Worse than Enron.
That’s what experts are calling the FTX financial scandal still erupting before cryptocurrency investors’ eyes.
Business ethics author, founder of The Integrity Institute and Enron whistleblower Lynn Brewer told Thursday’s Dori Monson Show that the FTX case could have an even deeper reach – especially for the millions of customers who bought Bitcoin and other cryptocurrencies.
Brewer – who said she was an early crypto investor for $4,000 – said she has ridden the “upside and the downside” of the purchase.
In a straight-forward interview, Brewer explained how FTX became a “giant money laundering scheme” that, like Enron, is going to hurt “the little guy who lost their money.”
FTX was started in 2019 by Sam Bankman-Fried to prop up Alameda Research, a company started in 2017. The companies – operating out of The Bahamas – would buy Bitcoin and other cryptocurrencies at a lower price in one part of the world and sell them at higher prices elsewhere, leaving Bankman-Fried’s team to keep the profits.
Even though Bitcoin was a trade used on Wall Street, Alameda had zero regulatory oversight.
FTX and Alameda, Brewer explained, targeted everyday investors who wanted in on trading the popular new cryptocurrencies. High-profile celebrities – including NFL superstar Tom Brady and Larry David, co-creator of TV’s “Seinfeld” and “Curb Your Enthusiasm,” were used to advertise the company.
Company officials told potential investors last year that it was making $1 billion in annual revenue. With its leveraged, or borrowed, money, Bankman-Fried is thought to have purchased millions in offshore real estate. Before the scandal broke, the 30-year-old was believed to be worth $23 billion.
Last week, lawyers – including his Stanford Law School professor and father, Joseph – convinced Bankman-Fried to step down. John Ray III has since been named the new CEO. Ray was also on the team that dealt with the aftermath of the Enron collapse.
Reports show that because FTX and Alameda were so dependent on each other, both companies were shattered when crypto prices started dropping earlier this year. The downfall has created billions of dollars in losses for crypto traders and customers.
How were there no red flags? Dori wondered.
“There were red flags,” Brewer responded. She pointed to Bankman-Fried’s own public comments about what he saw as weaknesses in regulations that allowed him to operate.
Meanwhile, Brewer added, with $70 million in contributions, Bankman-Fried’s company was the third largest donor to the Democratic Party. In comparison, the now-bankrupt energy company, Enron, donated $100 million to Republicans.
Listen to Dori Monson weekday afternoons from noon – 3 p.m. on KIRO Newsradio, 97.3 FM. Subscribe to the podcast here.