Category Archives: Financial Fraud

CME Group CEO called Bankman-Fried ‘an absolute fraud’

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“When you have the greatest quarterback of all time and a supermodel wife doing a commercial picking up the phone saying ‘Are you in, are you in, are you in.’ To me, it looks like a pump-and-dump scheme. People get very influenced by people like Tom [Brady].” ~ Terry Duffy, CME Group Chairman and CEO

FTX’s sudden and catastrophic collapse sent reverberations throughout the entire cryptocurrency industry. What was once the third-largest cryptocurrency exchange has filed for bankruptcy and has billions of dollars left in limbo.

FTX is a cryptocurrency exchange headquartered in the Bahamas. The exchange allowed users buy, sell, hold, and trade cryptocurrency (although those functions are currently unavailable due to the firm’s collapse as a result of FTX founder and CEO Sam Bankman-Fried’s fraud and misappropriation of its customers’ accounts), writes The Verge.

CME Group Chairman and CEO Terry Duffy suspected the fraud at the cryptocurrency exchange the day of his first one-on-one meeting with Bankman-Fried, stated during an interview with Melissa Lee on CNBC Fast Money.

Duffy recounted his March 2022 meeting with Bankman-Fried on the “On the Tape” podcast, which is hosted by “Fast Money” traders Guy Adami and Dan Nathan.

“You’re a fraud. You’re an absolute fraud,” Duffy said he told Bankman-Fried. Moreover, he tried to warn Congress and the financial sector that the disgraced FTX billionaire Bankman-Fried was a “fraud.”

Additionally, Duffy wanted to know why the Commodities Futures Trading Commission was even considering Bankman-Fried’s request to ease regulatory rules to push his trading model. He was told it was required under innovation guidelines.

“Right away my suspicions were up,” Duffy said. “Why is there so much pressure coming for this application? And then when I met with him, I knew right away this a joke.”

The FTX collapse is the biggest cryptocurrency exchange bankruptcy on record.

Duffy alleges that a former senior executive of the Commodity Futures Trading Commission (CTFC) was closely aligned with Bankman-Fried. “I hope someone has the courage to ask, ‘Was anybody putting pressure on the CFTC to move forward with an application that could have put everything at risk?’” Duffy said.

The former CEO Bankman-Fried is facing a barrage of civil and reportedly criminal investigations after allegedly transferring billions in customer funds from FTX, the crypto trading platform he founded in 2019, to Alameda Research, a crypto trading firm he founded in 2017.

References:

  1. https://www.cnbc.com/2022/11/23/absolute-fraud-cmes-terry-duffy-says-he-saw-trouble-before-ftx-collapse-.html
  2. https://www.foxnews.com/media/sam-bankman-fried-easy-pick-out-fraud-cme-group-chief-terry-duffy

“Any time there is a boom cycle like this, otherwise smart investors do dumb things because they see their pals and peers piling in and worry they will be left out. Envy is a pernicious quality — and one that is all too human.” ~ Andrew Ross Sorkin

The Impact of FTX’s Collapse

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“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” ~ John Ray, new FTX CEO

Crypto exchange FTX filed for bankruptcy after a stunning five-day collapse of the once-$32 billion dollar crypto company as concerns over its financial health led to a surge in withdrawals and a plunge in the value of its native FTT token. FTX’s founder, Sam Bankman-Fried (SBF), resigned as CEO.

As a result of the collapse, the company and its leadership are facing investigations and potential criminal charges in both the Bahamas and the U.S. for its misappropriation of users’ assets and allegations of fraud. 

Before its collapse, FTX offered retail and professional traders spot crypto investing as well as more complex derivatives trades. At its peak, the platform was valued by investors at $32 billion and had more than 1 million users.

FTX’s books revealed the exchange had more than $9 billion in liabilities, but less than $1 billion in liquid assets the day before its bankruptcy filing. And, after an apparent hack (or “unauthorized access” via a backdoor by SBF) drained $477 million of the company’s remaining assets, customers are facing long odds of ever recovering much of their deposits.

After FTX collapse, at least $1 billion in customer funds are unaccounted for, and FTX may owe as many as one million creditors. Additionally, FTX’s collapse has resulted in:

  • Crypto’s total market cap has dropped below the $1 trillion mark since FTX’s trouble started early last week, and sits near $826 billion as of Wednesday morning, November 9. 2022.
  • After the firm’s bankruptcy filing, BTC price sank nearly 25%, dropping below $16,000, before slightly recovering; ETH fell by more than 30% in the same span.
  • Market contagion and liquidity issues have spread to a growing number of crypto businesses that have suspended redemptions, citing “extreme market dislocation … caused by the FTX implosion.”
  • Several major players have halted customer withdrawals and cited “significant exposure to FTX.” Others are planning to file for bankruptcy.

CNBC reported that Alameda Research, FTX’s sister company, had borrowed billions in customer funds from the exchange to make risky leveraged trades, leaving FTX caught short when users wanted to withdraw their money.

In general, mixing customer funds with counterparties and trading them without explicit consent is illegal, according to U.S. securities law. It also violates FTX’s terms of service. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said newly appointed FTX CEO John Jay Ray III – a bankruptcy expert with more than 40 years of restructuring experience who liquidated Enron.

Former CEO Bankman-Fried declined to comment on allegations but said the company’s recent bankruptcy filing was the result of fraud, misappropriation and issues with a leveraged trading position placed by Alameda Research.

“In the Bahamas, I understand that corporate funds of the FTX group were used to purchase homes and other personal items for employees and advisors,” Ray wrote. “I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.”

Moreover, larger investors and traditional firms been impacted

  • Since its founding in 2019, FTX raised nearly $2 billion in capital from sources like venture capital firms and pension funds, and its bankruptcy means that many of its investors will likely need to write their investments off as losses. 
  • SoftBank, Tiger Global, and Sequoia Capital are among the many well-known firms who made now-worthless bets on FTX. Sequoia was marking its $213 million stake down to $0. 
  • The impact isn’t limited to venture capital firms either — the Ontario Teachers Pension Fund lost $95 million investing in FTX’s funding rounds and professional athletes celebrities like TV producer Larry David and NFL quarterback Tom Brady are among the individuals who had equity stakes in and promoted the company. 
  • In an emergency court filing, evidence suggests Bahamian regulators directed former CEO Sam Bankman-Fried to gain “unauthorized access” to FTX systems to obtain digital assets belonging to the company and to transfer those assets to the custody of the Bahamian government.

In the wake of the FTX exchange’s collapse, there has been calls from financial business leaders and lawmakers regarding the need for greater oversight and regulation of the crypto industry.

U.S. Congressman Patrick McHenry, the top Republican on the House Financial Services Committee, said: “It’s imperative that Congress establish a framework that ensures Americans have adequate protections while also allowing innovation to thrive here in the U.S.”

Source: Coinbase Bytes

References:

  1. https://www.cnbc.com/2022/11/15/ftx-says-could-have-over-1-million-creditors-in-new-bankruptcy-filing.html
  2. https://www.businessinsider.com/ftx-managers-used-online-chat-emojis-approve-official-expenses-ceo-2022-11
  3. https://www.cnbc.com/2022/11/17/ftx-suggests-sam-bankman-fried-transferred-assets-to-bahamas-government-custody-after-bankruptcy-filing.html

Protecting Against Scams

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Elderly fraud and scams are on the rise

Recently in Michigan, James Robert Black (a/k/a “Jim Gribble”) pleaded guilty to conspiracy to commit wire fraud. He was sentenced to 60 months in prison, and ordered to pay restitution for his part in a fraudulent roof repair scheme intended to defraud an elderly homeowner out of nearly $300,000. The scheme included pressuring the homeowner to pay for a series of false problems associated with the project, including dangerous working conditions, employee injuries, threatened lawsuits and criminal tax issues. Conspiracy to commit wire fraud is a felony offense punishable by up to 20 years in prison. After federal investigators arrested him in Florida,  Black pled guilty to the conspiracy charge and received a harsh sentence, according to the presiding judge, because “he had a long history of committing the same kind of frauds in the past”.

Scammers target seniors for many reasons. People in their 60s or over have often accumulated significant wealth in their lifetime. Most have regular payments coming in from Social Security. But the older they get, the more vulnerable they may become. Social isolation can put seniors at risk, and there’s even research showing how the part of their brain that can detect lies may wear out over time.

Scammers are also attracted by the sheer size of this large and growing target: By 2030, one in every five Americans is expected to be over 65. What’s more, fraudsters think they’re likely to get away with such crimes because financial scams often go unreported or can be difficult to prosecute.

Older adults need to be on the alert for senior scams. As a baseline, they should remember that government organizations don’t typically come to people’s homes, contact them by phone, or send unsolicited emails that threaten or ask for personal information, says the Institute on Aging (IOA). It’s worth looking online to learn the many tips and habits that can help, such as pausing to look up a legitimate website or phone number before you even think about clicking a link or taking a call. A recent Wall Street Journal article included these tips:

  • Call blocking. Put your phone number on the National Do Not Call Registry9 and use your phone service’s features to block robocallers from calling you back. While these steps can help, they’re far from foolproof, especially given fraudsters’ ability to keep changing phone lines.
  • Spam blocking. Mark junk email as spam, so your spam filter blocks it the next time. Also, look before you click on any link in the email. Some “phishers” will send emails with what look like legitimate addresses, at first glance, but that might have two letters transposed or otherwise reveal themselves as counterfeit on close inspection.
  • Banking tools. You can set up bank alerts on suspicious activity and request a lower credit card limit if you’re not regularly using it all. These steps can help reduce the risk of loss.

Also key to protecting seniors against scams is to report them. A good place to start is the website of the Elder Justice Initiative, which was established in 2018 by the FBI and the Justice Department to combat elder abuse and fraud. 

References:

  1. https://www.americanexpress.com/en-us/credit-cards/credit-intel/elderly-scams-and-fraud/
  2. https://www.justice.gov/elderjustice/find-support-elder-abuse