Between 2019 and 2022, cryptocurrency exchange FTX gained international prominence through aggressive marketing and low trading fees. Charismatic founder Sam Bankman-Fried promised new users high yields on deposited funds, appealing to seasoned traders and new adoptees of crypto alike. Bankman-Fried quickly became a prominent figure in the crypto space through celebrity endorsements and high early valuations.
In November 2022, news outlets published the leaked balance sheet of Alameda Research, a crypto investing firm owned by Bankman-Fried. Alameda held a significant amount of FTX's digital currency (FTT), and if the value of FTT dropped, Alameda risked instant insolvency. FTT, similar to cryptocurrencies like Bitcoin, was created by FTX to incentivize platform usage.
Changpeng Zhao, CEO of rival crypto platform Binance, announced the sale of all FTT tokens held by Binance after news of Alameda's balance sheet swept the internet. This triggered a sharp decline in FTT's price, and FTX customers rushed to withdraw their assets in a virtual “bank run.”
On Nov. 8, 2022, FTX halted customer withdrawals, revealing the severity of its financial challenges. Reports indicated that FTX needed $8 billion to cover the gap between its obligations and available funds. The connection between Alameda and FTX became clearer, with allegations that Alameda had illegally used FTX funds for trading.
The lack of financial transparency and clear mismanagement at FTX incensed former supporters. Sam Bankman-Fried sought help from Binance, but the proposed acquisition was quickly abandoned.
On Nov. 11, 2022, Bankman-Fried resigned as CEO, and FTX, along with its affiliated companies, filed for Chapter 11 bankruptcy. Bankman-Fried was arrested in December 2022 and indicted for multiple charges of fraud and conspiracy.
On Nov. 2, 2023, Bankman-Fried was found guilty of two counts of wire fraud conspiracy, two counts of wire fraud, one count of conspiracy to commit money laundering, one count of conspiracy to commit commodities fraud and one count of conspiracy to commit securities fraud.
Sam Bankman-Fried, a Massachusetts Institute of Technology graduate, quits his job as a quantitative trader at Jane Street Capital and launches Alameda Research, a trading firm focused on cryptocurrency.
Bankman-Fried and former Google employee Gary Wang found FTX as a new platform to trade crypto tokens and derivatives.
FTX raises $420 million in venture funding, valuing the company at $25 billion. Bankman-Fried debuts on the Forbes billionaires list, which estimates his net worth at $22.5 billion. The magazine's assessment of his wealth would rise to $26 billion by the end of the year.
The NFL Super Bowl's broadcast is heavy on cryptocurrency advertisements, signifying the height of the craze for the booming asset class. FTX's "Don't Miss Out" spot features actor Larry David, whose skepticism about the platform is portrayed as akin to an early human doubting the importance of the wheel.
Bankman-Fried emerges as the cryptocurrency sector's so-called "white knight" amid a collapse in the prices of Bitcoin and other digital assets. Alameda gives crypto lender Voyager Digital a $200 million credit facility, and FTX gives lender BlockFi a $250 million loan.
Crypto news website CoinDesk publishes a leaked Alameda Research balance sheet showing that much of its $14.6 billion in assets is held in FTX's own token, called FTT. The token subsequently sheds around $400 million of its market cap, and rival exchange Binance says it will sell its FTT holdings.
After FTX sees $6 billion in customer withdrawals in three days, Binance boss Changpeng Zhao says the company has signed a nonbinding agreement to buy FTX's non-U.S. unit. Binance scraps the deal the next day.
FTX files for U.S. bankruptcy protection, and Bankman-Fried resigns as its chief executive officer.
David and other FTX celebrity promoters, including NFL quarterback Tom Brady, are sued over claims they engaged in deceptive practices. The celebrities have said the suit should be dismissed, arguing they did not cause FTX investors' losses.
Bankman-Fried is arrested in the Bahamas, where he lives and where FTX is based. The U.S. Attorney's office in Manhattan later confirms that a federal grand jury has indicted him for fraud and conspiracy charges.
Bankman-Fried leaves the Bahamas after agreeing to be extradited to the United States. While he is in the air, prosecutors reveal that Wang and Alameda chief executive Caroline Ellison have pleaded guilty and agreed to cooperate with prosecutors.
Bankman-Fried makes an initial appearance in Manhattan federal court and is released to home detention at his parents' home in Palo Alto, California, on $250 million bond.
Bankman-Fried pleads not guilty and U.S. District Judge Lewis Kaplan schedules his trial for October. In a post-arrest blog post, Bankman-Fried denies stealing funds and blames FTX's collapse on a broader downturn in crypto markets.
Nishad Singh, the former director of engineering at FTX, adds to the pressure on Bankman-Fried by becoming the third former member of his inner circle to plead guilty to fraud charges and agreeing to cooperate with prosecutors.
Kaplan revokes Bankman-Fried's bail after finding probable cause to believe he tampered with witnesses at least twice, including by sharing Ellison's private writings with a New York Times reporter. Bankman-Fried is remanded to Brooklyn's Metropolitan Detention Center pending trial.
The trial begins in Manhattan federal court.
Bankman-Fried testifies in his own defense, saying a "lot of people got hurt" when FTX collapsed but insisting he did not defraud anyone or steal billions of dollars from customers.
Bankman-Fried is convicted of all seven charges he faced.
SOURCES