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Tags: ftx | flimflam | victim | complicity

Are Victims Complicit in FTX Flimflam?

 ftx logo is seen on a computer in blue, black and white
(Michael M. Santiago/Getty Images)

Dennis Kneale By Wednesday, 07 December 2022 03:03 PM EST Current | Bio | Archive

New scams can reveal old lessons, and the collapse of FTX unearths a lesson I learned more than 40 years ago, at the risk of a beating.

As a reporter for my college newspaper at the University of Florida, I published a story about a student who got scammed out of his cash loan for the semester, and he showed up at our offices later that day with a few frat brothers, angry and looking to take it out on me.

Later, a UF official explained why. Hugh Cunningham (d. 2015) was a southern gentleman, journalism professor and mentor to me, and to Dan Rather before me. He said my story had embarrassed the student because he got cheated out of his cash while trying to score a shady windfall from the man who conned him.

"You don't understand, Dennis: flimflam requires the complicity of the victim." (Hear more on my new podcast, "What's Bugging Me," on Apple and Ricochet.com.)

So it was in the Bernie Madoff scam that erupted in December 2008 after a few decades of his investors marveling at his always-high returns and suspecting he had found a shortcut the feds couldn't touch. Actor couple Kevin Bacon and Kyra Sedgwick had most of their fortune with Madoff and lost most of it, he said recently, albeit their net worth now is $45 million.

And so it was in the FTX scam, as huge investment firms got flimflammed by a mop-headed 30-year-old: Sam Bankman-Fried, aka SBF. They got reckless playing with house money on zero interest rates, certain FTX was the Nasdaq of crypto.

They ignorined that FTX had almost no financial controls, no board of directors, and no chief financial officer. Its accounting firm proudly claimed to be the first to have an office in the metaverse, where it sponsors a scantily clad combo called the @DCLBabyDolls.

BlackRock, Greylock Partners, Paul Tudor Jones, Sequoia, SoftBank, Tiger Global and others invested $1.8 billion in the past year. Sequoia, which backed Apple, Airbnb, and WhatsApp, invested $200 million in FTX for a 1.1% stake last June and declared: "Sam is the perfect partner to build this business, the team's execution is extraordinary."

On the Sequoia website, a 15,000-word hagiography on SBF (43 double-spaced pages printed out) has been taken down, though you can find this embarrassment here. Its stake, which was up more than 75% to $350 million in seven months, now will be written down to zero.

The media were just as enamored of the FTX rise and SBF's support of liberal foundations, liberal media outlets, and Democrat candidates, as I wrote here.

The meltdown was sparked by a single Twitter tweet at 10:47 a.m. ET on Sunday morning, Nov. 6, from the CEO of the #1 platform, Binance (formerly an investor in FTX), who announced that he was liquidating his half-billion-dollar horde of FTX tokens.

Investors raced for the exits, like an entire football stadium trying to leave through a single doggie door.

The FTX bellyflop led to the loss of $200B in crypto held by millions of investors on other exchanges. Within days, FTX, worth $32B, plummeted to less than $1B in assets while owing $9B to creditors. The FTX token (FTT) now is down 90% from its high, with plunges for Serum (-98%), Solana (-94%), ApeCoin (-90%) and many others.

As for SBF, pfffffft! Though his wealth was at $16B before this crisis, down from a peak of $25B, he claims his bank account is down to less than $100,000.

My wealth has been reduced, too: in my IRA, the Greyscale Bitcoin ETF (GBTC) is down 82% from the high. Ouch — and that loss is only my fault, really; what was I thinking?

Sam Bankman-Fried remains in limbo in the Bahamas, where FTX was based, and he now proposes raising billions of dollars to bail out the billions lost by his previous investors and customers — which amounts to plotting a new Ponzi scheme in broad daylight, with total transparency.

Bernie Madoff would have admired the sheer chutzpah of it. Betya some big investors are kicking the tires on this one, and fearing how it will look if they decide against it and miss out.

Dennis Kneale is a writer and media strategist in New York and host of the podcast, "What's Bugging Me." Previously, he was an anchor at CNBC and at Fox Business Network, after serving as a senior editor at The Wall Street Journal and managing editor of Forbes. Read Dennis Kneale's reports — More Here.

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DennisKneale
Sam Bankman-Fried remains in limbo in the Bahamas, where FTX was based, and he now proposes raising billions of dollars to bail out the billions lost by his previous investors and customers — which amounts to plotting a new Ponzi scheme in broad daylight, with total transparency.
ftx, flimflam, victim, complicity
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2022-03-07
Wednesday, 07 December 2022 03:03 PM
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