At just 30 years old, American Crypto Entrepreneur and former billionaire Samuel Bankman Fried had amassed a fortune of over 17 billion dollars and now faces life in prison, as the mastermind of one of the most expensive white-collar crimes in American history.
Overview
SBF, Fried’s alternative title, launched the crypto blockchain in May 2019, hoping to rectify the failures of his previous exchange, Almeida Research. FTX quickly grew into one of the leading American blockchains, peaking in July 2021 with over one million clients. And although FTX is an American corporation, SBF headquartered the company in the Bahamas outside American jurisdiction. Suspicion first arose when the crypto news outlet Coindesk published an article accusing SBF of fraud and campaign finance violations in November 2022. The Coindesk article stated that SBF embezzled billions from FTX in order to pay the debts of his partner crypto firm, Almeida Research. Following the allegations, FTX lost millions of investors to rival firms, marking the downfall of the blockchain and the demise of one of the most “successful” con men in American history. Following the decline, FTX filed for chapter 11 bankruptcy on November 11 . The following month in December 2022, the Bahamian authorities apprehended Samuel Bankman Fried, as per the request of the United States Government. He was expedited to the US shortly after his arrest and currently faces multiple fraud, money laundering, and embezzlement allegations, pleading not guilty on all accounts. In late December, SBF was released on a 250 million dollar bail, one of the largest in American criminal history. Currently, the hearing is set for October 3, 2023 until which he will remain under house arrest in his Californian residence.
How?
Fried used a specialized Bespoke platform to disguise his mishandling of customer funds. This backdoor accounting software allowed SBF to elude the public eye while covering for the losses of his partner hedge firm Alameda Research. Despite the advanced tech, FTX was unable to prevent clients from noticing their missing wallet funds, igniting the initial investigation.
Current State of FTX
Although SBF has been ousted as CEO, FTX will continue to operate under John Ray III, a specialist in recovering bankrupt corporations. Although Ray has been reviving insolvent businesses for 40 years, he claims that he has never witnessed, “such a complete failure of corporate controls and such a complete absence of trustworthy financial information.” In his statement before the House Committee on Financial Services, Ray continued to criticize the FTX staff-members, calling them “inexperienced” and “unsophisticated.” FTX will prove to be Ray's most difficult recovery project to date, but based upon his previous successes, crypto clients can expect positive results in the future.
Broader Impact of FTX Collapse:
The swift collapse of FTX worsened the already volatile crypto market, with competitive crypto firms reporting massive losses in the ensuing months. And although the collapse of FTX was fueled by corruption rather than the actual currency, that has not stopped the scandal from adding to the mass crypto recession. Days after the initial fraud reports, the crypto market experienced a 17% loss in value and returns, with crypto giants like BitCoin reporting catastrophic losses, as seen in the graphs below.
*CMI is the CoinDesk Market Index, a measure of the approximate value of the digital assets market
*The S&P 500 is a stock market index tracking the value of the 500 largest companies in America
- Hudson Honeybone