FTX is the third-largest cryptocurrency exchange in the world. It was once valued at over $32 billion but recently filed for bankruptcy protection. Its investors included Sequoia Capital, Temasek, and Paradigm. FTX and Alameda Research suffered billions of dollars in losses after a steep downturn in the price of crypto assets.
SBF allegedly invested the money of depositors without obtaining approval. This caused a massive liquidity crisis, and FTX quickly scrambled to shore up its finances. After a few weeks, it found billions in debt and filed for bankruptcy protection last week.
Will Congress Look into FTX Collapse?
The FTX collapse has already caused billions of dollars in consumer losses. Its failure spread across the crypto ecosystem, and lawmakers announced plans to investigate the company. The House Financial Services Committee plans to hold a hearing on the matter in December. The University of California intends to remove the FTX logo from its football stadium. The Texas State Securities Board is also investigating the company.
Rumor or fact? News outlets are reporting the hack, which skimmed off over $400 million, was an internal hack, possibly by SBF himself. The stories go deeper, with FTX having ties to a Ukraine money laundering scheme and funneled back to the Democratic National Committee to finance mid-term elections.
Related News: Congress Looks to Regulations in Crytoworld
Class Action Lawsuit in Florida Probably the First of Many
A class-action lawsuit was filed in Florida against FTX and its former CEO, Sam Bankman-Fried, alleging that the company used celebrities to promote its products and services. It claims that FTX used celebrities to lure “unsophisticated investors” into a “deceptive” marketing campaign.
The suit names celebrities such as Tom Brady, Stephen Curry, Larry David, Kevin O’Leary, Naomi Osaka, and Udonis Haslem. FTX also allegedly employed celebrity endorsers to drive consumers to open accounts with the exchange. The lawsuit also alleges that Bankman-Fried and the company violated Florida securities law and unfair trade practices.
The lawsuit, which names Bankman-Fried and others as defendants, also claims that FTX used celebrity endorsers to create “hype” around the exchange, making investors think that FTX was a reputable company. Celebrity endorsement is a type of marketing that FTX used in earlier years, as it raised its profile through Super Bowl ads. The company also co-starred in a Super Bowl commercial this year, with Larry David as the skeptic and Stephen Curry as the “agent of change.”
Texas Securities Board Tying Celebrity Endorsements to Ponzi Scheme
The Texas State Securities Board is also investigating the company, especially regarding yield-bearing crypto accounts. The board began an investigation last month and expanded its review after the exchange filed for bankruptcy protection last week. However, the company’s representatives have not responded to requests for comment. The Wall Street Journal reported that Bankman-Fried failed to raise more capital following the bankruptcy.
The company’s former CEO, Sam Bankman-Fried, allegedly made misleading statements about FTX to investors, and the exchange shuffled customer funds around to maintain an appearance of liquidity. It also reportedly enlisted celebrity endorsers such as Tom Brady, Stephen Curry, and Shaquille O’Neal to promote its products and services. The lawsuit alleges that FTX was running a Ponzi scheme and those celebrity endorsers are as responsible as Bankman-Fried for FTX’s failure.
Small Investors Will be Screwed Again
FTX’s collapse has been a massive blow to the consumer market and its investors. Several venture investors had already written off their stakes in the company. It is estimated that Tom Brady and Giselle Bundchen, who were given substantial equity stakes in FTX, lost most of their money.
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