The collapse of major cryptocurrency exchange FTX in November shocked the global financial community just months after it was valued at $32 billion and became one of the most valuable start-ups.
30-year-old curly-headed FTX founder Sam Bankman-Fried made it to the list of the top-60 U.S. richest people this year and was considered a legend in the crypto community.
Suddenly everything came apart last month after media reports revealed that FTX used customer funds to prop up Mr. Bankman-Fried’s personal trading firm Alameda, which made bets on other cryptocurrencies and invested in distressed crypto assets.
The scandal triggered an outflow of clients from FTX, one of the world’s largest cryptocurrency exchanges. Bankman-Fried sought to raise a rescue package of up to $9.4 billion but failed to find the money. He had to step down as CEO and his crypto-exchange filed for bankruptcy.
The fortune of Mr. Bankman-Fried shrank to near-zero in a matter of days. In the public eye, the once crypto guru became a scammer. The U.S. Justice Department and the Securities and Exchange Commission (SEC) started an investigation of the FTX and Alameda activities. In Florida, a class-action lawsuit was filed alleging that Mr. Bankman-Fried created a “fraudulent scheme designed to take advantage of unsophisticated investors” from across the country.
Industry experts are already comparing the rise and fall story of Mr. Bankman-Fried to that of U.S. financier Bernie Madoff. Mr. Madoff was sentenced to 150 years in prison in 2009 for creating a massive Ponzi scheme, a form of fraud in which earlier investors reap rewards from recent investors. That Ponzi scheme stripped investors of $65 billion.
Thanks to their personal charm and strong connections in the industry, both Mr. Madoff and Mr. Bankman-Fried looked like indisputable authorities in the eyes of investors. Regulators also found their businesses to be reliable and were unable to detect financial violations in time.
Such fraudster sagas happen in other parts of the world, but do not always get as visible as in the United States. Another famous case of fraud in recent years involves Malaysian financier Low Taek Jhom , more commonly known as Jho Low. He was accused of misappropriating $4.5 billion, which inflicted financial damage to Goldman Sachs and the Malaysian government. FBI called this “one of the largest economic crimes in the world’s history of the world” but couldn’t find Mr. Low. On the run, Mr. Low, who is known for his superyacht and luxurious parties attended by actor Leonardo DiCaprio,
says claims against him are “politically motivated”.
Financial scammers around the world have a lot in common and quite often use the reference to political reasons behind getting on the wanted list. They live luxurious lives that convince others that their business is a success. They are on friendly terms with celebrities who are either their clients or help to promote the business. They are confident in their infallibility. And if something goes wrong, they tend to blame others.
Tellingly, in an interview from prison, Mr. Madoff blamed banks and funds that threw billions of dollars in his face, seeking to get superior returns. But in the real world, he used the Ponzi scheme to lure new customers. “The banks and funds were complicit in one form or another, Mr. Madoff said. “They had to know [about the Ponzi scheme]”.
The political refugee coverup is now widely used by Russian bankers who made their fortunes in Russia and were in close ties with the Kremlin but who now reside in western countries and lambast Russian authorities, pretending to be political dissidents.
Boris Mints, one of many Russian rich businesspeople who lives in the UK,
explicitly spoke out against Russian authorities, saying he had to flee Russia amid growing crackdown on political opposition. In his interviews, he claims he is being persecuted by the Kremlin for political reasons. But in fact, he is being brought to account for defrauding Russian taxpayers in 2017 when Mr. Mints was the head of a private investment holding O1 Group. In proceedings in the London Court of International Arbitration, the Mints family has been found to have been fraudsters
Another Russian banker who fled to the UK and bought a 17-th century gothic-style mansion with a tennis court and swimming pool in Kent is Ilya Yurov, former co-owner and CEO of the National Bank Trust. The bank was famous for engaging actor Bruce Willis in its advertisement before collapsing in 2014 as Mr. Yurov had misused customer funds.
The Russian National Bank was bailed out and spent years in litigation with its former management.
In 2020, the High Court of Justice of England and Wales decided that Mr. Yurov and his two colleagues, Sergei Belyaev and Nikolai Fetisov, should pay the bank $900 million being the losses attributable to the frauds. Mr. Yurov memorably described the fraudulent scheme he devised to misstate National Bank Trust’s balance sheet as “balance sheet management” – this was described by an English judge as “dishonest” and “just a Ponzi scheme with a fancy name”.
Mr. Yurov now seeks to delay the implementation of the ruling, saying he consents with the arrest of his mansion but shies away from execution saying he “can’t accept” that Russia may ultimately appropriate the money. . By the way, the UK refuses to extradite him to Russia as the UK considers jail conditions in Russia are too harsh.
Time will tell if Mr. Bankman-Fried from the FTX cryptocurrency exchange would face criminal charges, and whether he would be sentenced like Madoff or would try to go on the run like Malaysia’s Mr. Jho.
He may follow the Russian line of defense though, claiming that the reasons for his misfortunes are of political nature: There have been media reports saying that Mr. Bankman-Fried was among the largest donors of the U.S. Democratic party. So why not shift the responsibility onto politics?
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