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 precious crypto firms.
At present, he is a 32-year-old inmate on the Metropolitan Detention Middle 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 trade 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 beneficial 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 practically 20 witnesses and a whole lot of reveals, consultants mentioned on the time that they’d by no means seen such a speedy resolution. 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 value — 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 value throughout exchanges, Bankman-Fried would generally see a 60% distinction within the worth of the digital foreign money. His quick intuition, he mentioned, was to get in on the arbitrage commerce — shopping for bitcoin on one trade and promoting it again on one other, pocketing the distinction.
“That is the lowest hanging fruit,” Bankman-Fried informed CNBC in September 2022.
The arbitrage alternative was particularly compelling in South Korea, the place the exchange-listed value of bitcoin was considerably larger than in different international locations. It was dubbed the Kimchi Premium, a reference to the normal Korean facet dish of salted and fermented cabbage.
After a month of personally dabbling available in the market, Bankman-Fried launched Alameda Analysis, named after the California county that housed his first workplace. Bankman-Fried informed CNBC that the agency generally made as a lot as 1,000,000 {dollars} a day buying and selling bitcoin.
Alameda’s success spurred the launch of FTX. In April 2019, Bankman-Fried co-founded FTX.com, a world cryptocurrency trade that supplied prospects progressive buying and selling options, a responsive platform and a dependable expertise. FTX’s success led to a $2 billion enterprise fund that seeded different crypto companies.
The FTX brand quickly adorned all the pieces from System One race vehicles to a Miami basketball area. Bankman-Fried talked about someday shopping for Goldman Sachs, and he turned a fixture in Washington as one of many Democratic Celebration’s prime donors.
Then the market turned.
The so-called crypto winter of 2022 worn out hedge funds and lenders throughout the crypto universe. Bankman-Fried boasted that he and his enterprise have been immune. Behind the scenes, Alameda was borrowing cash to spend money on failing digital asset companies to maintain the trade afloat.
Could of 2022 introduced the crash of stablecoin Luna, making a domino impact that despatched crypto costs plunging, devastating different lenders.
Alameda had borrowed from lenders together with Voyager Digital and BlockFi, which each ended up going bankrupt. Alameda secured its loans with FTT tokens, minted by FTX. Bankman-Fried’s empire managed the overwhelming majority of the accessible foreign money, with solely a small quantity of FTT truly circulating at any time.
Alameda marked its complete hoard of FTT on the prevailing market value regardless of it being a just about illiquid asset. The fund employed the identical methodology with different cash as effectively, together with Solana and Serum (a token created and promoted by FTX and Alameda), utilizing them to collateralize billions of {dollars} in loans. Business insiders known as the tokens “Sam cash.”
Digital financial institution run
When confronted with margin calls resulting from falling costs, Bankman-Fried turned to FTX prospects’ deposits to the tune of billions of {dollars} by the center of 2022. In response to the agency’s personal chapter filings, it possessed virtually nothing in the best way of file preserving.
On Nov. 2, 2022, crypto commerce web site CoinDesk publicized particulars of Alameda’s steadiness sheet, which confirmed $14.6 billion in property. Over $7 billion of these property have been both FTT tokens or Bankman-Fried-backed cash like Solana or Serum. One other $2 billion value have been locked away in fairness investments.
Traders started withdrawing their holdings from FTX, creating the specter of a digital financial institution run. Alameda and FTX now each confronted a liquidity crunch.
On Nov. 6, 4 days after the CoinDesk article, Binance founder Changpeng Zhao dropped the hammer. Binance was the primary exterior investor in FTX in 2019. Two years later, FTX purchased again its stake with a mixture of FTT and different cash, in response to Zhao.
Zhao wrote in a tweet that, due to “latest revelations which have got here [sic] to gentle, we now have determined to liquidate any remaining FTT on our books.” FTX executives scrambled to include 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 wonderful.” The publish was deleted.
Sam Bankman-Fried, the jailed founding father of bankrupt cryptocurrency trade 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
Inner discussions have been totally different. Bankman-Fried and different executives admitted to one another that “FTX buyer funds have been irrevocably misplaced as a result of Alameda had appropriated them.” By Nov. 8, the shopper shortfall had grown to $8 billion. Bankman-Fried was courting exterior traders for a rescue bundle however discovered no suitors.
FTX issued a pause on all buyer withdrawals that day. FTT’s value 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 accumulate FTX.com.
However a day later, on Nov. 9, Binance mentioned it would not undergo with the acquisition, citing studies 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 by way of 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 response to a submitting from the Securities and Trade 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 dad and mom’ dwelling 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, a lot of his closest associates and confidants became 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 prices towards him.
— CNBC’s Rohan Goswami contributed to this report.
