Samuel Bankman-Fried’s poster in downtown San Francisco.
MacKenzie Sigalos | CNBC
Two years in the past, Sam Bankman-Fried was a 30-year-old multibillionaire residing in a $35 million Bahamas penthouse, partying along with his friends whereas working one of many world’s most useful crypto firms.
As we speak, he is a 32-year-old inmate on the Metropolitan Detention Heart in Brooklyn, ready for a choose to inform him how lengthy he’ll spend behind bars for masterminding “one of many largest monetary frauds in American historical past,” within the phrases of U.S. Lawyer Damian Williams.
Bankman-Fried, the founder and former CEO of failed crypto change FTX, will head on Thursday to a federal court docket in downtown Manhattan, the place U.S. District Decide Lewis Kaplan will ship his sentencing. Prosecutors have really useful a jail sentence of 40 to 50 years.
It took jurors solely about three hours of deliberations in November to search out Bankman-Fried responsible of all seven prison accounts towards him. For a high-profile monthlong trial that concerned almost 20 witnesses and lots of of displays, specialists mentioned on the time that they’d by no means seen such a speedy determination. Bankman-Fried plans to enchantment his conviction and sentence.
It was a steep and swift fall from grace for Bankman-Fried, who was as soon as hailed as a titan within the trade and had a peak web price — on paper — of roughly $26 billion.
Indicted FTX founder Sam Bankman-Fried leaves the U.S. Courthouse in New York Metropolis, July 26, 2023.
Amr Alfiky | Reuters
Bitcoin arbitrage
It began with the Kimchi Swap.
In 2017, as a quant dealer at Jane Road, Bankman-Fried observed one thing humorous when he checked out bitcoin pricing on CoinMarketCap.com. As a substitute of a uniform worth throughout exchanges, Bankman-Fried would typically see a 60% distinction within the worth of the digital foreign money. His rapid intuition, he mentioned, was to get in on the arbitrage commerce — shopping for bitcoin on one change and promoting it again on one other, pocketing the distinction.
“That is the lowest hanging fruit,” Bankman-Fried told CNBC in September 2022.
The arbitrage opportunity was especially compelling in South Korea, where the exchange-listed price of bitcoin was significantly higher than in other countries. It was dubbed the Kimchi Premium, a reference to the traditional Korean side dish of salted and fermented cabbage.
After a month of personally dabbling in the market, Bankman-Fried launched Alameda Research, named after the California county that housed his first office. Bankman-Fried told CNBC that the firm sometimes made as much as a million dollars a day trading bitcoin.
Alameda’s success spurred the launch of FTX. In April 2019, Bankman-Fried co-founded FTX.com, an international cryptocurrency exchange that offered customers innovative trading features, a responsive platform and a reliable experience. FTX’s success led to a $2 billion venture fund that seeded other crypto firms.
The FTX logo soon adorned everything from Formula One race cars to a Miami basketball arena. Bankman-Fried talked about one day buying Goldman Sachs, and he became a fixture in Washington as one of the Democratic Party’s top donors.
Then the market turned.
The so-called crypto winter of 2022 wiped out hedge funds and lenders across the crypto universe. Bankman-Fried boasted that he and his enterprise were immune. Behind the scenes, Alameda was borrowing money to invest in failing digital asset firms to keep the industry afloat.
May of 2022 brought the crash of stablecoin Luna, creating a domino effect that sent crypto prices plunging, devastating other lenders.
Alameda had borrowed from lenders including Voyager Digital and BlockFi, which both ended up going bankrupt. Alameda secured its loans with FTT tokens, minted by FTX. Bankman-Fried’s empire controlled the vast majority of the available currency, with only a small amount of FTT actually circulating at any time.
Alameda marked its entire hoard of FTT at the prevailing market price despite it being a virtually illiquid asset. The fund employed the same methodology with other coins as well, including Solana and Serum (a token created and promoted by FTX and Alameda), using them to collateralize billions of dollars in loans. Industry insiders called the tokens “Sam coins.”
Virtual bank run
When faced with margin calls due to falling prices, Bankman-Fried turned to FTX customers’ deposits to the tune of billions of dollars by the middle of 2022. According to the firm’s own bankruptcy filings, it possessed almost nothing in the way of record keeping.
On Nov. 2, 2022, crypto trade site CoinDesk publicized details of Alameda’s balance sheet, which showed $14.6 billion in assets. Over $7 billion of those assets were either FTT tokens or Bankman-Fried-backed coins like Solana or Serum. Another $2 billion worth were locked away in equity investments.
Investors began withdrawing their holdings from FTX, creating the threat of a virtual bank run. Alameda and FTX now both faced a liquidity crunch.
On Nov. 6, four days after the CoinDesk article, Binance founder Changpeng Zhao dropped the hammer. Binance was the first outside investor in FTX in 2019. Two years later, FTX bought back its stake with a combination of FTT and other coins, according to Zhao.
Zhao wrote in a tweet that, due to “current revelations which have got here [sic] to gentle, now we have determined to liquidate any remaining FTT on our books.” FTX executives scrambled to comprise the harm, and Alameda merchants managed to fend off outflows for a pair days.
On Nov. 7, Bankman-Fried tried to indicate confidence, tweeting, “FTX is okay. Property are superb.” The publish was deleted.
Sam Bankman-Fried, the jailed founding father of bankrupt cryptocurrency change FTX, is sworn in as he seems in court docket for the primary time since his November fraud conviction, at a courthouse in New York, U.S., February 21, 2024 on this courtroom sketch.
Jane Rosenberg | Reuters
Inside discussions had been completely different. Bankman-Fried and different executives admitted to one another that “FTX buyer funds had been irrevocably misplaced as a result of Alameda had appropriated them.” By Nov. 8, the consumer shortfall had grown to $8 billion. Bankman-Fried was courting exterior traders for a rescue package deal however discovered no suitors.
FTX issued a pause on all buyer withdrawals that day. FTT’s worth plummeted by over 75%. Out of choices, Bankman-Fried turned to Zhao, who introduced that he’d signed a “non-binding” letter of intent to amass FTX.com.
However a day later, on Nov. 9, Binance mentioned it would not undergo with the acquisition, citing reviews of “mishandled buyer funds” and federal investigations.
FTX filed for chapter on Nov. 11, and Bankman-Fried resigned as CEO of FTX and related entities. He instantly misplaced 94% of his private wealth.
Sullivan & Cromwell, FTX’s longtime attorneys, approached John J. Ray, who oversaw Enron via its chapter, to imagine Bankman-Fried’s former place.
On Dec. 12, Bankman-Fried was arrested by Bahamian authorities and extradited to the U.S., the place he was taken into custody. Federal prosecutors and regulators accused Bankman-Fried of perpetrating a fraud “from the beginning,” in line with a submitting from the Securities and Alternate Fee.
Bankman-Fried was launched on a $250 million bond and was initially residing below home arrest with a court-ordered ankle monitor at his mother and father’ residence in Palo Alto, California, on the Stanford College campus. He was quickly taken again into custody for alleged witness tampering.
Whereas Bankman-Fried awaited trial, lots of his closest associates and confidants was key witnesses for the prosecution, leaving the previous crypto billionaire to defend himself. Lower than a yr after his arrest, the 12-person jury discovered Bankman-Fried responsible on all prison fees towards him.
— CNBC’s Rohan Goswami contributed to this report.
