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How the web was woven behind the bankrupt stock exchange

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Key facts:
  • When the SBF explained how value can be created out of thin air using tokens, no one chimed in.

  • With his charisma, the former FTX CEO hypnotized those who had to detect his malpractices.

Behind the failing cryptocurrency exchange FTX, a complex social web had been woven involving politicians and regulators that would allow his team to operate irregularly without raising suspicions that something was wrong.

On November 11, FTX, the world’s third largest stock exchange, declared bankruptcy.revealing an eleven-figure hole in its books. And in the face of this debacle, a natural question arose in the community: how is it possible that no one noticed?

As reported by CryptoNews, federal agents from United States are search FTX and its former CEO Sam Bankman-Fried (SBF). The company is also being investigated by a unit of the Food Safety Agency. Bahamas Police. covering financial crimes.

However, the cryptocurrency community is trying to find answers to their questions. As a result of their research, many of them are revealing data at the history of the FTX trading empire and its trading company Alameda Research.

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FTX and its mega political donations: what happened to the red flags?

Part of the story of the collapsed stock market is tied to the world of politics, and back in May of this year American journalist Jacob Silverman expressed concern about Bankman-Fried’s strong political alignment. Thus he directly asked on Twitter, why his donations were only meant for Democrats if Republican politicians also had good ideas.

For example, you said there are good ideas in both parties, but if you care about preserving democracy, will you donate to Republican politicians who reject election results?

Tweet from journalist Jacob Silverman to Sam Bankman-Fried.

The then billionaire had stated that he would spend “over $100 million” on future political campaigns, but FTX had already donated much money to political action committees. (PAC) Democrats and U.S. President Joe Biden.

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Now, in the wake of the FTX collapse, a battle of supporters of both major parties in the United States has also emerged. In the midst of it all, is commented on that SBF’s mother, Stanford law professor Barbara H. Fried, is the co-founder of Mind the Gap, a Democratic political fundraising organization.

Although she has donated only to Democrats, Bankman Fried said in an interview that she supports politicians who do creative things, regardless of party. Source: YouTube/NBC News.

For this reason, it seems logical to many that in the 2020 U.S. elections, SBF will donate US$5.2 million. to Democratic presidential candidate Joe Bidenbecoming its second largest individual donor. Meanwhile, in the recent U.S. midterm elections, SBF spent nearly $40 million to support the Democratic Party.

These repeated political contributions ignited the scene last week when Congressman Tom Emmer reported that he had initiated a investigation against Gary Genslerthe chairman of the U.S. Securities and Exchange Commission (SEC), for allegedly favoring Sam Bankman Fried.

Emmer (Republican) suspects that Gensler helped SBF “exploit loopholes to impose a regulatory regime” that favored FTX..

FTX and the irregularities that no one has noticed

Signs that something was wrong at FTX abounded, but most preferred to turn a blind eye. In April of this year, to a Bloomberg reporterBankman-Fried explained how it is possible to create value out of nothing using tokens.

SBF stated that the price of FTT token, native to the FTX platform, was supported by Alameda.and the trading company allegedly used the token as collateral to finance its trading activities, but no one noticed that this was a suspicious practice.

In fact, the business model implemented by SBF on the FTX cryptocurrency exchange was kept secret. The books were closed to everyone, and although it raised $2 billion last year, it remained the majority owner of the company, as it has no investors sat on FTX’s board of directors..

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Bankman Fried planned to run the company with little oversight, so stakeholders had to “support him and watch him.” His proposal to investors was a “take it or leave it” offer, as he put it. review The New York Times.

Investors are now also under scrutiny for allowing Bankman-Fried to have so little oversight.. It was the most dramatic example in recent history of what happens when so-called visionary founders get a lot of money with few strings attached, the media adds.

A charismatic CEO who hypnotized everyone

Interestingly, investors who believed in the SBF make up a large part of the cryptocurrency industry, as shows a user on Twitter. The list includes. large enterprises and funds who are now standing in the middle of the tide with multibillion-dollar losses.

The list of investors in FTX includes powerful and well-known investment firms. such as Sequoia Capital, SoftBank, Lightspeed Venture Partners, Ribbit Capital, Temasek Holdings, BlackRock, and Thoma Bravo.

FTX and its CEO had a long list of investors spanning a large portion of the cryptocurrency industry. Source: Twitter/GRDecter.

Now, it is clear that many people regret blindly believing the SBF and not putting into practice the well-known phrase regularly quoted in the Bitcoin ecosystem, “Don’t trust, verify.”

Indeed, in the meetings Bankman Fried held with investors, many accused him of hiding details of FTX’s relationship with Alameda Research and asked for more information, as one person told the NY Times. However, it was too late, because calamity was inevitable.

And where were the regulators?

There are people who describe as “criminal” the fact that FTX has earmarked about $4 billion for Alameda in the United States.. All this, in a context where Alameda had previously lost about $500 million in funds deposited with Voyager, a bitcoin lender that also filed for bankruptcy.

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While thousands of FTX users wonder what will happen to their lost funds? U.S. regulators say they have not had access to crucial financial information on SBF companies.

However, Orthogonal Credit, which has been a previous funder of Alameda Research, recently tweeted that it was able to detect the irregularities in time and thus broke off relations with the company also founded by SBF earlier this year.

During our due diligence of Alameda earlier this year, the team identified a number of key weaknesses: a) declining asset quality; b) unclear capital policy; c) unsound operational and business practices; and d) an increasingly byzantine corporate structure, the tweet reads. We considered these key weaknesses and made the business decision to terminate our institutional lending relationship.

Orthogonal Credit on Twitter.

In this sense, it is clear that while some, like Orthogonal, took a look around and managed to spot the warning signs in time, a legion of Cryptocurrency fanatics have praised FTX’s CEO. even without ascertaining that his activity was legitimate.

Recently many had no choice but to delete their posts praising the founder of what has become the world’s third largest cryptocurrency exchange. Such asHe did. Caroline de Pham (commissioner of the U.S. CFTC) and other actors who came to engage with the company to the point of relaxing trading and regulatory practices that gave them control over the company and protected their investments.

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