Opinion: How Sam Bankman-Fried’s FTX being in the Bahamas alone was a massive red flag

FTX founder Sam Bankman-Fried is led away by officers of the Royal Bahamas Police Force in Nassau on Dec. 13.Austin Fernander/The Associated Press

Gus Carlson is a New York-based columnist for Tausi Insider.

As revelations emerge about the vast scope of the FTX debacle, the inevitable comparisons are being made between its disgraced chief executive Sam Bankman-Fried and legendary Ponzi schemer Bernie Madoff.

To be sure, both scoundrels were adept at parting fools and their money – lots of it. But Mr. Madoff’s victims might elicit some sympathy for being taken in by his carefully crafted façade of respectability. Mr. Bankman-Fried’s willing dupes should get no such leniency. They should have seen trouble coming.

Mr. Bankman-Fried’s venture had more red flags than a Beijing military parade, the biggest one being that head office in the Bahamas. There is perhaps no redder flag than a corporate headquarters in a sketchy tax haven with a long history of dirty dealing that has been called out by global watchdogs.

In 2000, the Organization for Economic Co-operation and Development placed the Bahamas on a blacklist for tax havens. In 2020, the European Union placed the Bahamas on a blacklist of high-risk countries for money laundering and terrorist financing. While it moved to the EU’s grey list earlier this year after improving reporting, it remains short of compliance. In September, the EU put Bahamas on a separate blacklist for tax havens.

History tells us this is nothing new for the island nation a few miles off the east coast of Florida. This is where piracy was a core business, and where Civil War smugglers and Prohibition-era bootleggers found safe haven. The Mafia laundered money through its casinos there, and drug lords followed suit.

This was home to the infamous Bay Street Boys, local business owners who exempted themselves from taxes, and set the stage for the evolution of shell companies with no visible commercial raison d’être but with the ability to make loans and book deductions.

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It is perhaps no coincidence FTX’s offices are on Bay Street in Nassau, the capital. And the allegations against Mr. Bankman-Fried align with the culture of loose regulatory control that is the Bahamian legacy.

John Ray III, chief executive of the entity overseeing FTX’s bankruptcy, said in a court filing this week that many FTX companies, including those in the Bahamas, did not have appropriate governance – some had never had a board meeting. He pointed to loans to FTX employees for houses and other personal property in the Bahamas that had no or improper documentation.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Mr. Ray said. When the fellow who mopped up after Enron refers to the FTX mess as “unprecedented,” it’s not good.

All of this is on top of the rank ostentatiousness of that cocky MIT whiz kid and self-proclaimed saviour of crypto who cultivated political influence by filling up the coffers of dozens of prominent Democrat politicians. He splashed the FTX name on sports arenas and entertainment venues around the United States. Even in high school, his reputation as a money guy reportedly prompted friends to print fake $100 bills with his picture on them, called “Bankmans.”

By contrast, Mr. Madoff managed his profile carefully. While he travelled in society circles, he was careful not to outshine his clients. Even his Palm Beach home was relatively modest compared with the palatial oceanfront mansions of his famous clients – though he could certainly have afforded to be their neighbour.

The legendary showman P.T. Barnum said famously, “There’s a sucker born every minute.” Investors should beware that no matter what their methods, there will be more Sam Bankman-Frieds and Bernie Madoffs eager to convince people of the healing power of their brands of snake oil.

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