Samuel Benjamin Bankman-Fried, better known as Sam Bankman or SBF, is an American entrepreneur who founded the cryptocurrency exchange FTX.
The 32-year-old was sentenced to 25 years in prison and ordered to forfeit $11 billion on 28 March, 2024 after being convicted of seven counts of fraud, conspiracy and money laundering. The sentencing took place at the Manhattan Federal Court, New York.
Bankman-Fried’s sentencing came after the collapse of FTX, which was once the second-largest platform in the cryptocurrency arena. The collapse was broadly due to fraudulent activities conducted by Bankman, impacting numerous investors. His downfall unfolded over several years and is characterized by financial mismanagement, regulatory scrutiny and legal battles, all of which shall be explore din this report.
This Story Herald article aims to explore his downfall from the beginnings of FTX to his conviction in it’s collapse.
So, get along with us!
What is FTX?
It is the theatre where all the drama actually unfolded. FTX Trading Ltd., commonly known as FTX is a now-bankrupt company that formerly operated as a cryptocurrency exchange and crypto hedge fund. It was founded by Sam Bankman-Fried and Gary Wang in 2019 and reached its peak in 2021 when the company had over 1 million users and was one of the largest crypto exchanges by volume in the world.
CoinDesk’s Report and Binance : Beginnings of the collapse
The whole story began on 2 November, 2022 when a bombshell report by the news site CoinDesk revealed that Alameda Research, a crypto hedge fund co-founded by Bankman-Fried, held a significant amount of assets in FTT, a token created by FTX. This raised concerns about the financial stability of both firms.
On 6 November, reacting to the report, Changpeng Zhao (CZ), the CEO of a rival exchange Binance announced the sale of all their FTT holdings, triggering a massive wave among other investors. This, combined with the low trading volume of FTT, resulted in the price of the token falling. TFX, facing a liquidity crisis was forced to stop customer withdrawals.
In a very surprising move, it was announced on 8 November that FTX is making a bailout deal with Binance, i. e., entering into a non-binding agreement wherein Binance was purchasing FTX in order to ensure that customers could recover their assets timely. However, on the next day, it was reported that Binance was backing out of the deal citing FTX’s reported mishandling of customer funds and the ongoing investigation.
Frozen Assets and SBF’s Arrest in Bahamas
On 10 November, Bahamas, where the company was headquartered, froze FTX assets, citing the possibility of customer funds being mismanaged and mishandled.
Shortly, the company filed for Chapter 11 bankruptcy (also known as reorganization bankruptcy – a process that allows businesses (and individuals in rare cases) to restructure their finances, pay creditors over time and avoid complete shutdown) protections as the company assessed the value of its remaining assets.
SBF resigned as CEO and was replaced by John J. Ray III, an attorney who specializes in the recovery of funds from failed corporations. Ray later described these happenings as a “complete” failure of corporate controls, worse than anything he had seen through his years handling failing businesses, including the infamous Enron.
Soon, news emerged that FTX lent customer funds to Alameda Research, raising further inquiry into SBF’s conduct and the relationship between the two firms involved.
From 14 to 16 November, federal investigations into FTX began. A class-action lawsuit accused SBF and celebrity endorsers including Naomi Osaka, Shaquille O’Neal and Kevin O’Leary of misleading investors. Here onwards, Bankman showed little remorse regarding the events and downplayed the seriousness of the situation.
On 12 December, 2022, SBF was arrested at his apartment complex in New Providence, Bahamas, by the Royal Bahamas Police Force just before his scheduled appearance before the U.S. House Committee on Financial Services. He faced charges including wire fraud, securities fraud and money laundering by the Southern District of New York. Bankman-Fried consented to extradition to the United States after ten days in Fox Hill Prison, agreeing to a $250 million bond.
SBF’s confession and rebuke
On 3 January, Bankman pled guilty to the charges. Later, he published a blog post rebuking his charges wherein he denied the appropriation of customer funds and blamed the situation on a sharp downturn in the cryptocurrency market. This defence lacked credibility.
On 11 August, SBF’s bail was revoked due to witness tampering allegations by the prosecutors as he had shared Caroline Ellison’s (the CEO of Alameda Research and Bankman’s ex-girlfriend) personal writings with the New York Times.
SBF’s trial took place from 3 October to 2 November. Key witnesses, including Caroline Ellison (who pleaded guilty) testified against him. Ultimately on 28 March, 2024, he was found guilty on all aforementioned charges.
SBF’s and victims’ future in limbo
The story does not end here with the conviction of SBF either for him or for the victims as the former has to repay more than $11 billion as part of the convicted sentence for defrauding his customers, and the latter victims anticipate difficult compensation from the government.
It’s being calculated that this forfeiture will handicap him for the rest of his life and seal his fate, even if he comes out of jail after serving the 25-year sentence.
However, his conviction and the crimes his commited will go down as the epic under-world saga in the Crypto world, which is eyeing positive prospects for its survival in the future.
