Sam Bankman-Fried’s Crypto Crash – WSJ

The SEC complaint is more voluble. “From the inception of FTX, Bankman-Fried diverted FTX customer funds to Alameda,” it says, to the point that “there was no meaningful distinction.” Then SBF “used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments.” He took enormous loans, “including two instances in which Bankman-Fried was both the borrower in his individual capacity and the lender in his capacity as CEO of Alameda.”

Mr. Bankman-Fried claimed Alameda had no special privileges on the FTX platform. Yet the SEC says his hedge fund was granted a “virtually unlimited” credit line and was exempt from the “automated risk mitigation protocols” that SBF trumpeted as ensuring FTX’s stability. The mixing of funds was obfuscated in internal accounts. The beginning of the end arrived when crypto prices fell and “many of Alameda’s lenders demanded repayment of loans.”

If the authorities are correct, this is a story as old as time that reoccurs every time there is a financial mania. The thoroughly modern twist in the SBF allegation was to convince investors to place money into a digital box, except with a hole in the bottom leading directly to a proprietary hedge fund. In such a case, the remedy is also old and familiar: Enforce the fraud laws already on the books.

Source: Sam Bankman-Fried’s Crypto Crash – WSJ