FTX and Sam Bankman-Fried: Your guide to the crypto crash

FTX’s problems tumbled into the open on Nov. 2, when CoinDesk published a report questioning the financial health of both FTX and Alameda.
FTX’s problems tumbled into the open on Nov. 2, when CoinDesk published a report questioning the financial health of both FTX and Alameda.


  • The founder of FTX was the paragon of crypto, then the cautionary tale.

Sam Bankman-Fried was heralded as the savior of crypto. Late last year, his empire collapsed. Here’s what you need to know about the unraveling of FTX.

FTX founder Sam Bankman-Fried was the paragon of crypto.

Mr. Bankman-Fried, often referred to as SBF, vaulted to celebrity with his attempts to make his crypto exchange a household name.

The 30-year-old billionaire’s eccentric, unkempt appearance created an aura of genius. Venture capitalists got on board. High-profile athletes and musicians, and a wave of FTX ads, encouraged regular people to use the exchange to tap crypto’s moneymaking potential.

Mr. Bankman-Fried and FTX were among the biggest donors in the 2022 midterm election cycle, boosting their visibility in Washington. And when other crypto firms started collapsing last year, SBF extended loans to prop up ailing competitors.

FTX’s ties with Alameda, its sister trading firm, led to its undoing.

Before creating FTX, Mr. Bankman-Fried founded Alameda Research, and it became a major player in crypto market making and institutional trading. Mr. Bankman-Fried recruited Caroline Ellison, whom he met while both were traders at Jane Street Capital, and she later became chief executive. Mr. Bankman-Fried remained CEO of FTX, the crypto exchange.

But even when Mr. Bankman-Fried was no longer at Alameda’s helm, he still owned 90% of it, according to bankruptcy filings. Alameda also traded on FTX.

Mr. Bankman-Fried repeatedly said that Alameda didn’t have any special privileges on FTX. Recent revelations cast doubt on those claims. According to bankruptcy filings, Alameda had a “secret exemption" from the exchange’s process for liquidating bad trades—a loophole that meant Alameda could take on more risk than other customers.

Alameda also doled out billions to buy stakes in startups. It often used FTT, which is FTX’s own cryptocurrency, as collateral for borrowing.

Mr. Bankman-Fried and Ms. Ellison were at times romantically involved.

A crash in crypto prices hurt both FTX and Alameda.

FTX’s problems tumbled into the open on Nov. 2, when CoinDesk published a report questioning the financial health of both FTX and Alameda.

Changpeng Zhao, the billionaire founder of rival exchange Binance, said he would dump his FTT holdings. Customers panicked and started yanking their money out. Crunched for cash, FTX agreed to sell itself to Binance, but Binance quickly changed its mind. Shortly after, SBF resigned and FTX filed for bankruptcy.

Prosecutors and regulators say FTX had been dipping into its customers’ deposits from the start, funneling cash into real estate, political donations, Alameda’s operations, and more.

The restructuring team says FTX is a giant mess.

John J. Ray has helped oversee some of the highest-profile bankruptcies ever, including Enron. Mr. Ray, now the new CEO of FTX, says he has never seen anything as bad as FTX.

In a court filing, Mr. Ray called the disarray at FTX unprecedented. According to him: Supervisors approved payment requests with emojis. Homes were purchased for employees with corporate funds. Bank accounts and company financials weren’t tracked. Software was used to conceal the misuse of customer money.

Many employees have quit, saying they were in the dark.

Will FTX customers ever see their money again?

People are certainly getting worried.

FTX said in January it has located more than $5 billion in cash and other liquid assets, and is hoping to sell more than 300 additional holdings with a book value of more than $4.6 billion. Those assets don’t include $425 million held by authorities in the Bahamas, company lawyers said in bankruptcy court.

Court filings from Mr. Ray and those working with him make clear that they don’t know how much cash or crypto they will ultimately find.

Mr. Ray said in an interview with The Wall Street Journal in January that he has set up a task force to explore restarting FTX.com, the company’s main international exchange.

FTX’s collapse is reverberating through the crypto world.

With a major exchange and trading firm under its umbrella, many loans to and from other players and various tokens with market values once in the billions of dollars, FTX’s tentacles extended wide across the industry.

Crypto lender BlockFi Inc., which got a line of credit from FTX in 2022, followed FTX with its own bankruptcy filing. Genesis Global Capital—which had loans outstanding to Alameda—is trying to quickly raise a heap of cash. Both have paused withdrawals.

With all that in mind, is crypto doomed? Maybe.

Mr. Bankman-Fried says he didn’t know the scale of the problems.

Since his departure from FTX, Mr. Bankman-Fried hasn’t shied away from the spotlight.

In media interviews, Mr. Bankman-Fried has repeatedly said he didn’t intend to commit fraud. He has also tried to distance himself from his trading firm. “I didn’t have enough brain cycles left to understand everything going on at Alameda if I wanted to," he told The Wall Street Journal.

Regulators and prosecutors have swooped in.

Mr. Bankman-Fried was arrested in the Bahamas on Dec. 12. The U.S. attorney’s office for the Southern District of New York charged him with eight criminal counts including wire fraud, commodities-fraud conspiracy and securities-fraud conspiracy.

The Securities and Exchange Commission and the Commodity Futures Trading Commission also sued Mr. Bankman-Fried on Dec. 13, alleging that he misused customer funds. The following week he was transferred to U.S. custody.

Mr. Bankman-Fried pleaded not guilty to all criminal charges on Jan. 3. A judge set his trial to begin Oct. 2.

Two former deputies of Mr. Bankman-Fried’s, Ms. Ellison and Gary Wang, have pleaded guilty to similar criminal charges. Ms. Ellison apologized during her court hearing, and Mr. Wang told the judge he knew what he was doing was wrong.

This story has been published from a wire agency feed without modifications to the text


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