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The Greatest Financial Con of the Twenty-First Century
In February 2022, I sat across from Sam Bankman-Fried in his Bahamas office while cryptocurrencies were valued at a staggering $2 trillion. Despite his disheveled appearance-schlubby, shoeless, with wild matted hair-he was worth $20 billion and claimed he'd eventually give it all away. I'd gone to profile this supposed boy genius, but was unwittingly sitting next to one of history's greatest fraudsters who was secretly embezzling billions from customers.
The crypto bubble eventually burst, erasing $2 trillion in value and revealing numerous frauds. Bankman-Fried and others were arrested, and millions lost their savings. When I confessed my suspicion that much of crypto might be fraudulent, he responded with what now seems like a winking confession: "It's like the narrative would be way sexier if it was like, 'Holy shit, this is the world's biggest Ponzi scheme,' right?" Time would prove just how prophetic those words were.
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Tether: The Mysterious Foundation of Crypto
In January 2021, during the depths of pandemic lockdowns, my friend Jay invested in "Dogecoin"-a cryptocurrency based on a Shiba Inu meme. Despite my repeated warnings about its fundamental worthlessness, he made thousands when its price skyrocketed from mere pennies to over 70 cents. This experience, while validating the speculative nature of crypto markets, pulled me into investigating Tether, a "stablecoin" that had become the essential foundation of cryptocurrency trading with 55 billion coins supposedly backed one-to-one by real U.S. dollars.
The more I dug into Tether's operations, the more red flags emerged. Its executives included an Italian plastic surgeon, Giancarlo Devasini, who had previously been caught selling counterfeit Microsoft software in the 1990s, and Brock Pierce, a former child actor known for roles in "The Mighty Ducks" and Disney commercials. Their own legal documentation contained shocking admissions of risk, including the stark warning that "We could abscond with the reserve funds" - a statement virtually unheard of in legitimate financial documents. The company claimed to keep billions in reserves at a small bank in the Bahamas, yet basic arithmetic showed this was mathematically impossible given the bank's size.
When I attempted to verify Tether's regulatory oversight, I contacted the British Virgin Islands Financial Investigation Agency, which Tether prominently claimed regulated their operations. The agency's director not only denied any oversight relationship but seemed concerned about the implication. Similarly, other banks and institutions Tether claimed relationships with either denied connections or refused to comment when contacted.
The situation became so concerning that Treasury Secretary Janet Yellen convened an urgent meeting of the President's Working Group on Financial Markets, gathering top financial officials to discuss the systemic risk Tether posed to the U.S. financial system. Their primary fear was that Tether could suffer a devastating bank run that would ripple through cryptocurrency markets and potentially into traditional financial markets, similar to how the collapse of Lehman Brothers triggered the 2008 financial crisis. Professional cryptocurrency traders I interviewed acknowledged Tether's questionable backing but continued using it because they were profiting in the short term. As one Hong Kong-based trader bluntly admitted, "It could be way shakier, and I wouldn't care. The whole system runs on it, and it works until it doesn't." This cavalier attitude toward systemic risk eerily echoed the behavior of mortgage traders before the 2008 crash.
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From Child Actor to Crypto Pioneer
Brock Pierce's journey from Hollywood to cryptocurrency exemplifies the wild west nature of early digital finance. His acting career began promisingly - starring as Gordon Bombay's young self in The Mighty Ducks and appearing in numerous commercials, including a memorable Fruit Gushers spot that played constantly on Nickelodeon. But it was his unexpected pivot to tech that would define his future trajectory.
At just sixteen, Pierce joined Digital Entertainment Network (DEN), an ahead-of-its-time video streaming startup that raised over $75 million in venture capital. Despite the technical limitations of dial-up internet making video streaming practically impossible, DEN paid the teenage Pierce an extraordinary $250,000 salary as VP of Operations. The company's spectacular implosion came amid serious allegations of sexual misconduct involving minors at company-hosted parties, with founder Marc Collins-Rector eventually fleeing the country before pleading guilty to criminal charges of transporting minors across state lines for sexual purposes.
Undeterred by this early setback, Pierce's entrepreneurial spirit led him to found Internet Gaming Entertainment (IGE) in 2001. The company pioneered the concept of "gold farming" - employing players in developing countries to gather valuable virtual items in games like World of Warcraft and EverQuest, then selling them to Western players for real money. At its peak, IGE generated $5 million in monthly revenue and employed over 400 people in Hong Kong and Shanghai. However, the business model proved unsustainable when game developers began actively blocking third-party item sales and implementing strict anti-farming measures.
This experience with virtual economies and digital assets proved invaluable as cryptocurrency emerged. By 2013, Pierce was deeply embedded in the Bitcoin ecosystem, running one of the first crypto venture capital funds, Blockchain Capital, and advising numerous blockchain startups. The creation of Tether (originally called Realcoin) aimed to solve a crucial problem in cryptocurrency: stability. The concept was elegantly simple - users could deposit US dollars and receive an equal number of Tether tokens, creating a "stablecoin" that maintained parity with the dollar while offering the flexibility of cryptocurrency.
However, traditional investors and banks were deeply skeptical. The ability to transfer value anonymously violated core banking principles and anti-money laundering regulations that require tracking of all financial movements. Pierce maintained that Tether was fully collateralized, dramatically positioning it as a tool for "preserving the dollar's status as a global reserve currency" rather than undermining it.
By 2015, Pierce stepped away from Tether, citing growing concerns about regulatory scrutiny and the real possibility of criminal charges for operating an unlicensed money transmission business. The project found new life when Bitfinex, a major cryptocurrency exchange facing its own banking challenges, acquired the remaining shares and transformed Tether into a crucial piece of crypto market infrastructure - though one that would later face intense scrutiny over its reserves and operations.
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The Plastic Surgeon Behind the Curtain
Giancarlo Devasini's journey to becoming Tether's controlling force began with an unexpected career pivot. Originally a plastic surgeon in Milan during the late 1980s, he abruptly abandoned medicine in 1992 after becoming disillusioned with what he described as "a scam, the exploitation of a whim." This cynical view of his medical career foreshadowed his later controversial business practices. His transition from medicine led him into the murky waters of software distribution, where he encountered his first legal troubles - criminal charges for selling counterfeit Microsoft software through his company Acme srl, a case that would later be settled out of court.
His subsequent ventures in electronics distribution through Companies like Solo SpA and Perpetual Action Group achieved moderate success, though nowhere near the "100 million in annual revenue" that Bitfinex would later boast about in their corporate materials. These businesses primarily operated as small-scale electronics distributors in Italy's competitive market.
Devasini's personal blog from this period provides crucial insights into his character and worldview. His posts revealed a complex personality: a self-proclaimed genius who frequently expressed contempt for what he called "ordinary people." He reserved particular disdain for women, whom he often criticized in misogynistic terms. His writings displayed an deep-seated antipathy toward traditional banking systems and a paranoid fear of inflation. Perhaps most tellingly, he wrote several entries analyzing Bernie Madoff's Ponzi scheme, focusing not on its criminality but on Madoff's technical expertise in maintaining the fraud for so long without detection.
The discovery of Bitcoin in 2012 marked a turning point for Devasini. He saw in cryptocurrency an opportunity to operate outside traditional financial systems he despised. This led to his involvement with Bitfinex, where his true test as a leader came during the 2016 crisis when hackers stole 119,754 Bitcoins (worth approximately $72 million at the time). His controversial solution - implementing a 36% loss across all customer accounts and issuing BFX tokens as IOUs - demonstrated both his resourcefulness and willingness to take extraordinary measures in crisis situations.
The crypto boom of 2017-2018 proved transformative for both Devasini and his enterprises. Bitfinex recorded unprecedented profits of $326 million in 2017 alone, while Tether's circulation underwent explosive growth from $50 million to $1 billion. However, this success was accompanied by significant challenges in traditional banking relationships. Multiple banks refused to work with these crypto businesses, citing regulatory concerns and risk factors. The situation reached a critical point when Wells Fargo terminated their banking relationship in 2017, leaving Tether's funds stranded in Taiwanese banks. Despite this apparent liquidity crisis, Tether continued issuing new coins, raising serious questions about their backing and operations that would later attract regulatory scrutiny.
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The House of Cards Begins to Wobble
An anonymous critic using the handle "Bitfinex'ed" began exposing troubling questions about Tether in 2017. After discovering Tether's lawsuit against Wells Fargo, he realized the company had no banking access yet continued issuing new tokens. He relentlessly questioned where Tether kept its money, why it hadn't produced audited financial statements, and compared it to Liberty Reserve, a digital currency whose founder was arrested for money laundering.
John Betts, founder of Noble Bank where Tether briefly banked, confirmed some suspicions. He revealed that while Tether initially had full dollar backing when banking with him, the relationship ended in 2018 when Devasini wanted to invest those reserves for profit rather than keep them as cash. "It's not a stablecoin, it's a high-risk offshore hedge fund," Betts warned. "Even their own banking partners don't know the extent of their holdings, or if they exist."
By 2019, the truth emerged that Polish authorities had seized accounts from Crypto Capital, Tether's payment processor, and that over $850 million was "impaired." Bitfinex had filled the hole by borrowing from Tether's reserves, with Devasini signing both sides of a $900 million credit line agreement between the companies. Despite the New York attorney general's damning accusations, crypto markets barely reacted. Instead of collapsing, Bitfinex raised $1 billion by selling new tokens, essentially printing money to replace what was lost.
By summer 2021, Deltec Bank & Trust in the Bahamas was the only financial institution openly working with Tether. Its chairman, Jean Chalopin-the 71-year-old co-creator of "Inspector Gadget"-insisted Tether had been unfairly maligned but admitted he could only vouch for the quarter of Tether's reserves ($15 billion) still held at his bank. "I cannot speak about what I cannot know," he said. "I can only control what's with us."
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The Effective Altruist Who Built an Empire
Sam Bankman-Fried's rise from obscurity to crypto royalty was meteoric. Raised by Stanford law professor parents in philosophical debate, he embraced utilitarianism by age fourteen. At MIT, he declared on his blog: "I am a utilitarian... I believe the right action is the one that maximizes total 'utility' in the world."
In 2012, Bankman-Fried attended a talk by Will MacAskill, a young Oxford doctoral student promoting "effective altruism"-using mathematical calculations to maximize charitable impact. MacAskill pitched "earning to give"-the idea that someone with Bankman-Fried's mathematical talents could do more good by working on Wall Street and donating earnings than through direct service.
Following this logic, Bankman-Fried joined Jane Street Capital after graduation, developing trading algorithms and donating half his $200,000 salary to effective altruism-approved charities. But after a few years, he grew restless. Using expected value calculations, he determined that pursuing a riskier path with higher potential payoff would be more ethical than a safe career. Even with a 95% chance of failure, a 5% chance at a billion-dollar outcome would yield greater expected charitable impact.
In late 2017, amid the ICO craze, Bankman-Fried noticed massive price discrepancies for cryptocurrencies across different exchanges-arbitrage on a scale hundreds of times larger than what he'd seen at Jane Street. He rented a house in Berkeley and assembled a team of mathematical prodigies: Gary Wang, a quiet coding genius; Nishad Singh, his brother's friend; and Caroline Ellison, a Stanford graduate who shared his fascination with utilitarian thought experiments.
They named their company Alameda Research-deliberately innocuous to avoid alarming banks wary of cryptocurrency businesses. By December 2017, they were making $4 million monthly, with fifteen people trading around the clock from Bankman-Fried's apartment.
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The Bahamas Crypto Kingdom
By February 2022, Bankman-Fried had transformed from a Berkeley-based trader to a crypto billionaire worth $20 billion. FTX had raised $800 million at a $32 billion valuation just the previous month. He was cultivating his image as crypto's boy genius who could take the industry mainstream, moving comfortably between Wall Street traders and congressional staffers while his disheveled appearance gave him an air of authenticity.
The money flowed out as quickly as it came in, primarily on splashy marketing deals: $135 million to name the Miami Heat's arena, $210 million to sponsor a professional gaming team, and endorsement deals with celebrities like Shaquille O'Neal and Tom Brady. Days before my visit, FTX had spent approximately $20 million on a Super Bowl ad featuring Larry David.
While FTX operated a limited U.S. exchange, Bankman-Fried focused on reshaping American regulations to suit his business. To influence policy, he became one of Washington's biggest political donors, contributing $5 million to Joe Biden's 2020 campaign. FTX and its executives distributed at least $90 million in campaign contributions for the 2022 midterms, mostly to Democrats but with at least $20 million going to Republicans. One in three members of Congress received FTX-related donations.
When questioned about his philanthropy, Bankman-Fried claimed he donated $50 million in 2021-a modest sum for someone ranked among the world's wealthiest. He promised to dramatically increase his giving to "a few hundred million and up to $1 billion" in the coming year. His philanthropic focus had shifted from effective altruism's traditional emphasis on measurable impact charities to existential threats like bioweapons and rogue artificial intelligence.
Bankman-Fried's utilitarian philosophy seemed to potentially justify almost any means to generate money for world-saving causes. When directly challenged about whether his philosophy would justify running a crypto scam to fund life-saving research, he dismissed the idea, claiming "charities don't want that money" and emphasizing reputation's importance. Yet this reasoning contained a critical flaw: scammers don't plan to get caught.
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The NFT Gold Rush
In January 2022, Paris Hilton appeared on The Tonight Show with Jimmy Fallon showcasing their Bored Ape NFTs-Hilton's purchased for $300,000 and Fallon's for $220,000. Despite the forced enthusiasm, within three months, the floor price for Bored Apes rose to $410,000.
The Bored Ape phenomenon had attracted numerous celebrities including Steph Curry, Neymar, Snoop Dogg, Eminem, and Justin Bieber who paid $1.3 million for his ape. For stars, owning an ape signaled awareness of cutting-edge investment trends; for crypto enthusiasts, it offered membership in an exclusive club alongside celebrities; and for Wall Street types, it provided a way to appear "cool" in the Web3 space.
Buyers don't actually own a unique digital image-anyone can download the exact same file with a right-click. What buyers purchase is merely blockchain verification that they paid for the NFT. The market became flooded with hastily created collections as creators realized how little effort was required to cash in. One collection called Pixelmon raised $70 million before revealing images that "looked like melted Lego animals," while another called Loot simply sold black squares with white text listing fantasy items-with no actual game attached-yet still commanded $80,000 per square.
Bored Apes launched in April 2021 as a collection of ten thousand cartoonish ape images with varying accessories like pipes and Hawaiian shirts. Created by four pseudonymous founders (including "Gordon Goner" and "Gargamel"), the collection initially sold out at just $220 per ape. Within a month, prices reached $1,000, then skyrocketed. By September, Sotheby's was auctioning a lot of 101 Bored Apes for $24.4 million.
Despite claims that Bored Ape owners could profit from their NFTs' "intellectual property" rights, few actually made money. Jason Stone was one of the rare exceptions, getting representation from Creative Artists Agency. Yet even his high-profile efforts largely failed-meetings with Seth MacFarlane and M. Night Shyamalan went nowhere, plans with Rihanna and Snoop Dogg collapsed, and his only deal was a modest $33,000 for Target action figures.
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The Play-to-Earn Illusion
The Axie Infinity craze began with Arthur "Art Art" Lapina, a 28-year-old unemployed cook in Cabanatuan City, Philippines, who discovered the game through a Facebook ad during the 2020 COVID lockdown. The game allowed players to earn Smooth Love Potions-a cryptocurrency that could be traded on exchanges-by winning battles between cartoon blobs. As the potions' value climbed, Lapina began earning significant money and spread word throughout his economically devastated town.
By summer 2021, Sky Mavis-the small company behind Axie-was experiencing exponential growth, adding 475,000 new players in July alone. By October, about two million people were playing daily. Venture capitalists including Andreessen Horowitz valued the company at $3 billion. Crypto enthusiasts like Sam Bankman-Fried and Mark Cuban celebrated Axie as proof that blockchain technology could create real economic opportunity globally.
The economics were fundamentally unsustainable. Early players could earn about $7.25 daily on a $91 investment-an 8% daily return that would theoretically make everyone trillionaires if sustained. The game's economy relied entirely on new players buying in, while Sky Mavis could issue unlimited Smooth Love Potions. By late 2021, over three billion potions were in circulation, causing prices to plummet below one cent by February 2022.
Shiela Quigan, a community organizer earning $500 monthly, borrowed $1,500 from her mother to buy Axies after carefully researching the opportunity. Her husband Ryan played nightly after his delivery job, accumulating 30,000 worthless potions. Making matters worse, in March 2022, North Korean hackers stole $600 million from an Axie-affiliated exchange, with U.S. officials claiming the funds helped finance Kim Jong Un's missile program. Instead of providing a new way for poor people to earn cash, Axie Infinity funneled their savings to a dictator's weapons program.
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The Dark Side of Crypto
In August 2022, I received a strange text message from "Vicky Ho" asking if I remembered her, though she addressed me as "David"-not my name. Despite my suspicions that this was a "pig butchering" scam (where victims are fattened up with fake relationships before being financially slaughtered), I played along. Vicky claimed to be a Taiwanese immigrant running nail salons in New York, with hobbies including cryptocurrency trading. She eventually started sending Bitcoin price charts, claiming she could make 20% gains through "short-term contract node trading" using Tether stablecoins.
After downloading her recommended ZBXS app and transferring $100 worth of Tether, she demanded $500 more. When I revealed I was an investigative reporter, she disappeared. I learned that pig-butchering victims were losing millions-a Boston lawyer with terminal cancer lost $2.5 million, a St. Louis mother lost $5 million, and a Tennessee social media producer lost $300,000 inheritance.
Following the trail of my Tethers revealed a dark network. Rich Sanders of CipherBlade showed me a flowchart tracing "Vicky Ho's" wallet-revealing it had collected Tether payments from multiple victims before transferring funds to larger wallets holding millions. The money eventually moved to exchanges like Binance and FTX where it could be converted to cash.
Interviews with escaped victims revealed horrifying conditions in Cambodian scam compounds. Workers who'd been lured with promises of legitimate jobs found themselves imprisoned and forced to run romance scams. Those failing to meet quotas faced electric shocks, beatings, or being sold to other compounds. The largest operation, a compound called "Chinatown" in Sihanoukville, Cambodia, held up to six thousand enslaved workers, generating over $600 million yearly in illicit proceeds. Without cryptocurrency's anonymous transactions, this operation would be impossible to sustain.
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The Spectacular Collapse
The crypto crisis continued to unfold as Three Arrows Capital collapsed. This hedge fund, founded by Su Zhu and Kyle Davies, had been considered one of crypto's best investors. Despite Zhu's grandiose theories comparing crypto to the invention of poetry and books, the fund had borrowed heavily from Celsius and other crypto lenders to fund its investments, and had poured much of that money into Terra-Luna. When Terra collapsed, Three Arrows lost $600 million and defaulted on its loans.
The hedge fund's bankruptcy revealed absurd holdings including a Bored Ape with a "sushi chef headband" and a pixelated cartoon penis NFT worth about $1,000. The collapse created a domino effect across the industry, as Celsius, BlockFi, Voyager Digital, and even Gemini had all lent money to Three Arrows.
The losses devastated everyday investors. Support forums posted suicide hotline numbers as investors shared stories of devastating losses. One Nigerian investor, Odosa Iyamuosa, had seen crypto as his escape from poverty, hoping to save $16,000 for a data-analytics program in Toronto. After the crash, he was down to his last twenty dollars but still hunting for another crypto project. Celsius customers wrote desperate letters to bankruptcy judges, including a Pennsylvania bank manager who lost $205,000 in retirement savings, an Irish shepherd who lost his farm, and a Los Angeles stunt double facing eviction.
Through all this chaos, Sam Bankman-Fried emerged looking like a hero by providing emergency loans to failing companies. Fortune put him on its cover asking if he was "The Next Warren Buffett?" and media compared him to J.P. Morgan Sr. for stemming the panic. However, he made an ominous comment that some exchanges were "already secretly insolvent."
Just weeks later, FTX itself would implode after revelations that Bankman-Fried had secretly transferred billions in customer funds to his hedge fund Alameda Research to cover trading losses. The boy genius who claimed to be earning money to save the world was arrested and charged with fraud, conspiracy, and money laundering. The greatest financial con of the twenty-first century had finally unraveled, leaving millions of victims in its wake and revealing the hollow promises at the heart of the crypto revolution.
