Till 1 November 2022, FTX co-founder Sam Bankman-Fried was a tech genius, crypto wonderkid and an altruistic billionaire in the eyes of one and all. People could not sing enough praises of this “Bentham of Crypto,” as some even named him after Jeremy Bentham — the founder of modern utilitarianism.
However, everything collapsed like a house of cards in the first 15 days of November after a damning report by CoinDesk revealed an “unusually close” connection between Bankman-Fried’s trading firm, Alameda Research, and his own cryptocurrency exchange, FTX.
The fallout of the report was so severe that on 11 November, Bankman-Fried stepped down as CEO of FTX — of which he was a co-founder. The exchange, which was valued at around USD 32 billion before the storm, filed for Chapter 11 bankruptcy.
According to CNBC, which obtained the 23-page bankruptcy filing, around 130 additional affiliated companies are also part of the proceedings. These include Alameda Research and FTX’s American subsidiary, FTX.us.
As per its filings, FTX said it has over 100,000 creditors, USD 10-50 billion in assets and USD 10-50 billion in liabilities.
As a result, investors such as Sequoia Capital, which pumped in USD 213.5 million, as per Forbes, marked their shares in FTX to zero dollars.
As of 27 September 2022, Bankman-Fried’s net worth, as per Forbes, was USD 17.2 billion. In less than a week after the report was published, his fortune collapsed and came down to nothing.
Bloomberg reported on 11 November that the billionaire was now worth zero, calling it “one of history’s greatest-ever destructions of wealth.”
How did this great fall happen and what did CoinDesk report?
On 2 November 2022, CoinDesk published a report which revealed that Bankman-Fried’s trading firm, Alameda Research, was heavily dependent on the native FTT token issued by his own FTX exchange.
“While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto. The situation adds to evidence that the ties between FTX and Alameda are unusually close,” CoinDesk reported after reviewing a leaked balance sheet of Alameda Research.
According to the report, the biggest share of Alameda’s USD 14.6 billion assets (as of 30 June 2022) was “unlocked FTT” amounting to USD 3.66 billion. There was also another USD 2.16 billion worth of “FTT collateral” among the assets.
CoinDesk also found that the liabilities had USD 292 million of “locked FTT” and loans amounting to USD 7.4 billion.
According to a 7 November The Wall Street Journal (WSJ) report, Alameda CEO Caroline Ellison said that the CoinDesk report did not reflect more than USD 10 billion of the firm’s assets and was only about a subset of the company’s corporate entities.
A few notes on the balance sheet info that has been circulating recently:
– that specific balance sheet is for a subset of our corporate entities, we have > $10b of assets that aren’t reflected there
— Caroline (@carolinecapital) November 6, 2022
By then, however, things had already taken a turn for the worse, triggering Bankman-Fried’s eventual fall in both the financial world and in grace.
Crypto traders were concerned that the relationship between FTX and Alameda posed a conflict of interest. Within 72 hours before the morning of 8 November, customers withdrew USD 6 billion of their investments from FTX, forcing Bankman-Fried to announce that the exchange was temporarily freezing its operations.
Just a day before the CoinDesk report, FTT tokens were trading at just over USD 26, as per crypto price tracker CoinMarketCap. As of 15 November 2022, the coins were trading at just USD 1.42 — having lost almost everything in a bloodbath in the crypto market that started on 6 November.
Five days after the CoinDesk report, Binance CEO Changpeng Zhao announced that his exchange was liquidating its FTT holdings, labelling the move as “post-risk management.”
“We are not against anyone. But we won’t support people who lobby against other industry players behind their backs,” Zhao said in a tweet.
Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs. Onwards.
— CZ 🔶 Binance (@cz_binance) November 6, 2022
Interestingly, according to another report by WSJ, Bankman-Fried tried to save FTX through emergency investments. It struck a deal with Binance on 8 November, but the latter walked away from it the very next day, saying that the matter was “beyond our control or ability to help.”
The report further states that the Securities and Exchange Commission and the Justice Department of the US are investigating FTX. On 10 November, the Securities Commission of the Bahamas froze the assets of the firm’s Bahamian subsidiary FTX Digital Markets Ltd.
The Turkish government said on 14 November that its Financial Crimes Investigation Agency is now investigating FTX.
FTX was earlier headquartered in Hong Kong but moved its base to the Bahamas in 2021. Alameda, on the other hand, is based in Hong Kong.
What we know about FTX co-founder Sam Bankman-Fried
At the centre of this catastrophe in the world of crypto is, of course, the poster boy of FTX-Alameda, Sam Bankman-Fried.
His rise to fame and his dizzying fall have raised a series of questions and concerns for both investors and the media — things that will possibly be looked into in the future.
However, for now, the focus remains on Bankman-Fried and how he built, lived and oversaw the downfall of his “empire.”
An MIT graduate who went into crypto
Born in 1992 to Stanford Law School professors, Bankman-Fried enrolled at the Massachusetts Institute of Technology (MIT) in 2010 and graduated in 2014. He majored in physics and minored in mathematics at the university.
“So, after graduating MIT I went to work at Jane Street Capital for about three and a half years. It was a wonderful work experience. I left Jane Street Capital to start on my own ideas and got into crypto,” he told Forbes in May 2021, recalling how he entered the world of digital currency Alameda Research in 2017 before founding FTX a year later.
In August 2021, he told Yahoo Finance about his thoughts on education both his own and in general.
“Nothing I learned in college ended up being useful,” he said, “Other than, like, social development. . . . On the academic side, though, it’s all f***ing useless. . . . School is just not helpful for most jobs. . . . Everyone knows it’s true. . . . Some people kind of don’t really want to say it’s true, but it just is,”
As per the Yahoo Finance report, his mother, Barbara Fried, “writes about the intersection of law, economics, and philosophy,” while his father, Joseph Bankman, “mainly teaches tax policy.”
CoinDesk reports that his father was involved in charity and regulation-related projects for FTX and appeared in an episode of FTX Podcast in August 2022.
The apparently simple, unostentatious life of Bankman-Fried
The New Yorker said in an August 2022 report that Bankman-Fried preferred a bean bag over a bed and drove a Toyota Corolla.
In another August 2022 report, The New York Times said that he essentially lived at work at his Alameda office in Berkeley, went to the apartment to take a shower and would jog back to the office. Visitors at the FTX office in Hong Kong would watch him sleep from a conference room and he would wake up to meet them in cargo shorts.
When a colleague asked him to clean up his look before one of his early TV appearances, Bankman-Fried refused by saying that “it’s important for people to think I look crazy.” Reports also said that he is a vegan.
A close circle of friends at the Bahamas penthouse
A follow-up report by CoinDesk on 11 November revealed that he lived in a penthouse in the Bahamas with nine other roommates. This inner circle of friends included FTX’s lead engineer Nishad Singh, FTX co-founder and CTO Gary Wang and Caroline Ellison.
Reports suggest that all nine were either Bankman-Fried’s college classmates at MIT or former colleagues at Jane Street. Ellison is a graduate of Stanford University and was a trader at Jane Street before joining Bankman-Fried at Alameda.
As per CoinDesk, this inner circle was the only one that knew about FTX’s close relations with Alameda.
“The whole operation was run by a gang of kids in the Bahamas,” a person familiar with the matter told CoinDesk.
Hailed for his altruistic efforts
The NYT report says that the FTX co-founder has been an admirer of Princeton University philosopher Peter Singer whom the report describes as the intellectual father of “effective altruism.”
At MIT, Bankman-Fried met Will MacAskill, the co-founder of the Centre for Effective Altruism. Raised in a household where altruism and utilitarianism were always subjects of discussion, he started donating about half his salary earned at Jane Street to charity, including animal-welfare organisations and effective altruism (EA) movement-building initiatives.
As per The New Yorker, when MacAskill reached out to Bankman-Fried in 2021, after the latter had become a billionaire, the FTX co-founder reportedly pledged to donate nearly all his money and was willing to give about a billion dollars per year to suitable opportunities.
In fact, he donated USD 50 million in 2021 for pandemic-related causes and AI research.
He also created the FTX Foundation as part of the EA movement. The foundation’s FTX Future fund, which was the main philanthropic arm, donated USD 190 million to causes. Forbes reports that as of September 2022, it had USD 160 million committed to nonprofits and researchers in areas spanning everything from artificial intelligence to climate change and defending against biohazards.
Following the greater collapse, the FTX Future Fund team has now resigned. This has reportedly left all those relying on the funds in limbo.
Tom Brady, Gisele Bündchen and political investments
Sam Bankman-Fried hobnobbed with celebrities. FTX paid National Football League (NFL) star Tom Brady and his then-wife Gisele Bündchen appeared in FTX investment advertisements, for which they were paid an estimated USD 20 million in 2021.
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FTX also paid USD 135 million to buy the naming rights to Miami Heat’s arena to FTX Arena.
One of Bankman-Fried’s most talked about donations was his USD 5.2 million funding to Democratic Presidential candidate (now US President) Joe Biden in 2020. Yahoo Finance reported that the Federal Election Commission records revealed the figure made him the largest contributor to the Biden campaign after Michael Bloomberg.
The NYT called him a “prolific political fund-raiser.” He has reportedly raised money for a super PAC, Protect Our Future, which donated over USD 10 million to Democratic primary candidate Carrick Flynn in a new district in Oregon.
(Hero and Featured images: Craig Barritt/Getty Images for CARE For Special Children)