Crypto Firm FTX Raised Red Flags Long Before Collapse: Experts

The hindsight clearly shows the flawed foundation that preceded the collapse of crypto giant FTX over the past two weeks. Across finance, however, big players have been captivated by the exchange’s meteoric rise and the prodigy image of its founder, Sam Bankman Fried.

The FTX collapse wiped out billions of dollars in client funds and Bankman-Fried’s net worth went from nearly $16 billion to zero in a matter of days.

Following the staggering shutdown, potential bailout deals with other companies fell through, forcing FTX to file the balance sheet under new CEO John Ray III, an executive who guided energy trader Enron through its historic collapse.


The FTX logo displayed on a smartphone screen. (Pavlo Gonchar/SOPA Images/LightRocket via Getty Images/Getty Images)

Some, however, were wary of the platform’s immediate growth and success. Marty Bent, a venture capital partner at Ten31, a bitcoin-focused venture fund, said FTX long review and the ways it has multiplied its growth and value over the past four years.

“It’s pretty obvious that they were breaking a lot of laws at the same time,” Bent told FOX Business. “Mixing funds between Alameda and FTX, trading against their users, FTX sharing information about their order book with Alameda. … I mean, these are all activities that are obviously criminal activities.

Bent said that beyond the shady business practices that linked Alameda Research, a quantitative trading company founded by Bankman-Fried, at FTX through a tangled array of financial and personal relationships, there was a striking lack of fundamental good business practices that should be present in any business – especially one of FTX’s size and value. .

Bent: FTX wasn’t running things above the board

Sam Bankman Fried

Sam Bankman-Fried, Founder and Former CEO of FTX Cryptocurrency Derivatives Exchange, speaks at the Institute of International Finance Annual Members Meeting in Washington, DC on October 13, 2022. (Ting Shen/Bloomberg via Getty Images/Getty Images)


FTX has ripped off dozens of companies over the years, but the one that should have laid bare its dysfunction was the crypto exchange’s acquisition of Ledger X, a digital currency futures and options exchange and a clearing house regulated by the Commodity Futures Trading Commission. According to Bent, these types of acquisitions normally require immense amounts of due diligence on the part of both companies.

“I come from a managed futures background and understand the due diligence that applies to brokerages, clearinghouses and commodity trading advisers,” Bent said. “You would have to imagine that if they were able to buy this clearing house, you would expect there to be some form of rigorous due diligence. And if that rigorous due diligence had indeed been conducted, it should have been trivial to find out that FTX wasn’t running things above the board.”

FTX US Derivatives CEO Sam Bankman-Fried testifies on Capitol Hill in May 2022

From right, Terrence A. Duffy, CEO of the Chicago Mercantile Exchange; Sam Bankman-Fried, CEO of FTX US Derivatives; Christopher Edmonds, director of development of the Intercontinental Exchange; and Christopher Perkins, President of CoinFund, are testing (Tom Williams/CQ-Roll Call, Inc via Getty Images/Getty Images)

This lack of business fundamentals has since been laid bare in bankruptcy filings drafted by new FTX CEO Ray.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as has occurred here,” he wrote in the filing. bankrupt.


Ray’s dossier exposed myriad problems in Bankman-Fried’s empire. Among the most egregious was the failure to maintain comprehensive books, records or security checks to safeguard customer money. Ray wrote that the exchange lacked “an accurate list” of its own bank accounts and employees and did not keep records of decision-making. To top it off, Alameda loaned $4.1 billion to FTX, of which more than $3 billion was lent directly to Bankman-Fried.

red flags


A depiction of cryptocurrencies in an illustration from January 24, 2022. (REUTERS/Dado Ruvic/Illustration/Reuters)

“I feel like a lot of these altcoins are blatant scams”

– Marty Bent, Venture Capital Partner at Ten31

Bent said the use of exchange tokens and the near total lack of professional oversight should have alerted the entire industry.

“In the cryptocurrency space there are a lot of scams. So I feel like a lot of these altcoins are blatant scams, people are just using open-source code to set up their own tokens and leveraging bitcoin’s brand awareness and brand name to scammers by affinity and affinity,” Bent told FOX Business. “It always rings alarm bells for me, especially because the mechanics of these exchange tokens is extremely fraudulent.”

Lost among the fervor of FTX’s collapse and subsequent bankruptcy filing are retail investors, who Bent says are unlikely to ever get their money back. He compared the collapse to that of Mt. Gox, another crypto exchange that collapsed in 2013, leaving customers out in the cold. They still haven’t received anything almost a decade later.

“Retail investors are most likely wiped out”

Attendees pose for photos in front of The Miami Bull during the Bitcoin Conference

Attendees pose for photos in front of the Miami Bull during the Bitcoin 2022 conference. (Marco Bello/Getty Images/Getty Images)

“Retail investors are most likely wiped out,” Bent said. “Obviously FTX is going through bankruptcy proceedings, but it looks like they don’t really have a lot of bitcoins they were telling their users. I highly doubt there are any assets to return to these creditors, these unsecured creditors, but even if there is, it will be a process that will probably take a decade.

Bent says non-bitcoin foundation cryptocurrency exchanges and coins are flawed and ripe for scammers to take advantage of both retail and institutional investors. According to Bent, altcoins, which trade like FTX as their own cryptocurrency, provide no real value.


“These crypto altcoins, again they are being marketed as if they are better than bitcoin or they will bring a different use of bitcoin“, he said. “But, at the end of the day, these are really penny stocks that have a very, very low probability of becoming valuable long-term investments.”

Bent said FTX’s altcoin, FTT, was what led to the downfall of the crypto exchange and allowed Bankman-Fried and his cohorts to use investor funds to enrich themselves and make risky financial bets.

“Once it fell apart, the world woke up to the huge con…”


“It failed in a lot of ways. What unraveled them was that FTT token,” Bent told FOX Business. “They were basically using a very poor form of currency, a very poor asset, as collateral. It was trivial for a big player in the space to crash the price of this token, FTT, which really led to the inevitable outcome of FTX or their ability to maintain the scam.

“Once it unfolded, the world became aware of the massive scam, which goes far beyond the FTT token and the shady mechanics of this particular token. Obvious fraud, electronic fraud, mismanagement of funds, mixing funds, using user deposits to take risky bets, using user deposits to pay themselves. It’s pretty easy.”


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