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  • Anas Hassan

Sam Bankman-Fried Arrested. What Happened to FTX and its Billionaire Founder?

The collapse of significant cryptocurrency projects like FTX and Terra, among other well-known projects, has been a rising discussion in the crypto sphere. However, many people lacked faith in what they stated about the causes, which led to several rumors about what occurred and what caused it. And a lot of people have been concerned about the values of cryptocurrencies plummeting.


Sam Bankman-Fried, Founder of FTX.
Sam Bankman-Fried, Founder of FTX. (Insider)

A crypto industry titan indeed fell, but does that mean the cryptocurrency is doomed? Let's check the whole story.


A Short Summary


Investors have written off what once appeared to be the next big thing in technology due to the bankruptcy of the crypto giant FTX and the resignation of its founder, Sam Bankman-Fried. Users and customers are now in the dark.


It was announced that the magnificent FTX had collapsed just a few weeks back. When it was discovered that Sam (the formal CEO of FTX) was residing on investors' money, it wasn't just a momentary failure but a deep, dark corruption.


It can be challenging to understand a fall of this magnitude due to the intricacy of the financial explanations in the realm of cryptocurrencies. The following is a summary of what happened. In case you are just hearing about FTX, Here’s what they do.


What's FTX?


FTX is a platform where users can purchase and trade digital assets, like bitcoin, dogecoin, ether, etc. As more people sought to invest in cryptocurrencies without having to deal with the technical aspects of such transactions, such as setting up a crypto wallet, such platforms gained popularity in recent years.


FTX was founded in 2019 and quickly gained popularity as it competed with leading CEX (centralized exchange) like Coinbase, Gemini, etc. The 30-year-old founder of FTX, Sam Bankman-Fried, became the organization's public face and, to some, the entire cryptocurrency industry.


With the promise that they could store their money in accounts and earn significantly greater rates and ROI (Return On Investment), he attracted many users to his business, including those unfamiliar with the technology.


How Did Things Start to Get Messy?


A picture of FTX's Founder Sam Bankman-Fried in front of multiple computer monitors.
A picture of FTX's Founder Sam Bankman-Fried in front of multiple computer monitors. (WSJ)

Shortly after Bankman-Fried founded FTX, the cryptocurrency market took off as many venture capitalists poured money into everything related to blockchain and cryptocurrency as a result of Bitcoin's meteoric rise from around $10,000 to $64,000 in 2021.


Platforms for cryptocurrencies have made an effort to draw users beyond the technologists and blockchain enthusiasts who formerly drove its growth.


Bitcoin sells for around $17,000, and other cryptocurrencies are following the decline.


Due to the market downturn, several cryptocurrency initiatives failed since they had no means of support. However, FTX persisted and even acquired some of the projects, particularly those of his rivals.


How FTX was actually flourishing upward while the market was down puzzled everyone. Things became even less apparent when the balance sheet of this cryptocurrency investment company, which Bankman-Fried also controlled, leaked out.


Sam Bankman-Fried's trading company Alameda Research revealed in an exclusive report by CoinDesk on November 2 that it had a significant stake in the FTX digital currency (FTT). Additionally, given that FTT had a particular market value, Alameda would be in danger of going bankrupt if the price dropped.


This sheet needs to be balanced; Sam needs 8 Billion Dollars to fill the gap!


Sam had frequently denied the breadth of the relationships between Alameda and FTX, which were still a secret his keeping while it is clear to the whole world already. Days after FTX decided to halt withdrawals, the linkages became more apparent, which led to financial difficulties in the platform.


According to undisclosed sources, FTX required $8 billion to pay the difference between its debt and available cash flow.


Bankman-Fried indicated in an interview with a Vox journalist on Nov 16 over Twitter DM that he needed to raise $8 billion in the following two weeks to make things right with account holders as a confirmation of the legitimate source of information from the anonymous.


On the balance sheet, there were just $900 million in efficiently tradable assets and $9 billion in liabilities. It contained a jumble of entries, one of which was a "secret, erroneously named 'fiat@' account" with a negative $8 billion balance.


Some prestigious media outlets also claimed, citing unnamed sources, that Alameda had used FTX funds for trading.


Where is this Going?


Sam Bankman-Fried and Changpeng Zao (CZ), Founder of Binance.
Sam Bankman-Fried and Changpeng Zao (CZ), Founder of Binance. (NBC)

Changpeng "CZ" Zhao, CEO of Binance, a competitor of FTX, announced on November 6 that he is liquidating his remaining FTT token holdings in response to Alameda's financial sheet leak. A short while later, Alameda Research CEO Caroline Ellison tweeted that her company would purchase all of Zhao's FTT tokens for $22 each.


Many FTX users sought to remove their assets from the platform as the price fell. The crypto community was already on edge even though the whole nature of the linkages between Alameda and FTX was not yet known.


In the end, the withdrawals would resemble a traditional bank run, in which people anxious about a bank's solvency rush to withdraw their money before it runs out of money. Several trillion dollars streamed off the platform.


Due to liquidity concerns, FTX ceased enabling users to withdraw funds from the platform on November 8. Binance announces a non-binding letter of intent to buy FTX, subject to due diligence, to allay market anxiety after seeing all the downsides of FTX.


Binance checked the company's financial situation, operational history, and previous management. Binance seemed perplexed over not purchasing FTX once more.


Withdrawals were eventually resumed, but Binance later withdrew from the proposed acquisition of FTX. Thus, they were still halted.


“We hoped to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance said.

A few companies, including Crypto.com, Tether, Coinbase, and Genesis, distanced themselves from FTX after learning about this egregious misuse of FTX.


FTX filed for bankruptcy in the United States on November 11. According to the statement, FTX has more than 100,000 creditors, assets between $10 billion and $50 billion, and liabilities between $10 billion and $50 billion.


According to the cryptocurrency website CoinGecko, FTX has had $627 billion worth of trades so far this year, ranking it among the top five exchanges behind market leader Binance, which has $4.9 trillion.


Hackers Took the Rest!


An image of a hacker wearing a hoodie.
An image of a hacker wearing a hoodie. (Make Use of Images)

On November 12, a rumor was going around that the FTX platform had been hacked. Officials from FTX later appeared to corroborate the hack's rumors and advised consumers to remove FTX applications to prevent additional harm.


According to CoinDesk, more than $600 million was stolen from the wallets. On its help page on the messaging app Telegram, FTX announced the attack, writing, "A hack was made on FTX. FTX applications include viruses. Take them out. The chat window is open. Avoid visiting the FTX website as it might download Trojans."


The hacker who stole more than $600 million from FTX began transferring the money from many addresses to the blockchain, first converting it to the stablecoin DAI and then to Ethereum (ETH). The user is currently the 35th-largest ETH holder globally.


Hackers started using the platform as their base of operations while attempting to access other financial third parties connected by FTX clients.


As a result, Bahamian authorities decided it would be "prudent" to freeze the assets of FTX Digital Markets and associated parties in order to protect them and stabilize the business.


FTX Got Detained


FTX is now the subject of a criminal investigation in the Bahamas, where the exchange is situated. According to CoinDesk, Bankman-Fried resided there with nine coworkers and intermittent romantic partners who assisted him in managing his enterprises.


According to Reuters, between $1 billion and $2 billion of customer funds have disappeared from the failed cryptocurrency exchange as Sam Bankman-Fried's FTX seeks bankruptcy protection.


According to The Wall Street Journal, Bankman-Fried, who is currently the ex-CEO of FTX, transferred $10 billion in customer funds from his cryptocurrency exchange to the firm that trades digital assets known as Alameda Research.


Alameda, which Bankman-Fried also started, was viewed as a sister business to FTX. According to many sources, the Securities and Exchange Commission and the Department of Justice are among the officials looking into those close links and how FTX handled consumer monies.


Two sources who spoke with Reuters claimed that a large portion of the $10 billion transported to Alameda "had subsequently gone."


According to Reuters, both individuals "had senior FTX roles until last week" and also stated that "top personnel briefed them on the company's finances."


The discrepancy, according to one source, is worth $1.7 billion. The other estimated it to be between $1 billion and $2 billion.


Tom Brady, Steph Curry, Kevin O’Leary, and almost Taylor Swift


Images of Larry David, Tom Brady, Giselle Bündchen and Stephen Curry.
Images of Larry David, Tom Brady, Giselle Bündchen and Stephen Curry. (Getty/Deadline)

The bankruptcy filing of FTX will result in significant losses for Tom Brady, Steph Curry, Kevin O'Leary, and more. Sam Bankman-Fried, the former CEO of FTX, lost his entire $16 billion fortune in a matter of days when his business sought chapter 11 bankruptcy protection last week. Still, he is one of many well-known investors who stand to lose money as a result of the collapse at FTX.


Brady and his ex-wife Gisele Bündchen received shares in FTX as well as some cryptocurrency. Brady represented the business as an ambassador, and Bündchen advised FTX on its environmental and social initiatives. Additionally, the two appeared in various FTX TV ads.


It's unclear how much stock Brady and Bündchen will own in 2021, but a few months after the deal was announced, FTX raised money at a $32 billion valuation.


Steph Curry of the NBA champion Golden State Warriors, who was appointed a worldwide ambassador for FTX and awarded an ownership position in the business in 2021, has a similar tale to tell.


Although it's unknown what will happen to the money investors invested in FTX, the bankruptcy filing may wipe away their equity.


Curry, Brady, Bündchen, and FTX representatives did not reply to MarketWatch's request for comment on this report.


Other well-known investors in FTX included Kevin O'Leary of Sharktank, MLB player Shohei Ohtani, tennis player Naomi Osaka, and quarterback for the Jacksonville Jaguars, Trevor Lawrence.


In what made headlines the past few weeks, even Taylor Swift was supposed to partner with FTX for a sum of around $100 million dollars. Apparently, the deal did not go through.


Prosecutors Believe Bankman-Fried Lied from the Beginning


Despite Bankman-Fried's reputation for effective altruism and claims that he wanted to utilize his riches to have a largely beneficial influence on the world, authorities claim that since he started FTX in 2019, Bankman-Fried has been scamming investors.


The lawsuit states that from the beginning, Bankman-Fried unlawfully transferred client assets to his privately owned cryptocurrency hedge fund, Alameda Research LLC, and used those customer monies to make substantial political donations, private startup investments, and excessive real estate acquisitions.


Everything related to him was so scammy, and there is clear evidence for his acts. FTX has no outside investors on its board despite the billions that venture capital companies invested in the company.


According to four people with knowledge of the situation, Mr. Bankman-Fried led a somewhat reclusive life in the Bahamas, surrounded by a small group of coworkers, some of whom were dating other FTX employees. He shared a penthouse with his senior lieutenants at Albany, a 600-acre oceanfront resort on the Bahamas' island of New Providence.


What’s the Root Cause?


The relationship between Alameda and FTX was the root of Mr. Bankman-Fried’s downfall. He founded the trading firm in 2017 and rented offices in Berkeley, Calif., not far from where he had grown up as the son of Stanford Law professors. Soon the company made millions of dollars exploiting inefficiencies in the Bitcoin market.

Alameda and FTX have a tight relationship. Alameda conducted substantial trading on the FTX platform, which caused it to profit, while FTX's other clients lost money occasionally. In 2021, Mr. Bankman-Fried relocated FTX to the Bahamas because of the country's regulatory framework, which permitted him to provide riskier trading options that were illegal in the US.

In the Orchid building of the Albany resort, he shared a five-bedroom penthouse with Ms. Ellison, Mr. Singh, Mr. Wang, and six other people. According to two witnesses, Mr. Bankman-Fried and Ms. Ellison reportedly had intimate relationships at times.

The most ambitious goal of Mr. Bankman-Fried, who testified before Congress and interacted with regulators, was to influence crypto policy in Washington. In private meetings, he also criticized Mr. Zhao, his strongest opponent, using his rising clout in the capital.

Federal prosecutors in New York have worked extensively looking into his management of FTX and have started reaching out to potential witnesses. Others connected to FTX have reportedly begun contacting attorneys about possible counsel.


Sullivan & Cromwell, a law firm, is representing FTX in the inquiries and the bankruptcy, while Paul Weiss's attorneys are defending Mr. Bankman-Fried.


Although the attorneys later stepped down, saying, “this is much more than we can handle,” then Bankman-Fried hired sex trafficker Ghislaine Maxwell's former lawyer Mark Cohen.

What’s Next for Bankman-Fried?


The allegations against Bankman-Fried were made public on Tuesday, Dec 13, after his public arrest on Monday, when the criminal indictment that resulted in his detention was unsealed.


Eight criminal counts are brought against Bankman-Fried, including conspiracy to commit wire fraud on lenders and customers, conspiracy to commit wire fraud on lenders and consumers, conspiracy to commit commodities fraud, securities fraud, and conspiracy to commit money laundering.

Bankman-Fried may serve a significant amount of time in jail if found guilty of the charges, but legal experts believe it is too soon to predict his exact punishment.


According to the managing partner of Levin & Associates and former federal prosecutor Duncan Levin, the size of the fraud significantly impacts white-collar crime punishment. Given that FTX's losses "seem to be close to $2 billion," he warned that this might increase the severity of the sentence.

"It's difficult to determine whether Bankman-Fried will serve an Elizabeth Holmes (11 years) or a Bernie Madoff (150 years) sentence if found guilty,” Levin said.

Additionally, US Authorities will have Bankman-Fried give up any financial advantages he may have made as a result of the plan. Although the exact date of their request for his extradition to the US is unknown, it is anticipated.

According to Forbes, Bankman-Fried had a net worth of $26.5 billion at one time, making him one of the wealthiest individuals in the world on paper. He was a well-known figure in Washington and gave millions of dollars, primarily to Democratic political campaigns and organizations.

How is this Affecting the Crypto Industry?


In May, the $2 trillion cryptocurrency market collapsed, and FTX provided financial lifelines to many failing businesses. Lenders like BlockFi and Genesis have declared delays in operations as a result of its fallout.

Since November 1, the cost of FTT has decreased by more than 90%. This month, the price of both Bitcoin and Ether has reduced by around 19 and 24%, respectively.


History of FTT's Token Price.
History of FTT's Token Price. (Yahoo Finance)

The cryptocurrency market has long failed to win over investors, authorities, and regular consumers with its reliability.


The Justice Department and the Securities and Exchange Commission are now looking into whether FTX inappropriately utilized client cash to support Alameda Research, a trading company that Mr. Bankman-Fried also created due to the collapse.

Essential Lessons to Every Trader and Investor


  • Beware people who claim to make good: Bankman-Fried claims to do good even when he knows he is not capable of it. Although it’s always better said than done.

  • Don’t borrow to invest: “Leveraging,” often known as investing money you don't have, can be a good strategy in the right hands, but it is always risky.

  • Know there’s a point to regulation: If you buy an unregulated asset like crypto, you are on your own if something goes wrong.

  • Ignore celebrities: They are paid most of the time to say most of their words.

  • More of this will come: Stay safe by reminding yourself this; Not Your Key, Not Your Coin.

Confused About What to do Next? Do This!

Think about transferring your digital assets to a different crypto wallet. Most exchanges let you move funds to these wallets, which can be either offline or online (on another platform) (on a cold wallet/hard drive with added security features).


However, even if you don't own any cryptocurrencies and have no connection to FTX, the problems brought up by the most recent turbulence could make you more aware of your risk tolerance.


Investors may only sometimes have access to the safety net provided by conventional financial institutions since a patchwork of organizations in the United States regulates cryptocurrency. These include safeguards provided by the Securities Investor Protection Corp. or the Federal Deposit Insurance Corp.


Initial Reports and Sell-Offs - Dec 1 Till Recent:

  • Department of Justice demands investigation of FTX, claiming there's substantial evidence of fraudulent activities. - Dec 2 | Read Here

  • Elon Musk says Sam Bankman-Fried probably donated over $1 billion to support Democratic elections. - Dec 3 | Read Here

  • Elon Musk says he thinks Sam Bankman-Fried was "clearly on stimulants" when they spoke months ago. - Dec 3 | Read Here

  • Binance CEO says Sam Bankman-Fried "is one of the greatest fraudsters in history." - Dec 6 | Read Here

  • Sam Bankman-Fried hires sex trafficker Ghislaine Maxwell's former lawyer Mark Cohen. - Dec 6 | Read Here

  • FTX hires forensic investigators to track the missing billions of dollars. - Dec 7 | Read Here

  • Federal prosecutors are investigating Sam Bankman-Fried & Alameda Research for market manipulation that led to the collapse of $LUNA and $UST. - Dec 7 | Read Here

  • Sam Bankman-Fried thinks it would be a "productive path" to open the FTX exchange and issue a new $FTT token. - Dec 9 | Read Here

  • Sam Bankman-Fried secretly funded crypto news site 'The Block,' Axios reports. - Dec 9 | Read Here

  • Ex-Alameda Research CEO Caroline Ellison hires former SEC official as a lawyer. - Dec 10 | Read Here

  • Court documents reveal that Sam Bankman Fried's Alameda Research borrowed FTX customer funds for trading and investments without any limits. - Dec 12 | Read Here

  • FTX stored private keys to wallets holding "hundreds of millions" of user funds without encryption, a court document reveals. -Dec 12 | Read Here

  • Sam Bankman-Fried and FTX's inner circle reportedly had a secret group chat on Signal named 'Wire fraud.' - Dec 12 | Read Here

  • Bahamian Authorities have arrested Sam Bankman-Fried. - Dec 12 | Read Here

  • US files criminal charges against FTX founder Sam Bankman-Fried (SBF). - Dec 12 | Read Here

  • NYT reports that the US Government charges Sam Bankman-Fried with money laundering, wire fraud, and securities fraud. - Dec 12 | Read Here

  • SEC charges Sam Bankman-Fried with orchestrating a scheme to defraud FTX investors. - Dec 13 | Read Here

  • US prosecutors say Sam Bankman-Fried made illegal political campaign donations worth "tens of millions of dollars." - Dec 13 | Read Here

  • Sam Bankman-Fried was denied bail by the judge. - Dec 13 | Read Here

  • SBF was escorted out of court in handcuffs. - Dec 13 | Read Here

  • Binance Deliberately Caused FTX Collapse: Kevin O’Leary The star of “Shark Tank” had some strong words for the exchange at the FTX hearing in the U.S. Senate today. - Dec 15 | Read Here


Conclusion

It might be simple to overlook the implications of bitcoin regulation when you're focused on the market and attempting to make the best transactions. However, restrictions may significantly affect the market as well as you as an investor.


The IRS will be aware of every transaction on a controlled exchange beginning in 2023. Banks could start selling cryptocurrency, but exchanges might need to abide by banking laws. When investing in cryptocurrencies, there are several traps to watch out for, and the regulatory environment is one of them.


More rumors will come out on this, but one glaring thing is that FTX was mismanaged, which led to its fall and exposed the biggest scam in crypto history. And the big lesson is learned, and I hope investors don’t fall into the same pitch twice. Stay safe with your funds!


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NFA: Not Financial Advice. IYOPS or the author(s)/editor(s) are not registered investment advisors or brokers/dealers. All investment opinions expressed are from the personal research and experience of the author/editor and are intended as educational material. Despite our best efforts to make the information available as accurate as possible, occasionally, we err, as humans do.


DYOR: Do Your Own Research before making any investment decisions based on your personal circumstances. We recommend taking professional advice before making any investment decision.



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Anas Hassan is a Blockchain and Web 3.0 writer based in Kwara, Nigeria. He helps web3 startups & projects create unique and easy-to-understand content. He is also a contributing writer at the International Youths Organization for Peace and Sustainability.


Inputs and Edits by Aswin Raghav R.

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