Happy Friday, Fortune Crypto readers. The week has been an eventful one with several days of jaw-dropping testimony in Sam Bankman-Fried's trial, which continues today and will likely span into next month. The FTX founder's one-time romantic and business partner, Caroline Ellison, hasn't disappointed as a star witness, sharing many new details about Bankman-Fried's operation, which appears more and more to have been a criminal conspiracy from the beginning.
One of the nuggets from Ellison's testimony that hasn't received much attention among the more lurid revelations concerns Bankman-Fried's view of financial regulators. By all indications, he did not view them as neutral referees of market participants, but rather as agents he could co-opt to expand his corrupt business empire. As one summary of Ellison's testimony put it:
"Bankman-Fried was also fixated on using U.S. regulators to gain a competitive advantage for FTX, according to Ellison. In another document, she had written about 'getting regulators to crack down on Binance,' referring to the rival crypto exchange. As she recounted Wednesday, Bankman-Fried said that U.S. regulators had promised him they would enforce regulation against Binance, which he thought would increase FTX’s market share."
In practice, much of this effort consisted of a whisper campaign to highlight Binance CEO Changpeng Zhao's alleged ties to China—ties likely overstated given that Zhao, a Canadian citizen, had pulled his company out of China years before. The campaign would get some traction as, prior to its implosion, Congress and regulators appeared poised to write new crypto rules favorable to FTX.
The lobbying campaign against Binance is not exactly shocking, but it is ironic given Ellison's account of FTX's own activities in China—including using crypto accounts of Thai prostitutes in an effort to unfreeze money there, and then allegedly paying $150 million to Chinese officials.
But FTX's dirty tricks campaign against Binance is also notable as it's just part of a long tradition of companies trying to sic regulators on their competitors in a bid to gain a business advantage. I was reminded of this while reading Ron Chernow's House of Morgan, a history of American finance that includes an account of the early days of the Securities and Exchange Commission and the Justice Department's antitrust activities.
The book shows how, virtually from the moment these agencies were created, the same companies they were tasked with overseeing sought to manipulate them. In the 1940s, for instance, the Justice Department sued the "Club of Seventeen"—a group of investment banks, including Goldman Sachs and Merrill Lynch—for allegedly conspiring to monopolize securities offerings. The case fell apart at trial as the government failed to show any such conspiracy existed, and it subsequently emerged it only came about in the first place because of a concerted lobbying push by industry rivals.
In this context, Bankman-Fried’s campaign against Binance is just part of a very old game—one that doesn’t always work and can even backfire, as it may have when Zhao learned of the whisper campaign and announced he would sell off FTX’s token, FTT, accelerating the undoing of both the exchange and its owner.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
