Sam Bankman-Fried wants to be a tragic hero.
A few days ago, the founder of the soon-to-be-bankrupt crypto exchange FTX launched a media blitz campaign, touting his version that the demise of his empire was by bad luck.
The trader has previously given consecutive interviews to several news outlets, including the New York Times/Deal Book, ABC, Financial Times and others. Each time, he said he didn’t know things could be this terrible and that he didn’t run Alameda Research, the research organization hedge fund and the trading platform he founded, although court documents show a close relationship between FTX and Alameda.
“I made a lot of mistakes,” he said speak in an interview with the New York Times/DealBook. “There are things that I would give anything to do over and over again. I’ve never tried to scam anyone.”
Bankman-Fried’s media hack is all the more surprising, given the ongoing regulatory investigations. It is not yet clear if they will be charged. That’s why Ira Sorkin, the lawyer for legendary fraudster Bernie Madoff, just gave Bankman-Fried some advice.
‘You will not influence the public’
Ira Sorkin told Bloomberg News in an interview on Bankman-Fried: “That was the first business imperative: don’t talk. “You won’t influence the public. The only people who will listen to what you have to say are regulators and prosecutors.”
“Sometimes clients believe they’re smarter than their lawyer. This guy is 30 years old and he’s not smarter than his lawyer,” Sorkin added. “They should have told him to be quiet every five minutes, but sometimes the client wouldn’t listen.”
Bankman-Fried has been dubbed the Bernie Madoff of crypto on social media. He was compared to the legendary con artist whose Ponzi scheme, after the 2008 financial crisis, would become one of the biggest financial failures in history.
Bernie Madoff, the perpetrator of the largest financial fraud in history, died on April 14, 2021, at the age of 82 at Butner Federal Prison (North Carolina), where he was serving a 150-year prison sentence. , after pleading guilty in 2009.
His name will forever be associated with the largest “Ponzi pyramid” ever staged in history. This fraud involves remunerating old investors by extracting deposits from new clients, and appropriating the rest of the capital. A scam that’s been going on for several decades, with huge sums of money. The amount that investors, who took legal action after the scandal broke, amounted to more than 17 billion dollars. Including the fictitious profit reported by Bernard Madoff to his clients, the loss would amount to $65 billion.
What happened?
As a cryptocurrency exchange, FTX executed orders for customers, took their cash, and bought cryptocurrencies on their behalf. FTX acts as a custodian, holding the client’s cryptocurrency.
FTX then used customers’ crypto assets, through its sister company’s trading arm Alameda Research, to generate cash through borrowing or market-making. The borrowed FTX funds were used to bail out other crypto institutions in the summer of 2022.
At the same time, FTX is using the cryptocurrency they are issuing, FTT, as collateral on Accounting balance sheet. This is a significant exposure, due to the risk of concentration and volatility of the FTT.
FTX’s insolvency stemmed from a Liquidity shortfalls when customers try to withdraw funds from the platform. The shortfall appears to be the result of Bankman-Fried allegedly transferring $10 billion in customer funds from FTX to Alameda Research.
John Ray, the new CEO of FTX’s restructuring, said there was software that allegedly allowed the company to hide these transfers from third parties.
“Never in my career have I witnessed a complete and total failure of corporate control,” Ray wrote in a 30-page document filed with the United States Bankruptcy Court in the County of Delaware: there is no reliable financial information as happened here.”
“From compromised system integrity and faulty regulatory oversight overseas, to centralizing control in the hands of a very small group of inexperienced, unsophisticated and highly skilled individuals.” potentially compromised, this situation is unprecedented.”
