FTX Scam – How The Mighty Have Fallen!
2022 was certainly a rough year for many crypto investors and the future of the whole industry has been shaken to the core. In November of 2021, the crypto market peaked with Bitcoin soaring to $68,000. Regrettably, the bull resigned soon after and the bear market dominated further on. Along with the world inflation unparalleled for the last 40 years, the crypto winter chilled the fiery hearts of many coin holders.
There is a great debate between the no-coiners and crypto evangelists – What has led to such a downfall of crypto assets? It is estimated that the industry lost over 2 trillion dollars and many experts are trying to ascertain why. The rising inflation certainly contributed, but a lot of fingers point to the collapse of several prominent crypto assets service providers. The FTX crash was certainly the biggest one of them all.
Many are trying to make sense of what has happened and unravel the complicated mess that was FTX and Alameda’s business practices, which John J. Ray III labeled as the “complete failure of corporate controls and such a complete absence of trustworthy financial information.” Our series of articles will try to untangle Sam Bankman-Fried’s fraud. More importantly, we’ll try to explain why FTX depositors have been victims of a crypto scam and as such, they have the right to recovery of their funds.
FTX Scam and the Crypto Winter of 2022
To understand the downfall of FTX and how crypto investors lost billions of digital assets we need to cover the events that affected the crypto market beforehand. It primarily started with an unexpected decline of TerraUSD and its counterpart coin Luna in May of 2022. This was a huge shock to the crypto trading community as TerraUSD was a stablecoin which shouldn’t have fluctuating value. Just to avoid any confusion, TerraUSD has since rebranded itself as Terraclassicusd.
This sparked a domino effect that had disastrous consequences for several giants of the crypto market. The economic fallout started spreading across crypto exchange platforms thus depreciating the prices of crypto assets. Many crypto holders succumbed to FUD and they started cashing out their coins and tokens quickly, thus draining cryptocurrency exchange companies out of their liquidity.
This occurrence is commonly known as a bank run. It happens when a large number of account holders decide to collect their money in a short period and as a consequence, the bank is left without funds to do business. The very same thing happened to Celsius and in June 2022 they declared bankruptcy. The fall of another large industry figure created additional adverse effects which exacerbated the general downward trend significantly.
Soon after the termination of Celsius, Three Arrows Capital, a major crypto hedge fund company crashed leading to their liquidation. As a result, many smaller but relevant players, like Voyager Digital and Bitvo were facing collapse. However, FTX founder Sam Bankman Friedman emerged as their savior.
At the time, the cryptocurrency exchange FTX (Future Exchange) stood tall as a shining beacon in the troubling crypto market. Its CEO Sam Bankman Fried was riding the publicity wave of being a generous billionaire genius and he couldn’t go wrong. FTX was promoting and practicing “effective altruism” by which they wouldn’t allow crypto firms to fall. Basically, they were buying off various crypto exchange companies on the brink of bankruptcy. It’s needless to say they were a bargain.
This way FTX was expanding its field of business and customer pool, all the while they were also buying off political influence and legislative power. However, this wave of success didn’t last long. In November of 2022 in a shocking turn of events, FTX was revealed to be a highly problematic company, to say the least. FTX the Savior turned out to be FTX fraud. In a period of several days the company ended up losing over 150 billion dollars and had to declare bankruptcy.
Additionally, all of the companies that SBF promoted having saved, were taken down with the fall of FTX. Unfortunately, only time will tell which other enterprises have been affected by the turn of events. If you want to read about the machinations of FTX fraud check out our upcoming series of articles on Funds Recovery blog page.
The Bear Market Didn’t Cause FTX Collapse of FTX Scam
There is a sentiment circulating the social media that FTX and Alameda would have stayed solvent if only the bear market hadn’t struck so hard. That is either wishful thinking or one of many SBF’s attempts to control the narrative behind the crimes of the FTX group.
It has become obvious that the core issue lies in the mishandling of clients’ crypto assets, misrepresentation, lies, embezzlement, and other financial crimes. Simply speaking FTX has been a large-scale fraud that managed to swindle a wide group of crypto investors using various tricks that scammers use to extort money from their targets.
To be more precise, it wasn’t that the bear market pulled down an awesome company, it’s rather that the bull market was enabling a scam to thrive and cover their wrongdoings.
Financial Institutions’ Turning a Blind Eye
After the faithful Coinbase article, which partially exposed the FTX fraud, the public eye turned to SBF’s companies. It only took several days for people to uncover all the dirty laundry and financial mess that was burning away people’s assets. If it only took a cursory glance at Alameda and FTX to discover a glaring scam, why didn’t anyone notice it earlier?!
To be fair, there had been suspecting individuals and isolated warnings, but they were too few, and they were muffled by all the media promotions, praises, and financial advice to invest in FTX. And let’s be clear, SBF wasn’t a small-town swindler, and FTX wasn’t a common internet fraud. It was massive, and it quickly turned into a leading crypto exchange platform, having been the third in trade volume. Why haven’t regulatory and financial institutions checked FTX and Alameda?!
When making deposits and investments it is common practice to practice the Know Your Clients protocol and to perform your due diligence. More importantly, banks and trading platforms are legally obligated to do KYC. So then why did so many banks, trading companies, and state officials let FTX run such a blatant scam? All of these institutions failed to perform their fiduciary responsibility and they didn’t guard their clients’ funds properly.
You Have The Right For Funds Recovery
As FTX has filed for bankruptcy the investigation is in the process along with the miles of red tape that might eventually lead to the reimbursement of embezzled crypto assets. However, that process might take years and for now, nobody can guarantee that everyone will eventually receive their money.
Funds Recovery can help you with this problem. Our team of legal and financial experts has developed provenly effective ways of recovering funds to people who have been a victim of a scam. Just because FTX is a gigantic fraud, that doesn’t make it less of a scam. If you have lost money to it, let Funds Recovery help you get it back, so contact us now.