Investors in cryptocurrency on the FTX exchange weren’t just taken in by the celebrities they saw pitching it to them during the Super Bowl. There were self-styled “financial influencers” who also pushed crypto onto unsuspecting investors eager to beat the zero-interest rate environment. Despite Tom Brady’s endorsement of FTX, investing is supposed to be boring, not run like a fantasy football team. Listen to what crypto buyers interviewed by The Wall Street Journal have to say about their involvement with FTX:
“My blood is boiling,” said Matthew Way, a fundraiser for an Illinois orchestra who has about $1,800 stuck at FTX.
Where the money could be—and whether it will ever arrive—is anyone’s guess. FTX filed for bankruptcy on Nov. 11. John J. Ray, the company’s new CEO who also unwound Enron, said in a court filing Thursday that “only a fraction” of FTX’s digital assets have been located and secured. Determining how much cash is left has been difficult too, according to the bankruptcy filings, since FTX didn’t keep an accurate list of its bank accounts.
FTX said in a statement Saturday that it is working “to maximize recoverable value for stakeholders.”
“I respectfully ask all of our employees, vendors, customers, regulators and government stakeholders to be patient with us as we put in place the arrangements that corporate governance failures at FTX prevented us from putting in place prior to filing our Chapter 11 cases,” Mr. Ray said in the statement.
Mr. Way, the orchestra fundraiser, was drawn to FTX in part by the buzz. The exchange came recommended by the social-media influencer Kevin Paffrath, known on YouTube as Meet Kevin.
Mr. Way parked the money at FTX late last year and kept it in cash, intending to buy bitcoin if its price ever fell back to its lows of early 2020. He never got the chance.
On Nov. 10, FTX founder Sam Bankman-Fried tweeted that the American arm of FTX, known as FTX US, “was not financially impacted by this shitshow” and was “100% liquid.” To Mr. Way, it felt like a bluff. He decided to yank his money out and got an automated email saying his request would be processed within one business day.
The next morning, FTX filed for bankruptcy, and Mr. Bankman-Fried resigned.
As of Sunday, a message from Nov. 10 remained highlighted at the top of the FTX US website: “Withdrawals are and will remain open.” Mr. Way, 43, is still waiting for his money.
Meanwhile, he has soured not just on crypto but on the people who hyped it, including Mr. Paffrath, the internet star. Mr. Paffrath, who has said he can earn millions of dollars a year doling out investment recommendations on social media, apologized in an interview and said he feels terrible: “This is a scar on me as an influencer.”
How many “influencers” are applying the Prudent Man philosophy to their investment advice? How many have a fiduciary duty to their clients? If you’re taking financial advice from anyone who isn’t using the Prudent Man philosophy, or anyone who doesn’t owe you a fiduciary duty, you should ask yourself why you’re willing to take that risk. The WSJ continues:
Drake Lyle of Nashville, Tenn., deposited $2,700 onto FTX last year and used it to buy small positions in bitcoin, ether and litecoin. He expected the value of his crypto holdings to slide around. He didn’t expect FTX to implode.
“It definitely seemed credible, like a Charles Schwab of crypto,” said Mr. Lyle, 25 years old.
He tried without success to withdraw his money, which he said had shrunk to $800, before the bankruptcy filing.
“That’s a nice vacation for me and my girlfriend,” Mr. Lyle said. “That’s all the Christmas presents for my family and friends that I was going to buy.”
Mr. Lyle is considering joining a class-action lawsuit filed last week against Mr. Bankman-Fried and the celebrities who endorsed FTX, such as Tom Brady and Stephen Curry. Adam Moskowitz, an attorney involved in the suit, estimates his office fielded more than 1,000 calls and emails from investors around the world in the 24 hours after the lawsuit was filed.
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Originally posted on Your Survival Guy.
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