SBF and FTX
Photo Credits: Wall Street Journal
BY IVY BURLING ‘24
Sam Bankman-Fried is currently facing eight criminal charges, including wire fraud and money laundering. As a cryptocurrency entrepreneur and the founder and CEO of FTX, Bankman-Fried gained wealth rapidly, leading thousands to think he was successful. His fall, however, was as meteoric as his rise and caused Bankman-Fried to lose billions of dollars in a matter of days. Despite the clear evidence of fraud, Bankman-Fried is still quoted saying that “there are things I would give anything to be able to do over again. I didn't ever try to commit fraud on anyone” in an article from the New York Post.
Before FTX, Bankman-Fried started Alameda research, a quantitative cryptocurrency trading firm, in 2017. Alameda started to do very well, and, according to an Investopedia article, the company was making millions of dollars per day. He then founded FTX in 2019 along with Gary Wang. The company is a centralized cryptocurrency exchange platform. When the Covid-19 outbreak hit, the cryptocurrency world became popular, and thus, FTX thrived. During the rest of 2020, FTX acquired multiple other companies that were failing. The same Investopedia article states that because of these acquisitions the company expanded its user base and appeared to be on a very solid foundation in usually unstable cryptocurrency markets. A Markets Insider article says that FTX was “one of the biggest cryptocurrency-trading venues in the world,” and the platform became highly used in a short time. Although FTX became successful quickly, they crumbled even faster.
While FTX appeared to be gaining success, Sam Bankman-Fried allegedly committed fraud. One of the ways Bankman-Fried was doing this was by taking deposits from customers and using them to cover debts and expenses for his other company, Alameda Research. He also donated FTX customers' stolen money, along with defrauding investors by providing misleading information about the financial state of his company. While all of these events were happening, Bankman-Fried showed no notion of his companies being in financial trouble. A later investigation into his company by the SEC (Securities and Exchange Commission) showed that a big part of the company’s money was in its own crypto token (FTT), making the company appear wealthier than they are. An article from CNET reveals that multiple federal agencies began further investigations into FTX. The same article says that on November 10th, 2022, Bankman-Fried announced that Alameda Research was shutting down and the assets of FTX were being frozen by regulators. He also announced that all employees of the FTX Future Fund, part of FTX that focused on donating funds and making investments, were retiring. CNET also says that Bankman-Fried resigned on November 11, and John J. Ray III took his place to attempt to turn the company around. The same CNET article says that Ray later filed for bankruptcy, claiming, "never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.” Shortly after, reports surfaced that Alameda Research and FTX lost 3.1 billion dollars between 2019 and 2022, showing that they were never doing as well as they had appeared to be.
Following FTX’s rapid demise, Sam Bankman-Fried was released by a judge from the Manhattan Federal Court on a 250 million dollar bond. He is currently on house arrest following his return to the United States after being detained in the Bahamas and waiving extradition rights. Bankman-Fried is now waiting to make a plea before the U.S. District Judge Lewis Kaplan.