It is now clear that what happened at the FTX crypto exchange and the hedge fund Alameda Research involved a variety of conscious and intentional fraud intended to steal money from both users and investors. That’s why a recent New York Times interview waswidely derided for seeming to frame FTX’s collapse as the result of mismanagement rather than malfeasance. A Wall Street Journal article bemoaned the loss of charitable donations from FTX, arguably propping up Bankman-Fried’s strategic philanthropic pose. Vox co-founder Matthew Yglesias, court chronicler of the neoliberal status quo, seemed to whitewash his own entanglements by crediting Bankman-Fried’s money with helping Democrats in the 2020 elections – sidestepping the likelihood that the money was effectively embezzled.
Perhaps most perniciously, many outlets have described what happened to FTX as a “bank run” or a “run on deposits,” while Bankman-Fried has repeatedly insisted the company was simply overleveraged and disorganized. Both of these attempts to frame the fallout obfuscate the core issue: the misuse of customer funds.
Banks can be hit by “bank runs” because they are explicitly in the business of lending customer funds out to generate returns. They can experience a short-term cash crunch if everyone withdraws at the same time, without there being any long-term problem.
But FTX and other crypto exchanges are not banks. They do not (or should not) do bank-style lending, so even a very acute surge of withdrawals should not create a liquidity strain. FTX had specifically promised customers it would never lend out or otherwise use the crypto they entrusted to the exchange.
CoinDesk’s Chief Insights Columnist David Z. Morris unpacks his latest opinion piece that argues Sam Bankman-Fried, former CEO of troubled crypto exchange FTX, is a fraud.