A few years ago, many lauded Sam Bankman-Fried for launching what they thought would revolutionize the crypto industry. But in 2022, the FTX crypto exchange went crumbling down, with Bankman-Fried accused of fueling the downfall. Do you want to learn more about this fallen crypto guru? Well, keep reading this article.
Who is Bankman-Fried?
Born in 1992, Sam Bankman-Fried is the founder of crypto exchange FTX, which collapsed in 2022. He holds a degree in physics from MIT (Massachusetts Institute of Technology). Immediately after graduating, Bankman-Fried worked at a proprietary trading company, Jane Street Capital. In 2017, he left the firm and founded his own trading company, Alameda Research.
After two years, Bankman-Fried established FTX to allow traders to engage in crypto trading. During COVID-19 in 2020, the FTX founder started investing in crypto projects he believed in.
Here Comes Caroline Ellison
As FTX continued to witness massive adoption, Bankman-Fried decided to hire Caroline Ellison to run Alameda Research. The two had a romantic relationship and lived together at Bankman-Fried’s penthouse in the Bahamas. They had met at Jane Street Capital.
When FTX collapsed, investigations showed that Ellison had been overseeing risky bets placed at Alameda Research using client funds. She pleaded guilty to all criminal charges brought against her and agreed to cooperate with prosecutors in the investigations.
Where Did Sam Bankman-Fried Get the Money to Start His Companies?
Bankman-Fried got his money through arbitrage trading. For starters, arbitrage trading involves buying a financial instrument from one market and immediately selling it to another to make a profit. The FTX founder would purchase Bitcoin from US-based crypto exchanges and sell it in Asian markets, making a 10% profit.
What is Sam Bankman-Fried Popular for?
Besides being known as the brains behind Alameda Research and FTX, Bankman-Fried is also popular for being a philanthropist. He has made donations worth millions of dollars to various causes. Moreover, he is said to have been among the top donors to Democratic Party politicians in 2022.
During the crypto winter, Bankman-Fried was a beacon of hope for several crypto companies that struggled to keep their businesses afloat. For example, he bailed out bankrupt cryptocurrency broker Voyager Digital.
What Sam Bankman-Fried was Accused of
Bankman-Fried was accused by federal prosecutors of authorizing the illegal transfer of customer funds from FTX to his trading firm, Alameda Research. As mentioned earlier, the money was used to place risky bets, which resulted in massive losses.
Additionally, Bankman-Fried was accused of using client funds to finance his lavish lifestyle. He is said to have spent over $200 million to buy property in the Bahamas.
What Caroline Ellison was Accused of
Bankman-Fried’s former girlfriend, Caroline Ellison, was accused of conspiracy to commit wire fraud, money laundering, securities fraud, and commodities fraud. Meanwhile, Ellison accused Bankman-Fried of making her defraud customers of FTX billions of dollars.
How Bankman-Fried’s FTX Collapsed
On November 2nd, 2022, news outlet CoinDesk tweeted that the balance sheet of Alameda Research only had FTX’s native token, FTT. The report meant that it was easy for the token to be manipulated, given that its supply was controlled by a centralized organization. CoinDesk also discovered that Alameda Research had used FTT to collateralize multiple loans.
A few days after CoinDesk’s revelations, the largest crypto exchange, Binance, said it would cash out its FTT holdings worth approximately $530 million. The announcement fueled a bank run on FTX as many started to believe that their funds were no longer safe on Bankman-Fried’s crypto exchange.
FTX couldn’t process $6 billion worth of withdrawals, prompting the firm to file for bankruptcy on November 11th, 2022.
Sam Bankman-Fried’s Trial and Sentencing
Bankman-Fried’s trial happened last October. On November 2nd, 2023, the jury tasked to oversee the case reported that it had found the FTX creator guilty of seven charges. Now, Judge Kaplan is set to rule on Bankman-Fried’s sentencing on March 28th, 2024.
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