Sam Bankman-Fried is no longer a billionaire – his net worth has dwindled from £21bn to $100,000 (£80,000) following FTX’s demise. The 30-year-old billionaire, at times, looked unstoppable, built a £21bn business empire and was the CEO of FTX, the world’s second-largest cryptocurrency exchange. More than one million customers worldwide were using his platform to buy assets like Bitcoin – lured by star-studded publicity that made everything look simple and secure and now their fortunes have crumbled in just three days.
Bankman-Fried – popularly called SBF – had become one of the tallest names in the crypto industry, with his company plunged in to save smaller firms after they were knocked down into insolvency and liquidation.
But in a matter of just three days, a series of bombshell allegations led to the massive collapse of FTX and a bankruptcy of its own. Bankman-Fried’s personal wealth dropped by a staggering 94% in 24 hours – the biggest one-day fall ever suffered by a billionaire.
Hundreds and thousands of hapless investors are now on the verge of losing their life savings – an estimated 80,000 of them are from the UK.
A huge sum of money is suspected to have been siphoned from the exchange, amid allegations that investor’s funds were badly mismanaged.
Bankman-Fried is going to face the wrath of more than 1 million investors and it could get a lot worse as criminal investigations have now been initiated into the company’s failure and misappropriation of funds as aggrieved investors have started filing a flurry of lawsuits.
So what next for the ousted “Crypto King”, why did his digital empire rise and fall so rapidly and where does this lead to in this already embattled industry?
An entrepreneur with a philanthropic approach
Bankman-Fried a Californian-born poster boy is admired for his philanthropic business approach (getting rich for supporting good causes), a teetotaller and a vegan he is far more different from the deceitful emperors of the contemporary world.
Bankman-Fried’s story is by no means a rags-to-riches one – begins in the wealthy San Francisco Bay area, where he attended a $56,000-a-year school.
After graduating from the Massachusetts Institute of Technology, SBF moved on to Wall Street – and later set up his own trading business called Alameda Research.
Mac Aulay the co-founder left the business in 2018 in part because of serious concerns over risk management and business ethics. Bankman-Fried once attended a crypto-currency seminar and then moved to Hong Kong to establish FTX.
The rise of FTX
FTX was set up as a crypto-currency exchange where investors were facilitated to buy and sell their crypto-currencies in exchange of dollars and pounds. The platform was user-friendly and it charged a very small amount for each transaction.
By July 2021, more than one million investors were on the platform of FTX and it became the third-largest crypto-currency exchange by volume – securing investments from major firms including Softbank and Sequoia Capital.
Bankman-Fried moved to tax-haven The Bahamas
In September of that year, Bankman-Fried moved his business to the tax haven of The Bahamas – in part, he claimed, because of a crackdown on crypto by China. Once settled in the Caribbean, Bankman-Fried – an avid gamer who was once accused of playing League of Legends during a business meeting – invested in a multimillion-dollar waterfront penthouse. The luxury property, overlooking an area used for filming the scene where Daniel Craig famously emerged from the water in Casino Royale, was also used as a home office for Bankman-Fried and up to nine of his FTX devotees.
Under SBF’s leadership, FTX marketed itself aggressively. It paid a reported $135m (£110m) for the naming rights to an arena used by the Miami Heat basketball team. Thereafter FTX went on a large-scale promotion spree and started splurging investors’ money in practically every global event.
Tennis star Naomi Osaka and NFL legend Tom Brady entered into high-profile partnerships with the exchange – appearing in TV ads and snapping up equity stakes in the business.
In April this year, Bankman-Fried strengthened his status by appearing on stage at an event with former US President Bill Clinton and ex-UK Prime Minister Tony Blair. Fried also backed Joe Biden’s presidential campaign against Donald Trump to the tune of more than $5m (£4.1m) – making him the politician’s second-biggest financial patron.
The fall of the Empire – siphoning of funds to Alameda Research
FTX plunged into bankruptcy because of its close ties to Bankman-Fried’s first business, Alameda Research. FTX had fictitiously created its own token called FTT, which was designed to offer discounts and incentives to the exchange’s customers. The total value of all the FTT tokens in circulation stood at £2.65bn – making it one of the biggest crypto-currencies in the world. A leaked document obtained by the crypto publication CoinDesk revealed that Alameda Research had a significant amount of FTT on its balance sheet – raising serious questions about the health of this trading firm.
And that alarmed the seasoned Changpeng Zhao – an early investor in FTX who runs Binance, the world’s biggest exchange. A business rival Zhao, who was waiting for an opoortunity, made a dramatic move for trouncing Bankman-Fried from the arena – announced that Binance would sell off the FTT tokens on its books – a haul worth $529m (£430m). The announcement sparked a huge decline in the value of FTT, which has lost 95% of its value since the crisis began. Meanwhile, investors rushed to FTX to withdraw their crypto, fearing its collapse. It is estimated that about $6bn (£5.2bn) worth of withdrawal requests was made in three days, pushing FTX into a financial crisis.
The same day, FTX filed for bankruptcy in the US state of Delaware – with liabilities of at least $10bn (£8.2bn). Users are now unable to withdraw their savings from the exchange, and it could be years before they see any of their money again.
Things then went from bad to worse. Hours after the bankruptcy, worried customers were dealt another blow after FTX was hacked – with officials estimating that $600m (£490m) was siphoned from the exchange.
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£8bn siphoned from FTX to Alameda Research
Allegations of illegitimate business practices have since emerged that FTX used customer funds to cover losses of its sister company Alameda Research, with up to £8bn being moved in secret. Bankman-Fried has said he “wasn’t running” Alameda’s operations and “didn’t know exactly what was going on”.
It has been claimed that Bankman-Fried had established a “backdoor” in FTX’s bookkeeping system that allowed money to be moved out of the business without other executives being alerted.
It is also reported that as much as $8bn (£6.5bn) in customer funds has vanished from FTX – and now, the exchange’s new management has been left picking up the pieces.
FTX’s new CEO John Ray wrote in a bankruptcy filing: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.
“From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of people, Bankman-Fried had run the company as his “personal fiefdom” – and the business has suffered “one of the most abrupt and difficult collapses in the history of corporate America”.
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