Sheila Bair, Former Chair of the FDIC, Is Now an “Organizer/Director” of a Cayman Islands Crypto Company that Got a U.S. National Bank Charter Last Year

Gunnar Larson g at
Mon Nov 28 08:55:54 PST 2022

On November 17, Sheila Bair, the former Chair of the Federal Deposit
Insurance Corporation (FDIC) during the financial crisis of 2008, went on
lament the lack of controls leading to the collapse of the crypto currency
exchange, FTX. During the interview, Bair used the phrase “nobody looking
behind the curtain.”

But Bair, herself, is listed as an “Organizer/Director” of a crypto-related
company called Paxos, where nobody can genuinely look behind the curtain
because its parent, Kabompo Holdings Ltd., is based in the offshore secrecy
jurisdiction of the Cayman Islands. According to the bare bones filings
Kabompo has made with the Securities and Exchange Commission
time it has raised money from private investors, it has used an address
that is a Post Office Box at Ugland House in Grand Caymen. According to a
previous report from the Government Accountability Office, the audit arm of
Congress, Ugland House is home to 18,857 corporations. In 2009, President
Obama called it either “the largest building in the world or the largest
tax scam in the world.”

Despite the dark curtain that Ugland House draws around the corporations
housed there, the Office of the Comptroller of the Currency, the regulator
of national banks in the United States, granted Paxos conditional approval
to operate a national bank, Paxos National Trust, on April 23 of last year.
The national bank charter will allow Paxos National Trust to operate in all
50 states without getting separate approvals from the individual states.
The OCC’s letter to Paxos
details the conditional approval contains the following breathtaking

“The Bank will be an uninsured national bank whose operations will be
limited to those of a trust company and activities related thereto. The
Bank will provide a range of services associated with digital assets that
are permissible for a national bank, including custody services for digital
assets; custody and management of USD stablecoin reserves; payment,
exchange, and agent services; other cryptocurrency services, such as
trading services and enabling partners to buy and sell cryptocurrency; and
‘know your customer’ as a service, which includes customer identification,
sanctions screening, enhanced due diligence, customer risk rating, and
other related services. These activities are currently being conducted by
Paxos Trust Company, LLC, a New York-chartered limited liability trust
company (Paxos Trust Company). The Bank and Paxos Trust Company will be
affiliates and direct wholly owned subsidiaries of Kabompo Holdings Ltd.,
Grand Cayman, Cayman Islands (Kabompo).”

Let this sink in for a moment. The OCC is willing to allow a company whose
parent is housed in a secrecy jurisdiction to conduct “know your customer”
activities “as a service” and engage in a sprawling range of crypto
activities – despite crypto being called a scam or a sham by a growing list
of veteran investors, academics and computer scientists.

Legendary investor Warren Buffet has called the largest cryptocurrency,
Bitcoin, ‘rat poison squared’; global economist, Nouriel Roubini, told the
Senate Banking Committee in 2018 that ‘Crypto is the Mother of All Scams
and (Now Busted) Bubbles While Blockchain Is The Most Over-Hyped Technology
Ever, No Better than a Spreadsheet/Database
More recently, Bill Gates, co-founder of Microsoft, one of the most
valuable tech companies in the world, stated that cryptocurrencies are
‘100% based on greater fool theory
And just this past June 1, more than 1,600 scientists and software
engineers wrote to Committee chairs in Congress
warn that both crypto and blockchain are shams.”

Paxos also appears to have run amok of the FDIC’s rules on using the
imprimatur of the FDIC to make its stablecoins appear to have the backing
of federal deposit insurance from the FDIC. (See screen shot below taken
from the Paxos website yesterday morning.) The most brazen sentence on the
Paxos web site is this: “Paxos maintains FDIC-insured deposits for
stablecoins at the following depositories:”

[image: Paxos Statement on FDIC Insurance at Paxos Web Site, November 27,

In August the FDIC wrote to five crypto firms to warn them that they were
illegally using the name of the FDIC. One of the firms was the now
collapsed FTX crypto exchange where billions of dollars of customer funds
are now missing. The FDIC letter to FTX
the following passage:

“You shall immediately remove any and all statements, representations, or
references that suggest in any way, explicitly or implicitly, that: (a) FTX
US is FDIC-insured; (b) any FTX US brokerage accounts are FDIC-insured; (c)
any funds held in cryptocurrency or other financial products such as
stocks, bonds, money market mutual funds, other types of securities or
commodities are or can be protected by FDIC insurance; or (d) FDIC
insurance provides protection or coverage in any manner or extent other
than those set forth in the FDI Act….”

On October 20, the acting Chairman of the FDIC, Martin Gruenberg, gave a
speech at the Brookings Institution that explained how misleading
statements that invoke the name of the FDIC may have lured customers to use
crypto when they would not otherwise have done so. Gruenberg stated:

“…false and misleading statements, either direct or implied, by
crypto–asset entities concerning the availability of federal deposit
insurance for a given crypto–asset product violate the law. We have seen
several instances where crypto–asset companies have given customers the
impression that they are protected by the government safety net when, in
fact, they are not. Further, misrepresentations by crypto–asset firms about
how they are regulated have also confused consumers and investors regarding
whether a given crypto–asset product is regulated to the same extent as
other financial products.

“In other cases, customers may have fundamentally misunderstood the risks
associated with investment in various types of crypto–assets, calling into
question whether consumer disclosures and other important consumer
safeguards are appropriately implemented within the crypto–asset

“Insured institutions need to be aware of how FDIC insurance operates and
need to assess, manage, and control risks arising from third–party
relationships, including those with crypto companies. In addition to
potential consumer harm, customer confusion can lead to risks for banks if
a third party with whom they are dealing, makes misrepresentations about
the nature and scope of deposit insurance. The FDIC issued an Advisory in
July reminding insured banks of the risks that could arise related to
misrepresentations of deposit insurance by crypto–asset companies.”

As the former Chair of the FDIC, Sheila Bair would not be able to mount a
credible legal defense as to how a company of which she is listed as an
“Organizer/Director” is misusing the imprimatur of the FDIC.

The OCC letter acknowledging its conditional approval of the national bank
charter to Paxos indicates that a copy was sent to Michael Nonaka
<>, Co-Chair of the
Financial Services Group at the law firm Covington & Burling. (That law
firm conspired with Big Tobacco for decades to hide the health risks from
cigarettes. According to a decision handed down by Federal court judge
Gladys Kessler, Covington & Burling’s relationship with Big Tobacco went
far beyond the typical attorney-client relationship. The firm set up front
groups to hide the coordination of Big Tobacco in promulgating fake science
on the health risks of second-hand smoke.)

Eric Holder, U.S. Attorney General under President Obama, and Lanny Breuer,
head of the criminal division of the Justice Department under Holder, also
hailed from Covington & Burling. Both failed to prosecute any key executive
of a major Wall Street bank
the crimes that led to the 2008 financial crises that devastated the
finances of millions of Americans, despite criminal referrals from the
Financial Crisis Inquiry Commission.

Covington & Burling unabashedly brags about its revolving door
relationships, writing as follows on its website about its blockchain team:

“Our team includes more than 120 former government and enforcement
officials, including the former U.S. Attorney, a former Prime Minister, and
a member of the UK House of Lords, who can offer our clients exceptional
insight as they navigate complex regulatory, legal, policy, and litigation
issues relating to the adoption of disruptive technologies. We provide
comprehensive, interdisciplinary advice to clients looking to acquire,
adopt, evaluate, or litigate matters relating to distributed ledger

The global reputation of the U.S. financial system is rapidly going down in
flames from these so-called “disruptive technologies” as celebrities,
former regulators, law firms and members of Congress accept the financial
largesse crypto firms are throwing around.

It also appears that the journalism profession may have been similarly
co-opted. One of the five letters that the FDIC sent in August
warning about illegal use of the FDIC-insurance protection imprimatur, went
to a firm called SmartAsset. The website of SmartAsset had published an
article written by a “freelance reporter” named Eric Reed. The title of the
article was: “List of FDIC-Insured Crypto Exchanges.” (The Wayback Machine
has archived the article
Give it a minute or so to load.) Since the FDIC is not legally allowed to
insure *any *crypto exchange, the entire premise of the article was bogus.
Among those Reed listed as an insured crypto exchange is the colossal
fraudster, FTX. Reed writes that FTX is “insured for investors who trade
with” Today, FTX.US is in bankruptcy proceedings along with more
than 100 other FTX affiliates with a reported $8 billion of customer money
missing.” Gemini, which has halted customer withdrawals on its “Earn”
is also listed by Reed as “Insured.”

Reed’s bio notes that he writes “sponsored content” and that he also works
“with content teams at leading newsrooms and private firms looking to grow
their message. I specialize in thought leadership, corporate newsrooms and
client communications in high-complexity fields such as policy, law,
finance and technology.”
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