Sam Bankman-Fried received numerous plaudits as he rapidly achieved superstar status as the head of cryptocurrency exchange FTX: the savior of crypto, the newest force in Democratic politics, and potentially the world’s first trillionaire.
Now the comments about the 30-year-old Bankman-Fried aren’t so kind after FTX filed for bankruptcy protection Friday, leaving his investors and customers feeling duped and many others in the crypto world fearing the repercussions. Bankman-Fried himself could face civil or criminal charges.
“Sam what have you done?,” tweeted Sean Ryan Evans, host of the cryptocurrency podcast Bankless, after the bankruptcy filing.
Under Bankman-Fried, FTX quickly grew to be the third-largest exchange by volume. The stunning collapse of this nascent empire has sent tsunami-like waves through the cryptocurrency industry, which has seen a fair share of volatility and turmoil this year, including a sharp decline in price for bitcoin and other digital assets. For some, the events are reminiscent of the domino-like failures of Wall Street firms during the 2008 financial crisis, particularly now that supposedly healthy firms like FTX are failing.
One venture capital fund wrote down investments in FTX worth over $200 million. The cryptocurrency lender BlockFi paused client withdrawals Friday after FTX sought bankruptcy protection. The Singapore-based exchange Crypto.com saw withdrawals increase this weekend for internal reasons but some of the action could be attributed to raw nerves from FTX.
Bankman-Fried and his company are under investigation by the Department of Justice and the Securities and Exchange Commission. The investigations likely center on the possibility that the firm may have used customers’ deposits to fund bets at Bankman-Fried’s hedge fund, Alameda Research, a violation of U.S. securities law.
“This is the direct result of a rogue actor breaking every single basic rule of fiscal responsibility,” said Patrick Hillman, chief strategy officer at Binance, FTX’s biggest competitor. Early last week Binance appeared ready to step in to bail out FTX but backed away after a review of FTX’s books.
The ultimate impact of FTX’s bankruptcy is uncertain, but its failure will likely result in the destruction of billions of dollars of wealth and even more skepticism for cryptocurrencies at a time when the industry could use a vote of confidence.
“I care because it’s retail investors who suffer the most and because too many people still wrongly associate bitcoin with the scammy ‘crypto’ space,” said Cory Klippsten, CEO of Swan Bitcoin, who for months raised concerns about FTX’s business model. Klippsten is publicly enthusiastic about bitcoin but has long had deep skepticism about other parts of the crypto universe.
Bankman-Fried founded FTX in 2019, and it grew rapidly — it was recently valued at $32 billion. The son of Stanford University professors, who was known to play the video game “League of Legends” during meetings, Bankman-Fried attracted investments from the highest echelons of Silicon Valley.
Sequoia Capital, which invested in Apple, Cisco, Google, Airbnb, and YouTube, described their meeting with Bankman-Fried as likely “talking to the world’s first trillionaire.” Several of Sequoia’s partners became enthusiastic about Bankman-Fried following a Zoom meeting in 2021. After several more meetings, Sequoia decided to invest in the company.
“I don’t know how I know, I just do. SBF is a winner,” wrote Adam Fisher, a business journalist who wrote a profile of Bankman-Fried for the firm, referring to Bankman-Fried by his popular online moniker. The article, published in late September, was removed from Sequoia’s website.
Sequoia has written down its $213 million in investments to zero. A pension fund in Ontario, Canada wrote down its investment to zero as well.
In a terse statement, the Ontario Teachers’ Pension Fund said, “Naturally, not all of the investments in this early-stage asset class perform to expectations.”
But up until last week, Bankman-Fried was seen as a white knight for the industry. Whenever the crypto industry had one of its crises, Bankman-Fried was the person likely to fly in with a rescue plan. When online trading platform Robinhood was in financial straits earlier this year — collateral damage from the decline in stock and crypto prices — Bankman-Fried jumped in to buy a stake in the company as a sign of support.
When Bankman-Fried bought up the assets of bankrupt crypto firm Voyager Digital for $1.4 billion this summer, it brought a sense of relief to Voyager account holders, whose assets have been frozen since its own failure. That rescue is now in question.
As king of crypto, his influence was starting to pour into political and popular culture. FTX bought prominent sports sponsorships with Formula Racing and bought the naming rights to an arena in Miami. He pledged to donate $1 billion toward Democrats this election cycle — his actual donations were in the tens of millions — and prominent politicians like Bill Clinton were invited to speak at FTX conferences. Football star Tom Brady invested in FTX.
Bankman-Fried had been the subject of some criticism before FTX collapsed. While he largely operated FTX out of U.S. jurisdiction from his headquarters in The Bahamas, Bankman-Fried was increasingly vocal about the need for more regulation of the cryptocurrency industry. Many supporters of crypto oppose government oversight. Now, FTX’s collapse may have helped make the case for stricter regulation.
One of those critics was Binance founder and CEO Changpeng Zhao. The feud between the two billionaires spilled out onto Twitter, where Zhao and Bankman-Fried collectively commanded millions of followers. Zhao helped kickstart the withdrawals that doomed FTX when he said Binance would sell its holdings in FTX’s crypto token FTT.
“What a s(asterisk)(asterisk)t show ... and it’s going to be crypto’s fault (instead of one guys’s fault),” Zhao wrote on Twitter on Saturday.
The imploding cryptocurrency trading firm FTX is now short billions of dollars after experiencing the crypto equivalent of a bank run.
The exchange, formerly one of the world’s largest, sought bankruptcy protection last week, and its CEO and founder resigned. Hours later, the trading firm said there had been “unauthorized access” and that funds had disappeared. Analysts say hundreds of millions of dollars may have vanished.
The unraveling of the once-giant exchange is sending shockwaves through the industry. Here’s a look at the company’s collapse so far:
WHY DID FTX GO BANKRUPT?
Customers fled the exchange over fears about whether FTX had sufficient capital, and it agreed to sell itself to rival crypto exchange Binance. But the deal fell through while Binance’s due diligence on FTX’s balance sheet was still pending.
FTX had valued its assets between $10 billion to $50 billion, and listed more than 130 affiliated companies around the world, according to its bankruptcy filing.
FTX and dozens of affiliated companies — including founder Sam Bankman-Fried’s hedge fund, Alameda Research — filed the bankruptcy petition in Delaware on Friday.
The week’s developments marked a shocking turn of events for Bankman-Fried, who was hailed as somewhat of a savior earlier this year when he helped shore up a number of cryptocurrency companies that ran into financial trouble. He was recently estimated to be worth $23 billion and has been a prominent political donor to Democrats.
WAS IT HACKED, TOO?
FTX confirmed Saturday there had been unauthorized access to its accounts, hours after the company filed for Chapter 11 bankruptcy protection.
A debate formed on social media about whether the exchange was hacked or a company insider had stolen funds — a possibility that cryptocurrency analysts couldn’t rule out.
Exactly how much money is involved is unclear, but analytics firm Elliptic estimated Saturday that $477 million was missing from the exchange. FTX’s new CEO John Ray III said it was switching off the ability to trade or withdraw funds and taking steps to secure customers’ assets.
IS MY BITCOIN SAFE?
People who own bitcoin should be OK if they keep them off exchanges such as FTX that effectively work as a “crypto-casino gambling website,” said Cory Klippsten, the CEO of financial services firm Swan Bitcoin.
“Any exchange is a security risk,” said Klippsten. Some are more reputable than others, but he said a better option is to take control of your digital assets. “With bitcoin, you have the option to take self-custody and take your coins off the exchange,” he said.
IS FTX UNDER INVESTIGATION?
The Royal Bahamas Police Force said Sunday it is investigating FTX, adding to the company’s woes. The police force said in a statement Sunday it was working with Bahamas securities regulators to “investigate if any criminal misconduct occurred” involving the exchange, which had moved its headquarters to the Caribbean country last year.
IS ANYONE ELSE INVESTIGATING?
Even before the bankruptcy filing and missing funds, the U.S. Department of Justice and the Securities and Exchange Commission began examining FTX to determine whether any criminal activity or securities offenses were committed, according to a person familiar with the matter who spoke to The Associated Press last week on condition of anonymity because they could not discuss details of the investigations publicly.
WHAT ARE THE REPERCUSSIONS?
Companies that backed FTX are writing down investments, and the prices of bitcoin and other digital currencies have fallen. Politicians and regulators are calling for stricter oversight of the unwieldy industry. FTX said Saturday that it was moving as many digital assets as can be identified to a new “cold wallet custodian,” which is essentially a way of storing assets offline without allowing remote control.
FTX had entered into a number of sports-related deals, some of which are crumbling. The NBA’s Miami Heat and Miami-Dade County decided Friday to terminate their relationship with FTX and will rename the team’s arena. Earlier Friday, Mercedes said it would immediately remove FTX logos from its Formula One cars.
The downfall of his crypto empire – which filed for bankruptcy on Friday along with his resignation – means assets owned by the mogul once likened to John Pierpont Morgan have become worthless. At the peak, the 30-year-old was worth $US26 billion, and he was still worth almost $US16 billion at the start of last week.
The Bloomberg Billionaires Index now values FTX’s US business – of which Bankman-Fried owns about 70 percent – at $US1 because of a potential trading halt, from $US8 billion in a January fundraising round. Bankman-Fried’s stake in Robinhood Markets valued at more than $US500 million was also removed from his wealth calculation after Reuters reported it was held through his trading house, Alameda Research, and may have been used as collateral for loans. FTX.US and Alameda were also part of the bankruptcy filing.
In announcing it was filing for Chapter 11 bankruptcy, FTX said Friday in a statement that Bankman-Fried has resigned as chief executive officer and will be succeeded by John J. Ray III. Ray, a turnaround and restructuring expert, previously served in senior roles in bankruptcies including Enron’s. The initial filings offered no explanation for the firm’s downfall.
More than 130 entities tied to FTX.com, FTX US, and trading firm Alameda Research Ltd. were listed in filings at federal court in Delaware, with the Alameda petition listing assets and liabilities of at least $US10 billion each. That easily makes it the biggest bankruptcy in the US this year, affecting investors and other counterparties globally.
“It’s such an unfortunate, stunning and shocking moment for the industry,” Owen Lau, an analyst at Oppenheimer & Co. said. “There will be a lot of angry investors, angry customers, and angry regulators around the world.”
Employees are expected to continue with the company and “assist Ray and independent professionals” during bankruptcy.
Bankman-Fried’s empire crumbled this week after a liquidity crunch at one of its affiliates. Its US exchange, FTX.US, said on Thursday that customers should close out any positions they want to and that trading may be halted in a few days. In the Bahamas, where FTX.com is based, authorities froze the assets of its local trading subsidiary and related parties.
It’s possible Bankman-Fried owns assets not tracked by the Bloomberg index. Alameda made about $US1 billion in profits last year and FTX made hundreds of millions more.
Tech news website The Information reported on Thursday that he had more than $US500 million invested in funds managed by Sequoia and other venture capital firms, and was also an investor in media startup Semafor. But if those assets are held through Alameda they might be wiped out by its losses.
A look at how cryptocurrencies like Bitcoin work and what they mean for the future of money
For his part, Bankman-Fried is being investigated by the US Securities and Exchange Commission for potential violations of securities rules, a person familiar with the matter said.
The Bahamian police said they’re working with the Bahamas Securities Commission to investigate whether there was any criminal misconduct in the collapse of FTX.