opinionHow Sam Bankman-Fried’s FTX being within the Bahamas alone was an enormous crimson flaggus carlsonYesterday

Gus Carlson is a New York-based columnist for The Globe and Mail.

As revelations emerge in regards to the huge scope of the FTX debacle, the inevitable comparisons are being made between its disgraced chief govt Sam Bankman-Fried and legendary Ponzi schemer Bernie Madoff.

To make sure, each scoundrels have been adept at parting fools and their cash – a number of it. However Mr. Madoff’s victims would possibly elicit some sympathy for being taken in by his fastidiously crafted façade of respectability. Mr. Bankman-Fried’s prepared dupes ought to get no such leniency. They need to have seen hassle coming.

Mr. Bankman-Fried’s enterprise had extra crimson flags than a Beijing army parade, the largest one being that head workplace within the Bahamas. There may be maybe no redder flag than a company headquarters in a sketchy tax haven with a protracted historical past of soiled dealing that has been referred to as out by international watchdogs.

In 2000, the Group for Financial Co-operation and Improvement positioned the Bahamas on a blacklist for tax havens. In 2020, the European Union positioned the Bahamas on a blacklist of high-risk international locations for cash laundering and terrorist financing. Whereas it moved to the EU’s gray listing earlier this yr after bettering reporting, it stays in need of compliance. In September, the EU put Bahamas on a separate blacklist for tax havens.

Historical past tells us that is nothing new for the island nation a number of miles off the east coast of Florida. That is the place piracy was a core enterprise, and the place Civil Struggle smugglers and Prohibition-era bootleggers discovered protected haven. The Mafia laundered cash via its casinos there, and drug lords adopted swimsuit.

This was house to the notorious Bay Road Boys, native enterprise house owners who exempted themselves from taxes, and set the stage for the evolution of shell corporations with no seen industrial raison d’être however with the flexibility to make loans and ebook deductions.

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It’s maybe no coincidence FTX’s workplaces are on Bay Road in Nassau, the capital. And the allegations in opposition to Mr. Bankman-Fried align with the tradition of free regulatory management that’s the Bahamian legacy.

John Ray III, chief govt of the entity overseeing FTX’s chapter, mentioned in a court docket submitting this week that many FTX corporations, together with these within the Bahamas, didn’t have applicable governance – some had by no means had a board assembly. He pointed to loans to FTX workers for homes and different private property within the Bahamas that had no or improper documentation.

“By no means in my profession have I seen such an entire failure of company controls and such an entire absence of reliable monetary info as occurred right here,” Mr. Ray mentioned. When the guy who mopped up after Enron refers back to the FTX mess as “unprecedented,” it’s not good.

All of that is on top of the rank ostentatiousness of that cocky MIT whiz child and self-proclaimed saviour of crypto who cultivated political affect by filling up the coffers of dozens of distinguished Democrat politicians. He splashed the FTX title on sports activities arenas and leisure venues round the USA. Even in highschool, his status as a cash man reportedly prompted mates to print pretend $100 payments along with his image on them, referred to as “Bankmans.”

Against this, Mr. Madoff managed his profile fastidiously. Whereas he travelled in society circles, he was cautious to not outshine his purchasers. Even his Palm Seaside house was comparatively modest in contrast with the palatial oceanfront mansions of his well-known purchasers – although he might definitely have afforded to be their neighbour.

The legendary showman P.T. Barnum mentioned famously, “There’s a sucker born each minute.” Buyers ought to beware that it doesn’t matter what their strategies, there shall be extra Sam Bankman-Frieds and Bernie Madoffs desperate to persuade folks of the therapeutic energy of their manufacturers of snake oil.