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In just three years, Sam Bankman-Fried has built FTX into a massive crypto exchange backed by high-profile investors and valued at $32 billion. It took a few days for it all to collapse into a sprawling bankruptcy file.
Sheila Beer, a senior regulator during the 2008 financial crisis, told CNN that there are uncanny similarities between them. Dramatic ups and downs From Bankman-Fried, FTX, and Notorious Ponzi scheme masterminded by Bernie Madoff.
Bankman Fried, 30, like Madoff, has proven adept at using his pedigree and connections to seduce investors and regulators savvy in missing “red flags” hiding in plain sight, Beer notes.
Charming regulators and investors can be distracting [them] “It’s digging and really seeing what’s going on,” Beer, who headed the Federal Deposit Insurance Corporation from 2006 to 2011, said in a phone interview Monday. “I just felt like Bernie Madoff in that way.”
FTX filed for bankruptcy on Friday, throwing the cryptocurrency industry into chaos and raising the specter of huge losses for cryptocurrency exchange clients.
Long before the Ponzi scheme collapsed, Madoff was known as a Wall Street magician. He was the former president of Nasdaq Advisory committees of the Securities and Exchange Commission She managed money for the rich and famous.
For his part, Bankman-Fried A.J The largest contributor to the campaign For Democrats in the 2022 election cycle. He Hired many former US regulators To work in senior positions at FTX, and his parents are professors at Stanford Law School. until declaring bankruptcy, FTX even has a pending order The Wall Street Journal reported that it is with federal regulators to clear derivatives.
Better Markets CEO Dennis Kelleher he said in a statement Monday that FTX has a strategy of “revolving door staff” from the CFTC and elsewhere to “use their knowledge, influence and reach at the agency and in Washington to advance FTX’s agenda.”
“People feel cheated,” Brian Armstrong, CEO of rival cryptocurrency exchange Coinbase, told CNN in a phone interview on Friday. “On the surface, FTX was able to get a lot of attention. But when people looked at it, the fundamentals weren’t there.”
FTX garnered its $32 billion valuation with the blessing of investments from BlackRock, SoftBank, Sequoia, and other major investors.
“You can have this herd mentality where if all your peers and big names in venture capital are investing, then you should also be investing. That adds credibility with policymakers in Washington,” said Baer, who sits on the board at Paxos, a blockchain infrastructure company. (Ber said she was talking about herself, not Paxos): It all feeds on itself.
Now, the authorities are in the Bahamas Investigate possible criminal misconduct Surrounding FTX Blast.
Neither FTX nor an attorney representing Bankman-Fried responded to requests for comment.
Madoff offered investors impressive returns that were remarkably consistent and an improbable track record later proven made possible by an elaborate scheme that involved paying back deposits from existing clients to new clients.
Given its ephemerality and media reports, serious questions have been raised about the accuracy and strength of FTX’s balance sheet. FTX’s bankruptcy filing indicates that it had liabilities of between $10 billion and $50 billion at the time of filing.
Bankman Fried Secretly about 10 billion dollars He transferred client funds from FTX to his trading firm, Alameda Research, and used a “back door” to avoid incentivizing accountability, sources told Reuters.
Bank-Fried denied to Reuters that the money was secretly transferred, blaming it instead on “confusing internal signs”.
Bear urged investors to be cautious and skeptical. “If it sounds too good to be true, it probably is,” she said.
The good news is that the former FDIC chief isn’t as concerned about an implosion of FTX threatening the entire financial system as Lehman Brothers did in 2008. Crypto is still a relatively small part of the broader financial economy and market.
“There is no systemic effect on the real economy,” Bear said, adding that this is all just “funny money in the air with speculation.”
The bad news, however, is that the cryptocurrency market remains largely unregulated, making it the wild west of the financial world. This leaves investors vulnerable when something happens.
“It is time to iron out the cryptocurrency regulatory system and figure out who regulates what, because people are getting hurt,” Bear said.
– If you are an FTX customer and would like to discuss how you have been affected by the bankruptcy, please contact Matt.Egan@CNN.com
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