It Wasn’t Bad Business Circumstances, It Was a Crime

If it seems like we’re regularly hammering Sam Bankman-Fried, we are and for a good reason. The stench of the FTX fraud scheme is, unfortunately and unfairly, going to cling to the cryptocurrency industry for a while. It will color the opinion of users and investors with a skeptical and pessimistic hue.

This reaction is exacerbated by the mainstream media’s inexplicable efforts to whitewash SBF and his actions. Why those who control the media are so interested in protecting SBF is beyond puzzling.

The media aren’t giving a straightforward assessment of SBF, FTX and Alameda Research’s malfeasance; rather they are soft-selling SBF’s intentions and actions, pretending like this was just a case of a company being over-leveraged, as if this were run on a bank. The media have even bemoaned SBF’s “altruistic” approach to profit and his charitable donations.

It’s quite revolting. And it perpetuates this thought that crypto as a whole is tainted by the same forces and could likewise collapse, when the FTX/Alameda scheme was simple theft and fraud on a scale that would make Bernie Madoff blush.

Coindesk has the story and details the alleged crimes:

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.

Banks can be hit by “bank runs” because they are explicitly in the business of lending customer funds out to generate returns. They can experience a short-term cash crunch if everyone withdraws at the same time, without there being any long-term problem.

But 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.

In less than a month, reporting and the bankruptcy process have uncovered a laundry list of further decisions and practices that would constitute financial fraud if FTX had been a U.S. regulated entity – even without any crypto-specific rules at play. Insofar as they enabled the effective theft of the property of American citizens, these ploys may still be litigated in U.S. courts.

The list is long and the article is worth the read.