In 2001, Enron, an American energy company, was suddenly exposed to the scandal that executives used accounting loopholes to cover up billions of dollars in debt. Its stock price plummeted from $90.75 per share to less than $1. declared bankruptcy within a year.
Due to the large scale of its bankruptcy and the high degree of fraud, the Enron case was once the largest bankruptcy case in the United States, and "Enron" has also become a symbol of corporate corruption and fraud.
After Enron went bankrupt, the debts left by it needed a "fire captain" to clean up, so as to recover the huge losses of creditors.
In 2004, John J. Ray III, who specialized in bankruptcy liquidation, was appointed as the chairman of Enron Creditor Recovery Company, and repaid $829 million to creditors in five years through litigation and other means.
John Wray, who has spent the past 40 years helping companies through major crises, is a competent financial firefighter, but now he faces a task that is even more difficult than Enron.
On November 11, 2022, FTX, the world's third largest cryptocurrency exchange, declared bankruptcy, and John Ray was appointed to replace Sam Bankman-Fried (Sam Bankman-Fried) as the CEO of FTX.
According to publicly disclosed information, there may be more than $8 billion in holes in FTX's liability balance sheet, and millions of customers may not be able to recover their savings in FTX.
Even though John Ray has already experienced many battles and dealt with various large-scale enterprise failure cases, FTX is still more difficult than he expected. He found that even though he started working around the clock after FTX went bankrupt, he still couldn't determine exactly how much assets FTX owned, and he found that some of the cryptocurrencies held by FTX even disappeared out of thin air.
At a hearing organized by the U.S. House Financial Services Committee last week, 63-year-old John Wray succinctly pointed out the FTX situation.
FTX's situation is worse than Enron's.
Crypto stars who went to jail
Before FTX founder and former CEO Bankman Fried moved to Panama, he probably never imagined that he would be arrested in this vacation paradise.
In September 2020, Bankman-Fried moved the FTX headquarters from Hong Kong to the Bahamas in order to avoid risks. In the past two years, Bankman-Fried has purchased at least 19 properties in the Bahamas (worth Nearly 121 million US dollars), built a big vacation paradise.
Most of these valuable houses are used as FTX employee housing. Bankman-Fried lives and works with several company executives in a luxury 30 million-dollar penthouse in Albany. ,held a party.
In order to allow employees to integrate into the island life more freely, Bankman Freed provides them with all-inclusive board and lodging treatment, and reimburses employees for all taxi expenses. Bankman-Fried looks like a generous owner, but the only question is, where does he get paid for?
The answer to this secret may only be known to a few key executives who lived with Bankman-Fried.
Ordinary employees of FTX said in an interview with foreign media after FTX went bankrupt that they didn’t know that the company’s financial situation was on the verge of collapse until the beginning of November. After these few days, FTX quickly went bankrupt, and some employees took their cars to flee the Bahamas. Just dropped it off at the airport.
Bankman-Fried is undoubtedly responsible for the number one mess in cryptocurrency history.
On December 12, Bankman Fried was arrested by the Bahamian authorities in his top-floor luxury apartment. After that, the relevant US authorities announced that he would face 8 charges, including wire fraud, securities fraud and money laundering. A U.S. prosecutor working on the case called it "one of the largest financial frauds in U.S. history."
Prior to this, Bankman-Fried had been publicizing that FTX is an honestly operated market, they will check the background of customers to ensure the safety and transparency of transactions, and it is a more efficient and more robust financial system than the mainstream financial system. trading system.
And these boastings have become the most ironic epitaph for FTX after FTX's secret bills were exposed.
John Ray said at the hearing that compared with Enron, which would fabricate accounting reports and deliberately complicate the financial reporting system, FTX’s methods are much clumsy, and they are not even in touch with the advanced blockchain technology of cryptocurrencies.
It's not complicated at all, it's just old school graft.
From the start, Bankman-Fried improperly transferred client assets to Alameda Research, his privately held cryptocurrency hedge fund, and then used those client funds for undisclosed risks, the SEC alleges. Investments, big real estate purchases and big political donations.
The allegation report further states that Bankman-Fried personally borrowed more than $1.338 billion from Alameda Research, while FTX co-founders Nishad Singh and Gary Wang each borrowed $1.338 billion. $554 million and $224.7 million — both roommates who shared the pricey penthouse with Bankman-Fried.
However, it is not easy to recover these debts. John Ray mentioned in his testimony that in his many years of professional career, he has never seen an organization that can fail so completely in business management at all levels. From a lack of financial reporting, to an outright failure of any internal controls or governance.
He pointed out that FTX is run by a small group of extremely inexperienced people, resulting in no trustworthy financial statements for the company. FTX's business records are almost equal to zero. They just track some invoices on the instant messaging software Slack and use tax records. Software QuickBooks Simple Recording.
If these recording methods are applied to a start-up company with two or three people, it is reasonable, but for a company with a valuation of tens of billions, it is tantamount to drawing a set of "Avatar" with the drawing software that comes with Windows.
John Ray mentioned that FTX with such a lack of records is an unprecedented situation for him and his team. It will take several months or even more time to locate its assets. As for whether FTX users can get their money back , he thinks this is not optimistic.
"Money" created out of thin air
Alameda Research is the inevitable name in this farce in the currency circle. It is the direct source of Bankman-Fried's withdrawal of customer deposits and the core of making FTX work.
In 2017, the cryptocurrency market ushered in its first boom, and the price of Bitcoin soared 10 times at that time. Many people hid the sweetness in this sudden wave of cryptocurrencies, including Bankman- freed.
Bankman-Fried found that some currencies were sold at a much higher price than others on certain exchanges. Through market trading arbitrage, Bankman-Fried easily earned his first pot of gold in the cryptocurrency market .
Not wanting to let go of such an easy way to make money, Bankman-Fried enlisted a few of his friends: Nishad Singh, Gary Wang and Caroline Ellison, Established Alameda Research, which specializes in cross-border arbitrage using currency differences.
In a matter of weeks, Alameda Research had made about $20 million, and the boom in cryptocurrencies gave Bankman-Fried great confidence.
Two years later, Bankman-Fried founded the FTX exchange with Nishad Singh and Gary Wang, while Alameda Research was handed over to Caroline Ellison.
Since then, Alameda Research and FTX have been entangled in fate.
In the early days of the establishment of the FTX exchange, Alameda Research provided it with important liquidity, and gradually helped this born exchange to become a leader in the field of digital assets.
At the same time, the value of Alameda Research is also highly dependent on FTX.
FTX issued a token called FTT. Generally speaking, the value of the token is determined by the market. The higher the value, the higher the asset value.
With the popularity of FTX, the value of FTT tokens also began to rise, but what people didn't know at this time was that Alameda Research owned a large number of FTT tokens, which raised the FTT tokens higher and higher.
The higher the value of FTT, the higher and higher the assets of Alameda Research will be. Using these assets, Alameda Research can borrow money unscrupulously to provide funds for the company's operations. Alameda Research just "steps on the right foot" Climb higher and higher.
However, once the value of FTT tokens plummeted, this empty-handed white wolf strategy collapsed instantly.
On November 2, the financial report of Alameda Research was ruthlessly exposed by CoinDesk, which gave people a new assessment of the value of FTT. Then, large exchanges led by Binance began to sell FTT tokens, and people followed suit. A run was triggered, and FTX, which lacked liquidity, collapsed at the speed of light.
Afterwards, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission stated that Alameda Research has secret special treatment in FTX, which can have faster transaction speed, negative balance operation ability, exemption from liquidation for over-extended transactions, and almost unlimited A large amount of loan supply – no doubt, this money comes from FTX's customer deposits.
The SEC said Alameda Research took billions of dollars in cash deposits from FTX clients into its bank accounts to use for its own trading operations and to expand Bankman-Fried's empire.
After the deeds were exposed, Bankman-Fried did not admit that there was intentional wrongdoing. He attributed the company's bankruptcy to the result of extreme mismanagement and said that he had no knowledge of such a large amount of money flowing into Alameda Research. .
▲Caroline Ellison, CEO of Alameda Research
But Bankman-Fried actually owns a majority stake in these two companies, and according to the information revealed in an interview with a former FTX employee, Bankman-Fried and Caroline Ellison are lovers, Roommates and other relationships, it is not so easy to stay out of it.
In suing Bankman-Fried and the companies, the CFTC said Bankman-Fried retained direct decision-making authority over all major transactions, investments and financial decisions of Alameda Research, pending extradition to the U.S. Bankman-Fried of Bankman-Fried explains this intricate relationship in more detail next.
Cryptocurrency may usher in the "twilight of the gods"
2022 is a year full of disasters in the currency circle. After the Luna coin crash and the collapse of FTX, the cryptocurrency market has become less fanatical and more calm.
As the benchmark of cryptocurrency, the price of Bitcoin has dropped from a high of $47,773 at the beginning of the year to hovering around $16,000. People have changed from "crazy about currency" to "disgusted about currency".
This is the ripple effect caused by the collapse of FTX. It not only caused the downfall of trading platforms such as BlockFi, but more importantly, it severely damaged people's confidence in investing in cryptocurrencies.
FTX has been accused by the US authorities of being "a house of cards based on fraud while telling investors that it is one of the safest buildings in the encryption field." What about a house of cards? The topic of whether to ban cryptocurrencies has been put on the agenda again by the US government.
Senator Sherrod Brown, chairman of the U.S. Senate Banking Committee, mentioned in a recent interview with the media that he suggested that government agencies such as the U.S. Treasury Department, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission should consider banning cryptocurrency transactions. .
Business leaders, including Munger and JPMorgan Chase CEO Jamie Dimon, have also publicly stated that cryptocurrencies are a meaningless investment. Centralized Ponzi scheme".
As a speculative asset, the future of cryptocurrencies does not seem to be as brilliant as it used to be, but we will not set a tombstone for this string of bytes that has disrupted financial markets around the world.
Professor Omid Malekan of Columbia Business School said in an interview with the media that cryptocurrency is first and foremost a technology, and to some extent it is better than ever. The market is not a good opportunity, it drives out all the scammers and speculators in the market.
After getting rid of bad factors such as hype and fraud, cryptocurrencies can be really used to improve people's lives, but before that, cryptocurrencies may experience several ups and downs.
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