Cryptocurrency was sold to state and local pensions as ESG

Sen. Katie Muth, board member of the $40 billion Pennsylvania State Employees’ Retirement System (PSERS), will never forget the first retirement committee meeting she attended and the ESG presentation she heard and in the cryptocurrency as a solution for unbanked African countries. “I was really looking forward to the ESG presentation but was very confused about how black box fake currencies could improve the lives of people suffering from economic hardship across the continent. Those unbanked need equitable financial opportunities — not the opportunity to be scammed and further exploited by tech-savvy Westerners.”

For those who have conveniently forgotten, there was a time – not so long ago – when cryptocurrency was sold to our nation’s state and local pensions, in line with their ESG goals. (“ESG” stands for Environmental, Social and Governance. ESG investing is a way of investing in companies based on their commitment to one or more ESG factors. It is also often referred to as sustainable investing, socially responsible investing and impact referred to as investing.)

Testifying at a hearing before the US House of Representatives Committee on Agriculture in May 2022, Sam Bankman-Fried, co-founder and CEO of FTX, stated that his “business was founded to build and share digital assets trading platform with a better user experience, Client protection, equal access and innovative products, and to provide a trading platform robust enough for professional trading firms and intuitive enough for first-time users…

FTX aims to combine the best practices of the traditional financial system with the best form of the digital asset ecosystem.”

He spoke eloquently about FTX’s commitment to a diverse workforce. “We are proud of our workforce at FTX and believe that one of our key strengths is a culture of mutual respect and collaboration. This type of culture is fueled by the diversity of our team, which requires a spirit of empathy, understanding and humility. These qualities of our workforce are good for business and a key reason we have been able to understand our customers and their needs and design products that meet their needs. FTX has employees from diverse ethnic backgrounds around the world, and 60 percent of the women in our workforce are in senior leadership positions. The majority of our global leaders come from diverse backgrounds.”

Then there was the obligation to “return”.

“FTX strives to not only improve the lives of our customers through superior products, but also the lives of people in the broader global community. To this end, FTX created the FTX Foundation, which was established with the aim of donating to the world’s most effective charities. At least one percent of net fees from FTX transactions are donated to the foundation; In addition, the founders of FTX have pledged to donate the majority of their earnings. Mr. Bankman-Fried has made a personal commitment to donate 99% of his wealth. In 2022 alone, FTX, its subsidiaries and employees have so far donated over $100 million to alleviate global poverty, provide ventilators in Covid-ravaged countries, provide financial services to the unbanked and underbanked, and fight climate change combat by ensuring FTX is carbon neutral and helping the world achieve a brighter future. FTX has launched other philanthropic initiatives, including the FTX Future Fund, which invests in ambitious projects aimed at improving humanity’s long-term prospects. The FTX Community’s philanthropic efforts focus on global poverty, animal welfare and outreach. In 2021, the FTX Community organized the FTX Charity Hackathon, giving away $1 million to a local student group with the best mental and physical health improvement idea.”

Then there was the commitment to “CO2 neutrality”.

“FTX Climate is a comprehensive initiative to make FTX carbon neutral, support key environmental projects and fund transformational research on the most impactful solutions to climate change. FTX plans to spend at least $1 million annually through FTX Climate. FTX has sought to match our share of the environmental costs of mining related to public blockchains and, in addition to funding research, has purchased carbon offsets to offset those costs.”

Perhaps most memorable was that FTX would offer banking to those with little or no bank.

Said Bankman-Fried: “FTX is dedicated to harnessing the power of crypto to make life measurably better. We work with nonprofits, cities and countries to make the financial system more inclusive.

The Federal Reserve estimates that 70 million Americans are either unbanked or unbanked. They have no safe place to store money and pay exorbitant fees to cash checks. Millions more are deposited but face hefty fees if their balance falls below a minimum. Members of these communities often do not have insured checking accounts for a variety of reasons, including credit histories. The legacy bank billing system makes it difficult to see real-time balances and creates overdrafts, resulting in higher fees. Our bank, the Underbanked program, offers those locked out of the financial system a free bank account and debit card linked to a crypto wallet. There are no fees and no minimum balance. Transferring funds is virtually free and instant and can be done over a phone. You can use it to receive money, make payments, and build savings. There are no fees and no minimum balance. Transferring funds through the crypto wallet is practically fee-based and instant.”

And finally, FTX even defended Ukraine from a Russian invasion.

“Ukraine is using digital resources to defend against the Russian invasion and to support the population. In cooperation with the Government of Ukraine, FTX converts millions of dollars in wartime crypto donations for the National Bank of Ukraine into fiat. This is the first-ever case of a cryptocurrency exchange working directly with a public financial institution to provide a channel for crypto donations. Supported by FTX, the Ukrainian government has purchased essential defense and humanitarian equipment, including medicines, ballistic plates for bulletproof vests, walkie-talkies, soldiers’ lunches, thermal imaging cameras and helmets. Ukraine’s Deputy Minister of Digital Transformation has stated, “Every helmet and vest purchased via crypto donations is currently saving Ukrainian soldiers’ lives.” Additionally, when war broke out in Ukraine, FTX gave 25 US to every Ukrainian user of our platform -Dollar.”

Hence, black box cryptocurrency investments have been marketed as an elegant solution to climate change, racial and gender diversity, income inequality and financial system exclusivity, and even war in Ukraine.

Crypto was meant to “make lives better,” and many ESG investors, including our nation’s state and local pensions — so-called “sophisticated institutions” — couldn’t resist gambling workers’ retirement savings for the dream. Now those same annuities are either outright denial, denying public disclosure, or claiming they have no access to information about direct or indirect (via outside fund managers) crypto holdings.

Still, information is beginning to emerge about the “crypto contagion” in public pensions, with some funds, such as Fairfax County Virginia, disclosing holdings in excess of a staggering 10%. Whether you support or disapprove of ESG, the crypto crisis is a profound reminder that associating even the most laudable goals with investment decisions can lead to disastrous outcomes.

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