by Bill Corden
I’ve been reading quite a few articles on our friend and his spectacular crash, shaking my head at the gullibility of the corporate investors, when I suddenly remembered the template for a tax dodging scheme I had a ringside seat for. The parallels are amazing and the cast of characters are like Lego pieces
Up here in Canada, back in the late 1980s, our brilliant economists convinced the government of the day to introduce a program to encourage investment in “Scientific Research and Experimental Development” known as SR&ED.
The bare bones of this program gave a tax break to financial sophisticates who decided to invest in what appeared to be “no risk” Government approved projects. I mean, what could go wrong, the government is behind it.?
These projects were usually run by companies specifically set up to pursue hare-brained ideas that sounded brilliant (just like FTX), but in reality, had no chance of success because the majority of them were run by scam artists and carpetbaggers
To get the status of an SR&ED company you had to submit an application to the government outlining your experimental breakthrough.
Once approved you could then attract “venture capital” investors who could write off, against income taxes, the entire amount of their investment AND they’d get a piece of the action in the optimistic, nay fantastic, profits that would ensue.
My very privileged ringside seat allowed me to talk to the scammers and the victims, because I was a collection agent for Her (now His.. 😊) Majesty’s Government.
Let me set the broad stage for the mega scams.
The one I was a witness to involved a highly scientific process of capturing the solid waste from sewage plants (yes, you read that right), making it into pellets and selling it off to chemical plants who could extract the “fine oils” such as lanolin and other exotics for use in the beauty industry.
Perfect for the sales pitch… unlimited supply of cheap material, mysterious processing technology and unlimited customers on the other side. Only problem was that it stunk the entire neighborhood out for miles around.
But nobody had thought that might be a problem and, he told me, nobody really dug into the details.
Next, you need “Venture Capitalists,” which in real terms means card playing gamblers of the first order.
They’re not interested in collateral like banks are, they’re interested in returns, they’re motivated by getting the great unwashed interested in the possibility of mega profits and charging them commissions for the favour. Heaven forbid that they should put any of their own money at risk.
Dress it up as a “Venture Capital Mutual Fund” and you’ve got one of the essential ingredients…. potential seed money.
Venture capitalists, though, are not as ubiquitous, as you might think and they drive a hard bargain. What you really need is the unlimited amounts that come from sucker investors like Doctors, Dentists, Lawyers and Movie stars, you know, stupid people.
I asked one of the protagonists (a medical professional himself by the way) in the “fine oils” scam how he got past this hurdle, and I remember him just shrugging with a laugh. ” Convince one big name, a respected lawyer or media personality etc. to sign on and you’re off to the races. Put that name on your letterhead and they will beat down your door to get in ”
My guy had the confidence of a local prominent lawyer but Bankman-Fried had the confidence of much bigger players, some of the ones you think would know better are highlighted below:
- A venture capital talisman by the name of Sequoia, considered to be one of the sharpest around
- It had the imprimatur of no less than Temasek which is the “sovereign wealth fund” of Singapore.
- Kevin O’Leary, who it seems knows less than I do about the world of finance. Here’s his story
Not one of these participants ever bothered to sit down with the conman and probe the managerial capabilities, all they saw was the potential for a killing.
Pretty soon, the money pours in like a waterfall and the people driving the train quickly figure out ways to empty the till faster than it fills. They must get the money out of reach of the people who actually own it.
There’s countless ways of doing it legally, management fees, patent fees, technological advice fees, investor relations fees, anything you can think of really.
They do this with absolutely no regard for the casualties and when the media report the failure as a bankruptcy, they never even mention the ordinary people who never got paid, the contractors, the suppliers, the employees.
None of them get a red cent when all is said and done.
Our SR&ED man was not anywhere near the same scale as Fried, but he had the same sort of attitude, he was a very likeable guy, a loveable villain if you will.
He didn’t care how much people lost, he had made sure he was set and that he was bullet proof from claims.
The penalties imposed upon him were so light that he immediately started another scam in the same vein only this time he told me, “I didn’t even bother putting my signature on the application because I knew they didn’t check and without my signature they can’t touch me.”
Forget about trying to recover any money from FTX or Bankman-Fried himself, it’s either evaporated or it’s so far out of reach that all recovery efforts will be eaten up by legal fees.
Maybe BF will end up in jail but it’s a remote likelihood, he’s just a kid after all.
I wonder how much of my managed investments went down this hole.
Don’t worry Carl, we’ve all been taken at one time or another.
In fact the SR&ED guy I mention, had me reaching for my own cheque book on a couple of occasions, that’s how good these conmen are.
We always had two guys present when we were interviewing him , one with strict instructions to stop the other from investing in the scheme……. and even then they almost overcame.
Sounds like something coming right out of the Soviet satirical classic of 1930es titled “The Golden Calf” that is centered on a charming guy by the name of Ostap Bender who pays his way by inventing — on the fly — little scams aimed at petty bureaucrats who cannot resist revolutionary rhetoric and sloganeering — all to get at a huge scammer who made millions in government-funded “progressive” scams like the one you’re describing — and manages to blackmail him, extracting a million out of his ill-gotten gains (this being a Soviet book, there is no happy end for either of them, though — but the book is outrageously funny, and has become an integral part of the Soviet folklore). Didn’t realize such scams could exist in real life — but well, apparently they do!!!
I’ll be reading it ‘cos i love those kinds of stories😎
Nothing new under the sun. Just newer people who think they are smarter than everyone. Bill: I am amazed at this article and especially how you integrate yourself into the article. Great job!
Seasons greetings to you and Jen. Linda and I wish you all the best. keep me on your list.
Good news – there is not one Trump voter among these people who lost money. They are all Democrats. I couldn’t care less what happens to Democrats unless it is bad and the worse the better. Hope SBF gets 50 years in the slammer.
How do I know this. Simple. SBF was a Silicon Valley slob and there isn’t a Trump voter within 50 miles of the place. Look at Twitter for proof.
Sorry I forgot Elon Musk and Peter Thiel but Musk moved there after SBF blew up and Thiel left long ago.
It’s not that ALL democratic ideas are bad , some of them have actually improved society.
It’s just that ALL democratic ideas are badly managed and run by nutty professor type incompetents, appointed by Democratic/Socialist politicians.
Socialists seem to love “eccentric” visionaries. They really get off on the overweight, scruffy basement dweller who still lives with his parents. May I present… SBF 😊