Former CEO of FTX dubbed “the Bernie Madoff of Crypto”

The co-founder and former CEO of FTX, Sam Bankman-Fried (SBF) is increasingly in the eye of the storm. 

Indeed, both US and Bahamian authorities are investigating his conduct. 

SBF is a US citizen, but FTX is based in the Bahamas, so there are as many as two jurisdictions affected by this affair. 

Indeed, the Bahamian SEC would like to take full control of the liquidation of FTX, since it is a Bahamian company, while FTX would like the process to take place in the United States. That is why it has filed for Chapter 11 under US bankruptcy law, but apparently, the Bahamian authorities refuse to let the US authorities handle the liquidation. 

So SBF is under investigation both by the Bahamian authorities, who are handling the liquidation process of FTX’s assets, and by the US authorities, who are investigating him and all those who promoted FTX in the US. 

These include real celebrities, such as the very famous quarterback Tom Brady and the equally famous basketball player Stephen Curry. Obviously among those under investigation for promoting FTX is also SBF. 

Former CEO of FTX referred to as “The Bernie Madoff of Crypto”

Yesterday the well-known author of the best-selling book “Rich Dad Poor Dad,” Robert Kiyosaki, wrote on his Twitter profile that although Kevin O’Leary and Jim Kramer called SBF “the Warren Buffet of Crypto,” according to Kiyosaki he would instead be more like the Bernie Madoff of Crypto. 

WTF:FTX largest donator to Democrats for Midterms. Kevin O’Leary & Jim Kramer raved about Sam Bankman-Fried calling him the Warren Buffet of Crypto. SBF more like Bernie Madoff of Crypto. How much more corrupt can Silicon Valley & Hollywierd become? Now paying to steal elections?

— Robert Kiyosaki (@theRealKiyosaki) November 15, 2022

Bernie Madoff was the author of the most colossal Ponzi scheme ever. 

In 2008 he was arrested on charges of defrauding his clients of some $65 billion through precisely a trivial pyramid scheme, and sentenced to 150 years in prison. 

Madoff passed away last year in prison probably from cancer, at the age of 82, and has entered the history of world finance as the greatest con man there ever was. 

According to Kiyosaki, the co-founder and former CEO of FTX would thus be more like a colossal con man than a financial genius. 

This juxtaposition was also echoed by Sheila Blair, i.e., one of the leading regulators during the 2008 financial crisis. 

Blair told CNN that SBF’s behavior reminded her a lot of that of Bernie Madoff, because they skillfully exploited their parental ties and personal contacts to seduce sophisticated investors and regulators. 

It is worth mentioning that Madoff was even chairman of the Nasdaq stock market, and also served on the SEC’s advisory committees. 

SBF and the politics of FTX

Sam Bankman-Fried had very good relations with the Democratic Party in particular, so much so that he financed Joe Biden’s 2020 election campaign with several tens of millions of dollars. 

He also financed a number of Democratic candidates in the recent midterm elections, and hired several former US regulators to hold senior positions at FTX. 

According to some, FTX had a real strategy based on hiring people from the CFTC and other regulators so that it could use their knowledge to benefit FTX.

In addition, the company had managed to obtain a valuation of $32 billion thanks to some very important investors including BlackRock, SoftBank, and Sequoia. 

According to Sheila Blair, this would be a self-enhancing strategy, whereby if all the major names in finance invest then others must do so as well, thereby also increasing credibility with Washington politicians. 

If we add to this the fact that FTX did not have enough reserves in the till to cover all of its clients’ deposits, the house of cards that collapsed a few days ago might vaguely resemble a pyramid scheme, although it probably is not in the strict sense of the word. 

SBF’s new fundraiser

Surprising in all this are SBF’s recent statements that he is trying to raise new funds to restart. 

15) A few weeks ago, FTX was handling ~$10b/day of volume and billions of transfers.

But there was too much leverage–more than I realized. A run on the bank and market crash exhausted liquidity.

So what can I try to do? Raise liquidity, make customers whole, and restart.

— SBF (@SBF_FTX) November 16, 2022

The thing is, as officially communicated by FTX, SBF now has no role in the company, such that he can no longer speak for it whatsoever. 

(3/3) Mr. Bankman-Fried has no ongoing role at @FTX_Official, FTX US, or Alameda Research Ltd. and does not speak on their behalf.

— FTX (@FTX_Official) November 16, 2022

Thus he is definitely not trying to raise money on behalf of the company, but in an entirely personal and private way. 

Given that a certain Democratic-oriented US press still seems to want to somehow endorse, or at least downplay, SBF’s behavior, it is possible to imagine that he still has friends. 

That is, the network that he has built over time and that has allowed his crypto creature to flourish may still be useful for possibly another project of his. Opposing this initiative, however, could be the authorities, since it does not at all appear that the investigation is likely to yield particularly positive outcomes for SBF. 

The need for stricter supervision

In this debate, the current US Treasury Secretary of the Democracy government, Janet Yellen, also wished to make a personal statement. 

According to Reuters reports, Yellen stated that cryptocurrency markets need tighter supervision. 

Yellen has always been critical of crypto markets, and the FTX affair has only intensified her concerns. 

She also added that among the various risks identified are the transfer of client assets, lack of transparency, and conflicts of interest. The picture described represents FTX’s situation very well. 

This sharp stance against SBF’s behavior makes it clear that the democratic front is not at all cohesive in defending his actions. On the contrary, at the highest levels it will probably be difficult for SBF to find support, since the judicial authorities will most likely go all the way. 

Moreover, the US government has long been trying to move to more tightly regulate crypto markets, and according to Yellen this should now happen quickly by closing some regulatory loopholes identified by Joe Biden’s own Democratic administration. 

However, she also added that existing regulations should be sufficient to intervene in such cases, hinting that SBF is unlikely to count on favorable treatment. 

Voyager Digital

Meanwhile, the possible rescue of Voyager Digital also fails. 

In fact, the company that went bankrupt in June was in talks with FTX, but those negotiations are now obviously off the table. 

Voyager Digital’s entire ongoing bankruptcy process is up in smoke, so they will have to start over. 

However, FTX was only the largest potential customer for the acquisition of Voyager’s assets, so they will now turn to the second offer, obviously of a lower amount. 

The other knock-on collapses

The FTX bankruptcy also brings with it other cascading collapses, first of all that of BlockFi, which has already had to suspend withdrawals, and has indicated that it is preparing to also declare bankruptcy. 

Admittedly, in the past few days, the crypto markets seemed to be expecting a broader and deeper knock-on reaction, while for now the only other major crypto company that seems likely to go bankrupt is BlockFi. 

Yesterday, however, Genesis Global Capital, which is the crypto lending unit of Genesis Global Trading, also had to suspend withdrawals indefinitely. 

Genesis Global Trading in turn is part of the Genesis Digital Currency Group (DCG), which is also the parent company of the popular crypto newspaper CoinDesk.