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Bankman-Fried a ‘Madoff-level scammer:’ Ahluwalia
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Bankman-Fried a ‘Madoff-level scammer:’ Ahluwalia

Bankman-Fried a ‘Madoff-level scammer:’ Ahluwalia

Tony Zerucha·
Crypto
·Nov. 14, 2022·2 min read

There are plenty of layers to peel off the FTX onion, but the reasons for some of the disgraced exchange’s recent actions may be pretty straightforward, Ram Ahluwalia believes.

The CEO of Lumida, an independent investment advisor specializing in digital assets and alternatives, Ahluwalia previously founded PeerIQ, a provider of institutional credit risk analytics for owners and operators of consumer credit risk.

FTX sought a stay of execution

On Nov. 13, Ahluwalia posted a Twitter thread asking why FTX wanted to acquire Voyager and BlockFi if they had no cash and were insolvent. 

By acquiring its creditors, FTX was buying time and slowing down a margin call. It was common knowledge that FTX had hundreds of millions of dollars in outstanding loans with Voyager.

“When you can’t pay off your debt, the debtors wipe out your equity and own your company,” Ahluwalia wrote. “FTX, in a truly Lex Luthor way, sought to buy Voyager to prevent this. The new parent assumes the subsidiary liability. Also, FTX could acquire with their inflated but worthless $32 Bn equity. They (were) positioned as a ‘white knight’ when they were the delinquents.”

These moves would also prevent the forced selling of tokens during a bankruptcy process, Ahluwalia suggested. Such selling would have destroyed Alameda’s balance sheet much sooner.

Why recent FTX moves were problematic

FTX has also been expanding its assets, Ahluwalia said, while adding they were coercing portfolio companies to custody client funds at FTX Global. That would enable them to violate the segregation of customers’ funds and use those assets as a funding source.

This is abnormal and problematic, Ahluwalia explained. Typical businesses fund their operations with operating, investing, or financing cash.

As if the above weren’t problems, there were more for FTX and Alameda. They were liable for loans they had to pay back. On the other end, retained earnings were erased from losses incurred running a negative net present value (NPV) business.

Sam Bankman-Fried
Sam Bankman-Fried

Buy Voyager and BlockFi also gets you a temporary reprieve, Ahluwalia reasoned.

“It requires the ‘target’ to have credibility in the acquirer and reverse due diligence (since the form of payment is FTX equity).

“If this hypothesis is true, this would mean the fraud perpetuated by FTX is truly epic.”

Add it up, and you are in rare air

Those interested must grasp the level of FTX’s misdeeds, Ahluwalia stressed, as they go well beyond simple lies, lack of conflict disclosure, duty breach, or gross negligence. Bankman-Fried was at the level of Bernie Madoff, Ahluwalia suggested.

Ahluwalia challenged investigators and journalists to post the Voyager and BlockFi acquisitions term sheet to determine how much Alameda borrowed from BlockFi.

Subsequently, Ahluwalia learned that FTX sought to nullify Voyager’s creditor claim over FTX.

In the coming days, Ahluwalia plans on sharing his thoughts on where the $2 billion in raised equity went.

“Superbowl ads and penthouse parties aren’t that expensive,” he concluded.

See also:

FTX: What happened over the weekend
  • Tony Zerucha
    Tony Zerucha

    Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.

    View all posts
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