Sam Bankman-Fried’s $16 billion-foot fall from grace

A history of cryptocurrency before and after the FTX empire

This is the story of the high-flying crypto king and the collapse of the empire he built.
Axel Rangel Garcia
This is the story of the high-flying crypto king and the collapse of the empire he built.

Sam Bankman-Fried’s $16 billion-foot fall from grace

A 30-year-old man in shorts and T-shirt, with the unruly hair typical of any so-called “crypto bro”, was the friendly image that young billionaire Sam Bankman-Fried projected to the world.

This is the story of how the high-flying crypto king — once the best-known name in the hottest asset class in the world — saw the empire he built come crashing down in the fastest destruction of wealth in modern history. What began in 2017, came to an abrupt and rather unflattering end in November 2022.

Never has the world of investment and finance witnessed the trajectory of a company founded by a young man in his twenties, whose value shot up to $32 billion at an astronomical speed in just three years and collapsed just as quickly overnight.

Never before in the cryptocurrency market since its inception and since the Bitcoin star shined brightly, has one person and his company caused so much damage and loss to millions of investors in the crypto markets around the world.

In the last two months of 2022, major global media, financial markets, and cryptocurrencies attacked the name of Sam Bankman-Fried. Until very recently, he was the most popular name in the realms of investment and the most exciting assets in the world of cryptocurrency.

Sam Bankman-Fried, aka SBF, is a young man in his thirties with a childish face and wild black hair. Often found in shorts and a cotton T-shirt, one could mistake him as a student or a good companion for fun rather than the ‘King of cryptocurrency.’

He was known for sponsoring sports clubs and animal rights organisations — a man of giving and a philanthropist.

Harry Adjmi and Sam Bankman-Fried are seen onstage during the first annual Moonlight Gala benefitting CARE - Children With Special Needs - hosted by Michael Cayre, Roy Nachum and MegaMoon Museum at Casa Cipriani on June 23, 2022.

This is the friendly image the billionaire "swindler" has promoted worldwide. But how did he build a multi-billion-dollar financial empire that soon collapsed?

It's a short story that lasted only five years and could be turned into a movie.

Pitted as the next Warren Buffet, albeit briefly, Sam Bankman-Fried was born on 6 March 1992, in Palo Alto, California. The son of two Stanford law professors, he studied physics at the prestigious Massachusetts Institute of Technology (MIT).

After graduating, he became a trader at Jane Street Capital — a global liquidity provider and trading house. Just three years after joining the firm, Bankman-Fried discovered the lucrative world of cryptocurrencies and began applying the specialist knowledge of arbitrage that he had acquired at Jane Street to this new and burgeoning market.

Early on, he bought bitcoin in the United States and sold it in Japan, profiting by up to 10%, due to the discrepancy in prices.

Alameda Research and FTX

In 2017, Bankman-Fried founded his own company, Alameda Research — a quantitative cryptocurrency trading firm that provided liquidity in cryptocurrency and the digital assets markets — serving as its chief executive until 2019.

While still running Alameda, Bankman-Fried relocated to Hong Kong, lured undoubtedly by its booming cryptocurrency market. In April 2019, he founded FTX Trading Limited, the cryptocurrency derivatives exchange firm that was to make him a famous and very rich man, albeit briefly.

The company thrived until Covid-19 swept the world in 2020, prompting Bankman-Fried to move its headquarters to the Bahamas, where he could run it with fewer restrictions during the pandemic.

Often referred to by his initials “SBF”, Bankman-Fried managed to convince his rival, Binance, to become FTX’s first inventor.

FTX went live in May 2019. It quickly grew into one of the world’s leading exchanges for buying and selling crypto derivatives. In just three years, FTX secured a $32 billion valuation and managed to woo a roster of blue-chip investors, like Paradigm, Sequoia Capital, and Singapore’s Temasek.

In early 2022, investors valued FTX and its US operations at a combined value of $40 billion — earning its place in history. By May, it had managed to acquire its sector rivals, Coinbase and OKX, reaching a spot market trading volume of $89 billion.

It was then when Bankman-Fried was dubbed the ‘king of crypto’, becoming one of the most powerful men in the industry, thanks to Alameda Research and the FTX exchange — which at one point was the world’s third-largest cryptocurrency exchange.

By May 2022, FTX had managed to acquire its sector rivals, Coinbase and OKX, reaching a spot market trading volume of $89 billion. It was then when Bankman-Fried was dubbed the 'king of crypto', becoming one of the most powerful men in the industry. 

Fall from grace 

But all of that was seemingly too good to last, and it came to an abrupt end with stunning and rather spectacular speed. Bloomberg called it's fall "one of history's greatest-ever destructions of wealth."  

Within 24 hours, Bankman-Fried's net worth dropped to less than $1 billion in early November 2022, down from $16 billion — a hyper-crash of almost 94%.  

A run-on deposit had left his crypto exchange with a shortfall of $8 billion, forcing Bankman-Fried's firm to file for bankruptcy in late 2022.  

Once compared to the titans of finance like John Pierpont Morgan and Warren Buffett, he suddenly found himself transformed from industry leader to industry villain, becoming a target of humiliating investigations carried out by the US Department of Justice and by the Securities and Exchange Commission.  

Sam Bankman-Fried testifies during a hearing before the House Financial Services Committee at Rayburn House Office Building on Capitol Hill December 8, 2021 in Washington, DC.

The good times  
US government scrutiny over Bankman-Fried's activities came in sharp contrast to his earlier ambition of becoming a world-famous philanthropist. This had been his lifetime dream — to donate money to charity and help elevate the suffering of those in need.  

He had once even described himself as a "selfless altruist," reportedly donating 50% of his salary to animal welfare organisations while working as a trader at Jane Street. Three years later, he was one of the largest CEO donors to President Joe Biden's 2020 election campaign, contributing hefty sums to the Democratic Party.  

But it wasn't only presidential campaigns on Bankman-Fried's spending list. More high-profile spending was to come, like the September 2021 corporate sponsorship deal with Mercedes' Formula 1 team.  

Bankman-Fried's public recognition became so high and greater-than-life, reaching its pinnacle in October 2021 after FTX obtained the naming rights for Miami's National Basketball Association stadium until 2040.  

According to The Economist, the crypto king also spent millions "to lobby Congress on crypto regulation." 
The crypto crash  
Then came the crypto crash last summer, ending the king's short-lived empire. Post-crash, Bankman-Fried managed to temporarily salvage his reputation, providing support to struggling companies like the lender firm, Blockfi.  

Bankman-Fried had once been described as the "crypto Pierpont Morgan" (JP Morgan), in reference to a legendary financier of the early 20th century — a comparison that may have fulfilled his aspirations but left him unprepared for the bitter harvest that was yet to come.  

Some media reports suggest that FTX's downfall can also be linked to Bankman-Fried's attempts at saving another crypto firm from collapse within a falling market roiled by rapidly rising interest rates. This suggests that at curtain fall, he might have bit off more than what he could chew.  
Reuters says that some of his trouble-shooting deals might have actually pushed Alameda Research into a series of far deeper losses, salvaging Bankman-Fried's reputation, but bringing him into total financial ruin.  

Things started to look grim when a CoinDesk report revealed that the majority of Alameda Research's assets — worth $14.6 billion as per the balance sheet — were in fact FTX's own FTT tokens. 

As inflation worsened and recessionary pressures grew around the world, the company's downfall became more apparent and, eventually, inevitable. FTX headed straight into a liquidity crunch, and the world's largest cryptocurrency exchange, Binance, offered to buy its international finances.  

They pulled out, however, when realising that FTX was no longer salvageable. One Binance executive even described the balance sheet looking as if "a bomb went off."  

This left Bankman-Fried teetering on the edge of financial ruin, stuck with no buyer, and no alternative investors.  

His empire collapsed in November 2022, as users began collectively and rapidly withdrawing their investments. That month, he resigned as CEO of FTX, filing of Chapter 11 bankruptcy protection for FTX, its US operations, and Alameda Research. 

His empire collapsed in November 2022, as users began collectively and rapidly withdrawing their investments. That month, he resigned as CEO of FTX, filing of Chapter 11 bankruptcy protection for FTX, its US operations, and Alameda Research.  

'A complete failure'  

Bankman-Fried's successor was John Ray III — a restructuring specialist who had overseen famous bankruptcy cases at Enron and Nortel Networks. That was nothing compared to what he witnessed at FTX, describing the legacy of his predecessor as a "complete failure of corporate controls."  

He added that never before during his career, which spanned across four solid decades, had he seen such a complete absence of trustworthy financial information. FTX's new CEO went further, describing Bankman-Fried and his top executives as "a very small group of inexperienced, unsophisticated, and potentially compromised individuals."  

Following his fall from grace and hunkered down in an upscale neighbourhood of Nassau, Bankman-Fried was still scrambling to raise billions in order to plug a hole in his precious, yet now-bankrupt FTX.  

Despite losing access to his corporate email and all company systems, he maintained that he could still play a role in the company's future — if any. He was seemingly still convinced that there were "billions of dollars of potential funding opportunities out there." 

Criminal charges 

On 12 December, Bankman-Fried was arrested in the Bahamas after prosecutors in the US filed criminal charges against him. The next morning an indictment was unsealed which alleged eight criminal charges.  

A trio of US agencies has been working "around the clock" to unravel what happened in "one of the  biggest financial frauds in American history." The Justice Department accused Bankman-Fried of multiple crimes, including conspiracy, fraud, money laundering and violating campaign finance laws. The Securities and Exchange Commission alleged that he defrauded his investors, and the Commodity Futures Trading Commission also filed fraud accusations.  

Testifying in front of the US House Financial Services Committee on the collapse of the crypto exchange, FTX's new CEO noted that the company had "unacceptable management practices" including the commingling of FTX and Alameda assets and lack of internal controls. 

Sam Bankman-Fried faces up to 115 years in prison if he is convicted on all eight charges — though he is unlikely to be sentenced to that long a term. 

In an interview with the BBC before he was arrested, Bankman-Fried said: "I don't think I tried to do anything wrong." He said he doesn't know what the future will hold, but he will try to think of ways to pay back people who lost money: "I would give anything to be able to pay people back their money, and I am going to try if I can." 

A day after being extradited to the United States and transferred to FBI custody, Bankman-Fried was released on $250 million bond on 22 December and is staying at his parents' home in California, while awaiting trial for fraud and other criminal charges.  

In addition to "the largest-ever pretrial bond," according to prosecutors, the former crypto billionaire would also be required to wear an electronic monitoring bracelet, submit to mental health counseling, and restrict himself to travel within and between the Northern District of California and the Southern and Eastern Districts of New York. 

Former FTX chief executive Sam Bankman-Fried leaves Manhattan federal court, New York, January 3, 2023.

On 3 January, the 30-year-old pleaded "not guilty" to criminal charges in federal court in Manhattan by his attorney Mark Cohen, setting up a high-stakes legal battle against two of his closest former business partners, Gary Wang, the co-founder of FTX, and Caroline Ellison, who served as Alameda's CEO.  

Both have pleaded guilty to multiple criminal charges on 21 December and are cooperating with federal prosecutors. Judge Lewis Kaplan of the Federal District Court set 2 October as a tentative start date for Bankman-Fried's trial. 

Case study  

The story of Sam Bankman-Fried will remain, for quite a long time, a case study. It will significantly affect the cryptocurrency market, which will witness radical revisions and new legal and regulatory controls.  

This, however, will help strengthen digital currencies issued and managed by central banks and official authorities, limiting at the same time the recalcitrance of bitcoin and other cryptocurrencies owners, as well as other chief challenges facing the markets.  

This young man has caused enormous damage to the cryptocurrency markets, tarnishing the sector's already shaky reputation.  

FTX filing for bankruptcy will indisputably harden existing hostile views towards cryptocurrencies, from experts in the traditional markets to central banks worldwide.  

Aftershocks will continue well after the Bankman-Fried trial, much of which we will see in the current New Year. 

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