Immense losses for the FTX crypto exchange

Companies in the group of the FTX crypto exchange, and in particular Alameda Research, would have made a veritable record of losses in 2022. 

This is revealed by Wikipedia’s page dedicated to the biggest losses in history due to trading. 

It is worth mentioning though, that these are nominal values, which means before inflation, so it is more than obvious that losses made recently are at the top. However, the page also reports adjustments due to inflation. 

On this page, it is reported that the largest loss ever in nominal value is precisely the $51 billion of FTX and Alameda Research, and it lists Sam Bankman-Fried (SBF) and Caroline Ellison, former CEO of FTX and former CEO of Alameda Research, respectively, as the key people. 

However, there is something wrong with this ranking. 

First, the losses generated by Bernie Madoff’s pyramid scheme are missing. To justify this, the page states that the more than 50 billion lost by Madoff was not lost through trading. In fact, it is estimated that Madoff’s pyramid scheme burned through $64.8 billion in 2008, which would correspond to about $90 billion today. 

Losses from trading by FTX crypto exchange

On top of that, the $51 billion burned by FTX is most likely not all due to trading either. 

In fact, according to some recent rumors, the position of Alameda Research, which was the group’s operating arm in trading, was reported to be at a loss of about $1.3 billion, which is only a small part of the total size of the crash. And most likely the company’s losses were not limited to that. 

Apparently, FTX wasn’t trading, but squandering the funds deposited by their clients by simply spending them, for example, to buy real estate or to finance politicians’ election campaigns. Some estimates suggest that in total SBF may have donated about $1 billion to politicians. 

Some of the rest of the missing money may actually still be in the company’s coffers, in addition to the fact that by selling the purchased assets more may be coming in. 

Thus it is incorrect to say that FTX has lost $51 billion through trading, although it is unclear what percentage of that figure actually is due to losses from bad investments or speculation. 

Moreover, in some ways, FTX’s implosion is reminiscent of that of Madoff’s pyramid scheme, hence including FTX’s losses in that ranking while ignoring Madoff’s seems a bit of a stretch. 

What is certain is that Alameda Research generated large losses during 2022, and that these had a significant negative impact on FTX’s accounts, so much so that it sent the entire group into bankruptcy. It is possible that the primary cause of this implosion was precisely the losses generated by Alameda, which then also infected FTX given the very close relationships, especially financial ones, between the two companies. 

The authorities’ investigations

Investigations are still ongoing in both the US and the Bahamas to determine who is responsible for the collapse. 

Obviously, the main suspects are SBF and Caroline Ellison themselves, so much so that the Democratic Chair of the US House Financial Services Committee, Maxine Waters, kindly asked SBF himself to attend the committee’s hearing on 13 December, saying that she appreciated SBF’s sincerity in discussions about what happened to FTX. 

However, SBF politely declined, stating that he would be available only after he finishes learning and reviewing what happened. 

Rep. Waters, and the House Committee on Financial Services:

Once I have finished learning and reviewing what happened, I would feel like it was my duty to appear before the committee and explain.

I’m not sure that will happen by the 13th. But when it does, I will testify. https://t.co/c0P8yKlyQt

— SBF (@SBF_FTX) December 4, 2022

Interestingly enough, by contrast, Madoff was practically immediately arrested when the scandal of his pyramid scheme broke, so much so that some speculate that with all the donations SBF has made to US politicians, and in particular Democratic politicians, he is getting preferential treatment. 

However, Maxine Waters later added that it is imperative that SBF attend the December 13 hearing. 

Meanwhile, it appears that SBF has hired attorney Mark Cohen of Cohen & Gresser for his defense. 

Cohen recently became famous in the US for defending Ghislaine Maxwell during a sex trafficking case. Ghislaine Maxwell was a close friend of the now-deceased Jeffrey Epstein, himself well-known for being convicted of sex crimes and pedophilia. 

CZ’s comments

The co-founder and CEO of Binance, Changpeng CZ Zhao, played a role in the collapse of FTX, effectively kicking off the mass sales of their FTT token. 

In addition, Binance was one of the first investors in FTX and was a major competitor of the US crypto exchange. 

Yesterday on Twitter he made an extremely scathing assessment of SBF, unabashedly calling him “one of the biggest scammers in history.” 

4.2 SBF perpetuated a narrative painting me and other people as the “bad guys”. It was critical in maintaining the fantasy that he was a “hero.” SBF is one of the greatest fraudsters in history, he is also a master manipulator when it comes to media and key opinion leaders.

— CZ 🔶 Binance (@cz_binance) December 6, 2022

Looking at Wikipedia’s ranking of the biggest-ever losses in the trading world this definition might even fit, should it be proven that it was indeed a scam. 

While CZ is by no means an unbiased source in this case, he nevertheless remains a huge and deep connoisseur of the crypto markets, so his judgments in this regard cannot go unnoticed. Moreover, he also knew SBF and FTX quite well. 

CZ also accused Caroline Ellison of lying and initiating the surge in FTT token sales pressure. 

Basically, it seems that everyone is now mad at SBF and Caroline Ellison, including members of that Democratic Party that received so much from Sam Bankman-Fried himself.