The 2007-2008 financial crash caused the worldwide loss of untold trillions of assets, massive unemployment, millions of homeowners foreclosed upon and their credit demolished, the bankruptcies or failures of whole nations such as Iceland, the mass extinction of many banks and financial firms small and large such as Bear Stearns and Lehman Brothers, and general economic misery throughout the planet. The cause of the crash was, fundamentally, widespread fraud. The fraud started at the lowest level with false loan applications known as “liar loans”, percolated upwards in the fraudulent bundling of loans into mortgage-backed securities, received the stamp-of-approval by fraudulent ratings given by the ratings agencies, and ultimately resulted in the greatest investment fraud in world history when this toxic junk was sold to investors as “safe” AAA-rated products, including collateralized debt obligations (CDOs).

The fraud was widespread, the fraud was extreme, the losses from the fraud were in the trillions, and the fraud caused many tens of millions worldwide to suffer severely. More importantly, the fraud was criminal. Yet, in the end, really only one guy, Kareem Serageldin, went to jail for any of this ― and for conduct that was, at its worst, nowhere near the scale of criminal activity that had been engaged in by the main players. And even he got only 30 months in a minimum security Club Fed facility.

The failure of U.S. regulators to hold any of the main players criminally liable was the single greatest failure of government regulation ever in the history in the world (even the cover-up obsessed USSR eventually and quite publicly convicted the six persons most directly responsible for the Chernyobl disaster). In particular, the U.S. Securities & Exchange Commission, once one of the most respected regulators in the world, failed spectacularly and now is viewed as little more than the bumbling and clueless Barney Fife of the financial regulatory world and now has all the prestige of the local DMV office. But arguably it was the DOJ which failed the worst with its single conviction in a target-rich environment where the sentiment of the ordinary folks acting as jurors would likely have salted many hundreds of prime perpetrators away with little sympathy.

Those failures are in the past, and is now just so much spilt milk under the bridge. But now we are faced with a new financial meltdown, albeit one on a somewhat smaller scale, but where the type of fraud was just as bad if not in many particulars worse: The so-called Crypto Crisis.

Let’s just forget about the SEC, who primary task is to prevent investment fraud, but which did utterly nothing as substantial evidence mounted that the entire crypto industry was little more than a giant Ponzi scheme. To utterly nobody’s surprise, the SEC has failed yet again. It is time to face the reality that the SEC is little more than an electronic repository for securities filings, making sure that broker-dealers undergo their continuing education requirements, and chasing the occasional small-fry market manipulator, inside trader and nickel & dime Ponzi schemer. Otherwise, the SEC only gives the appearance of investor protection without really providing any such protection in a meaningful sense.

The DOJ is a different matter, since their task when financial fraud occurs is to investigate and prosecute those who committed serious financial fraud, particularly when it occurs (as they all do) through the federal wires. Prosecuting such crime is their job, and they have made a good start by announcing the prosecution of Samuel Bankman-Fried of FTX and Alameda Research infamy. Presumably, others involved with FTX, Alameda Research and other related companies will also be investigated and prosecuted. This is all good.

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What is not so good is that FTX and Alameda Research are only some of the major crypto players, and other companies and persons through their own misconduct have caused investor losses that are just as bad, if not worse. For example, Celsius
CEL
Network, which filed for bankruptcy on July 13, 2022, is similarly alleged to owe its investors and depositors around $4.7 billion with around $1.2 billion simply missing. There are allegations by these depositors and investors that Celsius Network was itself operating as a Ponzi scheme towards the end by artificially propping up its values for the purpose of drawing in new investors whose money was then used to meet redemptions. Where are the Celsius Network prosecutions?

The larger truth is that the entire crypto sector essentially operated as a giant investment scam, with the companies cross-investing and purchasing the proprietary tokens of each other with the intended purpose of inflating their own values. The entire crypto sector is tantamount to a large criminal organization, much like the old-time Mafia where certain “families” staked out their particular ground and everybody else respected these boundaries ― except here it was done with proprietary tokens. Moreover, many of these companies have seen large amount of assets that have simply disappeared or were misappropriated for personal purposes, while at the same time they made shockingly false representations to their investors and depositors about the true nature of the investment risks that were involved. Where has the DOJ been in relation to these other frauds?

Oh sure, the ensuing civil litigation will mete out a small dollop of justice to the perpetrators of these crypto schemes, although investors and depositors will even then be lucky to get back more than a small portion of their losses. Class action attorneys will also go after the facilitators of these schemes, including the (usually small and shady) audit firms that were supposed to be watching the books. But that’s really not enough to satisfy one of the primary purposes of criminal law, which is deterrence.

If the DOJ does not prosecute a large number of the crypto scammers, but merely stops with Samuel Bankman-Fried and a few of his flakey cohorts, that will send a message to the next generation of investment fraudsters that they too are likely to make billions and get away with it. It will only be a matter of time then before the next wave of get-rich-quick schemes hit and ordinary folks again lose vast amounts of wealth in what will be pitched to them as “safe” investments. Which is to say that widespread prosecutions within the crypto space have a chance of proving that crime doesn’t pay, something that seems to be presently lost on big swaths of the alternative investments sector.

The problem of financial corruption is not simply a moral problem or one of society’s desire for retribution. Rather, the place of the United States as the center of the world’s financial transactions is due primarily to the fact that the U.S. has historically hosted a tightly-regulated marketplace where financial hijinks are minimized and those who engage in nefarious conduct are regularly prosecuted. But a rash of contemporary scandals ― Worldcom, Enron, the 2007-2008 crash, and most recently the crypto companies ― seriously threatens that reputation. The only way to keep that reputation intact is to aggressively prosecute the perpetrators and their aiders and abettors. This is an “indict everybody and let the juries sort out the innocent” moment for American justice.

Finally, it should be noted that there is one last victim of the crypto frauds, which is the American public. The civil litigation over these schemes will take up vast judicial, regulatory, and prosecutorial resources, and most of this cost will ultimately be borne by U.S. taxpayers without any realistic prospect of financial recompense. The fault here lies with Congress which should have imposed licensing fees and taxes on crypto early on, but failed to do so largely due to the large political contributions made by the crypto companies to avoid such regulation and taxes (and which contributions ultimately were another act of embezzlement against their investors and depositors).

At the very least, the American public should have the satisfaction of watching all these folks go to jail. Please do not let 2007-2008 repeat where there is a single “show” prosecution but everybody else skates.