Sam Bankman-Fried promised his FTX crypto empire would save the world. US authorities say he was lying from the start
Right until the moment Bahamian police knocked on the door of his lavish penthouse apartment, Sam Bankman-Fried appeared to hold out hope that he could clean up his mess.
The 30-year-old was putting the finishing touches on his testimony to the US House Financial Services Committee.
Congress was investigating how FTX, one of the world’s top digital currency exchange platforms, was able to collapse so quickly and so spectacularly.
In just a few chaotic days last month, Bankman-Fried’s $US32 billion ($46 billion) company fell apart.
FTX declared bankruptcy, leaving its customers unable to withdraw their money, and Bankman-Fried resigned as CEO.
It was a dramatic fall from grace for the youthful entrepreneur, who once claimed that he was on track to become the world’s first trillionaire.
Instead, he’ll go down on record as the man who experienced the biggest wealth collapse in US history.
Still, as the net tightened around him, Bankman-Fried worked to free himself.
“I f***ed up,” he wrote in his draft congressional testimony that was later leaked to the media.
“I know that it doesn’t mean much to say that I’m sorry. And so I’m dedicating as much of myself as I can to doing right by customers.”
But he would never get a chance to apologise to Congress and explain what, in his view, went so wrong.
The night before he was due to testify, Bahamian police arrested him at the request of the US government.
He’s now facing eight criminal charges including wire fraud, money laundering, and conspiracy to commit fraud on the United States.
The rise of America’s scruffy billionaire
Sam Bankman-Fried launched FTX in 2019, building a cult of personality around himself as a mop-topped millennial genius.
He wore T-shirts and shorts everywhere, napped on bean bags in his office, and played video games during meetings with investors.
He claimed to be a follower of the “effective altruism” philosophy, which encourages people to get lucrative jobs so they can amass wealth and donate it to charities.
“We have been culturally seduced by a story here that … this digital economy is largely driven by narrative and memes,” risk analyst Richard Smith told the ABC.
“Sam Bankman-Fried figured out how to play the game, consequently, better than anybody else.”
By basing his company offshore — first in Hong Kong and then in the Bahamas — he hoped to take advantage of more relaxed financial regulations.
He had promised his customers that FTX was “the cleanest brand in crypto”, guaranteeing “high returns, no risk”.
As his personal wealth skyrocketed, he donated vast sums to both Republican and Democrat politicians and vowed to give away 99 per cent of his money.
“You pretty quickly run out of really effective ways to make yourself happier by spending money. I don’t want a yacht,” he told Bloomberg earlier this year.
But in one fateful week in November, FTX unravelled when a run on deposits and falling crypto prices left it with a $US8 billion ($11 billion) shortfall.
With his bank account empty and his empire in ruins, US authorities started digging deeper into what was really going on behind closed doors at FTX.
Authorities say FTX was a fraud from the start
Bankman-Fried has insisted that the collapse of FTX was the result of bad accounting, human error and rotten luck.
But the unsealed criminal indictment from the Southern District of New York makes clear that authorities believe the 30-year-old engaged in a scheme to defraud customers almost as soon as the company was founded.
Bankman-Fried is also facing a separate civil complaint filed by the Securities and Exchange Commission (SEC).
Both prosecutors and the SEC are zeroing in on the role played by Alameda, a hedge fund that Bankman-Fried also founded and owned.
“In essence, Bankman-Fried placed billions of dollars of FTX customer funds into Alameda,” the criminal indictment claims.
“He then used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses.”
Despite his scruffy appearance and his pledges to give away his billions, authorities say Bankman-Fried was living large in a $US30 million ($43 million) penthouse in a gated compound in Nassau.
“Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC claims.
Once the run on deposits began on FTX, “Bankman-Fried’s house of cards began to crumble”, prosecutors have alleged.
Bankman-Fried appears to have loaned himself $1 billion
In Bankman-Fried’s absence, the House Financial Services Committee delivered a searing assessment of the practices that led to the collapse of FTX and subsequent arrest of its former CEO.
Committee chairwoman Maxine Waters began by saying she was “so deeply troubled to learn how common it was for a Bankman-Fried and FTX employees to steal from the cookie jar of customer bonds to finance their lavish lifestyles”.
The committee’s witness was John Ray III, appointed last month to oversee the bankruptcy.
Ray is no stranger to spectacular corporate collapses, having overseen energy corporation Enron’s bankruptcy 20 years ago.
But the 63-year-old told Congress the failure of corporate control at FTX was unlike anything he had seen in his long career.
Hunched over and twirling his pen, John Ray told the committee that he was dealing with “a paperless bankruptcy”.
“It’s really unprecedented in terms of the lack of documentation,” he said.
“I’ve just never seen an utter lack of record keeping, absolutely no internal controls whatsoever.”
One of the more explosive allegations made in the hearing was that Bankman-Fried appeared to have loaned himself $US1 billion ($1.45 billion).
According to documents seen by Ray, he was both the recipient and the authoriser of the personal loan from Alameda.
“The FTX group’s collapse appears to stem from absolute concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals,” he said.
During testimony Mr Ray confirmed that FTX Australia was not included in the bankruptcy filings because of separate proceedings by local regulators.
On November 16 the Australian Securities and Investments Commission (ASIC) announced it had suspended FTX Australia’s licence, following the appointment of three voluntary administrators from KordaMentha.
Tens of thousands of Australians are thought to have been impacted by the collapse of FTX.
Ray said regulators in different jurisdictions worked collaboratively to maximise results for customers, but he couldn’t put a time frame on the “painstaking” process of trying to secure assets.
What now for America’s disgraced crypto king?
For a brief court appearance in Nassau, Bankman-Fried traded in his signature shorts for a suit and tie.
The timing of his extradition from the Bahamas to the US is still unclear.
While the nations have an extradition treaty, the process can take several weeks — and perhaps long if a defendant contests it.
In the congressional testimony he was never able to deliver, Bankman-Fried complained about the loss of his once burgeoning wealth.
“Last year, my net worth was valued at $20b,” Bankman-Fried wrote.
“Last I saw, I believe my bank account had about $100k in it.”
His parents say they fear his legal fees will wipe out whatever is left.
The 30-year-old’s spectacular fall from grace has set off a chain of events that could have major implications for the future of the cryptocurrency industry.
Once seen as a ticket to fast riches, people who bought in at the height of the price rally have been left potentially holding large losses.
The collapse of FTX has further damaged the reputation of an industry that was supposed to be safer than traditional currencies.
Sam Bankman Fried once claimed to have spent about a quarter of every work day trying to woo politicians to support light touch regulation of crypto.
With his spectacular fall, those who have had crypto in their sights see their chance to strike.
“My fear is that we’ll view Sam Bankman-Fried as just one big snake in a crypto Garden of Eden,” said Congressman Brad Sherman, one of the biggest crypto sceptics in Washington DC.
“The fact is, crypto is a garden of snakes.”