As the crypto space is rocked by the aftermath of last week’s FTX collapse, exchanges are rushing to calm investors’ fears.
FTX and Alameda have now filed for chapter 11 in the United States – and about time, according to Temple Melville, the CEO of the Scotcoin Project Community Interest Company.
He told City A.M. today he is convinced that regulators will want to try to preserve something for creditors, even though there is unlikely to be very much.
“The ongoing saga of FTX is displaying all the characteristics of Russian TV news on the Ukrainian
‘Special Military Operation’,” Melville said.
“Now they say they have been hacked and millions have been stolen by third parties, and “FTX Apps are all infected with Malware’,” he added.
“Stop and think – there are billions missing. Supposedly, somewhere between $10bn and $50bn. How can they not know with a little more precision?”Temple Melville,
Melville continued: “How useful to be able to say that lots of cash has disappeared elsewhere when it would certainly appear that quite a lot of it may have simply been moved into the pockets of bad actors.”
He said: “There are many things that have happened,” not least FTX allegedly using its FTT token as collateral and to pay for things – most notably, Binance exiting its FTX investment.
Binance sought to recover the cash by selling FTT and did a great job salvaging what it could, Melville argued.
“There could be a bit of conflict of interest here, but Binance has and had every right to crystalise and exit its investment in FTX,” he stressed.
“The problem is Alameda and FTX reportedly used FTT to invest in at least 50 other companies and
projects. Each one of those must now be in serious trouble.”
And, not only because of the drop in value and lack of liquidity, but also in the alleged straightforward looting of other companies.
“But, perhaps the second most blatant misuse of power and fiduciary responsibility was late in
September when FTX allegedly used $4bn of FTT tokens – which had just vested – to ‘repay’ a
similar amount due to Alameda,” Melville said.
“Fair enough you may say – except FTX recorded it as a loan to Alameda and when the next day it was returned to FTX, the ‘loan’ was extinguished and, er, so was the Alameda loan. So, Alameda was ‘better off’ by $4 billion and so was FTX. Of course, neither statement appears to be true,” he continued.
Melville stressed that “absolutely the number one blatant misuse” of fiduciary responsibility was the alleged use of client funds on the exchange to support FTT, which was necessary to stop FTT dropping and leaving lots of black holes everywhere.
“Whatever the actors in this drama may say, these funds are not, were not, and never did belong to FTX itself.”
Mirror pension fund scandal
Melville recalled Robert Maxwell and the Mirror pension fund scandal, which changed pension oversight rules.
“In many ways FTX’s use of client funds is analogous. I sincerely hope US regulators will pull the whole thing apart and bring charges against those responsible.”
“This is quite possibly the best thing that has ever happened to crypto, as finally regulators will see that the same standards that apply to traditional financial institutions and constructs must apply to crypto as well,” he stated.
Likewise, the proposed lifeboat for any future collapse mooted by CZ would be a very positive development to protect investors from losses, Melville continued.
“Gideon Greenspan said it nearly eight years ago and was roundly condemned. But his thesis –regulators central banks and governmental treasury departments are not going to allow billions to be shifted about with no knowledge of from whom, to whom, and where the funds actually came from – remains even more true today than it did then.”
“That will now hopefully leak across to the proper oversight of crypto exchanges and protection for investors,” he concluded.