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After carrying out one of the most brazen thefts in US corporate history, it is hardly a surprise that public sentiment is running overwhelmingly against Sam Bankman-Fried (SBF), the disgraced former CEO of the now-bankrupt crypto exchange FTX. In what is eerily similar to the approach previously adopted by the founder of Theranos, Elizabeth Holmes, SBF is publicly claiming ignorance, shoddy accounting, and poor risk management – rather than a deliberate attempt to commit fraud – as the raison d'etre for the spectacular collapse of FTX and its sister hedge fund, Alameda Research. If that is indeed the case, Sam Bankman-Fried should have no objection to testifying in front of the US Congress. However, the disgraced CEO’s visible hesitancy in doing so is raising quite a lot of hackles across the crypto sphere.
As a refresher, Sam Bankman-Fried is widely believed to have run a Ponzi scheme at the FTX exchange to the benefit of Alameda Research, the trading arm of his once-sprawling crypto empire. In essence, FTX transferred its native FTT tokens to Alameda at dirt-cheap prices while, at the same time, the exchange inflated FTT's value by utilizing a part of its revenues to burn a fraction of the token's circulating supply. Alameda then used its FTT tokens as collateral to borrow client funds from FTX, which were then used to place leveraged bets. This gig ended once Alameda's exposure to the FTT token became public knowledge, prompting Binance to start dumping its own FTT stash, collapsing the token's price in the process. This resulted in a bank run as clients tried to exit the Ponzi scheme-promoting exchange, eventually resulting in FTX declaring bankruptcy on the back of an $8 billion financial hole in its balance sheet.
Can't speak for SEN but customers were told to wire Alameda knowingly. I think the Deltec non USD one might have said FTX.
This is from a wire receipt I sent Jan 2020 pic.twitter.com/9zAmi37ECp
— Alice (@Alice_comfy) November 16, 2022
However, the details that have since then emerged are truly mind-boggling. FTX apparently held its client funds in a comingled bank account with Alameda Research. Even ignoring the fact that this comingling of funds is absolutely illegal, FTX then allowed Alameda to simply skim around $10 billion directly from its client deposits. Alameda then used these funds to place leveraged bets against illiquid collateral, mostly consisting of coins such as FTT, Serum, etc. When these bets soured in the current bear market, Alameda could not use the thinly-traded collateral to raise the required funds, resulting in a financial hole. Moreover, FTX also allowed Alameda to assume the positions of its clients that were margin called. In a bull market, this allowed Alameda to hold underwater positions and then sell them for a profit later on. However, in the current bear market, this strategy only produced aggravating losses. Most of the bad debt around LUNA’s collapse also appear to have ended on Alameda’s books.
More egregious still, FTX awarded a personal loan of over $1 billion to Sam Bankman-Fried himself as well as another $2.3 billion loan to his investment company, appropriately called Paper Bird. SBF also apparently purchased a $300 million property in the Bahamas for his parents using funds from FTX. It is hardly surprising, therefore, that FTX’s new CEO, John Ray, had the following words for SBF in the company’s bankruptcy filings:
"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information."
Why is FTX's Sam Bankman-fried (SBF) Hesitant To Testify Before the US Congress?
Interestingly, amid an onslaught of new information, Sam Bankman-Fried has spent much of the past few days on an apology tour of sorts, giving candid interviews on what supposedly transpired. SBF continues to maintain that FTX’s collapse was merely the result of his ignorance and that we are to believe that he knew nothing of how FTX client funds were ending on Alameda’s books, that a cascade of supposedly innocent mistakes resulted in one of the biggest bankruptcies in American corporate history. Sure, and pigs could fly!
Rep. Waters, and the House Committee on Financial Services:
Once I have finished learning and reviewing what happened, I would feel like it was my duty to appear before the committee and explain.
I'm not sure that will happen by the 13th. But when it does, I will testify. https://t.co/c0P8yKlyQt
— SBF (@SBF_FTX) December 4, 2022
One of the tell-tale signs of Sam Bankman-Fried’s guilt is his hesitancy to testify in front of the US Congress. To wit, Maxine Waters, who sits on the US House Committee on Financial Services, recently invited SBF to a “discussion” on what transpired at FTX. However, SBF expressed his inability to do so until he has finished “learning and reviewing what happened.”
I don't care how messy your accounting is (or how rich you are) - you're definitely going to notice if you find an extra $8B to spend.
Even the most gullible person should not believe Sam's claim that this was an accounting error.
— Brian Armstrong (@brian_armstrong) December 3, 2022
This response has predictably drawn a sharp rebuke from the crypto world. We concur. Unlike his previous glorified media appearances, where Sam Bankman-Fried only faced embarrassing softball questions, lying to the US Congress carries the penalty of perjury.
CONFIRMED: The barista behind the counter has confirmed it was Caroline. https://t.co/BzO8KZRE8V
— Autism Capital 🧩 (@AutismCapital) December 4, 2022
Additionally, the entire crypto sphere is abuzz today with news that Alameda’s CEO, Caroline Ellison, has been spotted in New York, giving rise to speculation that Ellison might testify against SBF.
The general consensus is that Caroline Ellison is likely in NY cutting a deal and cooperating with SDNY prosecutors to roll on Sam.
— Autism Capital 🧩 (@AutismCapital) December 4, 2022
After all, SBF has been troublingly mute on anything related to Ellison in recent days. So, do you think that Sam Bankman-Fried – or should we say Elizabeth Holmes 2.0 – is about to finally face the music for his blatant fraud? Let us know your thoughts in the comments section below.