The collapse of FTX and Sam Bankman-Fried’s shocking downfall

Last November, after just a few hours of deliberation, a New York jury convicted Sam Bankman-Fried of fraud and conspiracy in the public flameout of his cryptocurrency exchange FTX, which stands accused of stealing as much as $10 billion from customers. On March 28, Bankman-Fried, who gained international prominence as the disheveled crypto genius behind the exchange, which he founded in 2019, was sentenced to 25 years in federal prison.

The intense, five-week criminal trial last fall unveiled the framework of deception that Bankman-Fried, 32, had for years used to prop up FTX and himself and, despite the protests of some crypto enthusiasts that he was just one rotten apple, made it hard for the public not to wonder whether the rest of the crypto world operates with such disregard for rules and risk behind the scenes, too.

As recently as the summer of 2022, Sam Bankman-Fried was the boy-wonder face of crypto: a 30-year-old who founded one of the biggest cryptocurrency exchanges in the world, a celebrated philanthropist worth an estimated $16 billion, and a major Democratic donor who quickly found favor in Washington. By early November, he was at the center of an epic flameout that left his empire and his image as an uncannily sharp, altruistic billionaire in ruins.

In December, Bankman-Fried was arrested in the Bahamas and charged with wire fraud, securities fraud, and money laundering, among other things; he has since been extradited to the US and released from jail on a $250 million bond — according to Reuters, the largest-ever pretrial bond. A trial date has not been set, but it is expected to take place in the Southern District of New York. Caroline Ellison and Gary Wang, two former top executives at Bankman-Fried’s companies, have pleaded guilty to several fraud charges and are cooperating with federal prosecutors in the investigation. The Securities and Exchange Commission has also separately charged Bankman-Fried, Ellison, and Wang with defrauding FTX investors.

At first, 2022 looked like it would be another celebratory year for the extremely rich. In early January, Tesla stock was trading at well over $300 per share. Its CEO, Elon Musk, had recently been named Time’s 2021 Person of the Year. He was Earth’s richest person, an exemplar of capitalism gone right, a visionary building companies that would benefit humanity and not just line his own pockets. He was so intelligent that he purportedly taught himself rocket science, so ambitious that he made the electric car sexy in an effort to stem the climate crisis.

As 2022 comes to a close, the awe Musk enjoyed has turned into shock and jeers. Fans have defected. Tesla investors are growing mutinous (at publication time, Tesla stock was languishing around $150). Musk was even recently booed by the audience at Dave Chappelle’s comedy show. In a Twitter poll he posted over the weekend, Musk asked whether he should step down as head of Twitter, saying he would “abide by the results of this poll.” Nearly 60 percent of respondents answered yes.

Sam Bankman-Fried, the disgraced founder of the now-bankrupt crypto exchange FTX, perhaps could have spent less time doing media interviews while playing video games over the past few weeks and instead spent more time Googling extradition treaties. At the very least, he could have spent less time doing media interviews where he said he didn’t think he would be placed under arrest.

In a Twitter Spaces during the day on Monday, Bankman-Fried said, “I don’t think I will be arrested,” referring to the scandal that has engulfed his business dealings since November, leaving FTX bankrupt and its customers unable to withdraw funds. Hours later, authorities in the Bahamas, where Bankman-Fried lives and FTX is based, arrested him following criminal charges filed by the US Attorney’s Office of the Southern District of New York. The SEC and CFTC are going after Bankman-Fried, often referred to as SBF, as well. After being denied bail by a judge in the Bahamas, he awaits an extradition hearing in jail there set for February 8, 2023.

Sam Bankman-Fried, one of the crypto industry’s biggest stars, has had a rough end to 2022. His crypto exchange FTX — which was once valued at $32 billion — declared bankruptcy in November, leaving his customers unable to withdraw their money and his investors out of luck. Now he’s been arrested in the Bahamas following the filing of criminal charges in the US, where he remains in jail after being denied bail and awaits an extradition hearing on February 8, 2023. The charges include wire fraud, securities fraud, money laundering, and campaign finance laws violations. The Securities and Exchange Commission has charged Bankman-Fried with defrauding equity investors, and the Commodity Futures Trading Commission has filed a complaint against him as well.

Before the scandal, Bankman-Fried captured the interest of those in finance, politics, philanthropy, and beyond. He said he might spend as much as $1 billion on the 2024 election. He said he had a lot of ideas for policing the crypto industry and using his crypto-fueled fortune for good. He said he’d be fine bailing out some crypto companies in trouble as crypto winter hit over the summer. All of these claims are now essentially meaningless, thanks to another thing he said on November 7: that his crypto exchange, FTX, was “fine.” It was not. Instead, the next day, the exchange imploded. By November 11, the company had filed for bankruptcy, and Bankman-Fried resigned as CEO.

I have a lot of reasons to be furious at Sam Bankman-Fried. His extreme mismanagement of FTX (which his successor John J. Ray III, who previously helped clean up the Enron debacle, described as the worst he’s ever seen) led to the sudden collapse of a $32 billion financial company. He lost at least $1 billion in client funds after surreptitiously transferring it to a hedge fund he also owned, potentially in an effort to make up for huge losses there. His historic management failures pulled the rug out from under his users, his staff, and the many charities he promised to fund. He hurt many, many, many people. On Monday, news broke that he had been arrested in the Bahamas, where FTX is based, after US prosecutors in the Southern District of Manhattan had filed criminal charges of wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering against him, according to reporting by the New York Times.

But for me, the most disturbing aspect of the Bankman-Fried saga, the one that kept me up at night, is how much of myself I see in him.

Right now, we have far more questions than answers about what went down with FTX, the cryptocurrency exchange that collapsed last week. Will account holders get their money back? Will Sam Bankman-Fried, also known as SBF, face criminal charges? What will happen to everyone who accepted his donations? Is it finally the beginning of the end for crypto?

And then there’s the question right in front of us: How did this happen, and how do we make sure it doesn’t happen again? Answering that question is complicated since many of the initial investigations into Bankman-Fried, his trading firm Alameda Research, and FTX have only just begun. Still, what’s already come out has reinvigorated calls for regulating an industry that has long marketed its lack of regulation as one of its key features.

Last night, Sam Bankman-Fried DMed me on Twitter.

That was surprising. I’d spoken to Bankman-Fried via Zoom earlier in the summer when I was working on a profile of him, so I reached out to him via DM on November 13, after news broke that his cryptocurrency exchange had collapsed, with billions in customer deposits apparently gone. I didn’t expect him to respond — typically, people under investigation by both the Securities and Exchange Commission and the Department of Justice don’t return requests for comment.

A few months ago, the cryptocurrency exchange FTX was valued at about $32 billion. Its brand was plastered on the Miami Heat’s arena and on the umpires during the World Series. Tom Brady was hawking it during the Super Bowl.

Now, FTX is entering bankruptcy. More than a million creditors could have lost their money. And FTX’s founder, Sam Bankman-Fried, is facing the possibility of civil or criminal charges.