The victims of Sam Bankman-Fried’s Ponzi scheme are not celebrities or institutional partners, but ordinary investors

There are likely over a million victims worldwide and countless billions of dollars lost forever due to the collapse of Sam Bankman-Fried’s digital assets empire, backed by his once hugely popular cryptocurrency exchange FTX, which filed for bankruptcy in the United States last week.

When liquidity concerns issued by FTX’s competitor sparked a cryptocurrency rush on the exchange earlier this month, the world found that many of these assets turned out to be nothing more than paper bills. FTX’s true balance sheet came nowhere near matching the numbers on the screen. And given the panicked withdrawals, the “FTT” digital token through which the Bankman-Fried empire maintained its reported wealth lost about 90% of its value in one day. FTT was a token that Bankman-Fried and his cofounders created, encouraged customers to buy, then manipulated its value to pitch future investors.

We have since discovered that Sam Bankman-Fried was running a massive Ponzi scheme. But with the collapse of FTT, that Ponzi now has no chance to recover. It’s officially over for Bankman-Fried and the massive fraudulent empire he’s built.

There seems to be a clear consensus on overwhelming evidence that Bankman-Fried has committed an open and closed case of massive fraud. If justice were similarly served, he would apparently be destined for a fate similar to that of the last notorious Ponzi financial fraudster, Bernie Madoff, sentenced to 150 years in the big house. But Bankman-Fried has friends in high places.

As part of its efforts to reduce Ponzi risk, Bankman-Fried has made significant efforts over the past two years attempting to strengthen its ties with regulators and lawmakers, seeking both regulatory dominance for its exchange and the favor of people in positions of power. During the last election cycle, Bankman-Fried made huge sums of political donations to Democratic politicians. He is second only to George Soros in the distribution of political spending for Democrats.

As I’ve documented on Twitter, he also has close ties to the same congressional committee that is expected to investigate the FTX crash next month.

Bankman-Fried has also partnered with the executive branch, having secured meetings with SEC Chairman Gary Gensler and other top officials in the Biden administration.

Furthermore, honest law enforcement agencies in the US have an admittedly hugely complex case on their hands, because Bankman-Fried’s FTX did most of its business overseas. FTX (which is a separate entity from FTX US, the US registered and regulated entity) was based in the Bahamas, where Bankman-Fried lived in a communal penthouse apartment with his friends, lovers and colleagues (all in the same person) , who were all ideological fellow travelers in the far-left effective altruism movement.

For more on that thread and how the ideology of effective altruism fits into this debacle, check out my piece in The Dossier: “The True Believer: How Sam Bankman-Fried’s Worldview Facilitated the creation and destruction of a cryptographic Ponzi empire”.

FTX has had an enormously influential footprint on the island nation, which sports a modest gross domestic product of around $11 billion and where authorities are known to be susceptible to corruption. In April, FTX hosted the “Crypto Bahamas” conference, featuring the likes of Bill Clinton, Tony Blair, Tom Brady and the Prime Minister of the Bahamas.

The Bahamian authorities (which have received significant financial support from Bankman-Fried) are attempting to bankrupt the party and take the lead in bankruptcy proceedings. After filing for bankruptcy in the US and resigning as CEO, Bankman-Fried then gained access to FTX systems and transferred hundreds of millions of dollars in custodial assets to Bahamian authorities under “interim liquidation” proceedings “.

Some of FTX’s individual and institutional partners included notorious sleaze Anthony Scaramucci and Kevin O’Leary of “Shark Tank,” as well as pro athletes like Tom Brady and his ex-wife Gisele, along with venture capital giants like Sequoia Capital. These forces have either been recklessly negligent or have purposely chosen to skip basic due diligence procedures while taking part in this too-good-to-be-true crypto investment scheme similar to Madoff. But given that some very powerful interests may want to “recoup” their investments, this could increase the likelihood that SBF will actually make time for its crimes.

Of course, the real victims of Bankman-Fried are hardly the aforementioned high-profile individual and institutional partners, but the retail clients who held assets on the platform and mistakenly trusted the platform to act as a safe custodian for their wealth.

For victims of the crypto Ponzi, this episode will serve as an indelible lesson on the importance of taking custody of one’s assets. This hard lesson in unearned blind trust can also serve as an “orange pill” moment for the countless victims of the Bankman-Fried Ponzi scheme.

For years, Bitcoiners have made it a sticking point to encourage hodlers to take possession of their assets and take personal responsibility. Leaving assets on centralized exchanges like FTX possessed fatal but completely avoidable counterparty risk. Unlike the traditional financial system, where you cannot simply take physical possession of your investments, one of the benefits of Bitcoin is that you can easily hold your asset securely and without permission.

When properly self-custodied through the use of a “cold storage” mechanism, bitcoin thrives as an easily accessible, yet non-confiscatable asset protected by the most proven and secure cryptographic cryptography the world has ever known. There is no need to allow Coinbase, Kraken,, or the many centralized exchanges in the cryptocurrency world to hold your asset once your purchase has cleared the market. Using trusted third-party custodians not only adds unnecessary risk to the equation, but goes against Bitcoin’s “don’t trust, verify” ethos.

The FTX Ponzi explosion is just one of many similar incidents that began with the default of Mt Gox in 2013, so an experienced Bitcoiner has likely experienced one of these “rug pull” events. In the most brutal way imaginable, victims of FTX can learn through this experience to heed the “not your keys, not your coins” mantra trumpeted by Bitcoiners.

Jordan Schachtel is an investigative journalist and foreign policy analyst based in Washington, DC

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