Christine Duhaime: The wild FTX Ponzi scheme touched Vancouver - The Orca
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Christine Duhaime: The wild FTX Ponzi scheme touched Vancouver

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One struggles to find the words to describe the FTX debacle. 

It’s a wild story – a 30-year-old crypto dude who amassed a personal fortune of $25 billion in one year, and now is worth nothing! His crypto exchange, FTX, filed for bankruptcy in Delaware, with up to $30 billion missing. 

“I f—ed up”, tweeted FTX CEO Sam Bankman-Fried, known as SBF, after the exchange collapsed. That hardly describes it. 

Four people – SBF, his girlfriend Caroline Ellison, Zixiao Wang and Nishad Singh – controlled the whole house of cards. They apparently all lived together in a love nest in the Bahamas, played video games much of the time, and inter-dated with six other roommates. 

The house of cards had two fictional rooms: one was the crypto exchange, FTX, and the other was Alameda Research LLC. SBF led FTX; the girlfriend led Alameda. To make it fun, they decided to create their own currency out of thin air called FTTs. As some Tik-Tokers have pointed out, the FTT stands for “facial tissue token” – nothing more than a Kleenex. 

Many crypto dudes create tokens out of thin air and sell those puffs of air to innocent consumers, sometimes for upwards of $100 per puff. Crypto people call them tokens. In the real world, such things are called securities which, since 1933, can’t be sold to innocent consumers like candy but, well, should I say it? There are no securities law cops around in crypto. 

You didn’t need a VPN to use FTX from Canada. When you bought Bitcoin on FTX, it seems they would “record” that you held Bitcoin on a scrap of paper somewhere, or as with other business records, on Signal’s auto-erasing text messaging app. Like that isn’t sketch. 

SBF would hand the money sent by consumers over to his girlfriend at Alameda to spend. And, she spent. And spent. And spent. He did, too. Billions of dollars gone and things like private jets, luxury housing, fancy cars – the usual toys – started to be acquired. Even the Bahamas love nest was a luxury spend. This wasn’t profits, though, it was money owed to consumers of FTX that was supposed to be held in trust.

Here’s where the pieces of puff come into the picture. 

As FTX sent billions of consumer funds over to the girlfriend at the Alameda entity, she would record it as a loan, backed by pieces of the Kleenex token – the FTT. So, they weren’t really short of funds when people like the due diligence gurus from the Ontario Teacher’s Pension Plan came to invest the pensions of Canadians into FTX because they had billions of pieces of Kleenex recorded. On a scrap of paper. Somewhere. Maybe even in auto-erased Signal messages.

The girlfriend spent some of that money right here in Vancouver, and the girlfriend’s company became the control person of a British Columbia issuer, although mysteriously I couldn’t see where that was disclosed to investors, as required. How she came to be approved to control a British Columbia public company is another mystery.  

Alameda loaned $110 million to the British Columbia public company, Voyager Digital, another bankrupt crypto outfit where consumers lost their money. Voyager Digital is being sued in the U.S., and the plaintiffs are alleging that it was a crypto Ponzi scheme. A lawyer in Vancouver was its director. 

A Ponzi scheme is a financial fraud that induces consumers to invest by promising returns from an allegedly legitimate business, where proceeds from new investors are paid to previous investors, cultivating the illusion of legitimacy, and inducing further investment. Ponzi schemes are presumptively insolvent from inception, as a matter of law, meaning that because they spent investor’s money (rather than protecting it as trust funds), they end up in bankruptcy. 

The Ponzi scheme is named after Charles Ponzi. Over 101 years ago, in Boston, he ran a scheme similar to the FTT puff tokens which FTX sold, only he sold consumers illusive international reply mail coupons, that were also recorded on scraps of paper somewhere. The US Postal Service took him down after figuring out that the scheme was smoke and mirrors – Ponzi was just taking money from investors and giving them nothing in return. Sound familiar?

The wildness of FTX goes on and on. They had no board meetings, they didn’t know their own bank accounts, they have an audit firm that exists in the Metaverse’s Decentraland, they don’t know who works there or anyone’s terms of employment, employees were supplied with drugs. 

The new bankruptcy team has said that they aren’t about to trust anything – statements, financials or records – from the FTX crypto dudes, including SBF. And who can blame them? Like all schemers, they lied to just about everyone, from start to finish. 

SBF is said to be still at the love nest in the Bahamas presumably waiting for the FBI to show up.

Christine Duhaime is a financial crime expert with Fusion Intelligence.

SWIM ON