Former Federal Deposit Insurance Corporation (FDIC) Chair Sheila Bair likens the autumn of crypto trade FTX and its former CEO Sam Bankman-Fried to the notorious Ponzi Scheme of Bernie Madoff. “It felt very Bernie Madoff-like in that way,” she stated.
Former FDIC Chair Compares FTX and Sam Bankman-Fried to Bernie Madoff’s Ponzi Scheme
Sheila Bair, a high U.S. regulator through the 2008 monetary disaster, defined in an interview with CNN Monday that there are eerie similarities between the rise and fall of FTX and former CEO Sam Bankman-Fried and that of Bernie Madoff.
Bair chaired the Federal Deposit Insurance Corporation (FDIC) from 2006 to 2011. She now sits on the board of administrators at blockchain infrastructure agency Paxos.
She defined that each Bankman-Fried and Madoff proved adept at seducing refined buyers and regulators into ignoring crimson flags hiding in plain sight. FTX filed for Chapter 11 chapter final week and Bankman-Fried stepped down because the CEO.
“Charming regulators and investors can distract [them] from digging in and seeing what’s really going on,” Bair described, elaborating:
It felt very Bernie Madoff-like in that approach.
Madoff ran the most important Ponzi scheme in historical past, price about $64.8 billion. He promised buyers excessive returns however moderately than investing, he deposited their cash right into a checking account and paid, upon request, from current and new buyers’ funds. Convicted of fraud, cash laundering, and different associated crimes, he was sentenced to 150 years in federal jail. Madoff died in jail on April 14, final yr, on the age of 82.
Bankman-Fried secretly transferred about $10 billion of buyer funds from FTX to his different buying and selling agency Alameda Research and reportedly used a “backdoor” to keep away from triggering accounting crimson flags.
FTX garnered its $32 billion valuation with investments from main corporations and enterprise capital corporations, together with Blackrock, Softbank, and Sequoia. Bair commented:
You get this herd mentality the place if all of your friends and marquee names in enterprise capital are investing, you’ve acquired to, too. And that provides credibility with Washington policymakers. It all feeds on itself.
The former FDIC chair shouldn’t be nervous concerning the FTX implosion threatening the whole monetary system the best way Lehman Brothers did in 2008, noting that crypto remains to be a comparatively small a part of the broader financial system and monetary market.
However, the crypto market stays largely unregulated, leaving buyers weak if one thing breaks. Bair harassed:
It’s time to choose a regulatory regime for crypto and kind out who’s regulating what as a result of individuals are getting damage.
The former regulator additional urged buyers to use warning and be skeptical. “If it sounds too good to be true, it probably is,” she stated.
Do you agree with the previous FDIC chair concerning the similarities between the autumn of FTX and Sam Bankman-Fried and the Ponzi Scheme run by Bernie Madoff? Let us know within the feedback part beneath.
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