The cryptocurrency was sold to state and local pensions such as ESG

Senator Katie Muth$40 billion board member Pennsylvania State Employee Retirement System (PSERS) will never forget the first pension board meeting he attended and the ESG presentation he heard, which featured cryptocurrency as a solution for the unbanked in African countries. “He was really looking forward to the ESG presentation, but he was very confused about how the black box counterfeit coin could improve the lives of people suffering from economic hardship on the mainland. The unbanked need equal financial opportunity, not the chance to be further ripped off and exploited by tech-savvy Westerners.”

For those who have conveniently forgotten, there was a time, not too long ago, when cryptocurrency was sold to our nation’s state and local government pensions in accordance 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 called sustainable investing, socially responsible investing and impact investing) .

In its testimony In a hearing before the US House Committee on Agriculture in May 2022, Sam Bankman-Fried, co-founder and CEO of FTX, stated that his “business was established to build an asset trading platform digital and exchange with a better user experience, customer protection, equal access and innovative products, and to provide a trading platform robust enough for professional trading companies and intuitive enough for first-time users…

FTX has aimed to combine the best practices of the traditional financial system with the best shape 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 cooperation and mutual respect. This type of culture is born from the diversity of our team, which demands a spirit of empathy, understanding and humility. These traits in our workforce are good for business and are in large part why we have been successful in understanding our customers and their needs, and in executing products that meet their needs. FTX has employees around the world with diverse ethnic backgrounds, and 60 percent of the women in our workforce hold senior management positions. Most of our global leadership comes from diverse backgrounds.”

Then there was the commitment to “give back.”

“FTX is committed to improving the lives of not only our customers through superior products, but also the lives of those in the broader global community. To this end, FTX created the FTX Foundation, founded with the goal of donating to the world’s most effective charities. At a minimum, one percent of net fees from FTX transactions are donated to the foundation; Furthermore, the founders of FTX have pledged to donate the majority of what they earn. Mr. Bankman-Fried has personally pledged to donate 99% of his wealth. In 2022 alone, FTX, its affiliates, and its employees have so far donated more than $100 million to alleviate global poverty, provide ventilators to countries devastated by covid, provide financial services to the unbanked and underbanked, and fight change. by ensuring FTX is carbon neutral and helping the world achieve a better future. FTX has launched additional philanthropic initiatives, including the FTX Future Fund, which invests in ambitious projects aimed at improving the long-term prospects of humanity. FTX Community’s philanthropic efforts focus on global poverty, animal welfare, and community outreach. In 2021, the FTX Community hosted the FTX Charity Hackathon and awarded $1 million to a group of local students with the best idea for improving physical and mental health.”

Then there was the commitment to “carbon neutrality”.

“FTX Climate is a comprehensive initiative to make FTX carbon neutral, support important environmental projects, and fund transformative research on the most impactful solutions to climate change. FTX plans to spend at least $1 million annually through FTX Climate. FTX has worked to bear our share of the environmental costs of mining associated with public blockchains and has purchased carbon offsets to neutralize those costs, in addition to funding research.”

Perhaps most memorable, FTX was to provide banking services to the unbanked or underbanked.

Bankman-Fried said: “FTX is dedicated to harnessing the power of cryptocurrency to tangibly improve lives. We’re working with nonprofits, cities, and countries to make the financial system more inclusive.

According to Federal Reserve estimates, 70 million Americans are unbanked or underbanked. They lack a safe place to keep money and pay exorbitant fees to cash checks. Millions more are banked, but face high fees when their balance falls below a minimum. Members of these communities often do not have insured checking accounts, for a variety of reasons, including credit history. The legacy bank settlement system makes it difficult to see balances in real time and leads to overdrafts, leading to higher fees. Our bank, the underbanked program, offers those outside the financial system a free bank account and debit card linked to a crypto wallet. There are no commissions or minimum balances. Funds transfer is virtually free and instant and can be accessed from a phone. They can use it to receive money, make payments and build savings. There are no commissions or minimum balance. The transfer of funds through the crypto wallet is practically a fee and instant.”

And finally, FTX was even defending Ukraine from the Russian invasion.

“Ukraine is deploying digital assets to defend against Russian invasion and support the population. In collaboration with the Government of Ukraine, FTX is converting millions of dollars in wartime crypto donations into fiat for the National Bank of Ukraine. This marks the first instance of a cryptocurrency exchange directly cooperating with a public financial institution to provide a conduit for cryptocurrency donations. Facilitated by FTX, the Ukrainian government has purchased crucial defense and humanitarian equipment including medicines, ballistic plates for body armor, walkie-talkies, soldiers’ lunches, thermal imaging cameras, and helmets. Ukraine’s Deputy Minister of Digital Transformation has noted: “Each and every helmet and vest purchased through crypto donations is currently saving the lives of Ukrainian soldiers.” Also, when the war broke out in Ukraine, FTX gave $25 to every Ukrainian user of our platform.”

Thus, black box cryptocurrency investments were marketed as a fancy solution to climate change, racial and gender diversity, income disparity and financial system exclusivity, and even the war in Ukraine.

Crypto was going to “improve lives” and many ESG investors, including our nation’s state and local government pensions, so-called “sophisticated institutions,” couldn’t resist betting workers’ retirement savings on the dream. Now those same pensions are outright in denial, denying public disclosure, or claiming they have no access to information regarding any direct or indirect (through third-party fund managers) crypto holdings.

However, information about “crypto-contagion” in public pensions is gradually emerging, with some funds, such as Fairfax County, Virginia, revealing holdings in excess of a staggering 10%. Whether you support or reject ESG, the crypto crisis is a stark reminder that combining even the most laudable goals with investment decision-making can lead to disastrous results.