A month or two prior to the meltdown of the Sam Bankman-Fried fraud empire, a YouTube channel Coffeezilla had managed to figure out the scale and mechanics of the scheme, most notably by joining an investor conference call with SBF and asking a question which SBF was dumb enough to answer by confirming FTX was in fact co-mingling client funds with FTX's internal funds that were being gambled in its separate Alameda Capital affiliate, a direct criminal violation of its terms of service.
Now the same channel is releasing another series of videos about its investigation into another crypto-based ponzi scheme operated as The Trader's Domain by a man named Ted Safranko and others which may have stolen anywhere from $145 million (per the CFTC in its filing of charges against the firm) to $500 million (his estimate) by promising outlandish returns (10% monthly!) courtesy of unique trading algorithms in its proprietary trading platform.
The Trader's Domain promoted itself as an online broker platform for foreign exchange (forex) investors / speculators. The core of the alleged fraud centers upon the firm's description of its operations as an A-booking broker versus a B-booking broker. In forex terminology, a broker using A-booking sits between retail traders and entities that act as Liquidity Providers (LPs) and makes money off fixed percentages of trading volume that essentially equate to fees for maintaining trade records. In the B-book model, the broker not only handles the "retail paperwork" of trades with its individual customers, it also acts as a market maker ("ruh roh...") and can act as the other side of a trade to provide liquidity... ...but also to trade for its own benefit if it thinks it spots an opportunity... ...even if that opportunity comes at the expense of its own client. The Trader's Domain explicitly advertised itself as an A-book broker -- "totally safe" because of that -- while promising 10% MONTHLY returns based on its proprietary algorithms.
It takes zero imagination to guess how this story ends. The Trader's Domain explicitly touted the A-booking operating model it used, explicitly touted the SAFETY provided to clients by staying on the "A-side" of operations, touted the unique advantages of its proprietary algorithms to help customers spot profitable trades and created promotions for itself claiming to target only sophisticated investors who had the coin to play for big stakes in the rough-and-tough, dog-eat-dog but highly lucrative forex segment. Of course, this type of tough guy, dog-eat-dog promotion approach finds an audience online.
There are apparently hundreds / THOUSANDS of people with $250,000 or $1 million or $5 million burning a hole in their pocket who bought into this scheme then watched their money vanish. One person realized The Trader's Domain was rigging its books after he signed up, created his online account, initiated a wire transfer from his bank to The Trader's Domain for $500,000 and within an hour, his account at The Trader's Domain showed an investible balance of $500,000. GREAT! Then he got a call from his bank. THE NEXT DAY. Asking him to confirm a few details on the wire transfer, which had not been executed yet, providing confirmation that The Trader's Domain systems were designed to allow manual manipulations of balances not reflecting reality. Another got the clue only after remembering that while creating his online account, he was not allowed to choose USA as his country of origin. He was told to select "CRYPTO" for that field.
Research described in Coffeezilla's video uncovers an extensive pattern of bogus financial transactions between The Trader's Domain and a bunch of shell companies created by its owners in other countries with invoices ranging from $100,000 to $1,000,000 used to provide the illusion of a large firm incurring various expenses for its burgeoning enterprise while of course actually laundering the money and getting it out of US banks. One of the expenses being incurred was for white label hosting services provided by B2Broker, a firm which operates B-book trading software as a web platform that can be rebranded with retail broker names / logos. The Trader's Domain site was just a "white label" site provided by B2Broker -- no proprietary algorithms involved and none of the restrictions / protections of an A-book oriented platform.
The first two installments of the tale can be viewed here:
https://www.youtube.com/watch?v=I8AcHRQ_2oo (Part 1)
https://www.youtube.com/watch?v=1l-JEUwnDhk (Part 2)
It's not clear what's more disappointing at this point. The fact that a single YouTuber seems to be outpacing regulators and law enforcement at identifying the scale of these icebergs of fraud? Or the fact that the public is so woefully ignorant about financial matters and willing to be deceived by such obviously fraudulent schemes? The trend speaks volumes about what is ailing America right now. A country bent on starving regulatory functions in the public sphere, starving educational funding to provide basic common sense and financial / legal literacy and a willingness to release the wolves on the resulting multitudes of gullible sheep.
WTH
