal court for allegedly stealing FTX customer deposits to pay debts from his hedge fund, Alameda Research, and lying to equity investors about FTX’s financial condition. He has pleaded not guilty.

“It’s a pretty simple deception,” said Shane Stansbury, a professor at Duke University School of Law and former Manhattan federal prosecutor. “You really don’t need to get into the weeds of how we view cryptocurrencies.”

The question of whether cryptocurrencies are considered securities, like stocks or bonds, or commodities – a category that in the United States encapsulates foreign currency trading as well as raw materials such as crude oil – remains largely unresolved.

But the uncertainty is irrelevant to most of the charges leveled against Bankman-Fried, according to experts. While he faces one count of conspiracy to commit securities fraud, that charge alleges he misled FTX’s equity investors, and does not touch on the nature of the assets traded on the exchange.

He also faces two wire fraud charges and two related conspiracy counts for allegedly providing false information to Alameda lenders about the hedge fund’s financial health and for the alleged theft of customer assets.

“There’s no need to establish that what the customers ultimately bought with fiat currency was a security or commodity or whatever,” said Mark Kasten, counsel at Buchanan Ingersoll & Rooney in Philadelphia. “Customers put money into the platform and the money was supposed to be used in a certain way. And according to the allegations in the indictment, it wasn’t.”

A spokesman for the U.S. Attorney’s office in Manhattan declined to comment.

Bankman-Fried’s defense lawyers did not respond to a request for comment. The onetime-billionaire has previously acknowledged shortcomings in FTX’s risk management practices, but has said he does not believe he is criminally liable.