The collapse of Sam Bankman-Fried’s FTX has elements of past scandals, from Dutch tulip mania to Bernie Madoff. Unusually, the 30-year-old seems to have previewed his own downfall, writes Edward Chancellor
The next trick is to flog worthless assets to the public. Dutch burghers fell for this in the 1630s when they paid the equivalent value of an Amsterdam mansion for a single tulip bulb. Nowhere, however, was wealth ever so virtual as in cyberspace, with its cryptocurrencies and tokens. To spice things up, it’s a good idea to offer leverage. Once again, the Dutch were pioneers: the tulip mania was conducted with futures, the aptly named “windhandel”.
By their nature frauds are opaque. The avowed maxim of Sir John Blunt, the mastermind of the South Sea Bubble in 1720, was: “The more confusion the better; People must not know what they do, which will make them the more eager to come into our measures.” FTX’s multiple subsidiaries make the U.S. energy company Enron, which collapsed in 2001, seem straightforward.
Finally, there’s the misappropriation of customer funds – a common feature of financial scandals from Scotland’s Ayr Bank in 1772 to the exposure of Bernie Madoff’s Ponzi scheme in 2008. According to Reuters, Bankman-Fried secretly transferred some $10 billion of customer funds to his trading vehicle, Alameda Research. In a 2018obtained by crypto news website The Block, Alameda offered loans with a 15% annualised interest rate. “These loans have no downside,” the document stated.
In a later interview with Levine, Bankman-Fried said that certain crypto firms are dipping into customer funds and “marking their assets to whatever.” Such outfits, he says, care only about liquidity, not about net asset value. They operate with nosebleed leverage and take “random crap as collateral”. There’s no transparency: institutional investors don’t see the whole books. He talked about Three Arrows Capital, the failed crypto hedge fund, as engaged in “punting”.
Singapore Latest News, Singapore Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Sam Bankman-Fried, Tom Brady scrub FTX tweets after crypto exchange meltdownThe missing tweets include both old missives from Bankman-Fried himself as well as his retweets.
Read more »
Who’s Who in the FTX Collapse: From Sam Bankman-Fried to Caroline EllisonThe collapse of FTX has shaken the crypto world. To help you keep it all straight, here’s a quick list of the main people and companies involved.
Read more »
Buyers Circle Michael Lewis’ Book Rights On Fallen FTX Crypto King Sam Bankman-Fried: The DishThe bidding for film and TV rights is shaping up to be wild and wooly on an unwritten book about the stunning collapse of FTX cryptocurrency exchange titan Sam Bankman-Fried. Lewis, the master of c…
Read more »
Gillibrand latest Democrat to dump Biden megadonor Sam Bankman-Fried after FTX debacleWASHINGTON — Sen. Kirsten Gillibrand is the latest politician to say she will offload campaign contributions from disgraced former cryptocurrency “billionaire” Sam Bankman-Fried — who p…
Read more »
New FTX bosses accuse Sam Bankman-Fried of trying to undermine company’s Chapter 11 bankruptcy proceedingThe FTX founder has signaled his support for a dueling bankruptcy filing from the Bahamas seeking to take control of certain assets.
Read more »
FTX founder Sam Bankman-Fried to appear alongside Ukraine’s Volodymyr Zelensky at exclusive NYT eventDisgraced FTX founder Sam Bankman-Fried is scheduled to appear alongside Ukrainian President Volodymyr Zelensky at the New York Times’ exclusive DealBook Summit in Manhattan next week.
Read more »