At its peak, crypto giant FTX was so big that it attracted celebrities like tennis pro Naomi Osaka and actor Larry David to promote its brand. Now its collapse is shining a critical light on the industry, and also drawing stars to sue.
A lawsuit filed this week in Miami accuses FTX, now bankrupt, and its chief executive, Sam Bankman-Fried, of misleading consumers into investing.
The lawsuit, which has yet to be certified, also names 12 famous “brand ambassadors” as defendants, including Osaka, David, quarterback Tom Brady, model Giselle Bündchen, basketball player Shaquille O’Neal and Canadian businessman Kevin O’Leary.
But the celebrity-studded lawsuit is just one chapter in the saga of the crypto exchange collapse of Bankman-Fried, which filed for bankruptcy on Nov. 11.
The three-year-old empire, FTX, FTX.US, and a trading company called Alameda Research, once valued at $32 billion dollars, is fast becoming another crypto cautionary tale.
Bankman-Fried has been swinging from apologetic to defiant in tweets posted from his home in the Bahamas, saying he will raise $8 billion to fix FTX, then telling a Vox reporter: “F*** regulators [they] make it all worse.”
The details of the meteoric fall of FTX are emerging in the bankruptcy process.
20) I was on the cover of every magazine and FTX was a Silicon Valley darling.
We became overconfident and careless.
‘Total failure of controls’
John J. Ray, the new court-appointed chief executive of FTX, says he has overseen many corporate bankruptcies in his 40-year career, including the Enron liquidation, but said this week: “Never in my career have I seen a company so complete”. failure of corporate controls and such a complete absence of reliable financial information as occurred here.”
London-based crypto blogger David Gerard spoke to CBC The current on Friday and said Bankman-Fried seemed like some kind of “nerdy, misunderstood business genius.”
But behind the scenes, the bankruptcy filings now show that FTX was mixing money between entities, propping up each without backing, Gerard said.
“He knew he was broke. He was going to nod and smile, but he knew FTX was a dead company,” Gerard told CBC.
As for celebrity endorsements, Gerard said the stars were probably well paid.
“It was a concert,” Gerard said.
And for investors, he said the lure was the promise that “you could get rich for free. Who doesn’t want free money?”
FTX was strong and solvent, until November.
But a balance sheet first obtained by the Financial Times and summarized in Chapter 11 petitions in the US Bankruptcy Court for the District of Delaware showed that FTX had around $1 billion in cash or dollar-backed cryptocurrency. Americans, which was offset by $9 billion US dollars. due to customers.
Ray, the new court-appointed CEO, calls FTX’s situation “unprecedented” and says the company was controlled by a “very small group of inexperienced, unsophisticated and potentially compromised people.”
He calls Bankman-Fried’s ongoing tweets “erratic and misleading public statements.”
All of this has left the cryptocurrency industry reeling.
“The more that is discovered, the more stunned those of us in the industry are about how much of an f-cluster…is a complete disaster,” said Brian Mosoff, chief executive of Toronto-based Ether Capital.
Mosoff says this collapse will leave investors fearful.
“You just have this monumental collapse of this huge, highly respected entity seemingly overnight. Everyone’s a little bit shocked,” Mosoff said.
Ironically, the ad Larry David filmed for FTX, casting his character as a fool for rejecting cryptocurrency, now seems prescient.
The two-minute ad casts David as a curmudgeonly character who travels through time, expressing disdain for inventions ranging from the wheel to coffee to the light bulb, insisting they’ll never catch on. At the end of the two-minute spot, he turns down FTX. Now David is accused of being guilty of the trust of the Americans in FTX.
Celebrities face damaged reputations
Dave Pouliot, a lawyer and founder of Coinmiles in Montreal, says he is not sure if the actors can be held accountable, but says they may think twice before endorsing another crypto token-based company.
“Your personal reputation risk is at stake here. I think these are actors, they are paid to endorse a brand publicly. it’s not likely to appear in another investment commercial,” Pouliot said.
His company does not accept money from investors, but instead offers bitcoin refunds to users. But Pouliot says he’d like to see the industry move to regulate itself by building better protections and education.
Part of the problem with FTX was how cool its founder seemed.
Bankman-Fried is a former Massachusetts Institute of Technology physics student who had worked at Jane Street, an elite financial firm. After founding FTX, he attracted top Silcon Valley investors and donated millions to politicians, pushing for regulatory change.
It was after the rival owner of the world’s largest exchange questioned the stability of FTX that the cracks appeared.
There was a three-day panic sell-off that cost FTX billions.
Binance chief Changpeng Zhao considered buying FTX but quickly backed down, citing concerns from regulators. But further regulation of the industry is useless, says Mosoff.
“You can check as many regulatory checkboxes and paper submissions as you like. If [bad actors] want to do something nefarious, they will find a way to do it,” Mosoff said.
Mosoff says the scandal involving Mount Gox, a Tokyo-based bitcoin exchange that imploded in 2014, and Quadriga, the exchange whose founder Gerald Cotten died mysteriously in 2018 taking the keys to $250 million in crypto assets to his grave, did not scare him away. to the people. for good
He said the FTX saga will hopefully slow down the throngs of “get-rich-quick” investors drawn by Bitcoin’s rise from $4,000 to $70,000 in 2020.
“People were blindly sending money to buy these assets,” he said.
In the end, despite the volatility, Mosoff believes that when all the current drama breaks out, cryptocurrencies like bitcoin and ethereum will still hold their shine.
