Former Federal Deposit Coverage Corporation (FDIC) Chair Sheila Bair likens the tumble of crypto exchange FTX and its former CEO Sam Bankman-Fried to the notorious Ponzi Scheme of Bernie Madoff. “It felt incredibly Bernie Madoff-like in that way,” she said.
Former FDIC Chair Compares FTX and Sam Bankman-Fried to Bernie Madoff’s Ponzi Scheme
Sheila Bair, a top rated U.S. regulator through the 2008 economic disaster, defined in an job interview with CNN Monday that there are eerie similarities amongst the rise and slide of FTX and former CEO Sam Bankman-Fried and that of Bernie Madoff.
Bair chaired the Federal Deposit Insurance Company (FDIC) from 2006 to 2011. She now sits on the board of directors at blockchain infrastructure business Paxos.
She stated that both of those Bankman-Fried and Madoff proved adept at seducing subtle traders and regulators into disregarding pink flags hiding in plain sight. FTX submitted for Chapter 11 personal bankruptcy past week and Bankman-Fried stepped down as the CEO.
“Charming regulators and buyers can distract [them] from digging in and looking at what is genuinely likely on,” Bair explained, elaborating:
It felt extremely Bernie Madoff-like in that way.
Madoff ran the largest Ponzi plan in history, really worth about $64.8 billion. He promised buyers higher returns but instead than investing, he deposited their funds into a bank account and paid, on ask for, from current and new investors’ money. Convicted of fraud, cash laundering, and other connected crimes, he was sentenced to 150 many years in federal jail. Madoff died in jail on April 14, very last yr, at the age of 82.
Bankman-Fried secretly transferred about $10 billion of buyer cash from FTX to his other trading company Alameda Investigate and reportedly made use of a “backdoor” to stay away from triggering accounting pink flags.
FTX garnered its $32 billion valuation with investments from important companies and enterprise capital firms, together with Blackrock, Softbank, and Sequoia. Bair commented:
You get this herd mentality the place if all your peers and marquee names in undertaking money are investing, you have acquired to, too. And that provides credibility with Washington policymakers. It all feeds on by itself.
The former FDIC chair is not concerned about the FTX implosion threatening the entire monetary technique the way Lehman Brothers did in 2008, noting that crypto is even now a comparatively modest component of the broader economic system and economical marketplace.
On the other hand, the crypto current market stays largely unregulated, leaving investors vulnerable if anything breaks. Bair pressured:
It is time to settle on a regulatory regime for crypto and kind out who is regulating what due to the fact individuals are finding hurt.
The former regulator even more urged traders to use caution and be skeptical. “If it sounds too very good to be genuine, it likely is,” she reported.