Former Federal Deposit Insurance coverage Company (FDIC) Chair Sheila Bair likens the autumn of crypto change FTX and its former CEO Sam Bankman-Fried to the notorious Ponzi Scheme of Bernie Madoff. “It felt very Bernie Madoff-like in that approach,” she stated.
Former FDIC Chair Compares FTX and Sam Bankman-Fried to Bernie Madoff’s Ponzi Scheme
Sheila Bair, a prime U.S. regulator throughout 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 coverage Company (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 subtle traders and regulators into ignoring purple flags hiding in plain sight. FTX filed for Chapter 11 chapter final week and Bankman-Fried stepped down because the CEO.
“Charming regulators and traders can distract [them] from digging in and seeing what’s actually happening,” Bair described, elaborating:
It felt very Bernie Madoff-like in that approach.
Madoff ran the biggest Ponzi scheme in historical past, value about $64.eight billion. He promised traders excessive returns however somewhat than investing, he deposited their cash right into a checking account and paid, upon request, from present and new traders’ 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 Analysis and reportedly used a “backdoor” to keep away from triggering accounting purple flags.
FTX garnered its $32 billion valuation with investments from main corporations and enterprise capital companies, 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 bought to, too. And that provides credibility with Washington policymakers. All of it feeds on itself.
The previous FDIC chair is just not frightened in regards to the FTX implosion threatening your entire monetary system the best way Lehman Brothers did in 2008, noting that crypto continues to be a comparatively small a part of the broader economic system and monetary market.
Nevertheless, the crypto market stays largely unregulated, leaving traders susceptible if one thing breaks. Bair careworn:
It’s time to choose a regulatory regime for crypto and kind out who’s regulating what as a result of persons are getting harm.
The previous regulator additional urged traders to make use of warning and be skeptical. “If it sounds too good to be true, it in all probability is,” she stated.
Do you agree with the previous FDIC chair in regards to the similarities between the autumn of FTX and Sam Bankman-Fried and the Ponzi Scheme run by Bernie Madoff? Tell us in the feedback part beneath.
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