Tag: FTX

Sam Bankman-Fried Convicted of Defrauding FTX Customers

A US jury found him guilty on all counts of fraud, embezzlement and criminal conspiracy. The 31-year-old former cryptocurrency mogul could face decades in prison.

A federal jury in New York has convicted FTX founder Sam Bankman-Fried of defrauding customers of his now-bankrupt cryptocurrency exchange.

The 31-year-old former billionaire was accused of stealing billions from FTX customers and investors in one of the biggest financial frauds in US history.

Bankman-Fried, who will be sentenced at a later date, faces up to 110 years in prison.

Once regarded as the poster boy for the crypto industry and estimated to be worth $26 billion (€24.4 billion) by Fortune magazine, he is now known for pulling off the biggest financial scam since Bernard Madoff.

“His crimes caught up to him. His crimes have been exposed,” assistant US attorney Danielle Sassoon told the jury before they began deliberations. She added that Bankman-Fried turned his customers’ accounts into his “personal piggy bank,” with up to $14 billion disappearing.

Mark Cohen, Bankman-Fried’s attorney, said in a statement they “respect the jury’s decision. But we are very disappointed with the result.”

“Mr. Bankman-Fried maintains his innocence and will continue to vigorously fight the charges against him,” he said.

What else happened during the trial?

The verdict came after a month-long trial in which prosecutors argued the defendant had acted out of sheer greed, spending the money on investments, real estate, and promotions for his cryptocurrency exchange.

During the court case, three of Bankman-Fried’s former top executives pleaded guilty to fraud charges and testified against him.

The biggest witness against Bankman-Fried was his on-again-off-again girlfriend Caroline Ellison, who told the jury that they had stolen “around $14 billion” from clients of FTX before it collapsed.

The cryptocurrency exchange founder admitted to making “a number of small mistakes and a number of larger mistakes” while running the now-bankrupt exchange.

The biggest mistake, he said, was failing to implement a dedicated risk management team.

“We thought that we might be able to build the best product on the market,” Bankman-Fried said. “It turned out basically the opposite of that. A lot of people got hurt, customers, employees, and the company ended up in bankruptcy.”

However, he denied defrauding anyone or taking customers’ funds. He had pleaded not guilty to all charges.

Biggest crypto bust

FTX, which had been among the world’s largest cryptocurrency exchanges, filed for bankruptcy protection on November 11, 2022 in one of the highest-profile crypto blowups after traders pulled billions from the platform in a matter of three days.

Bankman-Fried resigned as FTX’s chief executive officer the same day as the bankruptcy filing.

In a series of interviews and public appearances in late November and December of last year, Bankman-Fried acknowledged risk management failures but said he did not commit fraud while running the company.

Sam Bankman-Fried, known in the crypto community as “S.B.F.,” founded the cryptocurrency exchange FTX in 2019 after launching the crypto hedge fund Alameda Research in 2017. Prior to his involvement in the cryptocurrency sector, he worked as a trader on Wall Street.

This story was originally published on DW.


FTX Founder Sam Bankman-Fried Arrested in the Bahamas on US’s Request

FTX, which had been among the world’s largest cryptocurrency exchanges, filed for bankruptcy protection on November 11.

Authorities in the Bahamas have arrested embattled FTX crypto exchange founder Sam Bankman-Fried at the request of the US, the country’s attorney general announced Monday.

“As a result of the notification received and the material provided therewith, it was deemed appropriate for the Attorney General to seek SBF’s arrest and hold him in custody pursuant to our nation’s Extradition Act,” the office of The Bahamas Attorney General Ryan Pinder said.

US Attorney for the Southern District of New York Damian Williams also confirmed the arrest in a Twitter post.

“Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the US Government, based on a sealed indictment filed by the United States Attorney’s Office for the Southern District of New York,” Williams said in a statement.

SEC authorised charges on Bankman-Fried

Meanwhile, the US Securities and Exchange Commission separately authorised charges relating to FTX founder Sam Bankman-Fried’s violations of securities laws, the regulator said.

“The Securities and Exchange Commission has separately authorised charges relating to Mr. Bankman-Fried’s violations of our securities laws, which will be filed publicly tomorrow in the Southern District of New York,” SEC official Gurbir Grewal said in a statement.

Biggest crypto bust

FTX, which had been among the world’s largest cryptocurrency exchanges, filed for bankruptcy protection on November 11 in one of the highest-profile crypto blowups after traders pulled $6 billion (€5.7 billion) from the platform in three days.

Bankman-Fried resigned as FTX’s chief executive officer the same day as the bankruptcy filing.

In a series of interviews and public appearances in late November and December, Bankman-Fried acknowledged risk management failures but said he did not commit fraud while running the company.

FTX’s demise marked the latest turmoil for the cryptocurrency industry this year. The overall crypto market has slumped amid a string of meltdowns that have taken down other key players including Voyager Digital and Celsius Network.

This article was originally published on DW.

The Collapse of FTX Illustrates the Nihilism and Folly at the Heart of Crypto

At its core, crypto is wild combination of contradictions. It’s nihilistic and idealistic; decentralised and dominated by a few mega-billionaires; trustless and faith-based; public and encrypted; transparent and inscrutable.

To understand the sudden downfall of the now-collapsed crypto exchange FTX, you have to go back to the beginning.

Here’s how founder Sam Bankman-Fried described it when he announced the now-called-off rescue by Binance, another crypto exchange:

“FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for http://FTX.com (pending DD etc.).”

That appended “etc.” turned out to be quite significant. Binance quickly pulled out of its planned bailout after a quick look at FTX’s books. “Sad day but we tried [crying emoji],” Binance’s CEO Changpeng Zhao said.

But it’s Bankman-Fried’s references to FTX’s first investor that’s the key to his exchange’s implosion – and the details of how that Binance investment unfolded are a great illustration of how crypto works, and falls apart.

FTX was founded in May of 2019 and later that year Binance, which is the world’s largest crypto exchange, invested in FTX.

An industry leader in an emerging business making an investment in an up-and-coming firm in order to boost demand, build out various kinds of support systems, and hopefully get a nice return in the process is a totally normal thing.

And indeed, the press release announcing Binance’s “strategic investment” in FTX in order to “work together to further develop the cryptocurrency ecosystem” sounds pretty much like any other press release announcing that kind of deal:

“The FTX team has built an innovative crypto trading platform with stunning growth. With their backgrounds as professional traders, we see quite a bit ourselves in the FTX team and believe in their potential in becoming a major player in the crypto derivatives markets.“ said Changpeng Zhao (CZ), Binance CEO. “We are pleased to have an excellent partner joining the Binance ecosystem and aim to grow the crypto market together.”

Swap a few of the nouns and this might as well be a press release about a deal between two industrial fasteners suppliers.

But then last year, Bankman-Fried decided he wanted to buy Binance out of its investment in FTX.

By this time, FTX was no longer a months-old exchange. It was a direct competitor to Binance and in Bankman-Fried’s telling, their investment relationship was getting a bit awkward. Again, this is not out of the ordinary for this kind of deal.

But because this is crypto, the actual buyout transaction gets weird fast. Bankman-Fried bought out Zhou for a total of $2 billion, Reuters reported, and part of that purchase was paid not in US dollars or another state-backed currency, but in the crypto coin that FTX itself had created, called FTT.

FTT was traded on FTX and was crucial to how the exchange functioned. And crucially, it is now clear that FTT was central to Bankman-Fried’s purported personal wealth of $16 billion.

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Before he founded FTX, Bankman-Fried founded a hedge fund called Alameda Capital, which had an increasingly complex and important series of financial relationships with FTX as the exchange grew. A huge portion of Alameda’s claimed $14.6 billion in assets were FTT tokens.

And after crypto prices plummeted over the summer, Alameda took a series of big losses and Bankman-Fried transferred $4 billion from FTX to Alameda to prop up his hedge fund. That money was itself secured in part by FTT and included customer deposits, Reuters reported.

There’s a common saying that crypto’s function is “number go up,” meaning that the whole point is that it increases in value. This was particularly true for FTX and Alameda with respect to FTT: FTT needed to keep going up so that FTX and Alameda could borrow increasing amounts against its value. A price decline in FTT was a potentially fatal risk for FTX and Alameda.

And because of the structure of Bankman-Fried’s buyout, Binance’s Zhou owned about $580 million worth of FTT.

On November 6, Zhou stuck a knife in FTX, tweeting that Binance was selling its entire FTT stake “due to recent revelations that have came to light” [sic]. He didn’t go into any substantive detail and he didn’t need to. FTT’s price plummeted and customers withdrew $6 billion from their accounts. With its coin in free-fall and an old-fashioned bank run in process, FTX couldn’t survive. Two days later, Zhou announced that Binance would bail out FTX, pending due diligence. And then two days after the bailout was announced, Binance pulled out, citing unnamed regulatory investigations and issues with FTX’s books. And on Friday, FTX filed for bankruptcy and Bankman-Fried stepped down.

Sam Bankman-Fried once infamously described the crypto world as a series of black boxes that spit out tokens that go up in value, which is a pretty nihilistic, if accurate, view of what crypto is. But at its core, crypto is wild combination of contradictions. It’s nihilistic and idealistic; decentralised and dominated by a few mega-billionaires; trustless and faith-based; public and encrypted; transparent and inscrutable; and a utopian anarchist invention beloved by drug cartels, terrorists, and Kim Jong-Un.

Individually, delusion is an affliction; mass delusion is profitable.

FTX’s implosion shows us that the only thing that can resolve crypto’s roiling contradictions is a line that goes up. When the line goes down, like it did with FTT, none of it works.

This piece was originally published on Future Tense, a partnership between Slate magazine, Arizona State University, and New America.

Why the Fall of FTX Crypto Exchange Should Surprise No One

Trading in “assets” with no underlying fundamental value on loosely regulated exchanges is always going to be a very risky endeavour. For many, it is likely to end in tears.

Not long ago, FTX was one of the world’s largest trading platforms for cryptocurrencies. Founded in 2019, the Bahamas-based crypto exchange had a meteoric rise to prominence, and was valued at more than $30 billion earlier this year.

All that has changed in the past two weeks. First, concerns emerged about links between FTX and an asset-trading firm called Alameda Research, including suggestions that customers’ funds have been transferred from FTX to Alameda.

A few days later, rival firm Binance (the biggest crypto exchange) announced it would sell its holdings of FTT tokens, a crypto that reportedly comprises much of Alameda’s assets.

Panicked customers rushed to withdraw funds from FTX, and the company is now on the brink of collapse, with a banner message on its website announcing it is “currently unable to process withdrawals”.

This is not the first such rapid disintegration we have seen in the loosely regulated world of cryptocurrency, and it’s unlikely to be the last.

No rescuers in sight

The majority owner of both FTX and Alameda, Sam Bankman-Fried, had rescued other troubled crypto companies earlier this year. Now he is desperately looking for an investor with a lazy $8 billion to save his companies.

Many firms have already written off the value of their stakes in FTX. So it will not be easy for Bankman-Fried to find investors willing to put in new funding.

Binance thought about taking over the troubled company outright. It decided against, citing concerns about allegations of misconduct and an investigation by the US Securities and Exchange Commission.

Also read: Cryptocurrencies: Why Binance’s Failed FTX Rescue Deal Could Mean ‘Crypto Winter’ Is Coming

The price of FTT has now plunged. A week ago it was trading at $24. Now it is at less than $4.

Cautionary lessons

Trading in “assets” with no underlying fundamental value on loosely regulated exchanges is always going to be a very risky endeavour. For many, it is likely to end in tears.

Other kinds of asset are different. Company shares have a fundamental value based on the dividend (or at least an expected future dividend) paid from the company’s profits. Real estate has a fundamental value that reflects the rent the investor earns (or the owner-occupier saves). The value of a bond depends on the amount of interest it pays. Even gold at least has some practical uses, for jewellery, dental fillings or electronics.

But crypto so-called currencies such as Bitcoin, Ether and Dogecoin (and thousands more “alt-coins” and “meme-coins”) have no such fundamental value. They are a game of pass-the-parcel, in which speculators try to sell them to someone else before the price collapses.

Unregulated financial institutions are prone to the equivalent of a Depression-style “bank run”. Once doubts emerge about their soundness, each person has an incentive to be early in the queue to withdraw their money before the money runs out.

In a recent interview, Bankman-Fried gave a description of his business model that seems to rely heavily on funds injected by new investors, rather than on future returns based on the intrinsic value of the assets themselves.

Impact on crypto

These events have further eroded confidence in the crypto ecosystem. Prior to this latest fiasco, the “value” of cryptocurrencies had already dropped from a peak of more than $3 trillion to $1 trillion. It has now fallen even lower.

Just as a few stars such as Amazon emerged from the wreckage of the dot-com bubble, so it is possible that only a handful of applications of the blockchain technology that underpins crypto have enduring utility.

And the idea of an electronic form of currency is being realised in the form of central bank digital currencies. But as Hyun Song Shin, the chief economist of the Bank of International Settlements, put it, “everything that can be done with crypto can be done better with central bank money”.The Conversation

John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

Cryptocurrencies: Why Binance’s Failed FTX Rescue Deal Could Mean ‘Crypto Winter’ Is Coming

The near-collapse of FTX, one of the biggest names in crypto, followed by the failed Binance bailout, has had an effect right across the crypto industry, with Bitcoin falling by more than 18% during these events.

Life in the cryptocurrency industry is rarely quiet for long, and after a tumultuous summer, it seems the market is now entering a “crypto winter”.

Over the past week, the founders of two of the largest cryptocurrency exchanges – Binance and FTX – have had a public Twitter spat that triggered the collapse of one exchange and a failed bailout deal from the other. Unsurprisingly, these events have caused widespread panic across a market that has barely recovered from several major failures earlier this year.

Binance, which is estimated to be worth more than $300 billion (£263 billion), was actually FTX’s first investor in December 2019. Since then, FTX has grown to be worth more than $32 billion as of last January, counting mainstream finance giants such as BlackRock and SoftBank among its many backers.

Binance CEO Changpeng Zhao and FTX founder Sam Bankman-Fried (often referred to as CZ and SBF, respectively) are two of the most influential people in the cryptocurrency exchange world where investors can buy, sell and store digital currencies.

While Zhao has been associated with regulatory concerns around Binance, Bankman-Fried was seen as a relatively stable and ambitious figure in the wild west world of cryptocurrencies. He swooped in to rescue failing companies during last summer’s crypto bust and has made a point of speaking with the media and US policymakers.

What happened to FTX?

Bankman-Fried’s empire included the FTX exchange business, as well as Alameda Research, a trading firm that was supposed to be separate from FTX. But a recent story by industry news site Coindesk reported that Alameda’s balance sheet was dominated by FTT. This is the crypto token or coin issued by the FTX exchange, which grants holders a discount on trading fees on the marketplace.

FTT is entirely controlled by FTX, Alameda’s sister company and can be “printed” as FTX wishes. Alameda also held $3.37 billion across a range of other cryptocurrencies, such as Solana and Serum, which means that any cryptocurrency collapse could severely affect the company.

While there is nothing illegal or wrong with these holdings – particularly in the notoriously unregulated crypto industry – the report showed Alameda’s heavy reliance on a coin invented by its sister company and not one issued by an independent backer or as legal tender by a government. If a company in such a position gets into trouble, such assets would be useless in shoring up the business and protecting users because they would also fall in value. This discovery about Alameda’s balance sheet led to liquidity concerns about the entire company.

Indeed, after the Coindesk news story was published, Binance CEO Zhao tweeted plans to liquidate the remaining FTT on Binance’s books. In another post a few hours later he called the move “post-exit risk management, learning from LUNA” (a reference to a roughly $60 billion crypto crash that happened earlier this year).

Zhao has 7.4 million followers on Twitter so his tweets affect the market. The value of FTT fell from $22 on Sunday to $4 on Tuesday afternoon, while FTX was flooded with a reported $6 billion in withdrawal requests. Some customers were unable to access their cryptocurrency holdings on the exchange due to the number of requests.

Bankman-Fried responded on Monday by saying a “competitor is trying to go after us with false rumours” and adding that “FTX is fine” (he later removed the tweet). But it seems this was too little, too late: total cryptocurrency market capitalisation dropped from more than $1 trillion to around $830 billion in a matter of days.

In a surprise move, just days later both Zhao and Bankman-Fried (above) tweeted details of a deal for Binance to acquire FTX. But the Wall Street Journal reported the following evening that Binance had decided not to proceed with the deal after reviewing FTX’s finances and business structure.

A tweet from Binance (below) said “the issues are beyond our control or ability to help”. Further, Bloomberg reported that US regulators, the Security and Exchange Commission and Commodity Futures Trading Commission, have both been investigating FTX over its handling of customers funds.

Crypto winter

The cryptocurrency industry has struggled in the last year, particularly since the failure of Terra and Luna tokens in May, the collapse of lender Celsius Network in June and the subsequent bankruptcy of hedge fund Three Arrows Capital in July.

The near-collapse of one of the biggest names in crypto, followed by the will-they-or-won’t-they nature of the Binance bailout, has had an effect right across the crypto industry, with Bitcoin falling by more than 18% during these events. The failure of this rescue deal will do little to boost confidence in the sector and could accelerate a crypto winter by stoking fears of price volatility and the need for future bailouts.

The value of the FTT coin is down by nearly 90% and trading volumes at FTX fell by more than 70% in the 24 hours around the rescue deal discussions. Much of this lost activity will move elsewhere, meaning the collapse of FTX could make Binance larger. This could encourage regulators to start looking much more closely at the space.

Of course, the ultimate irony is that one of the main characteristics of cryptocurrencies is supposed to be decentralisation, but recent events may well lead to more centralisation as activity consolidates around one exchange. This could discourage some crypto-enthusiasts from using Binance in the future.The Conversation

Andrew Urquhart, professor of finance and financial technology, ICMA Centre, Henley Business School, University of Reading

This article is republished from The Conversation under a Creative Commons license. Read the original article.