Ever since the cryptocurrency exchange FTX filed for bankruptcy on November 11, 30-year-old Sam Bankman-Fried has been swimming in troubled waters. The founder and former CEO of FTX now finds himself in the midst of a class action lawsuit against him, as well as against FTX’s celebrity backers such as TV personality Larry David, tennis player Naomi Osaka, and retired basketballer Shaqille O’ Neal.
What’s the lawsuit about? The lawsuit has been filed in Florida by class action attorney Adam Moskowitz. What makes the case unique is that it is probably one of the first ones to target high-profile celebrities who are crypto-enthusiasts.
David had even appeared in FTX advertisements playing his character from Curb Your Enthusiasm (which in itself is a satirised version of his real-life persona). With the Seinfeld creator playing a crypto sceptic who loses out on economic gains, the ad’s tagline says, “Don’t be like Larry”. The irony is not lost on anyone now.
Bankman-Fried is named as the personal defendant, while the aforementioned sportspersons and entertainers are the co-defendants for promoting, assisting, and actively participating in FTX trading.
Why is FTX in trouble? Founded in 2019, FTX (along with its affiliate Alameda Research) was at the top of the crypto game with Bankman-Fried having a net worth enough to be the second-largest individual donor to Joe Biden’s presidential campaign.
However, the empire came tumbling down this November when a report by CoinDesk found out that most of Alameda’s holdings were in FTT, a digital currency that FTX itself had invented. CoinDesk’s report made the crypto community question the liquidity of Bankman-Fried’s companies.
One of FTX’s direct competitors include Binance, whose current CEO is Changpeng “CZ” Zhao, an investor who all of a sudden decided to liquidate over $530 million of his FTT holdings. And just like a herd of sheep, FTX’s customers began following suit, with FTX witnessing a whopping $6 billion in withdrawals in the course of three days.
On November 8, Binance bought out FTX.
But…then Binance backed out?! In yet another interesting development, Binance execs decided to do away with the acquisition on November 9, citing that FTX might have indulged in mishandling of customer funds and might very well face the possibility of a federal investigation and further government lawsuits like yesterday’s update.
With FTX’s value falling down to rock bottom and no partners ready for a bailout, Bankman-Fried stepped down from his role as CEO and the company filed for bankruptcy.
What does the lawsuit state? And what does it mean for the crypto market? To quote the lawsuit against Bankman-Fried, “The Deceptive FTX Platform maintained by the FTX Entities was truly a house of cards, a Ponzi scheme where the FTX Entities shuffled customer funds between their opaque affiliated entities, using new investor funds obtained through investments in the YBAs and loans to pay interest to the old ones and to attempt to maintain the appearance of liquidity.
1/82— Adam Cochran (adamscochran.eth) (@adamscochran) November 16, 2022
I'll be pinning this detailed timeline, as my final piece covering this topic, as now the case is closed in my mind.
This was a crime plain and simple and I'll put no more wind in this criminals sails:
The definitive and chronological thread.
As it is, 2022 has been quite a tough year for the crypto market, with May being marked by a $2 trillion crash. Already, the crypto community is referring to FTX’s downfall as crypto “Lehman Brothers moment” (referencing to the collapse of the Lehman Brothers banking firm that played a direct role in the financial crisis of 2007-2008).
Binance’s Zhao recently tweeted a somewhat sarcastic jab at the whole scandal, “There are honest mistakes you can recover from. But once your credibility is gone, you are done.”
CEOs of crypto investment firms have been admitting in mainstream media that Bankman-Fried’s mistakes have set back the industry a few years, as FTX was seen as the gold standard.
It is difficult to ascertain what the future of crypto will be but for the foreseeable short-term, regulators are bound to be stricter with crypto firms.