FTX Scam: The Rise and Fall of Former 'Crypto King' Sam Bankman-Fried

Sam Bankman-Fried, the founder of the crypto exchange FTX that caused the crypto industry’s “Lehman moment”, has been found guilty of seven criminal charges. Bankman-Fried recently went on trial for fraud and conspiracy in a court in the Southern District of New York. The verdict has now deemed him guilty of the charges and he is due to face sentencing early next year. Here’s all you need to know about the collapse of FTX and Sam Bankman-Fried's trial.

What is FTX?

FTX was formerly a digital currency exchange platform where people bought and sold digital assets like Bitcoin, ether, etc. The exchange platform founded in 2019, rose to international popularity in recent years as investment in cryptocurrencies skyrocketed. It went on a series of high-profile acquisitions, aggressive marketing strategies, and low trading fees as it raised almost $2 billion in investments, according to NBC News. The company’s 30-year-old founder, Sam Bankman-Fried, soon became the face of the organization and the crypto exchange at large. It was followed by expensive celebrity endorsements from actors to NBA players along with major sports sponsorships that made FTX hard to miss.

The Beginning of the Downfall And Bankman-Fried's Arrest

The cryptocurrencies faced a decline in 2021, causing several platforms to shut down. However, FTX seemed immune, even investing in struggling competitors to help them survive. Then things quickly changed when Coindesk, a crypto-focused digital media website, released a report on the crypto investing firm Alameda Research, which was also owned by Bankman-Fried.

The report published its balance sheet showing that Alameda held a large amount of a digital currency created and owned by FTX called FTT. The FTT and its customers held a certain market value, but in case its price dropped, Alameda would be at risk of insolvency.

After the report was released, Changpeng Zhao, CEO of the rival crypto platform Binance, announced that it would sell off all its FTT tokens. Soon the price of FTT crashed forcing many FTX customers to withdraw their assets from the platform.

The withdrawals were similar to a classic bank run, and FTX started losing billions of dollars.

FTX then stopped customers from making withdrawals to prevent its collapse. After this, Bankman-Fried made a desperate move to save his companies and approached Binance for a bailout.

Binance announced that it would purchase FTX for an undisclosed amount, but it quickly backed out citing reports that FTX had mismanaged user funds and sharing information gathered during its standard due diligence process, as per The Guardian. 

Following the reports, The Securities and Exchange Commission and the US Justice Department launched an investigation into FTX. Bankman-Fried then resigned as the CEO of FTX, and the exchange filed for bankruptcy in the US. Customers of FTX who failed to withdraw their funds ended up losing all their investments.

Bankman-Fried’s Trial

Reports indicate upwards of $10 billion in FTX customer assets are missing. Bankman-Fried was arrested in the Bahamas and later indicted by a US federal grand jury. After an initial appearance in the federal court, Bankman-Fried got out on a $250 million bond but was sent back in custody for witness tampering. The trial for the FTX founder started on October 3 as he pleaded not guilty.

Charges Against Bankman-Fried

The Department of Justice filed a total of 13 criminal charges against Bankman-Fried and seven out of the 13 were heard in the initial trial. The charges were two counts of wire fraud, two counts of conspiracy to commit fraud, one count of conspiracy to commit commodities fraud, and two conspiracy counts over misrepresentations to investors and lenders.

Verdict on Sam Bankman-Fried

On November 2, the New York federal court jury found Bankman-Fried guilty on all seven charges and he could spend decades behind bars. While the penalties of his charges could add up to 110 years, the exact duration will be determined at the sentencing hearing, as per Al Jazeera.

The sentencing hearing is tentatively scheduled for March 28, 2024. Till then Bankman-Fried is expected to remain in a Brooklyn jail where he was imprisoned in August after being accused of witness tampering. He will also face a second trial in March 2024 on five additional charges.