Writes David Z. Morris in “FTX’s Collapse Was a Crime, Not an Accident” at CoinDesk:
FTX Crash was a result of a “conscious and intentional fraud intended to steal money”
It is now clear that what happened at the FTX crypto exchange and the hedge fund Alameda Research [hedge fund] involved a variety of conscious and intentional fraud intended to steal money from both users and investors. That’s why a recent New York Times interview was widely derided for seeming to frame FTX’s collapse as the result of mismanagement rather than malfeasance. A Wall Street Journal article bemoaned the loss of charitable donations from FTX, arguably propping up Bankman-Fried’s strategic philanthropic pose. Vox co-founder Matthew Yglesias, court chronicler of the neoliberal status quo, seemed to whitewash his own entanglements by crediting Bankman-Fried’s money with helping Democrats in the 2020 elections – sidestepping the likelihood that the money was effectively embezzled.
FTX crash was not the result of a bank run, but a massive act of theft
Perhaps most perniciously, many outlets have described what happened to FTX as a “bank run” or a “run on deposits,” while Bankman-Fried has repeatedly insisted the company was simply overleveraged and disorganized. Both of these attempts to frame the fallout obfuscate the core issue: the misuse of customer funds.
FTX and other crypto exchanges are not banks. They do not (or should not) do bank-style lending, so even a very acute surge of withdrawals should not create a liquidity strain. FTX had specifically promised customers it would never lend out or otherwise use the crypto they entrusted to the exchange.
In reality, the funds were sent to the intimately linked trading firm Alameda Research, where they were, it seems, simply gambled away. This is, in the simplest terms, theft at a nearly unprecedented scale. While the total losses have yet to be quantified, up to one million customers could be impacted, according to a bankruptcy document.
Bankman-Fried stole FTX exchange customers’ funds to bankroll the Alameda hedge fund
The author goes into the gory details and the magnitude of the theft by Bankman-Fried and how he stole FTX exchange customers’ funds to bankroll the Alameda hedge fund, amongst other crimes:
“While an exchange [like FTX] ultimately makes money from transaction fees on assets that belong to users, a hedge fund like Alameda seeks to profit from actively trading or investing funds it controls….the [FTX] exchange had been funneling customer assets to Alameda for use in trading, lending and investing activities. On Nov. 12, Reuters made the stunning report that as much as $10 billion in user funds had been sent from FTX to Alameda.”
Bankman-Fried is the Bernie Madoff of the 2020s
“Bankman-Fried has continued to muddy the waters with carefully disingenuous letters, statements, interviews and tweets. He has attempted to portray himself as a well-intentioned but naïve kid who got in over his head and made a few miscalculations. This is a softer but more pernicious version of the crisis management approach Donald Trump learned from the black-hat mob lawyer Roy Cohn: Instead of “deny, deny, deny,” Bankman-Fried has decided to “confuse, evade, distort.”
Morris covers other criminal behaviors that resulted from this “cardinal sin” concluding:
“The scale and complexity of Bankman-Fried’s fraud and theft appear to rival those of Ponzi schemer Bernie Madoff and Malaysian embezzler Jho Low. Whether consciously or through malign ineptitude, the fraud also echoes much larger corporate scandals such as Worldcom and, particularly, Enron.
“The principals in all of those scandals wound up either sentenced to prison or on the run from the law. Sam Bankman-Fried clearly deserves to share their fate.”