by Bernhard at Moon of Alabama
The FTX crypto bezzle continues to make waves.
Yves Smith remarks on Sam Bankman-Fried, the front-man of the fraud:
Yours truly must admit that if SBF does participate in the New York Times Dealbook conference on the 30th as scheduled, it would either indicates that his judgement is severely impaired and he is ignoring legal advice or he has good reason to believe that his risk of being prosecuted is extremely low. Given the rush of press stories that go insanely easy on this crypto grifter by skipping over inconvenient facts, like SBF “borrowing” over $3 billion that appears to have gone poof (see one shredded below), one has to suspect that the Southern District of New York effort to develop a case is unserious.Mind you, this is not over until the fat lady sings. What it took with the very connected Elizabeth Holmes was tenacious reporting by the Wall Street Journal, which refused to back down in the face of thuggish threats by star litigator David Boies (and despite, or perhaps because, Rupert Murdoch had invested $125 million in Theranos). There’s a lot of Silicon Valley money riding on the crypto project. A full or even partial but revealing expose of what went on at FTX and Alameda could readily cast more well warranted doubt on the entire ecosystem.
The New York Times and other top news sites are running cover for the FTX culprits:
A piece on the interconnections between Bankman-Fried’s exchange (FTX) and the investment company he controlled (Alameda) soft-pedaled the outright illegality of his making trades with customer funds. To hear the Times tell it, “Alameda’s need for funds to run its trading business was a big reason Mr. Bankman-Fried created FTX in 2019. But the way the two entities were set up meant that trouble in one unit shook up the other as crypto prices began to drop in the spring.”But that’s not what happened. When customers demanded their money, Fried didn’t have it, because he had been using it and losing it, illegally, for his own trades.
Not only that. To me the most egregious part of the FTX story is the use of ‘tokens’ which essentially were some kind of discount ticket one could buy to trade on better terms:
A giant part of understanding exactly what went down at FTX is understanding the Tokens they had launched or partnered with. In 2019 FTX launched FTT, an Ethereum ecosystem token which represented a cut of exchange fees and offered discounts to traders for holding it. It was the same model that Binance launched their token with in 2017. Tokens would be bought out of the market with a portion of exchange profits on a regular basis, delivering a return to investors.A huge portion of FTT tokens were held on the FTX balance sheet as an asset.
Think of a grocery that offers a $10 discount ticket to regular customers. The ticket gives them 15% off of their next $100 grocery buy. The total discount ticket sale is limited to 50 tickets. The people who did not get a ticket see good value in them and soon start to trade them at $12.50.
But the FTX grocery did not only print the 50 discount discount tickets it had planned to sell but a total of 50,000 discount tickets. It then claimed that the 49,950 tickets times the market price of $12.50 per ticket were $624,375 in capital assets supporting the business. The grocer then goes to a bank to get a real money loan of maybe $500,000 while offering those self printed assets as collateral. The money he gets is then used to finance his grand lifestyle.
FTX was worse than that:…Continue Reading