Within the first few hours of the FTX implosion, investors and crypto bulls were working through the Kübler-Ross model’s five stages of grief: denial, anger, bargaining, depression, and acceptance. As more details came out about the inner workings of FTX, I realized that truth really is stranger than fiction.
The 30-year-old founder of FTX, Sam Bankman-Fried, was known simply as SBF — a single moniker that put him in the company of Madonna or LeBron. His firm seemingly came out of nowhere to establish itself as the de facto standard for crypto exchanges. The firm and the founder were surrounded by all the trappings of success and legitimacy — a fawning press, famous and powerful friends, and sycophantic politicians.
Who would ever suspect fraud with such a veneer of respectability? The obvious comparison was Theranos and its CEO, Elizabeth Holmes. When stories emerged that FTX’s potential losses totaled $50 billion, comparisons to another fraudster — Bernie Madoff — emerged.
However, there is one huge difference between SBF and Madoff: Madoff was a singular figure orchestrating a massive Ponzi scheme. The funds that came to Madoff didn’t go into other investments. In fact, they didn’t go into any investments. They were used to keep existing clients happy while new clients were brought in. All of the risk for Madoff clients was represented in Madoff himself.
In the case of FTX, SBF lent Alameda Capital — the firm’s in-house investing arm — more than $8 billion…
