Only months ago, Sam Bankman-Fried was a 30-year-old billionaire and the CEO of the cryptocurrency exchange FTX. However, over a matter of days, he went from industry leader to industry villain, lost his fortune, watched his billion-dollar company plunge into bankruptcy and became the target of one of the biggest financial fraud cases in US history. He now faces a multitude of legal proceedings, which, if found guilty, he could face a maximum sentence of 115 years in prison for.
How did someone go from being one of the biggest names in crypto to a fallen mogul with a cautionary tale? Here we will look at the swift fall from grace of the once King of the crypto world.
The son of two Stanford law professors, Bankman-Fried grew up in Silicon Valley. He studied physics at Massachusetts Institute of Technology, where he became especially interested in a philosophical movement known as effective altruism, which uses calculations to understand how people can use their time, money and resources to best help others.
Post college, he went to work for the global trading firm, Jane Street, learning how to buy an asset for a low price in one market and sell it for a higher price in another market, a method known as arbitrage. These skills became integral to his career, when he realized he could cash in on the booming crypto market, where people were trading on private exchanges. He noticed that some coins were selling for higher prices on some exchanges compared to others and realized he could exploit the gaps in prices.
Jumping on the crypto bandwagon, he set up his own crypto trading firm, Alameda Research, in Berkeley, California. Despite its volatile nature, crypto trading seemed a safe bet, with its popularity growing hugely since the emergence of Bitcoin back in 2009.
Bitcoin has become the world’s best-known cryptocurrency, with more than 180 million users worldwide. It is used for both investment and trading purposes, as well as for a multitude of transactions, like purchasing luxury goods and cars. It has even become a popular currency for casinos, with more than 300 online casinos currently accepting Bitcoin as a form of payment, according to Casino Guru.
At its peak, Alameda was moving almost $15 million a day between markets, earning Bankman-Fried the nickname “the Moby Dick of the crypto whales” for the waves he was making in the crypto industry. Then, in May 2019, he and his team launched their own crypto exchange, FTX.
By early 2022, thanks to a boom in the value of Bitcoin and other digital assets, FTX and its US operations were valued by investors at a combined $40 billion, according to Forbes. At his peak, Bankman-Fried’s own net worth was believed to be $26 billion, and he is said to have allocated that wealth towards sponsorships, funding political leaders and furthering his moral agenda. With his strong beliefs in effective altruism, he apparently claimed that he would only keep 1% of his income or a minimum of $100,000 a year.
While Bankman-Fried seemed unstoppable, the crypto market is not always kind, with the end of 2022 being particularly bad for the virtual currency. A brutal comedown led to a loss of $2 trillion in value, with many people impacted by this huge fall. At the heart of this comedown was FTX, which collapsed in early November after a wave of withdrawals.
A report issued by CoinDesk reported that Bankman-Fried’s other company, Alameda Research, was on unstable grounds, highlighting potential leverage and solvency concerns. Traders became worried about a sudden drop in value of FTT, FTX’s in-house token, which most of Alameda’s assets were tied up in, and as a result, there was a surge of customer withdrawals.
Failing to secure a bailout, FTX filed for bankruptcy, with Bankman-Fried stepping down as CEO. According to a filing in a US bankruptcy court, this collapse led to FTX owing its 50 biggest creditors nearly $3.1 billion, with the largest creditor owed $226 million. Overnight, Bankman-Fried went from being worth billions to nothing.
The implosion has since led to allegations of fraud, which ultimately led to Bankman-Fried being arrested in the Bahamas on December 12th. Manhattan federal prosecutors are charging him with stealing billions of dollars in FTX customer deposits to plug losses at Alameda Research. He has also been accused of misleading lenders and investors, conspiring to launder money, and violating US campaign finance laws.
He was extradited to New York on December 21st, where the following day he was released on bail for $250 million. Since then, former colleagues have pleaded guilty to criminal charges relating to the case.
On January 3rd, Bankman-Fried pleaded not guilty to the charges, with a proposed trial to begin on October 2nd, 2023. It remains unclear what his defense strategy will be, but with a mountain of evidence against him, it will be interesting to see what loopholes his legal minds will find. Only time will tell what the future holds for the fallen mogul.
