Taylor Swift is perhaps the most popular music artist on the planet. However, her rise to stardom was not faced without many legal battles over her music right’s that will have a lasting impact on the industry as a whole. From her early years as a budding country singer to her evolution into a global pop superstar, Swift’s career has been marked by legal disputes and a relentless pursuit of creative freedom.

In 2019, Swift faced significant copyright challenges when her former record label, Big Machine Label Group, was acquired by Scooter Braun’s company, Ithaca Holdings. The acquisition included the rights to Swift’s early master recordings, a move that Swift vehemently opposed. This sparked a highly publicized feud, with Swift publicly accusing Braun of bullying and attempting to control her artistry. Swift eventually announced her decision to re-record her early albums, reclaiming ownership and control over her music.

The legality of Swift’s decision to re-record her music lies in her rights as the songwriter and copyright holder of the underlying compositions. While the melodies and lyrics of her songs are protected by copyright, the sound recordings themselves have a separate copyright owned by the record label.

Swift is fully within her rights to re-record her songs as long as she does not infringe on the rights of the original sound recordings owned by Big Machine Label Group and Ithaca Holdings. By creating new recordings, she can and has already been releasing them independently or through her new record deal with Republic Records, thus retaining ownership and control over her music.

Re-recording her music not only allows Swift to regain control but also serves as a strategic move to assert her artistic autonomy and reclaim her narrative within the music industry. It enables her to make a statement about the importance of artists having ownership and control over their own work, and it provides her with the opportunity to connect with her fans through fresh versions of her beloved songs.

Swift has further emphasized her desire for artistic control by partnering with Republic Records and establishing her own production company, Taylor Swift Productions. This strategic move has allowed her to have a greater say in the creative direction of her music and maintain ownership over her master recordings. Swift’s determination to be in the driver’s seat of her own career has become a symbol of empowerment for artists in an industry often criticized for its exploitative practices.

Taylor Swift’s copyright conundrum and battle for artistic control have had a profound impact on the music industry. Her high-profile disputes have sparked important conversations about the rights of artists, fair compensation in the digital age, and the importance of creative autonomy. By taking a stand and advocating for herself, Swift has become a voice for artists who often find themselves at the mercy of powerful industry forces. Swift’s actions have also prompted changes within the music industry itself. Her decision to re-record her early albums not only allows her to regain control over her music but also serves as a bold statement against the traditional power structures that artists have long struggled against.

Copyright battle’s aside, Swift has also been atop headlines to do her ticket sales. Ticket scalping and resale have been ongoing concerns in the music industry, and Swift’s concerts have not been immune to these practices. Despite efforts to prevent scalping, tickets for her shows have appeared on secondary markets at inflated prices, often to the disappointment of fans who were unable to secure tickets during the initial sale. This has sparked frustration and allegations of unfairness, as scalpers profit from the high demand for Swift’s concerts.

To address these issues, Swift has taken steps to combat ticket scalping and improve the ticket purchasing experience for her fans. She has partnered with ticketing platforms that implement various anti-scalping measures, such as dynamic pricing, ticket limits per customer, and verified fan programs. Additionally, she has advocated for legislative changes to address ticket scalping and protect fans from inflated prices.

Her influence has prompted other musicians to re-evaluate their contracts and seek more equitable agreements with record labels and streaming platforms. As she continues to push boundaries and challenge the status quo, Taylor Swift remains a formidable force in the pursuit of artistic control and fairness within the music industry. Personally, her music is not my cup of tea but it’s safe to say that Taylor Swift’s prowess, business moves, and advocacy will have a lasting impact on the music industry.

As I grind through my job, I often wonder how I could possibly make more money than my parents. After all, my parents made more money than their parents, who made more money than their parents.

Being the typical millennial I am, as I scroll through social media, I see plenty of memes and jokes about “boomers” telling their millennial children, that ‘at their age, they were able to afford a house and feed an entire family, all while saving for retirement.’ There is indeed actual data outside of memes that support this notion. So, it’s not just me, but millennials, on average, are less wealthy than their parents at the same stage in life, despite making more money and being more educated. Why?

There are a multitude of factors we can point to, and it’s not because millennials are dumb or lazy (okay some us are but not more so than other generations). Socioeconomic factors like cost of living, economic growth, and overall views on saving money are the real culprits for millennials finding themselves at a financial disadvantage compared to their parents.

Let’s start by taking a look at the cost of living. It costs way more to live as an adult now, that it did 30-50 years ago. Just think about all of the little things you need* to spend on that your parents and grandparents did not. Internet, cable, Wi-Fi, email, and most other tech-related “utilities”, that are so common now, did not exist as little as 25 years ago. In addition, many items that did exist have drastically increased in price, outpacing wages. Increases in college tuition, housing, healthcare, and child care have out paced wages. Simply put, it costs way more to live in this current society and wages have not compensated to the same extent.

Another huge factor is the differences in generation population and corresponding economic growth. Boomers are typically the children of the traditionalist/silent generation, those people born between 1928-1945. The traditionalist generation was one that grew up on the heels of the Great Depression and WWII, causing their parents to have less children, yielding a smaller demographic compared to other generations. Boomers get their name because their parents had far more children due to changing mindsets about war and family than their grandparents, thus leading to the “Baby Boom” in the 50s and 60s. Naturally, with more boomers entering a growing workforce, job opportunities were plentiful as they came of age because there were way more of them in a growing economy fill than there were incumbents to block them from filling such roles.

While boomers had more children, on average, than Millennials do now, they still did not have as many as their own parents. This would create less opportunities for millennials in the workforce to replace the boomer incumbents in higher paying jobs, not just because there were less of them to replace their predecessors, but also because the economy came to screeching halt in both 2008 and 2020.

Millennials came of age during The Great Recession of 2008, thus the economy ceased to create the same level of opportunities to out earn their parents. Prior to the financial collapse of 2008, many people were able to buy a house and reasonably expect that property to appreciate significantly over the course of their ownership. Once the housing market collapsed, this was no longer true for millennials, leading to far less of them becoming home owners than their parents were at the same age.

On top of these major factors, millennials have a much different mindset than their parents and grandparents when it comes to saving money. Boomers and their parents were taught to earn and save for retirement, climb corporate ladders, own a home and have children. Millennials on the other hand, are much more influenced by social media to spend, have more of a work life balance, travel, and delay having children. There fore millennials spend way more of their paychecks than their parents did at their age, leading to less investments in their retirement.

The point of all this is not to complain or blame the generations before us, but to understand the financial position we’re in so we can all prepare for our future. It is not impossible to get a mortgage and buy a house as a millennial, our parents faced very high interest rates as well. You can still travel and delay having children thanks to advances in medicine and fertility treatment. There are ways to budget for this and still save, so it is important to think about your retirement and how much you are actually spending, and focus on how you can adjust your budget to accomplish your desired lifestyle to a reasonable degree while also putting some money away for retirement.

While our parents were taught and conditioned to work and save, work and save, work and save, it is OKAY that our generation prefers to actually try and enjoy life to some degree while also trying to make a living wage. Just as every generation before us had jobs that did not exist when they were children, so do millennials and we will keep finding jobs tomorrow that do not exist today. Take me for example.

(Full disclosure: I am a white male raised by an upper-middle class family, so I do recognize that the odds are stacked in my favor, but I think my experience is still valuable.)

I graduated with a bachelor’s degree in finance, and went on to work traditional 9-5 jobs for big companies in my first few years out of college. During the pandemic, and more so the shift to a more virtual workforce, I found that I had a greater opportunity to offer my skills and services by freelancing. This allows me to serve multiple clients, and customize my workload to some degree. I am not relying on a single employer to fund my life, and I can adjust my work and amount of clients to fit my desired work/life balance. I find that an increasing amount of my peers are choosing a similar route, especially those who work in marketing, advertising, PR, and graphic design industries.

So if you are a millennial (or older Gen Zer) concerned with your future retirement and earning potential, the best thing you can do is strategically consider how you can leverage you’re knowledge, education and skills, in way that may be a tad less “traditional”, but one that can allow you to work in an environment that is more suited for your lifestyle and spending habits.

Today, Fox News and Dominion Voting Systems have reached a historic settlement in the defamation case stemming from Fox’s coverage of Dominion’s role in the outcome of the 2020 US Presidential election.

The case was originally filed by Dominion Voting Systems in March 2021 for $1.6 Billion. Dominion claimed that numerous Fox News personalities knowingly spread false statements that their voting machines were used to manipulate the 2020 election against former president Donald Trump.

Details of the settlement are still unknown to the public, but this serves as a historic precedent for news outlets and the potential repercussions they may face when it comes to journalistic integrity. While Fox tried to defend themselves by citing the first amendment, their words had a direct impact on Dominion’s business.

This is an important reminder that while our constitution does provide us with free speech, if you are going to knowingly spread false information about a person or entity that stands to suffer financial damages from such actions, there is a price to pay. In fact, the settlement amount is more than Dominion Voting Systems is even worth, but damages can be attributed to potential lost earnings.

If you are going to defame, diminish, or attack a person’s character, you better make sure there are facts to back it up.

On Sunday, The Federal Deposit Insurance Corporation (FDIC) took control of Silicon Valley Bank (SVB), following bank’s historic collapse on Friday. This marks the 2nd largest bank collapse in U.S. history. Not long after, Signature Bank collapsed as well, making it the 3rd largest in U.S. history.

How did SVB Collapse?

SVB became one of the largest tech lenders in the nation, an industry that saw a massive boom since 2020, but has since regressed. Many venture capitalist firms and tech companies had been putting in massive amounts of deposits over the last few years. Just like any other business banks try to make money, and they do this by taking (some) of the money deposited with them, and generating a higher yield through lending and other investments.

In order to generate profit, SVB invested a large portion of their capital into bonds. Bonds are debt-securities, and are typically considered less risky compared to equity securities. Bond investors receive interest payments until the bond matures, when the principal of the bond is paid back. Typically, the interest payments are tied to the current interest rates.

Just like publicly traded stocks, bonds can be bought and sold on the open market. Therefore, when interest rates rise, the market price of bonds declines. Think about it… if I have a bond that pays a 4% interest rate, and someone can easily go and get a new bond at the current higher rate of, let’s say 6%, the market value of my bond will go down because it does not pay as much as the higher rate bonds available on the market.

In order to combat rising inflation, the Fed has been continuously raising interest rates, which lowered the value of the bonds SVB was invested in. Seeing the value of their investments plummet, SVB began to sell them at a huge loss in order to improve its liquidity and shore up its balance sheet, but instead it scared some of its larger investors and depositors, leading to a huge demand of withdrawals that the bank could not afford to pay back.

What Is The Government Doing?

The Biden Administration told the public that SVB depositors will receive all of their funds.

But how?

They are using FDIC funds, which is essentially an insurance program that banks pay in to cover accounts up to $250,000. Additional funds are being made available under the new Bank Term Funding Program (BFTB) which offers very low interest, short-term loans to banks. This allows the government to ensure depositors receive their money until the Fed can sell off SVB’s assets.

Is This a Bailout?

No. SVB is done. Out of business. All of their management has been fired. Investors in the bank’s stock or SOL as it is now worthless. According to the plan laid out by the Biden administration, they are not using taxpayer money to keep the bank in business, but instead keep public faith in the US banking system, and to ensure the deposit holders, and most importantly those small businesses who need their money to make payroll are made whole.

Why Didn’t Regulators Prevent This?

After the 2008 Financial Crisis, The Obama administration passed the Dodd-Frank act which enacted strict regulation in the banking industry. However, in 2018, the Trump Administration eased some of those regulations, most importantly the barometer of which banks would fall under this tight regulation. Under Dodd-Frank banks with assets under management of $50 billion or more were considered systematically important, but that was raised to $250 Billion in 2018. SVB had roughly $200 Billion in AUM, making it the country’s 16th largest bank.

Would the tighter regulation have prevented this? It’s hard to say for certain right now, before all the dust has settled, but one aspect of the act’s regulation was a stress test for banks in scenario’s where interest rates raise dramatically.

What Happens Now?

Hopefully, the actions taken by the government will ease concerns and prevent a ripple effect of depositors across the country withdrawing all of their funds from regional banks, which would be very very bad. But as for now, will have to wait and see. Biden has already asked congress to act quickly and pass a bill to enforce tighter regulation going forward.

‘You need to go to college to get a good job and make a good living’ is what my generation (Millennial) has been the story told by our parents (Boomers) since we were young. But times are changing and the cost of a Bachelor’s degree keeps rising, so let me ask the question, is a college degree really worth the investment? Is there a college tuition bubble that is primed to burst in a matter of time?

Of course, this is a pretty complicated question as there are many types of jobs, schools, and factors that go into this. Nonetheless, based on recent data I believe that a bubble is growing in the education world, specifically for private institution 4-Year bachelor’s degrees.

Before I dive into the numbers, it’s important to understand how bubbles form and why they burst…

The most famous bubble bursting in recent history was the US Housing Market in 2008, which led to the Global Financial Crisis. In this instance, people were borrowing money to purchase houses they couldn’t afford due to the expectations that they would be able to sell that house in the future for much more than they bought it for. The banks that loaned people this money either believed it too, or were just very greedy and turned a blind eye. Either way, housing prices began to drop and people were unable to pay their mortgages and the banks who loaned the money needed government bailouts.

Now think about this in terms of the price for a college degree. On average, students who graduated from a private 4-year university spent approximately $126,000 for their education. In 2021, the expected starting salary for a college graduate with a bachelor’s degree after taxes was approximately $43,000. The median salary in 2021 for a person who graduated high school but did not attend college was approximately $30,000 after tax. Over the last 10 years, the average wage increase across the board has been 3.28% which has only outpaced inflation by 1.4% (this is not including the anomaly that is 2022 inflation). Based on these number, the average college graduate can expect to take home approximately $240,000 over the next 5 years after tax, while the average non-college graduate can expect approximately $180,000, a mere $60,000 difference.

Since a college graduate will only make $60,000 more than a non-college graduate over the first 5 years of their career on average, we can take a look at what that means for the return on investment for that degree they paid $126,000 for. Since they only made $60,000more over those 5 years than they could have if they decided to forgo college, the return on their investment (ROI) will be approximately -53%. It would take them 11 years just to break even on their investment, and another 7 years to double their investment. In other words, it will take about 18 years just to double the investment of a private education which is an annual yield (APY) of just 5.6%. For comparison, the S&P 500 has had an average APY of approximately 10% over the last 50 years.

Alternatively when you do the same math with the price of a public bachelor’s degree the numbers look much better…

As of 2021, the average 4 year cost for a state school was approximately $30,000. Assuming the same salary figures as above (which is a stretch), it would only take a public school graduate 3 years to break even on their investment. Over the same 18 years they will have made nearly 7.5x their investment, which is an APY of about 41%.

Like I said before, there are plenty of other factors to consider. For instance, most of the country’s top schools, in terms of mid-career salary, are private institutions. But when you look at the top state schools they’re not too far behind. UC-Santa Barbara had the top mid-career salary for a state school as of 2021 ranking them 21st overall and just $20,000 behind the #1 school, MIT, while a private institution, is a land-grant university, meaning it receives government funding unlike most private universities.

While it is tough to definitively answer whether or not the price of a degree is worth it, the numbers are starting to tell a story. They are telling us that an affordable degree could be well worth your investment. This notion can lead to more and more college applicants to go this route instead of an overpriced private institutions.

Just like the price of houses, if students were to keep borrowing money to pay for extraordinarily high private education tuition, it could end up taking them decades to recoup their investment, in turn leading to significant regression in the price and feasibility of a private university education, as well as reluctance from lenders to even fund these educations.

Inflation. Ever heard of it?

Well, if you’ve put on the news in the last 6 months I’m sure you have, as the US is continuously fighting rising inflation which is largely due in part to the lingering effects of the pandemic.

But let’s take a trip back to the Global Financial Crisis of 2008. Shortly after the US housing bubble burst, the entire world experienced the largest financial recission of all-time and the biggest crisis since the Great Depression. Even though it was caused by the US, the effects were felt around the world…hence why it is referred to as the global financial crisis. Duh.

Different countries respond to economic problems in different ways, especially if they are run by a corrupt regime. One of those countries, Zimbabwe, ended up causing their citizens to experience hyper-inflation. If you think the current inflation rate of roughly 6% is bad, in 2008 Zimbabwe’s peak month of inflation was estimated at 79.6 BILLION percent month-on-month, and 89.7 SEXTILLION percent year-on-year in mid-November 2008. In case you’re wondering how much one sextillion is, it’s a 1 followed by 27 zeroes… or in other words one billion trillion.

In the U.S., the Federal Reserve tries to maintain a “healthy” inflation rate of around 2%. When inflation surpasses 2%, as it does today, it is considered high. Hyperinflation is an extreme case of inflation, to say the least. This occurs when prices have risen by more than 50% per month. Safe to say they should have invented a new word for what Zimbabwe was experiencing, they had the 50% covered by about 79.1 Billion%.

Imagine you always buy the same items at the grocery store. If the economy were experiencing a rising inflation rate of 5% per day, your grocery bill might rise from $500 per week to $675 the next week, to $911 per week the following week, and so on. In Zimbabwe people literally had to carry money in barrels just to pay for items, which eventually led to the creation of the One Hundred Trillion Dollar Bill, the largest denomination for a bank note in the history of the world.

How could inflation like this possibly have occurred? The corrupt government of Zimbabwe couldn’t afford to pay their debts, let alone the paper they were printing these dollars with, so they just kept printing more money. Parlayed with their struggling economy, and failure to do trade with other countries, their inflation quickly spun out of control resulting in this absurd hyper-inflation and need for larger bank notes.

As a result, Zimbabwe reverted to allowing the use of the US Dollar and South African Rand as acceptable currencies in their country which eventually led to stabilization, and in turn, completely abandoning the ZWD.

But now that the infamous mega bills are obsolete and becoming a rare novelty, they are being bought for upwards of $250 on sites like eBay by collectors.

Let’s face it, paying taxes isn’t fun. However, it’s best to get ahead of it to ensure you don’t end up paying any fines or late fees.

Luckily, fractional financial service companies, like Skyview CFO, have become more commonplace over the last couple years. The lingering effects of the pandemic have led to a rise in freelancers, and virtual services that mesh with the work-from-home or hybrid working environments

Fractional financial services can help business owners save time and money by ensuring your accountant doesn’t have a large pile of disorganized information to bill you at a substantial hourly rate to make heads or tails of.

What are Fractional Financial Services?

At Skyview, we provide three different types of services: Fractional bookkeeper, controller, and CFO services. Think of us as the translator between you and your accountant. Maybe you just need someone to clean up your books, or just an extra set of eyes on your numbers. That can seem costly, especially if you don’t have the budget to hire anymore full-time employee. This is where a fractional services can be a cost effective solution.

Fractional Bookkeeping

It’s 2023 and the days of bookkeeping being recorded in actual books are well and gone, as are the days of needing a software downloaded on your desktop. Accounting platforms, like QuickBooks have made the shift to online which allows for the virtual bookkeeping industry to exist.

The average salary for a full time bookkeeper is approximately $50,000. By providing our services virtually on a part-time basis, we are able to come in at a significantly lower rate – as lows as a couple hundred dollars per quarter!

A fractional bookkeeper will categorize your income and expenses, save and file your receipts, reconcile your bank accounts, process your payroll and produce your financial statements essential for both you and your accountant.

Fractional Controller

A fractional controller is more hands on than a bookkeeper. They can provide services such as budgeting, forecasting, price shopping, pricing strategy, and other analytical reports, in addition to the standard bookkeeping services above

Fractional CFO

A fractional CFO is more geared towards startups who need financial guidance, business planning, and funding tactics. This can be a much better alternative to a full-time CFO who will either demand a substantial salary, or equity.

Find Out More

If any of these services appeal to you, or if you just want to set up a free consultation drop me an email at brandon@skyviewcfo.com !

On August 16, 2022, The Inflation Reduction Act of 2022 (IRA) was signed into law. The IRA was created to direct new federal spending toward reducing carbon emissions, lowering healthcare costs, funding the Internal Revenue Service, and improving taxpayer compliance, all in an effort to help curb the rising inflation.

However, the House GOP is sending a message by passing a partisan bill yesterday (that WON’T make it through the Senate) that would cut that IRS funding.

So, what does this all mean?

Why is inflation so high? What is the purpose of the new IRS funding from the IRA? What message is the GOP sending by passing this bill?

Why Inflation is High

Inflation is reaching historically high levels due in large part to lingering effects from the pandemic. At the start of the Covid-19 outbreak, consumers began spending less because of lockdowns, and in turn, started saving more. Then, when Covid-19 restrictions eased, people started spending more again. Companies, however, couldn’t keep up with this increased consumer demand. 

Just as there are many causes of broad-based inflation, there are many factors that have given way to higher energy prices. Large in part, due to Russia’s invasion of Ukraine and the resulting Western countries’ sanctions which put severe limits on the import of Russian oil. Both events played a significant role in rising energy prices and supply-chain issues.

The result of all these things? Higher prices for most goods and services.

Corporations and wealthy individuals have been getting away with not paying taxes. Ergo, most people can’t afford to buy things while those who can do not fund the government with their taxes, which is contributing to inflation and leaving the economy in a very shaky state.

IRA Funding From The IRS

Excerpts from the nonpartisan Joint Committee on Taxation (JCT) indicated that the legislation might lead to increased payments on personal taxes for Americans of all incomes. However, this calculation was based on an assumption that companies would pass on parts of the minimum corporate tax to employees, which was criticized by Steven M. Rosenthal, a senior fellow at the nonpartisan Tax Policy Center (TPC). The TPC estimated that the bottom 80% tax filers by income would actually receive a net benefit. The 80th-99th percentile would incur a small cost (0-0.1% increase in average federal tax rate) while the top 1% would incur a 0.2% increase. The costs mainly are imposed indirectly as corporations facing higher taxes, which may end up reducing the wage increases for workers; individual tax rates were not changed.

Treasury Secretary Janet Yellen directed IRS Commissioner Charles Rettig to NOT use the new funding to increase the rate of audits of those making less than $400,000 a year above historical levels, but to instead focus on “high-end noncompliance.”

The GOP Response

“Our first bill will repeal funding for 87,000 new IRS agents, because the government should be here to help you, not go after you,” declared the very newl House Speaker Kevin McCarthy, who was barely able to get elected by his own party.

Republicans claimed throughout the midterm campaign that Democrats were sending “an army of IRS agents” to go after middle and lower-class taxpayers with the new agency funding in the IRA. A tad misleading. 

Republicans also say they are not buying the assertions from administration officials stated above and have vowed to keep up scrutiny of the IRS.

The Democrat Response to the GOP Response

“They don’t want a fairer tax administration, they think it’s bad for some of their supporters,” Rep Richard Neal, the top Democrat on the Ways and Means Committee, said in debate with Republicans. “What they’re attempting to do tonight is bad for middle-class families. It’s bad for small businesses.”

This new House Republican measure would increase the budget deficit by more than $114 billion through 2032, according to the Congressional Budget Office.

My Interpretation

Inflation is high. Corporations haven’t been paying the limited taxes they owe. Lawmakers are trying to curb rising inflation by funding various programs, including the IRS so that it can collect from the top 1% more efficiently. The GOP is trying to appeal to their supporters and say that Democrats are spending money and use it to come after poor people to force them to pay more taxes with guns. The Democrats are saying, “false”.

Will any of this actually reduce inflation? We’ll just have to wait and see.

Speaking of tax… If you need help getting your businesses’ 2022 financial statements ready you should hire an outsourced CFO or bookkeeper from Skyview! For more info email me at brandon@skyviewcfo.com!

Earlier this month I wrote an article about the global scandal concerning the Crypto exchange, FTX. In the latest news surrounding the Ponzi-like Scheme, various celebrities who were hired to endorse the company are being sued for endorsing the fraudulent company.

This raises and interesting debate among the growing industry of influencer marketing. Obviously, no reasonable person would expect Larry David, of all people, to know a single thing about Crypto, even the commercial itself leans into that notion. However, if celebrities are going to make livings off “endorsing” products, and “influencing” their followers in regard to what they should consume, it would make sense that they should understand what it is they are endorsing.

Especially with hindsight, it is hard not to laugh at the overwhelming irony that this commercial graced us with. While I do feel bad for the unsophisticated investors who were victimized, Larry David getting sued for endorsing a company in an ad where he only said negative things about sounds like it was written by Larry David.

While it may seem unfair and erroneous I do think that David and the other celebrities who endorse this: Tom Brady, Stephen Curry, and more, should be held accountable and made an example of for other celebrity and influencer endorsers in the future. If you are going to endorse something you should at least have to perform some level of due diligence to try and verify if it is a legitimate company and something you would want to recommend to your followers. On the flip side, you shouldn’t blindly buy or invest in something just because Larry David told you not to.

Let us know your thoughts on the FTX scandal!

Unless you’ve been living under a rock, you’ve probably heard of the latest crypto scam surrounding FTX.

WHO? Sam Bankman-Fried and Changpeng Zhao

Just a few short months ago, American entrepreneur and guy-who-looks-like-he-should-be-an-SNL-cast-member, Sam Bankman-Fried. was being hailed as the next Warren Buffet and the JP Morgan of cryptocurrency. He became one of the youngest American billionaires, seeing his net worth peak at $26 Billion.

Some basic facts:

• FTX is a Bahamas-based crypto exchange founded by Bankman-Fried and Gary Wang in 2019.

• Alameda Research is a quantitative trading firm specializing in cryptocurrencies co-founded by Sam Bankman-Fried together with Tara Mac Aulay in 2017.

• Binance is the main competitor of FTX and the largest cryptocurrency exchange platform by volume. Its CEO and founder is Changpeng Zhao.

WHAT? FTT Tokens

FTT is the exchange token used by FTX.

FTX was expanding at an impecible rate. Established in 2019, FTX grew to become the third-largest cryptocurrency exchange platform executing $9.4. billion worth of trades each day. The investments of Bankman-Fried extended its global reach while expanding further its core business to become an all-around financial services provider. FTX was reinvigorating the cryptocurrency market.

Bloomberg published an article in September 2022 underscoring the relationship between FTX and Alameda Research. Alameda Research functioned as a market maker during the early stages of FTX. According to the article, these two firms would be subjected to scrutiny under the regulatory oversight applied to companies in traditional equities markets.

Alameda evaluated cryptocurrencies such as crypto-coins and crypto-tokens using quantitative finance and other tools and techniques in applied mathematics in its trading decisions. Its specific strategies include arbitrage, market making, yield farming, and trading volatility.

CoinDesk published another story at the beginning of November reporting that a significant portion of the assets of Alameda Research were held in FTT. The tokens worth $5.1 billion were in circulation and the balance sheet of Alameda Research held “unlocked” FTT tokens worth $3.66 billion and “locked” FTT tokens worth $292 million.

Alameda Research had held assets and funds from the customer base of FTX. FTX channeled a huge chunk of FTT tokens to Alameda Research. Lenders allowed Alameda Research to use these tokens as collateral. There was a commingling of assets between the two companies. Bankman-Fried was further accused of using FTT as collateral to borrow billions of dollars that he spent to expand his cryptocurrency empire.

Some of the deals made by Bankman-Fried resulted in severe losses. These investments exposed Alameda Research, as the FTT tokens the trading firm held had low liquidity. It had a hard time converting them into cash assets to supplement its finances and pay its creditors.

Translation: Bankman-Fried was using his funneling FTT tokens to his own firm, and using them to borrow money, but the tolkens are very hard to quickly convert to cash

WHEN? November 7th

Binance, announced on November 7th that it would offload all of its entire FTT holdings. It was a supporter of FTX. However, its founder and chief executive, Changpeng Zhao, induldged into a series of tirades with Bankman-Fried.

News about Binance selling its FTT tokens, as well as the Twitter exchanges between Zhao and Bankman-Fried, resulted in the prices of FTT and other cryptocurrencies plummeting. Zhao announced the next day that it entered into a non-binding agreement to purchase FTX to address its liquidity crisis. However, Binance took to Twitter on November, 9th to announce that it would not move forward with the deal.

Binance cited two key reasons for refusing to acquire FTX. These include the reported mishandling of customer funds in line with its commingling issue with Alameda Research, and the pending investigations involving the possible legal liabilities of the cryptocurrency exchange platform. The website of Alameda Research was taken down on the same day and Bankman-Fried announced that his trading firm would wind down trading and close.

Several employees from the legal and compliance team of FTX resigned. Other employees from entities related to FTX also resigned. FTX, Alameda Research, and more than 100 affiliate companies filed for chapter 11 bankruptcy on November 11th. Bankman-Fried resigned as chief executive and was replaced by corporate restructuring specialist John J. Ray III. Anonymous sources said the FTX owed as much as $8 billion.

The events during the first and second weeks of November resulted in FTX customers rushing to withdraw from the platform. However, because of the liquidity crisis and due to the fact that the exchange used FTT as collateral, they were not able to withdraw funds. Investment advisors have been warning people about the risks of leaving their assets unclaimed on cryptocurrency exchange platforms that use crypto-tokens as collateral.

Reports about missing funds worsened the situation and aggravated further the distressed customers. Some $473 million worth of funds were removed from the platform. An FTX general counsel explained that their system logged an unauthorized transaction. In addition, between $1-$2 billion customer funds could not be accounted for as of November 12th Several institutional investors stand to lose their money due to their stakes in FTX.

WHY? Crypto Regulation Sucks

Doesn’t this all sound familiar? It should because a very similar situation happened earlier this year when the cyrpto-exhange platform Celcius filed for bankruptcy after it too, was well over leveraged, and was essentially exposed as operating a ponzi scheme.

Bankman-Fried, being hailed as a crypto-savior and someone that would be writing the crypto-regulation, was allowed to get away with structuring his companies in ways that would have not been allowed under traditional equity regulations, but because the Crypto market does not have the proper regulation yet, it has enabled scam-artists like Bankman-Fried to utilize investor hype and confusion to over leverage their companies and exposing creditors that include ma and pa investors, who end up being hurt the most.

WHAT NOW? Bankman-Fried is Still Sipping Pina Coladas in the Bahamas

Anonymous sources cited by Reuters stated that Bankman-Fried had transferred at least $4 billion from FTX to Alameda Research, without any disclosure to insiders or the public, earlier in 2022. The sources said that the money transferred had included customer funds, and that it was backed by FTT^. An anonymous source cited by the Wall Street Journal stated that Bankman-Fried had disclosed that Alameda owed FTX about $10 billion which were secured through customer funds stored in FTX when FTX had, at the time, $16 billion in customer assets.^[According to anonymous sources cited by the Wall Street Journal, the Chief Executive of Alameda Research Caroline Ellison told employees that Bankman-Fried was aware that FTX had lent its customers’ money to Alameda to help it meet its liabilities.

One day after FTX declared bankruptcy, on November 12, Bankman-Fried was interviewed by the Royal Bahamas Police Force.

On November 17th, John J. Ray III, the CEO brought in as a liquidator, stated in a sworn declaration submitted in bankruptcy court that according to the firm’s records, Alameda Research had lent $1 billion to Bankman-Fried.

Sources

Explained: Causes of the FTX Collapse and Bankruptcy