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Noted author Michael Lewis was buried under a Crypto Twitter pile-on after he highlighted FTX’s ability to generate cash in an interview with CBS’ 60 Minutes.
During the broadcast, Lewis sought to distinguish Sam Bankman-Fried’s collapsed crypto empire from the infamous operations of other convicted fraudsters, such as Bernie Madoff.
“This isn’t a Ponzi scheme,” Lewis said. “The problem is, there’s no real business there. In this case, they actually had a great real business.”
FTX imploded last November, and Bankman-Fried’s criminal trial begins tomorrow. His high-profile case centers on seven fraud and conspiracy charges, which allege that FTX misappropriated billions of dollars in customer funds under his leadership.
Ponzi schemes involve nonexistent enterprises where investors are paid out in cash that comes from new participants. Though FTX became one of crypto’s largest exchanges, federal prosecutors have called its short-lived legacy into question.
When criminal charges were brought against Bankman-Fried last December, prosecutors said that his misconduct could be traced back to 2019. That was the year FTX was founded, and it precedes the exchange’s lucrative growth.
Customer cash was commingled with assets at Alameda Research, a sister company to FTX that covered its losses with customer funds, prosecutors allege. In total, FTX’s shortfall of customer funds was $8 billion.
Months before FTX fell apart, CNBC reported the exchange’s purported financial performance in 2021. Citing internal documents, the publication said the exchange’s revenue grew to just over $1 billion from just $89 million the year before.
FTX’s bankruptcy proceedings in November painted a different picture. By the end of 2021, FTX and Alameda had accumulated $3.7 billion in operating losses for federal tax purposes, according to a court filing.
As prosecutors alleged in a new indictment, Bankman-Fried “boasted about FTX's profits” in late 2022, while the exchange finances “contained a multi-billion-dollar deficiency” that stemmed from the misappropriation of funds.
But at the end of the day, Lewis said that FTX would “still be sitting there, making tons of money” if “aspersions” weren’t cast on FTX’s business that caused traders to withdraw their money en masse.
Prominent crypto influencer Dan Held said it was “shameful” for Lewis to defend Bankman-Fried because exchanges “are supposed to have 1:1 deposits” and can’t handle deposits in the same way as banks—at least legally.
Shameful that Michael Lewis is defending SBF.
“They had a great real business. If no one had cast aspersions on the business, if there hadn’t been a run on customers deposits, they’d still be making tons of money” - Michael Lewis
That's not true. They are not a bank, they're… pic.twitter.com/vRKBbgzITe
— Dan Held (@danheld) October 2, 2023
FTX filed for bankruptcy after a steep drop in the exchange’s native token FTT sparked a flurry of customer withdrawals. It forced the exchange to admit that it did not hold segregated reserves of customer assets.
Still, Lewis said that Bankman-Fried’s business was a money maker. As an exchange, Lewis said it was the “best business” in crypto because of its ability to charge transaction fees.
“If you’re sitting in the middle of those transactions and you're taking out even a tiny fraction of a percentage point, there’s a lot of money to be made.” “As long as people are trading crypto, it made money.”