FTX founder Sam Bankman-Fried is making financial history with the spectacular rise of his crypto company. But after the crash, the facade of the “crypto prodigy” crumbled. The 30-year-old was arrested in the Bahamas. The list of allegations made by the US Attorney’s Office is long.
He was hailed as the golden boy of the crypto industry – now he faces years in prison. “We accuse Sam Bankman-Fried of building a house of cards on swindles,” said SEC chief Gary Gensler in Washington. The night before, the 30-year-old Bankman-Fried was arrested at the instigation of the US judicial authorities in the Bahamas, where his insolvent crypto exchange FTX was headquartered. The trading platform for digital currencies such as Bitcoin and Ether collapsed within a few days in November due to acute financial difficulties, dragging the entire crypto market down with it.
Now it’s Bankman-Fried – only called SBF in the scene – himself on the collar. The proceedings of the SEC for the young entrepreneur with the distinctive curly head, whose trademarks are baggy shirts, shorts and flip-flops, are likely to be the lesser problem.
The US Attorney’s Office in New York also has Bankman-Fried in its sights. Her indictment is still under wraps, but according to the US media, there are serious criminal charges such as conspiracy to commit securities fraud and money laundering that could put the FTX founder behind bars for many years. According to experts, the fact that the authorities in the Bahamas acted so quickly on behalf of their US colleagues indicates that the prosecutors are very sure of their cause. Delivery should only be a formality.
It is one of the most spectacular crashes in US financial history. A few months ago, Bankman-Fried was still considered a crypto prodigy and graced the front pages of US business publications such as “Fortune”. His FTX group was at times valued at $32 billion by investors, and his own fortune was valued at over $26 billion in the super-rich charts by Forbes and Bloomberg Billionaires. FTX could hardly save itself from investor money during the crypto boom and developed into a power house of the flourishing industry. The group spent enormous sums on advertising campaigns, covered stadiums with its logo, and hired celebrities like football star Tom Brady and top model Gisele Bundchen as dazzling brand ambassadors.
Bankman-Fried also exerted considerable influence in politics for a time thanks to the large amount of money that flowed into FTX. As a major donor to the Democratic Party, he tried to become the central mouthpiece of the crypto industry in Washington and to help shape the debate about the regulation of the market, which many experts considered overdue, with a lot of lobbying effort.
Even when the crypto boom ended and the fall in prices at the beginning of the year put a number of companies in distress, this did not scratch SBF’s image at first. On the contrary: During the crisis, his FTX group initially became a white knight who rescued struggling companies. Bankman-Fried’s empire was at times even considered a kind of central bank in the crypto world.
In the meantime, it is becoming increasingly clear that this supposed success story is a real scandal. Bankman-Fried rejected allegations of cheating to the last. “I’ve never tried to cheat on anyone,” he said at a conference in New York in early December, to which he tuned in from the Bahamas. But the SEC is convinced that things were not right at FTX from the start and that investor funds were deliberately misappropriated and diverted to other companies in the area.
The new CEO John Ray, who took over the management of FTX in the bankruptcy proceedings, was shocked: “Never in my career have I experienced such a complete failure of corporate control and such a lack of trustworthy financial information”. What the ex-management team around FTX founder Bankman-Fried did was simply “unacceptable”.
Ray has 40 years of experience in restructuring companies. Among other things, he was entrusted with winding up the US company Enron after its historic bankruptcy. At FTX, “control was in the hands of a very small group of inexperienced, naïve and possibly compromised individuals,” Ray explained in his first management report to the bankruptcy court. The situation is “unprecedented,” complained the restructuring expert. Bankman-Fried meanwhile called the bankruptcy his biggest mistake and accused Ray of wanting to “burn down” the company.
