How FTX’s Sam Bankman-Fried went from crypto king to convicted conman

Two years in the past, Sam Bankman-Fried was a 30-year-old multibillionaire dwelling in a $35 million Bahamas penthouse, partying along with his buddies whereas operating one of many world’s most respected crypto corporations.

Right this moment, he is a 32-year-old inmate on the Metropolitan Detention Middle in Brooklyn, ready for a choose to inform him how lengthy he’ll spend behind bars for masterminding “one of the biggest financial frauds in American history,” within the phrases of U.S. Lawyer Damian Williams.

Bankman-Fried, the founder and former CEO of failed crypto change FTX, will head on Thursday to a federal court docket in downtown Manhattan, the place U.S. District Choose Lewis Kaplan will ship his sentencing. Prosecutors have really useful a jail sentence of 40 to 50 years.

It took jurors solely about three hours of deliberations in November to search out Bankman-Fried responsible of all seven legal accounts towards him. For a high-profile monthlong trial that concerned almost 20 witnesses and tons of of reveals, specialists stated on the time that they’d by no means seen such a speedy choice. Bankman-Fried plans to appeal his conviction and sentence.

It was a steep and swift fall from grace for Bankman-Fried, who was as soon as hailed as a titan within the business and had a peak internet price — on paper — of roughly $26 billion.

“That’s the lowest hanging fruit,” Bankman-Fried told CNBC in September 2022.

The arbitrage alternative was particularly compelling in South Korea, the place the exchange-listed worth of bitcoin was considerably larger than in different international locations. It was dubbed the Kimchi Premium, a reference to the normal Korean facet dish of salted and fermented cabbage.

After a month of personally dabbling available in the market, Bankman-Fried launched Alameda Analysis, named after the California county that housed his first workplace. Bankman-Fried told CNBC that the agency generally made as a lot as 1,000,000 {dollars} a day buying and selling bitcoin.

Alameda’s success spurred the launch of FTX. In April 2019, Bankman-Fried co-founded FTX.com, a world cryptocurrency change that provided prospects progressive buying and selling options, a responsive platform and a dependable expertise. FTX’s success led to a $2 billion venture fund that seeded different crypto companies.

The FTX emblem quickly adorned every part from Formulation One race automobiles to a Miami basketball enviornment. Bankman-Fried talked about one day buying Goldman Sachs, and he turned a fixture in Washington as one of many Democratic Celebration’s top donors.

Then the market turned.

The so-called crypto winter of 2022 worn out hedge funds and lenders throughout the crypto universe. Bankman-Fried boasted that he and his enterprise had been immune. Behind the scenes, Alameda was borrowing cash to put money into failing digital asset companies to maintain the business afloat.

Could of 2022 introduced the crash of stablecoin Luna, making a domino impact that despatched crypto costs plunging, devastating different lenders.

Alameda had borrowed from lenders together with Voyager Digital and BlockFi, which each ended up going bankrupt. Alameda secured its loans with FTT tokens, minted by FTX. Bankman-Fried’s empire managed the overwhelming majority of the obtainable forex, with solely a small quantity of FTT really circulating at any time.

Alameda marked its complete hoard of FTT on the prevailing market worth regardless of it being a just about illiquid asset. The fund employed the identical methodology with different cash as effectively, together with Solana and Serum (a token created and promoted by FTX and Alameda), utilizing them to collateralize billions of {dollars} in loans. Business insiders referred to as the tokens “Sam coins.”

On Nov. 2, 2022, crypto commerce web site CoinDesk publicized details of Alameda’s steadiness sheet, which confirmed $14.6 billion in property. Over $7 billion of these property had been both FTT tokens or Bankman-Fried-backed cash like Solana or Serum. One other $2 billion price had been locked away in fairness investments.

Buyers started withdrawing their holdings from FTX, creating the specter of a digital financial institution run. Alameda and FTX now each confronted a liquidity crunch.

On Nov. 6, 4 days after the CoinDesk article, Binance founder Changpeng Zhao dropped the hammer. Binance was the primary outdoors investor in FTX in 2019. Two years later, FTX purchased again its stake with a mix of FTT and different cash, in response to Zhao.

Zhao wrote in a tweet that, due to “recent revelations that have came [sic] to light, we have decided to liquidate any remaining FTT on our books.” FTX executives scrambled to include the harm, and Alameda merchants managed to fend off outflows for a pair days.

On Nov. 7, Bankman-Fried tried to indicate confidence, tweeting, “FTX is fine. Assets are fine.” The submit was deleted.

Inside discussions had been completely different. Bankman-Fried and different executives admitted to one another that “FTX customer funds were irrevocably lost because Alameda had appropriated them.” By Nov. 8, the shopper shortfall had grown to $8 billion. Bankman-Fried was courting outdoors buyers for a rescue package deal however discovered no suitors.

FTX issued a pause on all buyer withdrawals that day. FTT’s worth plummeted by over 75%. Out of choices, Bankman-Fried turned to Zhao, who introduced that he’d signed a “non-binding” letter of intent to accumulate FTX.com.

However a day later, on Nov. 9, Binance stated it would not undergo with the acquisition, citing stories of “mishandled customer funds” and federal investigations.

FTX filed for chapter on Nov. 11, and Bankman-Fried resigned as CEO of FTX and related entities. He immediately lost 94% of his personal wealth.

Sullivan & Cromwell, FTX’s longtime attorneys, approached John J. Ray, who oversaw Enron via its chapter, to imagine Bankman-Fried’s former place.

On Dec. 12, Bankman-Fried was arrested by Bahamian authorities and extradited to the U.S., the place he was taken into custody. Federal prosecutors and regulators accused Bankman-Fried of perpetrating a fraud “from the start,” in response to a submitting from the Securities and Alternate Fee. 

Bankman-Fried was launched on a $250 million bond and was initially dwelling underneath home arrest with a court-ordered ankle monitor at his mother and father’ dwelling in Palo Alto, California, on the Stanford College campus. He was quickly taken back into custody for alleged witness tampering.

Whereas Bankman-Fried awaited trial, a lot of his closest buddies and confidants changed into key witnesses for the prosecution, leaving the previous crypto billionaire to defend himself. Lower than a yr after his arrest, the 12-person jury discovered Bankman-Fried responsible on all legal fees towards him.

— CNBC’s Rohan Goswami contributed to this report.