Thu | Feb 2, 2023

Letter of the Day | FTX collapse, another chapter in crypto crisis

Published:Friday | November 25, 2022 | 12:06 AM

THE EDITOR, Sir:

The “season of goodwill” is being advertised everywhere, urging folks to cast aside their troubles and woes, to enjoy parties, gift-giving and get-togethers that are part and parcel of traditional Christmas celebrations. One group of people who might not bear much goodwill towards one Sam Bankman-Fried, are the many investors who got badly burned when his FTX cryptocurrency empire suffered a spectacular collapse. From being worth US$ 32 billion it was reduced to nothing in one week in November.

A closer look at this case is warranted, and should act as another warning to everybody about getting involved in get-rich-quick schemes. ‘Bankman-Fried’ sounds like a very appropriate name for a fraudster running some comic-book financial caper, but unfortunately this is not fictional, but a real-world financial disaster. Sam Bankman-Fried was referred to in the world of high-finance as SBF, who founded his own empire which was apparently so successful that some compared him with financial giants like JP Morgan and Warren Buffett. Today, he is being compared with Bernie Madoff, who died in prison last year after being convicted of running a huge ponzi-scheme a few years ago.

There are many sordid financial details easily accessible online, and here are a few proven facts that piqued my interest. SBF was apparently able to draw celebrities into his cryptocurrency caper soon after he began his own company at age 25 in Berkeley, California, close to where he grew up with both parents, professors at Stanford University. That was just five years ago, and his company grew very quickly by exploiting inefficiencies in the Bitcoin market.

He soon moved his company to Hong Kong and then to The Bahamas, where lax financial regulations were more favourable for his operations. Only a small number of FTX employees operated with him, but he attracted well-known and well-heeled investors, such as Tom Brady, Stephen Curry and Shaquille O’Neal, and this year was the second-largest donor to the Democratic Party, after international financier George Soros.

There are photographs of SBF with Davos World Economic Forum participants, and one of him with former US President Bill Clinton and former British Prime Minister Tony Blair. Even though these two politicians are today referred to as “elder statesmen”, neither was ever known for their integrity when they were in office, just the opposite, in fact. SBF is seated onstage next to these two who are dressed in formal suits, while he’s in T-shirt and shorts with a crazy-looking hairstyle resembling those ancient depictions of the Wild Man From Borneo. In fact, he’s a perfect incarnation of that infamous Hans Christian Andersen character in The Emperor’s New Clothes.

BERNIE SMITH

Parksville, BC

Canada