The collapse of the FTX crypto industry has shaken an entire industry. Its founder Sam Bankman-Fried must now answer before a US court. The 30-year-old, who ran his company from a holiday paradise in shorts and flip-flops, is accused of fraud worth billions.
In the crypto world, Sam Bankman-Fried makes a remarkable change: the former superstar of the scene becomes a suspected fraudster. On Twitter, he abbreviates his name to just his initials: SBF. For a long time, these three letters have symbolized success. At the age of 30, Bankman-Fried is already one of the richest people in the world. Forbes magazine now estimates his personal fortune at more than 26 billion US dollars. He was a rock star in the industry, forgoing a suit and tie, only ever appearing in a t-shirt and shorts.
Bankman-Fried made most of its money with FTX, a cryptocurrency trading exchange. People could trade Bitcoins and Co. on this platform. He founded the company in the Bahamas and also managed the business from the vacation paradise. The shop was running: NFL legend Tom Brady was a brand ambassador, the company logo was emblazoned on Formula 1 cars. Just under a year ago, the company was valued at $32 billion. His ambitions seemed limitless: the 30-year-old is said to have thought in the meantime that FTX could even swallow the investment bank Goldman Sachs.
But things turned out differently. Meanwhile, Bankman-Fried no longer lives in the holiday paradise, but under arrest in his wealthy parents’ house. The two elite professors will vouch for the $250 million bail. The US authorities accuse him of “fraud of epic proportions” and money laundering, for which he appeared in court for the first time on Tuesday. He is also said to have violated party donation laws by donating millions to US President Joe Biden. He pleaded not guilty to all counts. If things go bad, Bankman-Fried faces up to 115 years in prison.
His crypto exchange FTX has since imploded, and Bankman-Fried’s personal fortune has shrunk by $15 billion in just a few days at the beginning of November. A rumor had triggered the rapid crash shortly before. The head of rival crypto exchange Binance raised doubts that FTX was still liquid. Customers demanded their money back in masses and didn’t get it anymore. This was followed by a failed rescue attempt, and the crypto exchange filed for bankruptcy protection on November 11.
Another company that SBF founded years ago became a problem for the crypto exchange. After studying physics at the renowned Massachusetts Institute of Technology (MIT), he began working as a trader in 2014, mainly dealing with ETFs. Then, in 2017, he discovered the crypto world for himself. Bankman-Fried did with cybercurrencies what he had previously done with ETFs: he bought bitcoins and sold them directly to other markets, most notably Japan.
What follows is a rocketing ascent. At the end of 2017 he became self-employed and founded the trading company Alameda Research at the age of 25. The crypto exchange FTX followed in May 2019. Bankman-Fried used his old company to fund the new one. And has thus created both: a crypto marketplace (FTX) and a crypto trader (Alameda Research).
But the old company becomes his undoing. According to insiders, Bankman-Fried secretly transferred $10 billion in FTX client funds to Alameda. In November 2022, he himself spoke to the Reuters news agency of a wrong interpretation of his “confusing internal labeling”. Even later he could not explain exactly what happened to the money.
Only the ongoing processing of the FTX crash brings astonishing things to light. The 30-year-old himself was not present at the hearings before the US Congress in mid-December, when he was already in custody in the Bahamas. The ousted founder is represented by John J Jay III, an attorney who specializes in difficult businesses. The 63-year-old gives an insight into a chaotic company. He has never seen a company fail so badly at any level. FTX was run by “a small group of extremely inexperienced and uneducated people”.
In addition, there was a lack of records that he had not experienced before. Invoices and expenses were communicated via Slack, a tool that companies use as a messenger service. Employees would have done the bookkeeping of the billion-dollar company with the software Quickbooks. The program is actually intended to have an overview of the books of small and medium-sized companies. “Nothing against Quickbooks, a great tool, but nothing for a multi-billion dollar company,” said John J Jay III.
And SBF? After the crypto quake, he remained silent, his lawyers had advised him to do so. But little by little he ventured back into the public eye. He flees forward. If you want to believe him, people should know the truth. In his performances he seems helpless and overwhelmed. But maybe he wants to give that impression. At the beginning of December he gave the “New York Times” his first interview after the bankruptcy. It is already controversial in advance: should such a big stage be prepared for a suspected criminal? After all, people have lost all of their savings. The 30-year-old from the Bahamas is switched on for the interview. Sitting in a poorly lit room, with deep bags under his eyes, he declared, “I’ve had a bad month.” He claimed not to have lied. “I have never tried to cheat on anyone.” Again and again he spoke of having lost the overview.
A few days later, another conversation appeared in the Wall Street Journal. Alexander Osipovich visited him in the Bahamas, the WSJ journalist told a podcast. He describes the circumstances under which Bankman-Fried last lived there. Accordingly, he lived in a former employee apartment in the Bahamas, allegedly private memorabilia from his previous tenant were lying around. In the conversation, the 30-year-old passed the responsibility on to his first company Alameda – and hardly takes any responsibility. He said he would have liked the dividing line between the two companies to be clearer. “I would give anything for it.”
He still owned 90 percent of Alameda, but handed over the reins to his ex-girlfriend, Caroline Ellison. Nevertheless, he kept saying in the WSJ interview that he didn’t know exactly what was going on there. FTX was more than a full-time job for him. He felt it would have been inappropriate for him to get involved in the details there. In the end he was the boss of FTX and he had a responsibility for their customers and shareholders. “And obviously I didn’t do a good job with it.” He squirms, his excessive demands sounding like an excuse.
In the end, a court will judge what went wrong. The spectacular process is scheduled to begin in the fall. There is already a problem for him. Two senior FTX founders have pleaded guilty themselves and hope to get off with a light sentence. One could be dangerous for him: his ex-girlfriend and boss of Alameda Ellison. She has said publicly that she knew what she was doing. And that she’s sorry.
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