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Sam Bankman-Fried doesn't look much like Bernie Madoff at first glance. Two men, one a grey-haired financial tycoon with a 40-year Wall Street career and the other a 30-year-old millennial king of crypto in shorts and a T-shirt, meet for a business meeting.

The FTX crypto crisis, meanwhile, is being linked to Madoff's criminal operation, almost 14 years to the day after Madoff was arrested and charged with fraud in New York for organising a long-running pyramid scheme.

The similarities between Bankman-Fried, or SBF, as he is known, and the Wall Street investment manager are "remarkable," according to Diana Henriques, a financial historian and the author of The Wizard of Lies, a book delving into Madoff's $64 billion (£53 billion) fraud.

What we know about Madoff and Bankman-Fried is remarkably comparable, she said. "They couldn't be more dissimilar in personality, yet they share a calculated, eye-crossing intricacy that would make the normal investor roll his or her eyes and remark, "Well, I trust Bernie."

Sam Bankman Fried Tactics The way in which FTX's clientele saw the company was similarly dynamic. Just like with Bernie, they had to take a leap of faith because there wasn't much proof to back up their trust. You believe in the protagonist, so you go over what are, in retrospect, obvious checks. This is eerily similar to real life.

If a con artist is good at what they do, they will be able to make their victims trust them unconditionally, no matter how many warning signs or unsettling facts are presented. "FTX can't be seen as anything other than a huge gamble made by a lot of people who should have known better," Henriques added.

Madoff, who was serving a sentence of 150 years in prison, passed away there last year. New York federal prosecutors released an unsealed lawsuit this week that accuses SBF of eight separate charges of fraud. The maximum sentence he might receive is 115 years in prison. It is possible that Bankman-Fried will be found not guilty of all accusations because he has not yet been formally charged or entered a plea.

Both Madoff and SBF had their schemes exposed and their consumers' trust in them eroded when the economy collapsed, in 2008 for Madoff and in 2018 for the crypto market, COVID-19, and rising inflation.

Henriques said of Madoff, "In the twinkling of an eye, the lovely prince became an ugly toad," a phrase that might just as readily be attributed to Bankman-Fried today.

The two men's backgrounds couldn't have been more different: Madoff was a seasoned Wall Street veteran who had been subject to frequent regulatory inspections, while SBF was a young, inexperienced math genius who gained quick trust in a novel financial sector. But they both made considerable efforts to establish themselves as trustworthy figures.

These two individuals were both financial pioneers who oversaw mind-bogglingly intricate enterprises. This week, however, US authorities said that the same basic concept of "robbing Peter to pay Paul" was at the centre of FTX's collapse as it was in the Madoff case. Henriques explains that this is "a simple, typical fraud complaint about fraudulent misrepresentation," which relies on anti-fraud provisions that have been proven in the courts for over a century.

Like Madoff's schemes, FTX's operations were veiled in an air of phoney intricacy. Henriques explains that the way Madoff would explain his investment approach to clients would make a normal investor's eyes glaze over. Therefore, investors were left with no choice but to say, "Well, I believe Bernie," as she put it.

She went on to say that "it was eye-crossingly convoluted" and that "investors didn't have a lot of strong proof to justify their trust."

However, Madoff was just using the money he stole from his clients to cover the withdrawals of other clients while keeping a portion for his own family. Ponzi schemes like this one are successful up until the point where new funds are no longer being added.

Following the global financial crisis of 2008, Madoff's customers requested approximately $7 billion (£6 billion) in withdrawals.Over the course of 20 years, it was revealed that he had been operating a Ponzi scheme.

The FTX scandal is still being investigated, but US investigators believe that the same mechanism enabled the fraud perpetrated by Bankman-Fried.

His cryptocurrency exchange took great satisfaction in being an upstanding member of a community overrun by shady operators. To this day, SBF maintains that the only reason he made money was to help others, even though he spent millions on lobbying and political donations in pursuit of stricter regulations for cryptocurrency trading.

But the SEC claims that "Bankman-Fried was organising a vast, years-long fraud," using the trading platform's customers' billions of dollars to enrich himself and expand his crypto empire.

According to the authorities, the wrongdoing dates back to the very beginning. The Commodity Futures Trading Commission has filed a similar action, claiming that the system by which Bankman-Fried diverted money from FTX customers to his trading firm, Alameda Research, was in place from the beginning of the company in 2019.

This was a case of "old-fashioned embezzlement," according to John Ray III, a veteran bankruptcy specialist who took over FTX after its collapse and testified before Congress this week. To determine how much money is missing, who is due what, and how much Ray can recover, he and his colleagues are going through the company's books. However, he has claimed that he has been hampered by FTX's "unprecedented and utter collapse of corporate governance" and sloppy record-keeping.

Henriques believes that it is a bold stance to assert that FTX was, at its core, a straightforward Ponzi scam. While the regulatory questions are avoided, the criminal case puts an emphasis on dishonesty and deception. "All the complications can be avoided with a straightforward fraud charge," she explained. "It's a beautifully straightforward strategy for prosecution."

After serving as Nasdaq's chairman, Madoff advocated for the development of online trading. The nonprofit headed by Holocaust survivor Elie Wiesel lost all its money when he was a customer. Other famous people who used his services included film producer Steven Spielberg and actor Kevin Bacon.

Even if we haven't seen everyone who lost money on FTX, we know that there are a lot of famous names. According to records seen by the Guardian, American football player Tom Brady and his ex-wife, model Gisele Bündchen, were identified as stockholders and featured in commercials for the business.

Sam Bankman Fried Tactics Larry David, Naomi Osaka, Shaquille O'Neal, and Kevin O'Leary, stars of the Canadian business reality show Shark Tank, all made appearances to promote the exchange for a combined $15 million (£12 million).

According to Eric Schiffer, a crypto investor at private equity firm Patriarch Organization, Bankman-Fried "built authority in political circles with the celeberati and showed a value system of utilitarian idealism that [was] not oriented toward money, all of which caused investors to let down their due diligence guard."

As the financial regulators investigate Bankman-Fried, they may find more similarities to the Madoff allegations as they try to trace the flow of money through FTX and into Alameda and other investments, as well as the lavish spending on Bahmani property and the roles of others at the company in its downfall.

Prosecutors have made it clear that SBF is not the only person they plan to indict in connection with the collapse of the cryptocurrency exchange. On Tuesday, prosecutors said that they wanted to "come speak to you before we come to you" if they were involved in the suspected fraud. Joseph Bankman and Barbara Fried, both professors at Stanford University, are the parents of Bankman-Fried, and Ray announced in Washington that he is "investigating" their involvement.

Henriques warns that the similarities may disappear if more details emerge regarding the demise of FTX and authorities get insight into the flow of funds and the nature of the alleged crime.

I'm not even sure whether John Ray knows yet, but at this point we have no idea if this was actually a high-tech Ponzi scam. To grasp the extent to which this is similar to Bernie Madoff, one must learn what was done with the funds.

Even though SBF has tweeted his defence, given innumerable interviews, and admitted he "fucked up," he still seems to be implying, in a somewhat muddled way, that it was all a major mistake. Henriques remarked that "the insouciance, or casualness, of his comments has been startling."

Prosecutors will spend the next few months crafting a case that suggests SBF is essentially a modern-day Madoff, despite their obvious contrasts in aesthetics. When US Attorney for the Southern District of New York Damian Williams detailed the criminal allegations against SBF on Tuesday, he was asked if SBF CEO Stephen Bankman-Fried fit the profile of a fraudster. Williams responded, "You can conduct fraud in shorts and T-shirts in the sun."

Even now, SBF is fending off comparisons to Madoff. In an interview with Bankman-Fried before his arrest, ABC's George Stephanopoulos observed, "A lot of people look at you and see Bernie Madoff."

"Yeah, I mean, I don't think that's who I am at all, but I see why they're saying it." Bankman-Fried responded. The general public suffered financial losses, some of which were substantial. Look, at the end of the day, there's a question of what led to the explosion and why. That comes out pretty differently to me.

Please do us a small favor. Daily, millions of people around the world come to the Guardian for its open, independent, and high-quality reporting.

We think that everyone has a right to knowledge that is based on authority and integrity, as well as to information that is supported by scientific rigour and verified facts. That's why we went a different route and decided to make all of our reporting freely available to everyone interested in reading it, regardless of their location or financial means. More individuals will be able to access more accurate information, create stronger bonds, and be moved to take effective action.

Conclusion

A worldwide news outlet like the Guardian that is committed to reporting the truth is crucial in today's unstable world. Our journalism is distinct because it is not influenced by corporate interests or political agendas, as we have no shareholders and no billionaire owner. This independence has never been more crucial, as it allows us to investigate, challenge, and expose people in authority without fear of reprisal.

FAQs

How did Bernie Madoff plan to pull it off? Criminal activity, contrivance, and scandal Split-strike conversion is a genuine trading strategy, and Madoff enticed investors by suggesting he could use it to create high, consistent returns.

Sam Bankman-Fried majored in which academic discipline at university? Have We Seen Sam Bankman-Fried Rely on Bernie Madoff Techniques?

Bankman-Fried studied at MIT for six years, from 2010 to 2014. There, he was a resident of Epsilon Theta, a sorority that welcomed both males and females. He received his bachelor's degree in physics with a mathematics concentration in 2014.

Can we say that Bernie Madoff was a genius? Check out the photo gallery for the answer to the question, "Did Sam Bankman-Fried employ Bernie Madoff techniques?"

Time revealed, however, that Madoff was not a great investor but a genius concealer; he was able to keep a wide network of clients and staff trusting him while covering up the largest Ponzi scam in American history.

When will someone figure out how Bernie Madoff evaded detection? Despite several reports to the SEC regarding suspicions of a Ponzi scheme, Madoff remained under the radar for a long time because he was well-versed in and engaged with the financial industry. In 1960, he founded his own market-making firm and played a key role in establishing the Nasdaq stock exchange.

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