In addition to FTX’s loss of billions in customer finances; the organization has also been caught up in what appears to be a circular money laundering scheme involving donations by Bankman-Fried to Democrat Congressional candidates, Biden Administration sending tax-payer money to Ukraine under the guise of funding war efforts, the Ukrainian government investing in FTX, and right back to FTX which then donates to Democrat Party candidates. Bankman-Fried was notably the second-largest donor to Democrats during the 2022 midterm elections, having given $40 million during the cycle. Bankman-Fried also donated $10 million to Joe Biden’s 2020 bid for President, second only to donations made by billionaire Michael Bloomberg.
In response to FTX’s controversial bankruptcy, James Bromley, a partner at Sullivan and Cromwell, the firm hired to help manage the company’s bankruptcy called "it is one of the most abrupt and difficult company collapses in the history of corporate America.” He further points to the colossal ineptitude of the managing staff of the company, comprising of Bankman-Fried and his young, inexperienced roommates living together in a penthouse in the Bahamas.
With more than 100,000 claims from concerned customers that lost money, FTX estimates this number will rise over 1 million. The class-action lawsuit brought against FTX accuses the company of deceiving customers, costing investors billions in damages, and violating Florida securities law. The suit names a host of notable celebrities who served as ambassadors to promote the company as part of a publicity campaign “to raise funds [for FTX] and drive American consumers to invest in the YBAs [yield bearing accounts]”. Those named in the lawsuit include Shaquille O’Neil, Tom Brady and ex-wife Giselle Bundchen, Steph Curry, and Larry David. Official court documents show that FTX owes its creditors $3.1 billion.
With the chaotic turn-of-events surrounding the collapse of FTX, the organization’s rising legal trouble, and parallel investigations launched by the Department of Justice and U.S. Securities and Exchange Commission, this begs the question of just how severe the FTX scandal is compared to a similar Ponzi scheme? Does this surpass the likes of Bernie Madoff?
Similar to FTX, the Madoff scandal defrauded thousands of investors out of billions of dollars, with the total amount missing from client accounts rising to nearly $65 billion, including fabricated gains. Recently adjusted estimates put Madoff’s actual losses to investors at $18 billion, which is still substantially greater than the unaccounted $2 billion lost under FTX. Customers lost their money to Bernard L. Madoff Investment Securities, which was a front organization run by Madoff and various relatives. The entity was notably the sixth largest money-maker on the S&P 500 stock index when the Bernie Madoff scandal was exposed in 2008. Madoff was charged by the FBI with 11 federal felonies and sentenced to 150 years in prison, after admitting to orchestrating his securities firm as a Ponzi Scheme to defraud investors for their money.
Another notable distinction between Bernie Madoff and the unraveling FTX scandal is the latter’s association with the activities of a U.S. political party. As Madoff used his front-organization as a Ponzi scheme to enrich his family, Bankman-Fried has also used investor money for personal gains, such as spending $30 million on lavish homes for his parents and FTX employees. Beyond this self-enrichment lies the massive amount of cash flow from FTX in the form of campaign donations to Democrat candidates in 2022. Federal investigators in the DOJ and SEC need to pay extra close attention to the circular flow of cash, beginning with funding from Bankman-Fried and other FTX executives to Democrat-affiliated campaigns, the cash investments made by the Ukrainian government to FTX, and the tax-payer money donated to Ukraine by the federal government in the form of weapons. This suspicious cash flow has largely gone ignored and unaccounted for, raising suspicion into a potential money laundering scheme.
With a Republican-controlled House, GOP representatives have already signaled an unwillingness to toward sending further aid to Ukraine and an urgency to conduct hearings on the FTX collapse. House Republicans recently threatened to launch audits if the Biden Administration fails to explain where $20 billion in aid Ukraine went and how it was utilized. Both Democrats and Republicans in the House have expressed skepticism as to where aid was being sent and have demanded greater transparency for U.S. taxpayers as to whether funds were being misused or misallocated. It is woefully unacceptable that Biden administration officials have only inspected 10% of the 22,000 weapons supplied to Ukraine by the U.S., leaving the door wide open to the possibility of these arms being smuggled by war profiteers.
Americans deserve to have full accountability for the FTX scandal and the clandestine funding to Ukraine. This catastrophic collapse has revealed just how underexamined and misunderstood cryptocurrency exchanges are by federal oversight agencies. The fraudulence of FTX should never have been allowed slip under the radar for three years, with all the warning signs of a company in crisis being perfectly evident. FTX lacked proper disclosures of financial information, had “compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals," according to incoming CEO of FTX, John Jay Ray III. While the financial impact of FTX’s losses to investors appears to be on a smaller scale than Bernie Madoff, the greater political implications of potential money laundering between Ukraine, FTX, the Biden Administration and Democrat Party candidates may serve to produce a scandal that is much more severe in scope
