If this hypothesis is true, Ahluwalia said that the fraud perpetuated by FTX is “truly epic” and added that the Enron CEO went to jail for “lesser infractions than this.”
Sam Bankman-Fried, the CEO of the bankrupt cryptocurrency exchange FTX, is probably one of the world’s most hated people right now. After being hailed as the savior of doomed projects, possible personal motivations for his actions are now being dissected.
Amid FTX contagion fears, investor confidence has been severely dented. Extreme fear has gripped the market, but industry commentators continue to push for Bitcoin.
One such is El Salvador’s President, Nayib Bukele, who said that Bitcoin was created precisely to prevent bad actors from scamming people, including Sam Bankman-Fried’s “bailouts and wealth reassignments.”
Furthermore, reports have surfaced that the exchange might have over a million creditors.
Over a Million Creditors
Last week, when the exchange filed for voluntary Chapter 11 bankruptcy protection, it indicated that it may have more than 100K creditors. Now, in an updated filing, it appears that the could be more than a million.
Lawyers from the company said:
In fact, there acould be more than one million creditors in these Chapter 11 Cases.
This hints at the huge impact of its collapse on both traders and regular retail crypto users in what seems to be the biggest hit on the industry.
FTX is the Opposite of Bitcoin
In a recent tweet, the Salvadorean President said that FTX is the opposite of Bitcoin while calling out the former CEO of the beleaguered platform. Bankman-Fried’s “effective altruism” movement is now at the center of the debate. With reports of his company being insolvent, the bailouts for Voyager and BlockFi now appear to be “truly Machiavellian,” according to Ram Ahluwalia, CEO and co-founder of an analytical firm.
According to Ahluwalia’s hypothesis, FTX positioned itself as a “white knight” when, in fact, they were the “delinquents.” He explained that the exchange was acquiring its creditors “to buy time and slow down a margin call.” It was already known that FTX had “hundreds of millions in loans outstanding to Voyager.” He added,
“When you can’t pay off your debt, the debtors wipe out your equity and own your company. FTX, in a truly Lex Luthor way, sought to buy Voyager to prevent this. The new parent assumes the subsidiary liability. Also, FTX could acquire with their inflated but actually worthless $32 Bn equity.”
The analyst further asserted that both FTX and its sister trading firm, Alameda had holes in their balance sheet. With respect to liabilities, the two companies had loans they needed to pay back. On the asset side of things, their retained earnings were wiped out from losses on operating a negative net present value (NVV). Ahluwalia claimed that the acquisition of Voyager and BlockFi provided temporary fixes to both problems.
“It requires the ‘target’ to have credibility in the acquirer and also requires reverse due diligence (since the form of payment is FTX equity).”
FTX, the Next Enron, or Bigger?
FTX’s sudden collapse has infuriated crypto investors. The emergence of reports claiming that SBF deployed customer funds from the exchange to plug losses in his failing crypto empire has prompted many to call for the exec’s jail time. The current investigation from the US Department of Justice is exploring if SBF was simply incompetent or if he deliberately deceived users.
But if Ahluwalia’s hypothesis transpires to be true, the nature of fraud perpetuated will be greater than that of the disgraced energy titan Enron which engaged in shady off-the-books business and accounting practices in the early 2000s.
As reported earlier, FTX is currently facing investigation by the Bahamas securities regulator and financial investigators over potential misconduct. Its recently-announced debit card program with payment giant, Visa, was also terminated by the latter.