Dear valued client,
Markets gained slightly this shortened trading week due to American Thanksgiving. Encouraging news on the interest rate front emerged from the Federal Reserve’s meeting earlier this month. The minutes read, “A substantial majority of officials judged that a slowing in the pace of increase would soon be appropriate.” The meeting’s tone suggests the Fed could downshift to a rate rise of 0.5 percentage points in December.
A major story that has been making headlines has been the collapse of crypto exchange firm FTX.
FTX, founded in 2019 by Sam Bankman-Fried (SBF) – son of two Stanford law professors – was worth approximately $32 billion until a couple weeks ago. Headquartered in the Bahamas for tax reasons, FTX was thought to be at the forefront of crypto exchange, and its founder had made philanthropy a priority. Investors included Kevin O’Leary, Tom Brady, Gisele Bündchen, Shaq, and others. But where did all the money actually go?
Given preliminary audits, it seems $300 million was siphoned for the purchase of private properties for FTX’s senior staff, and about $10 billion of its client assets was “lent” to Alameda Research, a quantitative trading firm (SBF and Alameda’s CEO had been involved romantically). After reports of this thievery began to surface at the beginning of November, the dominos started to fall. Binance, another crypto exchange platform that was on the verge of buying out FTX, backed out of the deal. This sent FTX’s value plunging, resulting in a 3-day bank run that sent FTX into crisis. Within about 72 hours, FTX was insolvent and SBF’s net worth of $16 billion completely evaporated.
Needless to say, FTX investors are furious. Lawyers are saying SBF was using FTX’s capital as a private bank account. Bankruptcy veteran John J. Ray III said, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” No doubt this has further tarnished the reputation and reliability of cryptocurrencies, and its proponents will want more explicit regulation in place so crypto platforms are more accountable to their investors.
Many are saying SBF is now of the same ilk as Charles Ponzi and Bernie Madoff. I would go a step further. Given its scope and magnitude, this is likely the biggest fraud in the history of humanity.
“Before you act, you have freedom, but after you act, the effect of that action will follow you whether you want it to or not. That is the law of karma.” – Paramahansa Yogananda
Have a terrific weekend,
PW
