Sam Bankman-Fried: The Rise and Fall of a Cryptocurrency Mogul
Former cryptocurrency prodigy Sam Bankman-Fried faces potential life imprisonment if convicted on seven federal charges of fraud and conspiracy His astonishing downfall and involvement in FTX's legal troubles have sent shockwaves through the crypto community, tarnishing its reputation
Sam Bankman-Fried, a former cryptocurrency prodigy, was convicted on Thursday for his involvement in the downfall of cryptocurrency exchange FTX. The 31-year-old ex-billionaire faces a potential life sentence if given the maximum punishment. Bankman-Fried's remarkable decline commenced around a year ago when FTX declared insolvency, leading to widespread apprehension within the cryptocurrency sector.
Heres what you need to know about the former crypto king.
He knew nothing about crypto
Bankman-Fried, also known as SBF, started his professional journey as a trader at Jane Street Capital following his studies in mathematics and physics at MIT. In 2017, he departed from Jane Street to venture into his own path, establishing Alameda Research, a hedge fund specializing in cryptocurrencies. The initial headquarters of the company was a two-bedroom Airbnb located in North Berkeley, California. Last week, during his testimony, he mentioned that despite being a team of three individuals, they considered the attic as an additional bedroom.
In addition to that, Bankman-Fried's entrepreneurial ventures extended to co-founding the cryptocurrency exchange FTX in 2019, where he assumed the role of CEO. However, during his testimony on Friday, he admitted to having minimal knowledge about the crypto industry.
"I was completely clueless about their functioning... all I knew was that they were items to be traded," he admitted.
Bankman-Fried confessed that initially, he considered promptly selling FTX to cryptocurrency exchange Binance, as he was uncertain about acquiring customers.
"I estimated the likelihood of success to be around 20%," he stated under oath, adding that there was an 80% probability of it ceasing operations within a few months. "Even that modest 20% probability presented an immense opportunity, particularly considering the dominant exchanges at that point were valued in the billions of dollars."
Sam Bankman-Fried, the founder and chief executive of FTX, in Nassau, Bahamas, on April 26, 2022.
Erika P. Rodriguez/Chicago Tribune/Tribune News Service/Getty Images
Caroline Ellison, a former colleague of his at Jane Street, was later hired by him as a trader at Alameda. Eventually, she rose to the position of CEO at the firm and also became Bankman-Fried's girlfriend. However, she later became the key witness for the prosecution, revealing that she and others committed financial crimes under Bankman-Fried's guidance.
By January 2022, when cryptocurrency prices were still close to their record highs, FTX, backed by prominent investors such as SoftBank and BlackRock, had achieved a valuation of $32 billion.
Bankman-Fried relocated the corporate headquarters of both companies to the Bahamas due to its advantageous corporate tax rate and favorable regulatory landscape, citing it as a leading jurisdiction for establishing a comprehensive framework for cryptocurrencies.
He was found guilty on seven counts of fraud and conspiracy
Bankman-Fried expressed his worry regarding the matter on Monday, stating that it indicated a possible occurrence of a bank run and a liquidity crisis risk.
In order to address the concern, Bankman-Fried posted a tweet to reassure customers about the safety of FTX assets. However, he ultimately decided to remove the tweet.
In December 2022, Bankman-Fried was arrested in the Bahamas after US prosecutors filed criminal charges against him.
In New York City's federal court, FTX founder Sam Bankman-Fried faced questioning from prosecutor Danielle Sassoon regarding his involvement in the collapse of the bankrupt cryptocurrency exchange. The courtroom sketch, created by Jane Rosenberg of Reuters, depicts this moment during the fraud trial, which took place on October 31, 2023, before U.S. District Judge Lewis Kaplan.
Bankman-Fried was convicted of embezzling billions of dollars from the accounts of customers on his previously successful cryptocurrency exchange, FTX. Additionally, he was found guilty of deceiving lenders who had invested in FTXs sister company, the hedge fund Alameda Research, which stored customer funds in a bank account.
Throughout the trial, Bankman-Fried admitted to being aware in 2020 that Alameda was in possession of FTX customer funds but failed to take necessary measures to protect them.
In the autumn of 2022, upon discovering that Alameda was indebted to FTX by $8 billion, no personnel were dismissed. Bankman-Fried faced additional convictions for defrauding investors in FTX and a charge of money laundering.
He lost more money in one day than anyone, ever
Although he could potentially be sentenced to 110 years in prison, he may not have completed his trial yet. Another trial on five more charges is set for March, and the judge has requested that prosecutors determine by February 1 whether it will go forward.
Before FTXs implosion, Bankman-Frieds net worth was estimated above $15 billion, according to the Bloomberg Billionaire Index.
Sam Bankman-Fried, shown here at the airport before his departure on December 21, 2022, is being extradited from the Bahamas to the United States to face charges.
His parents are caught up in FTXs legal woes
In November 2022, Bankman-Fried's net worth disintegrated along with the value of FTX's assets. This collapse occurred during a single day, amidst the widespread sell-off of FTX assets, resulting in a staggering 94% loss. This one-day decline stands as the largest recorded by any individual tracked by the Billionaire Index.
Sam Bankman-Frieds parents, Joe Bankman and Barbara Fried, are both tenured Stanford law professors.
Bankman specializes in tax law, while Fried is an expert in legal ethics.
Bankman-Fried claims that his parents had no involvement in any significant aspects of FTX's operations. However, a lawsuit filed in September has brought their actions to attention. The lawsuit alleges that Bankman and Fried were aware of or chose to overlook obvious signs that their son and his business associates were engaged in a large-scale fraudulent scheme. The lawsuit also states that the parents discussed transferring a $10 million cash gift and a $16.4 million property in the Bahamas to themselves.
Barbara Fried and Allan Joseph Bankman, the parents of Sam Bankman-Fried, one of the Co-Founders of FTX, appeared in a New York court on Thursday, October 5, 2023. Sam Bankman-Fried, the former Co-Founder of FTX, faces charges of fraud and money laundering, resulting from the collapse of his cryptocurrency empire in the previous year.
According to the filing, Bankman frequently referred to FTX as a "family business" and started off as an informal advisor before transitioning into a paid employee.
The lawsuit claims that Fried allegedly served as an advisor to her son, particularly in matters pertaining to political donations. Both parents were observed attending their son's trial in Manhattan.
Before his arrest, he courted politicians and celebrities
With the surge of FTX's valuation and popularity in 2021 and 2022, Bankman-Fried emerged as a prominent figure in DC politics. He actively advocated for the regulation of the cryptocurrency industry and became a major donor to the Democratic Party. According to the records of the Federal Election Commission, he contributed approximately $40 million to campaigns and political action committees in 2022.
But Bankman-Fried didnt solely donate to Democrats. Federal prosecutors have alleged that Bankman-Fried sought to conceal donations to Republican candidates, as well.
Samuel Bankman-Fried, the CEO and founder of FTX, provides testimony at a hearing of the Senate Committee on Agriculture, Nutrition, and Forestry titled "Examining Digital Assets: Risks, Regulation, and Innovation" held on Capitol Hill in Washington, DC on February 9, 2022.
Bankman-Fried further solidified his presence in the sports and entertainment industry. In 2021, FTX invested a staggering $135 million to rebrand the Miami Heat arena as "FTX Arena". However, following FTX's financial difficulties, the Miami Heat decided to end their association.
Additionally, FTX made substantial payments to renowned athletes such as Tom Brady, Stephen Curry, and Naomi Osaka to feature in FTX advertisements and endorse their cryptocurrency exchange. Notably, in 2022, Larry David, the creator of "Curb Your Enthusiasm", appeared in a Super Bowl commercial for the crypto platform.
FTXs downfall created a damaging ripple effect for crypto
In the cryptocurrency realm, the bankruptcy of Bankman-Fried's crypto trading firms triggered a financial contagion. Immediately after FTX experienced a crash, Gemini, a crypto exchange established by Cameron and Tyler Winklevoss, halted customer redemptions in its lending division, citing market instability. Subsequently, its lending unit filed for bankruptcy. Recently, the New York attorney general filed a lawsuit against three of the Winklevoss companies, alleging that they concealed over $1 billion in losses.
Shortly after FTX's bankruptcy, BlockFi, another crypto lender, also faced financial collapse. BlockFi attributed its downfall to its substantial involvement with FTX and Alameda.
Following FTX's demise and the depreciation of bitcoin and other digital currencies, prominent crypto companies such as Coinbase and Binance underwent significant downsizing.
