The Case of Bankman-Fried, the CEO of the FTX Foundation, and the Future Fund: A Statement of Concern over the Liquidity Crisis in Cryptocurrency
It’s unclear what charges await Bankman-Fried, the 30-year-old crypto celebrity who became a pariah overnight last month as his company suffered a liquidity crisis and filed for bankruptcy, leaving at least a million depositors unable to access their funds.
The customers’ funds were used for personal benefit by Bankman- Fried, his parents, and his employees at FTX and Alameda. The funds were used for the Super Bowl commercial starring Larry David and the sponsorship of FTX Arena in Miami. The advertisements were paid for by customers and said that FTX was the safest and easiest way to buy and sell coins.
Bankman-Fried is a follower of effective altruism, and she wants to gain as much money as possible in order to give it away. But the fate of his philanthropic endeavors is now in doubt.
On Thursday, the entire staff of the FTX Future Fund, which says it has committed $160 million in grants, publicly quit. The team wrote that they have fundamental questions about the legitimacy of the business operations that were funding the FTX Foundation and the Future Fund.
Neal won’t be taking over. saying that he is “unable to serve in that position for reasons having nothing to do with FTX, Inc. or its former CEO.”
Coincise with Coins and Bitcoins: The Case of Blockfi after Coincurrence Flavours Decays
The negative ripple effect across the industry started last night with Blockfi, another crypto services firm, freezing customer withdrawals as a result of the FTX problems. After the announcement, the price of Bitcoin dropped and is still under the $17,000 mark.
In a tweet on Friday, Bankman-Fried said he was “piecing together” what had happened at FTX. I was surprised to see the unraveling of things they did earlier this week. I will soon write a more complete post about the play.
Soon after, another larger-than-life crypto personality entered the chat. Changpeng Zhao, CEO of the world’s biggest crypto exchange Binance, publicly announced that the exchange would liquidate its FTX holdings. Binance then signed a letter of intent to acquire FTX, a plan that Binance abandoned shortly after.
Better Markets CEO Dennis Kelleher said in a statement on Monday that FTX had a strategy of “revolving door hires” from the Commodity Futures Trading Commission and other agencies to use their knowledge and access to move their agenda.
Update November 11th, 10:55AM ET: Sam Bankman-Fried noted that Sir Lewis Hamilton won’t have FTX branding on his car at this weekend’s race.
The Alameda Research Accountant Charged with Using Customer Bank Funds to Cover FTX’s Missing Sum of $1.7$ Billion
A large portion of that total has since disappeared, they said. One source put the missing amount at about $1.7 billion. The other said it was between $1 billion and $2 billion.
That Sunday, Bankman-Fried held a meeting with several executives in the Bahamas capital Nassau to calculate how much outside funding he needed to cover FTX’s shortfall, the two people with knowledge of FTX’s finances said.
Alameda isn’t just accused of using money sent to its own bank accounts. According to the SEC, it had the ability to make unlimited withdrawals from its FTX trading account and could tap digital assets there, too.
When Bankman-Fried launched FTX, customers who wanted to send fiat currency to their FTX accounts were told to wire their money to Alameda Research. The complaint says that those funds were put into accounts labeled for FTX customers and not kept separate from Alameda’s money. The Alameda accounts that held FTX money were labeled “fiat@ftx” on FTX’s internal ledger system.
FTX’s terms of service said that none of the digital assets in a user’s account “shall or may be loaned to FTX Trading.” That was a lie, according to the complaint. The use of customer funds wasn’t authorized by FTX customers, and they didn’t know their funds were being used by Alameda Research, the complaint says.
Who My Comrades Are: Voices From the Internet Underground,” a Commentary on the Financial Market (with more opinion) by E. M. Parker
The good news is that the market remains unregulated and that it makes it a Wild West of financial world. When something breaks, investors are vulnerable.
Editor’s Note: Emily Parker is executive director of global content at CoinDesk, a media, event, indices and data company, and a former policy advisor at the US State Department and writer/editor at The Wall Street Journal. She is the author of a book. Who My Comrades Are: Voices From the Internet Underground.” She has her own opinions in this commentary. CNN has more opinion.
Source: https://www.cnn.com/2022/11/12/opinions/crypto-white-knight-problem-sam-bankman-fried-ftx-parker/index.html
Did Bankman-Fried Win Bitcoin? A Memorandum on a Coincurrency Industry Mistaken by Y.P. Bankman
The answer is no one, because crypto shouldn’t need a savior. The whole point of crypto is that it is supposed to be decentralized and transparent. Bankman-Fried’s rise and fall shows how far the industry has strayed from that ideal. Today, the world ofcryptocurrencies is run by bigger than life people. The leader of FTX is perhaps the best example.
It wasn’t supposed to be this way. Bitcoin, the world’s first major cryptocurrency, came into the world on the heels of the 2008 financial crisis, which led to a deep disappointment in bankers and politicians. The idea of the new system was that you weren’t required to trust anyone at all. Bitcoin transactions are recorded on a decentralized ledger known as a blockchain, which everyone can see and no bad actor should be able to fraudulently alter.
Bankman-Fried said he is responsible for his mistakes. In a long Twitter thread this week, he wrote: “I was CEO, which means that I was responsible for making sure that things went well. In the end, it should have been on top of everything. I failed in that. I’m sorry.”
Can Bankman-Fried Address the Cult of Personality Problem with Blockchain Technology? The case of FTX, BlockFi, and Crypto.com
The cult of personality problem isn’t limited to the digital world. We see it in social media as well, another supposedly leaderless and decentralized technology. The richest person in the world has a say in the direction of the company that he runs.
Many people in the industry have long warned about the risk of centralized exchanges such as FTX, with some people preferring to hold their own coins. Another option is to actually use blockchain technology to provide greater visibility, something that Bankman-Fried is now promising to do. He said his priority would be radical transparency, and that he would give as close to on-chain transparency as possible. It is most likely too late in the case of FTX.
One venture capital fund wrote down investments in FTX worth over $200 million. The cryptocurrency lender BlockFi paused client withdrawals Friday after FTX sought bankruptcy protection. The Singapore-based exchange Crypto.com saw withdrawals increase this weekend for internal reasons but some of the action could be attributed to raw nerves from FTX.
Regulators indicated that this may be the first of many charges. The SEC said there are ongoing investigations into “other securities law violations” and into other entities and individuals. The Commodity Futures Trading Commission is also going to be charging Bankman-Fried.
Swan Bitcoin, the First T Tauri, and the ‘Piah’ of the Cryptocurrency Economy: A Conversation with Cory Klippsten
“I care because it’s retail investors who suffer the most, and because too many people still wrongly associate bitcoin with the scammy ‘crypto’ space,” said Cory Klippsten, CEO of Swan Bitcoin, who for months raised concerns about FTX’s business model. Although publicly enthusiastic about bitcoins, he is skeptical about other parts of the universe.
The meeting with Bankman- Fried was described by Sequoia Capital as likely talking to the world’s first trillionaire. A group of Sequoia’s partners got very enthusiastic about Bankman- Fried after a meeting. After a number of meetings, the company was invested by Sequoia.
Known as “SBF,” Bankman-Fried is the 30-year-old crypto celebrity who became a pariah overnight last month as his company suffered a liquidity crisis and filed for bankruptcy, leaving at least a million depositors unable to access their funds. He was arrested without incident at his apartment complex after 6 pm and will appear in a Nassau court Tuesday.
In a terse statement, the Ontario Teachers’ Pension Fund said, “Naturally, not all of the investments in this early-stage asset class perform to expectations.”
When Bankman-Fried bought up the assets of bankrupt crypto firm Voyager Digital for $1.4 billion this summer, it brought a sense of relief to Voyager account holders, whose assets has been frozen since its own failure. The rescue is now in question.
As king of crypto, his influence was starting to pour into political and popular culture. FTX bought prominent sports sponsorships with Formula Racing and bought the naming rights to an arena in Miami. He pledged to donate $1 billion toward Democrats this election cycle — his actual donations were in the tens of millions — and prominent politicians like Bill Clinton were invited to speak at FTX conferences. Football star Tom Brady invested in FTX.
Bernie Madoff Bankman-Fried: Fools or Fools? How FTX filed for bankruptcy last November inspired investors to take a stand for themselves
Bair said that regulators and investors can distract them from seeing what’s really going on. “It felt very Bernie Madoff-like in that way.”
Bair states that Bankman-Fried used his connections to seduce sophisticated investors and make them forget the red flags and invest with him.
FTX filed for bankruptcy on Friday, throwing the cryptocurrency industry into chaos and raising the specter of vast losses for customers of the crypto exchange.
Before his Ponzi scheme collapsed, the man was known as a wizard on Wall Street. He was the former chairman of the Nasdaq Stock Market, served on Securities and Exchange Commission advisory panels and managed money for the rich and the famous.
If your peers and marquee names in venture capital are investing you need to do the same. And that adds credibility with Washington policymakers. It all feeds on itself,” said Bair, who sits on the board of directors at Paxos, a blockchain infrastructure company (Bair said she was speaking for herself, not Paxos).
Madoff offered investors marvelous returns that were remarkably consistent and an improbable track record that later proved to be made possible by an elaborate scheme that involved repaying existing clients with new client deposits.
Source: https://www.cnn.com/2022/11/15/business/ftx-madoff-bankman-fried-bair/index.html
Why did FDIC Chairman Xavier Bankman-Fried testify against other white knights in the wake of the FTX collapse?
The good news is the former FDIC chair is not worried about the FTX implosion threatening the entire financial system the way Lehman Brothers did in 2008. It’s a relatively small part of the economy and financial market.
A leaked version of Bankman-Fried’s own preparations, obtained by Forbes, suggests his own testimony would have added plenty to the spectacle too. According to the document, Bankman-Fried was preparing to point the finger at least in part at rival exchange Binance, which the document claims played a role in triggering the run on the bank that led to the FTX collapse. Bankman-Fried was precluded from speaking to other potential white knights because of a rescue package agreed upon on November 8, according to the document.
The misuse of client funds and the fact that billions of dollars owed were wiped out, caused the failure of both entities.
On Wednesday, Senate Banking Committee Chair Sherrod Brown (D-OH) threatened to subpoena Bankman-Fried if he did not agree to testify before his committee for a separate hearing on December 14th by the end of Thursday. He hasn’t agreed to testify in public.
“There are still significant unanswered questions about how client funds were misappropriated, how clients were blocked from withdrawing their own money, and how you orchestrated a cover up,” Brown said in a public letter to Bankman-Fried on Wednesday.
Elizabeth Warren of Massachusetts and Tina Smith of Minnesota sent letters to regulators asking them to assess the traditional banking system’s exposure to turmoil.
“Crypto firms may have closer ties to the banking system than previously understood,” Warren and Smith wrote. “Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system and highlight potential loopholes that crypto firms may try to exploit to gain further access.”
Waters: Is it really embarrassing to be asked to come and talk to him about the collapse of FTX and its sister trading firm Alameda?
“Based on your role as CEO and your media interviews over the past few weeks, it’s clear to us that the information you have thus far is sufficient for testimony,” Waters replied to Bankman-Fried earlier this week.
The Southern District of New York, which is investigating Bankman-Fried and the collapse of FTX and its sister trading firm Alameda, confirmed his arrest on Twitter.
Bankman-Fried, was arrested without incident at his apartment complex shortly after 6 pm ET Monday in Nassau, and is set to appear in court Tuesday, the Royal Bahamas Police Force said in a statement.
The United States’ extradition treaty with the Bahamas allows US prosecutors to return defendants to American soil if the charges would be considered punishable by imprisonment of at least a year in both jurisdictions.
“I didn’t knowingly commit fraud,” he told the BBC over the weekend. “I didn’t want any of this to happen. I thought I was competent but I wasn’t.
Waters said in a statement that he is disappointed that Mr. Bankman-Fried won’t be able to speak to him Tuesday.
FTX’s collapse appears to stem from the concentration of power in the hands of a very small group of grossly inexperienced and unsophisticated individuals, who had failed to implement virtually any corporate controls.
Bankman-Fried said he didn’t knowingly commingle funds from FTX and Alameda in an interview with The New York Times. The government thinks differently.
“There was no person who was chiefly in charge of positional risk of customers on FTX,” Bankman-Fried told DealBook. “And that feels pretty embarrassing in retrospect.”
Bankman-Fried denied knowledge of that. In an interview with Tiffany Fong, he said he doesn’t know how to code.
Sam Bankman-Fried, the CIO of the Financial Times, was arrested at the Bahamas High Court on Monday night based on a sealed indictment
The arrest was made at the request of the US government and based on a sealed indictment from New York, Damian Williams wrote on Monday night.
In a statement, the prime minister of the Bahamas stressed the country is cooperating with law enforcement and regulators in the United States, but its own “regulatory and criminal investigations into the collapse of FTX continue.”
Bankman-Fried resigned hours before the bankruptcy filing and has spent the last month on a charm campaign, painting himself as a guy who let things slide and didn’t intentionally commit fraud in a variety of media interviews and even on Twitter Spaces.
As of late Monday night, the committee still had a notice of the hearing posted that listed Bankman-Fried as a witness and also included the written testimony of the hearing’s other witness, FTX’s CEO John Ray.
The chair of the SEC, Gary Gensler, said that Sam Bankman-Fried built a house of cards on a foundation of deception and lied to investors about it being one of the safest buildings in digital currency.
“Look, I screwed up,” Bankman-Fried said during a virtual appearance at the New York Times’ DealBook Summit. I would do anything to get something done.
The S.E.C. now asserts that S.B.F. was more involved in Alameda’s operations than he let on. In a major revelation, the agency says he directed $8 billion worth of customer deposits from an Alameda-controlled bank into a separate account, labeled “fiat @ftx.com,” in part to avoid getting charged interest, a move that could suggest intent. The complaint was from the person.
SBF is accused of making statements to investors that FTX was a safe place to invest because of an automated risk engine that would sell off assets to make sure the customer’s value stayed the required levels.
Other charges may follow, but these are the ones he’s facing so far, and that’s just from the SEC — its announcement notes other charges are being filed today by the US Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC).
Prior to his arrest, he had done an ongoing tour of the media on social media with live appearances on Monday and was expected to appear remotely today to testify. John J. Ray III, the new CEO of FTX, will testify at the hearing.
The arrest has sparked jubilation in crypto circles, after some nail-biting over his ostensibly generous treatment by “mainstream media” and speculation (by Twitter CEO Elon Musk, no less) that his political donations may earn him a free pass of sorts with US law enforcement.
Sam Bankman-Fried and Alameda Research: The biggest financial frauds in US history, as characterized by the Commodity Futures Trading Commission
A written preview of Ray’s testimony, published in advance of the hearing, gave the first indication that Bankman-Fried was in for a rough ride. Bankman-Fried and his inner circle were described by Ray as being grossly inexperienced and unsophisticated.
The US government says the jump was fraud. The Commodity Futures Trading Commission made public a complaint that has hair-raising details and if it is true, Sam Bankman- Fried hasn’t been telling the truth for some time. According to the complaint, Bankman-Fried operated Alameda Research and FTX as a common enterprise, for instance. This complaint is civil.
In a press conference today, US attorney Damian Williams characterized Alameda Research and FTX as “one of the biggest financial frauds in American history.”
Although Alameda CEO Caroline Ellison previously stated that she and Bankman-Fried keep the two companies “quite separate in terms of day-to-day operations,” the CFTC makes a pretty strong argument indicating that this, too, could be false.
Both teams shared an office space as well as technology and other resources according to the complaint.