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Was FTX’s Sam Bankman-Fried Behind the World's Greatest Ponzi Scheme?

The FTX collapse has had a catastrophic effect on crypto in general. Could this have been the biggest Ponzi scheme in history?

Sam Bankman-Fried co-founded Alameda Research, a company that acts as a quantitative trading firm, in 2017. A few years later, Bankman-Fried decided to start a cryptocurrency exchange, FTX, in order to fund Alameda Research's initiatives.

In time, FTX became one of the world's top three crypto exchanges. However, the misuse of its customers' funds led to a serious crisis that has been compared to the notorious Enron scandal.

Here's what you need to know.

Figure 1: Was FTX’s Sam Bankman-Fried Behind the World's Greatest Ponzi Scheme?

Figure 1: Was FTX’s Sam Bankman-Fried Behind the World's Greatest Ponzi Scheme?

Why Is Sam Bankman-Fried in the News?

Bankman-Fried recently made headlines in the mainstream media recently after about $10 billion of his customers' money “disappeared.”

The Bahamas-based FTX, which had been the largest cryptocurrency exchange by volume and had more than 1 million users, filed for bankruptcy.

FTX was funded in large part by the assistance of celebrities such as Tom Brady and Stephen Curry. But now it has been accused of selling unregistered securities.

This deal, according to some legal experts, constituted a Ponzi scheme — an investment fraud that pays existing investors with funds collected from new investors.

However, the story behind the collapse is much deeper than a simple, potentially fraudulent scheme. The money Sam Bankman-Fried (SBF) raised was spread among several third parties along the way.

What Is SBF's Relationship With the Media?

The media previously glamorized SBF as a successfu, youngl entrepreneur.

Sam Bankman-Fried has been on the cover of Forbes magazine, and Fortune praised the FTX founder and even compared him to Warren Buffett.

The New York Times hosted him as a speaker at an event alongside Ukrainian President Volodymyr Zelensky and Meta (META) founder Mark Zuckerberg. And The Washington Post even wrote that the FTX collapse is undermining SBF's efforts to prevent a new pandemic.

One of Sam Bankman-Fried's strategies was to donate funds to non-profit media vehicle organizations to buy media loyalty. For example, about $3.25 million was donated to The Intercept, $5 million was given to ProPublica, an angel investment was made in Semafor, and an supposedly undisclosed amount was donated to Vox (the latter is not a non-profit organization).

What Else Did FTX Do With the Cash?

Sam Bankman-Fried also gave about $70 million in political donations, mostly to the Democrat Party — making SBF its second-largest donor. Another FTX executive, Ryan Salame, donated around $23 million, mainly to Republican and conservative groups.

Additionally, about $190 million was given to researchers and NGOs by the FTX Foundation. The Bankman-Fried family owns several foundations. Sam's mother, Barbara Fried, has a group that, before FTX existed, gave about $20 million to Democrat politicians.

FTX funded investigative research regarding COVID-19 treatments, just as SBF spent about $300 million on 19 properties in the Bahamas. SBF's parents, Stanford law professors, bought a $10 million house but have said they will return it.

FTX donated about $240,000 to a climate research center in the Bahamas, gave $50,000 to religious leader Lawrance Rolle, and donated $100,000 to a pet clinic.

Finally, through its affiliated trading arm Alameda Research, FTX made a loan to Sam Bankman-Fried himself for approximately $1 billion. In total, Bankman-Fried and three other FTX executives received $4.1 billion in loans.

What Will Happen Next to SBF?

There is an ongoing investigation regarding the Sam Bankman-Fried case. The investigation is being led by Maxine Waters, a Democrat who serves as U.S. Representative for California and is also chair of the House Financial Services Committee.

Waters told CNBC that everything possible will be done to uncover what happened.

"We will be a part of what is going on with these hearings and investigations, and we will do everything that we can to expose any violations that were made," Waters said.

Waters, however, has not commented on the donations that Bankman-Fried made to her fellow committee members.

Because Bankman-Fried donated to Democrats this year, he has close ties to politicians. Sam Bankman-Fried and his father even posed for a photo with Maxine Waters at the Democrat retreat in Philadelphia in March. 

Figure 2: SBF with his dad and Maxine Waters.

Figure 2: SBF with his dad and Maxine Waters.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)