Since my article ‘Cryptos take a knock’ (November 18) both Times of Malta and the international financial press remains aghast at the extent of the ramifications of the collapse of FTX empire, especially that the founder Sam Bankman-Fried reportedly managed to syphon off no less than $8 billion of customers’ deposits.

In view of the fact that an attempt was made for the group to set up base in Malta, this matter is of local interest and an eye-opener that there are sharks in the financial world who remain unconvinced that Malta’s financial regulators have tightened their belt since the likes of Pilatus Bank was licensed with such dire consequences for Malta’s reputation.

Indeed, it is a feather in the MFSA’s cap that two companies (FTX Malta Gaming Services Ltd. and FTX Malta Holdings Ltd registered in Malta last April with a registered office at 32, St Christopher Street, Valletta) were never granted a licence to carry out activities relating to cryptos nor virtual financial assets neither in nor from Malta. Had otherwise been the case, one can well imagine the serious consequences for Malta.

For space reasons, I am limiting myself to only some aspects of the murky background of the FTX group that have now been revealed in the international financial press. Firstly, FTX chose Antigua and Barbuda, two tiny Caribbean islands, as the base for its holding company’s incorporation. The choice of location speaks for itself as the population of the two sister islands is less than 100,000.

It is common knowledge that these are a haven for companies owned by persons of ill repute allegedly involved in money laundering and other illicit activities that would not be tolerated in a country with well-regulated financial services. No wonder that the only outside director of FTX was a lawyer from Antigua and Barbuda.

I mentioned in my previous article that FTX was closely associated with Almeda Research, which stopped honouring requests by customers for withdrawals just days before the eventual collapse. In theory, FTX and Almeda were separate entities to avoid conflict of interests but it transpires that Bankman-Fried used Almeda as his private fiefdom and freely moved funds from the latter to the former company.

It is a feather in the MFSA’s cap that two companies were never granted a licence to carry out activities relating to cryptos- Anthony Curmi

It is reported that staff who had previous experience with similar companies were taken aback by the lack of normal checks and balances between functions such as development, security and product. Moreover, the bankruptcy filings state that the company’s management used software to conceal the misuse of customer funds. 

A class action lawsuit filed on behalf of investors in the US alleged that FTX was “truly a house of cards, a Ponzi scheme where FTX shuffled customer funds between their opaque affiliated entities”. Bankman-Fried denied the reports and blamed “messy accounting” for the leakage of funds to Almeda and for the failure to spot that his empire was far more leveraged and vulnerable to a bank run than he had recognised.

Yet, Marc Cohodes, one of the most outspoken and controversial characters in finance, stated “the clues were everywhere you looked.... the inexperienced crew behind FTX and its sister company Alameda had almost no experience of trading, let alone running an exchange.... everything reads that it is a big scam”.

Now it is clearer what FTX was doing. In its simplest form, it was an age-old con trick. FTX created some funny money. It generated a digital asset called the FTX token (FTT) which it could then command. This FTT wasn’t backed by anything. Printing unlimited amounts of money was fine as long as the FTT was stable but havoc was created when confidence was lost and customers were unable to redeem their tokens. 

One experienced crypto trader said “Bankman-Fried could mint his own token and borrow against it”. In other words, borrow real money against fake money.

Such are the dangers that those who risk their money in cryptos – and it is known that these are not a rare breed in Malta –  especially when dealing with a company incorporated in, or having connections with, such questionable financial centres as the Bahamas and Antigua and Barbuda.

It so happens that Antigua and Barbuda offer a ‘citizenship by investment’ programme, having been advised by Henley & Partners as their advisers and promoters. Seems familiar!

Anthony Curmi is a former senior bank executive in Malta; UK; Italy and the Bahamas.