He went from being the “Silicon Valley genius” who founded one of the world’s largest cryptocurrency companies, to becoming a man charged with eight felonies.
Sam Bankman-Fried, founder and former CEO of FTX, who is being held in the Bahamas, was charged by U.S. prosecutors with multiple financial crimes on Tuesday in the United States.
The charges range from conspiracy to commit fraud and money laundering to violation of political campaign finance laws.
In parallel, the U.S. Securities and Exchange Commission filed another indictment against the 30-year-old former billionaire for defrauding the company’s investors, using funds for his own benefit.
Thousands of customers of FTX, which filed for bankruptcy on November 11, have lost their money and fear they may never get it back.
Bankman-Fried denies the charges against him.
The collapse of FTX has become one of the most shocking stories in the financial world in 2022. But who is Bankman-Fried?
Video game fanatic
Bankman-Fried loves to play video games. And in a series of messages posted on Twitter to his nearly one million followers, he explained why.
Play
League of Legends
According to his account, it was his way of disconnecting his mind from managing two companies that traded billions of dollars a day.
“Some people drink too much; some people gamble. I play League,” he said.
Since the 30-year-old’s cryptocurrency empire collapsed in dramatic fashion, another anecdote about his games has resurfaced.
According to a blog post by investment group Sequoia Capital, a venture capital giant, Bankman-Fried engaged in an intense battle of
League of Legends
during a high-level video call with its investment team.
However, that didn’t seem to discourage them at all. The group proceeded to invest $210 million in cryptocurrency company FTX.
Sequoia Capital has since removed that effusive blog post and announced that it now considers its investment in FTX a loss.
The firm is not the only investor to have lost huge amounts of money since the collapse of the cryptocurrency empire once valued at $32 billion.
FTX had approximately 1.2 million registered users who used the exchange to buy and sell digital currencies such as bitcoin and many others.
After the nosedive, investors large and small are wondering if they will ever get back their savings trapped in FTX’s digital wallets, says Joe Tidy, a BBC technology journalist.
Becoming a millionaire to “donate to good causes.”
Bankman-Fried’s rise and fall has shocked the financial world.
Considered by many as an altruistic genius, a seasoned investor capable of taking risks and coming out on top, and a technological innovator who would become a legend in the world of cryptocurrencies, Bankman-Fried’s image has plummeted following the collapse of his empire and the criminal charges brought against him.
The entrepreneur went to the Massachusetts Institute of Technology (MIT), a prestigious U.S. research university, where he studied physics and mathematics.
The so-called “bright young student” used to say that it was the lessons learned in the student dormitories that guided him on his path to wealth.
In an interview with the BBC, he said he agreed with a movement called “effective altruism”.
Effective altruism is a community of people “trying to figure out what practical things you can do with your life to have the biggest possible positive impact on the world,” he said.
So, he added, he decided to go into banking to earn as much money as he could to give back to good causes.
College life
During his college life, he learned stock trading during a brief stint at the Jane Street trading firm in New York, before he began experimenting with bitcoin.
He noticed the variations in the value of bitcoin on different cryptocurrency exchanges and began to play around, buying bitcoin at places that sold it cheaply and selling it to other places where it traded for more, Tidy explains.
After a month of making modest profits, he got together with some college friends and started a trading business called Alameda Research.
Bankman-Fried says it wasn’t easy and that it took him months to perfect techniques on how to move money in and out of banks and across borders.
History shows he succeeded, although U.S. prosecutors claim that in practice he orchestrated a series of moves to commit fraud.
“We were super stubborn,” the businessman told the Jax Jones and Martin Warner Show podcast a year ago.
We just kept going. If someone threw another obstacle, we’d be creative, and if our system couldn’t handle that, we’d just build a new system to help us overcome it.”
In January 2018, his team was making $1 million a day.
Billionaire
Bankman-Fried officially became a billionaire in 2021, thanks to FTX, his most prominent global venture.
The cryptocurrency buying and selling platform grew to become the second largest in the world and an industry titan, trading between $10 billion and $15 billion a day.
By early 2022, FTX was valued at $32 billion and had become a household name, with an NBA stadium named after the company and endorsements from celebrity sponsors such as the NFL’s Tom Brady.
Meanwhile, Bankman-Fried was apparently delighted to give his Twitter followers a glimpse of his lifestyle.
He created a public image in which he presented himself as an unkempt young man sleeping next to his desk in the office, in the style of Silicon Valley entrepreneurs.
He also made a point of showing that he was interested in donating large amounts of money to charities
“Giving away money.”
In a BBC radio interview in November, he claimed to have given away “a few hundred million.”
His alleged generosity did not only extend to charities. In the last six months, the so-called “king of cryptocurrencies” was given another nickname: “white knight of cryptocurrencies.”
With the price of cryptocurrencies falling in 2022, many companies in that sector faltered. Then, Bankman-Fried announced that he was donating hundreds of millions to rescue them.
When asked why he was trying to support failing crypto companies, he told CNBC, “It’s not going to be good in the long run if we have real pain and real blowups. And it’s not fair to the customers.”
He also claimed, in the same interview, to have $2 billion in reserves that he could use to help other failing companies.
But in a short time, the “good Samaritan” image took a radical turn.
The paradox is that shortly afterward it was he himself who would end up asking other investors to save FTX from bankruptcy.
Alameda Research’s problems
Doubts about FTX’s actual financial stability began to emerge after an article on the website
CoinDesk
suggested that much of Bankman-Fried’s trading giant, Alameda Research, was at risk.
Wall Street Journal
published allegations that Alameda Research used FTX customer deposits as loans to solve its own problems.
However, the beginning of the end came when FTX’s main competitor, Binance, publicly sold all of its FTX-linked digital coins a few days later.
Binance CEO Changpeng Zhao told his 7.5 million social media followers that his company would sell the holdings “in light of recent revelations.”
That statement triggered an earthquake at FTX, with panicked customers withdrawing billions of dollars from the cryptocurrency exchange.
Bankman-Fried halted customer withdrawals and attempted to obtain a ransom from Binance, which never went through.
Binance said reports of “mishandled customer funds and alleged investigations by U.S. agencies” had influenced its decision.
A day later, FTX filed for bankruptcy.
“I’m sorry.”
Bankman-Fried apologized in a series of tweets saying, “I’m so sorry, again, that we’re done here.”
“Hopefully things can find a way to recover. Hopefully, this can bring them some transparency, trust and governance.”
“I was wrong. I should have done better,” he wrote.
He also said he was “surprised to see things unfold the way they did”.
Still, he tried to be upbeat. Just days before his arrest, Bankman-Fried told BBC reporter Joe Tidy that he hoped to start a new business to earn enough money to pay the victims of the FTX collapse.
When asked if he was preparing for the possibility of an arrest, he said, “There’s a time at night when I’m reflecting, yes, but when I get up during the day, I try to focus, be as productive as possible and ignore things that are out of my control.”
He is currently detained in the Bahamas awaiting extradition to the United States to face criminal charges.
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