The Rise and Fall of Sam Bankman-Fried and FTX

Former cryptocurrency prodigy Sam Bankman-Fried has been convicted for his role in the collapse of the cryptocurrency exchange FTX, marking a dramatic fall from grace. If he receives the maximum sentence, the 31-year-old former billionaire could face life in prison. Bankman-Fried’s journey in cryptocurrencies is a remarkable story of success, failure, and legal troubles. Here’s a comprehensive overview of his rise and fall:

Who is Sam Bankman-Fried ?

Sam Bankman-Fried, often called SBF, started his career as a trader at Jane Street Capital after studying mathematics and physics at MIT. In 2017, he ventured out independently, establishing a cryptocurrency hedge fund named Alameda Research. The firm’s humble beginnings included operating out of a two-bedroom Airbnb in North Berkeley, California.

Despite his bold move into the crypto world, Sam Bankman-Fried openly admitted that he knew very little about cryptocurrencies. In his words, “I had no idea how they worked…I just knew they were things you could trade.” He even contemplated a mere 20% chance of success for his cryptocurrency exchange FTX, which he co-founded in 2019. Nevertheless, he pushed forward, ultimately becoming FTX’s CEO.

What is FTX ?

Sam Bankman-Fried’s unconventional journey led to the rapid growth of FTX, which garnered significant attention from high-profile investors like SoftBank and BlackRock. In January 2022, at the peak of the cryptocurrency market, FTX boasted a staggering valuation of $32 billion.

To secure a favorable regulatory environment and reduce corporate tax rates, Sam Bankman-Fried moved the headquarters of both FTX and Alameda Research from Hong Kong to the Bahamas. He praised the Bahamas as a location that offered a comprehensive framework for cryptocurrencies.

The downfall of FTX began in November 2022 when the company filed for bankruptcy, triggering a panic in the cryptocurrency industry as billions of dollars in customer withdrawals occurred. A tweet from the CEO of FTX rival Binance further exacerbated the situation by indicating their intent to liquidate FTX’s digital currency, FTT, due to recent revelations.

Sam Bankman-Fried, fearing a bank run and liquidity crisis, attempted to reassure customers via a tweet that was later deleted. However, this did not prevent the inevitable. In December 2022, he was arrested in the Bahamas after US prosecutors filed criminal charges against him.

Sam Bankman-Fried was found guilty on seven counts, including stealing billions from FTX customer accounts and defrauding lenders to FTX’s sister company, Alameda Research. During the trial, he admitted to learning in 2020 that FTX customer funds were held by Alameda but failed to take action to safeguard them.

Even when he discovered that Alameda owed $8 billion to FTX in the fall of 2022, no one was fired. Additional charges against Sam Bankman-Fried included defrauding FTX investors and money laundering.

He now faces the possibility of a 110-year prison sentence. However, a second trial on five more charges is scheduled for March, with prosecutors expected to decide by February 1 whether it will proceed.

Before the collapse of FTX, Sam Bankman-Fried’s net worth was estimated at over $15 billion, as indicated by the Bloomberg Billionaire Index. However, as the value of FTX’s assets disintegrated in November 2022, his net worth plummeted dramatically.

In a single day, during the turmoil surrounding FTX’s assets, he experienced a colossal 94% reduction in his net worth, marking one of the most significant one-day losses ever recorded by the Billionaire Index.

Bankman-Fried’s parents, Joe Bankman and Barbara Fried tenured Stanford law professors, were entangled in FTX’s legal woes. While Bankman-Fried maintained that his parents were not involved in the critical aspects of FTX’s operations, a lawsuit filed in September suggested otherwise.

The lawsuit alleged that Bankman and Fried discussed transferring a $10 million cash gift and a $16.4 million property in the Bahamas to them.

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It was further claimed that Bankman repeatedly referred to FTX as a “family business” and initially served as an informal advisor to the company, later becoming a paid employee. Fried was implicated as an advisor to her son, particularly in matters related to political donations. Both parents were present at their son’s trial in Manhattan.

As FTX gained prominence in 2021 and 2022, Bankman-Fried made a name for himself in Washington, DC, where he lobbied for crypto industry regulation and became one of the Democratic Party’s most significant contributors. He contributed approximately $40 million to campaigns and political action committees in 2022, according to Federal Election Commission records.

Bankman-Fried’s political influence was not confined to the Democratic Party, as federal prosecutors alleged that he sought to conceal donations to Republican candidates as well. In addition to politics, he delved into the sports and entertainment world, with FTX reportedly investing $135 million to rename the Miami Heat arena to “FTX Arena” in 2021. However, after FTX’s bankruptcy, the Miami Heat terminated the partnership.

The cryptocurrency exchange also engaged in lucrative deals with former athletes like Tom Brady, Stephen Curry, and Naomi Osaka, who featured in FTX commercials to promote the platform. In 2022, the creator of “Curb Your Enthusiasm,” Larry David, starred in a Super Bowl commercial for the cryptocurrency exchange.

FTX’s downfall had a cascading impact on the cryptocurrency industry. Immediately following the collapse of FTX, Gemini, a cryptocurrency exchange founded by Cameron and Tyler Winklevoss, froze customer redemptions in its lending unit due to market turmoil. Eventually, the lending unit declared bankruptcy.

In a recent development, the New York attorney general filed a lawsuit against three companies linked to the Winklevoss twins, accusing them of concealing over $1 billion in losses.

In the wake of FTX’s bankruptcy, another crypto lender, BlockFi, also suffered significant setbacks. The company cited “significant exposure” to FTX and Alameda as contributing factors. Other cryptocurrency firms like Coinbase and Binance resorted to substantial layoffs following FTX’s downfall and the declining value of cryptocurrencies like Bitcoin.