How FTX’s Sam Bankman-Fried went from crypto king to convicted conman

Two years in the past, Sam Bankman-Fried was a 30-year-old multibillionaire residing in a $35 million Bahamas penthouse, partying along with his buddies whereas operating one of many world’s Most worthy crypto firms.

Right now, he is a 32-year-old inmate on the Metropolitan Detention Heart in Brooklyn, ready for a choose to inform him how lengthy he’ll spend behind bars for masterminding “one of many greatest monetary frauds in American historical past,” within the phrases of U.S. Legal professional Damian Williams.

Bankman-Fried, the founder and former CEO of failed crypto change FTX, will head on Thursday to a federal courtroom in downtown Manhattan, the place U.S. District Choose Lewis Kaplan will ship his sentencing. Prosecutors have beneficial a jail sentence of 40 to 50 years.

It took jurors solely about three hours of deliberations in November to search out Bankman-Fried responsible of all seven prison accounts towards him. For a high-profile monthlong trial that concerned practically 20 witnesses and a whole lot of displays, consultants mentioned on the time that they’d by no means seen such a speedy choice. Bankman-Fried plans to enchantment his conviction and sentence.

It was a steep and swift fall from grace for Bankman-Fried, who was as soon as hailed as a titan within the trade and had a peak web price — on paper — of roughly $26 billion.

It began with the Kimchi Swap.

In 2017, as a quant dealer at Jane Road, Bankman-Fried seen one thing humorous when he checked out bitcoin pricing on CoinMarketCap.com. As an alternative of a uniform value throughout exchanges, Bankman-Fried would generally see a 60% distinction within the worth of the digital foreign money. His fast intuition, he mentioned, was to get in on the arbitrage commerce — shopping for bitcoin on one change and promoting it again on one other, pocketing the distinction.

“That is the lowest hanging fruit,” Bankman-Fried instructed CNBC in September 2022.

The arbitrage alternative was particularly compelling in South Korea, the place the exchange-listed value of bitcoin was considerably larger than in different nations. It was dubbed the Kimchi Premium, a reference to the normal Korean aspect dish of salted and fermented cabbage.

After a month of personally dabbling available in the market, Bankman-Fried launched Alameda Analysis, named after the California county that housed his first workplace. Bankman-Fried instructed CNBC that the agency generally made as a lot as 1,000,000 {dollars} a day buying and selling bitcoin.

Alameda’s success spurred the launch of FTX. In April 2019, Bankman-Fried co-founded FTX.com, a global cryptocurrency change that provided clients revolutionary buying and selling options, a responsive platform and a dependable expertise. FTX’s success led to a $2 billion enterprise fund that seeded different crypto corporations.

The FTX emblem quickly adorned every little thing from System One race automobiles to a Miami basketball enviornment. Bankman-Fried talked about in the future shopping for Goldman Sachs, and he grew to become a fixture in Washington as one of many Democratic Get together’s high donors.

Then the market turned.

The so-called crypto winter of 2022 worn out hedge funds and lenders throughout the crypto universe. Bankman-Fried boasted that he and his enterprise had been immune. Behind the scenes, Alameda was borrowing cash to put money into failing digital asset corporations to maintain the trade afloat.

Could of 2022 introduced the crash of stablecoin Luna, making a domino impact that despatched crypto costs plunging, devastating different lenders.

Alameda had borrowed from lenders together with Voyager Digital and BlockFi, which each ended up going bankrupt. Alameda secured its loans with FTT tokens, minted by FTX. Bankman-Fried’s empire managed the overwhelming majority of the out there foreign money, with solely a small quantity of FTT truly circulating at any time.

Alameda marked its complete hoard of FTT on the prevailing market value regardless of it being a just about illiquid asset. The fund employed the identical methodology with different cash as properly, together with Solana and Serum (a token created and promoted by FTX and Alameda), utilizing them to collateralize billions of {dollars} in loans. Trade insiders referred to as the tokens “Sam cash.”

When confronted with margin calls as a result of falling costs, Bankman-Fried turned to FTX clients’ deposits to the tune of billions of {dollars} by the center of 2022. In response to the agency’s personal chapter filings, it possessed virtually nothing in the best way of file protecting.

On Nov. 2, 2022, crypto commerce website CoinDesk publicized particulars of Alameda’s stability sheet, which confirmed $14.6 billion in belongings. Over $7 billion of these belongings had been both FTT tokens or Bankman-Fried-backed cash like Solana or Serum. One other $2 billion price had been locked away in fairness investments.

Traders started withdrawing their holdings from FTX, creating the specter of a digital financial institution run. Alameda and FTX now each confronted a liquidity crunch.

On Nov. 6, 4 days after the CoinDesk article, Binance founder Changpeng Zhao dropped the hammer. Binance was the primary exterior investor in FTX in 2019. Two years later, FTX purchased again its stake with a mixture of FTT and different cash, in line with Zhao.

Zhao wrote in a tweet that, due to “latest revelations which have got here [sic] to gentle, we’ve determined to liquidate any remaining FTT on our books.” FTX executives scrambled to include the harm, and Alameda merchants managed to fend off outflows for a pair days.

On Nov. 7, Bankman-Fried tried to indicate confidence, tweeting, “FTX is ok. Property are nice.” The put up was deleted.

Inner discussions had been completely different. Bankman-Fried and different executives admitted to one another that “FTX buyer funds had been irrevocably misplaced as a result of Alameda had appropriated them.” By Nov. 8, the shopper shortfall had grown to $8 billion. Bankman-Fried was courting exterior buyers for a rescue package deal however discovered no suitors.

FTX issued a pause on all buyer withdrawals that day. FTT’s value plummeted by over 75%. Out of choices, Bankman-Fried turned to Zhao, who introduced that he’d signed a “non-binding” letter of intent to amass FTX.com.

However a day later, on Nov. 9, Binance mentioned it would not undergo with the acquisition, citing stories of “mishandled buyer funds” and federal investigations.

FTX filed for chapter on Nov. 11, and Bankman-Fried resigned as CEO of FTX and related entities. He instantly misplaced 94% of his private wealth.

Sullivan & Cromwell, FTX’s longtime attorneys, approached John J. Ray, who oversaw Enron by means of its chapter, to imagine Bankman-Fried’s former place.

On Dec. 12, Bankman-Fried was arrested by Bahamian authorities and extradited to the U.S., the place he was taken into custody. Federal prosecutors and regulators accused Bankman-Fried of perpetrating a fraud “from the beginning,” in line with a submitting from the Securities and Alternate Fee. 

Bankman-Fried was launched on a $250 million bond and was initially residing underneath home arrest with a court-ordered ankle monitor at his mother and father’ house in Palo Alto, California, on the Stanford College campus. He was quickly taken again into custody for alleged witness tampering.

Whereas Bankman-Fried awaited trial, lots of his closest mates and confidants become key witnesses for the prosecution, leaving the previous crypto billionaire to defend himself. Lower than a yr after his arrest, the 12-person jury discovered Bankman-Fried responsible on all prison prices towards him.

— CNBC’s Rohan Goswami contributed to this report.