FTX’s Meteoric Ascent and Crash. Inside Sam Bankman-Fried’s Ambitious Venture
In Brief
On March 24, 2024, Sam Bankman-Fried received his sentencing, culminating in a protracted legal battle. The court sentenced him to serve a lengthy term of 25 years behind bars, coupled with a staggering financial penalty of $11 billion.
Understanding FTX: An Ambitious Venture
The long-awaited verdict in the FTX fraud case has come out; its founder, Sam Bankman-Fried, received 25 years in prison instead of the initially estimated 110 and was expected to pay restitution. In this article, we will look at why he got such a sentence.
The developing cryptocurrency industry has provoked the creation of various platforms that are also engaged in the conversion of crypto into conventional money, and FTX is one such platform. Under the direction of Sam Bankman-Fried, FTX was founded in 2019 and set itself apart with a blend of innovative technology, user-focused design, and daring marketing initiatives.
Until 2022, FTX stood out as a trading platform enabling users to seamlessly convert digital currency to cash or fiat money. Witnessing a surge in clients’ accounts for trading and purchasing cryptocurrencies, FTX attracted significant investment from top venture capitalists. By January 2022, the company’s valuation had soared to $32 billion. FTX positioned itself as a disruptor in the industry from its inception, leveraging Bankman-Fried’s expertise. Additionally, FTX’s token, FTT, served as a catalyst for growth, incentivising users through incentives, markdowns, and governance rights.
The Start of the End and The Collapse of FTX
The public release of harmful details about the fraud of client assets in November 2022 served as the catalyst for FTX’s collapse. When it was found that billions of assets meant for FTX clients had been transferred into accounts managed by Alameda Research, investors started to be furious and terrified. The once-sterling image of FTX was damaged as word of the scandal spread, and trust in the platform quickly vanished.
Traditional financial reporting processes need balance sheets to list assets, which FTX and its sibling firms did not provide. There would have been no cash flow or asset record to demonstrate the company’s ability to settle obligations or alter client holdings absent these audits. The assets listed on FTX balance sheets were fewer than Bankman-Fried claimed. $9 billion in debts and $900 million in resources were displayed on the balance sheet; nevertheless, improperly labelled entries revealed the identical $8 billion deficit.
November 8 shook FTX’s clients to the core: the platform abruptly disabled the option for users to withdraw their funds, leaving countless individuals unable to access their money. This move stunned the cryptocurrency community and further fueled concerns about the exchange’s financial stability. As panic spread, FTX found itself unable to bridge the staggering $8 billion gap in its finances, leading the company to make the devastating decision to file for bankruptcy.
Binance decided to purchase FTX before the full scope of its issues became known. Its CEO, Changpeng Zhao, was among FTX’s initial investors. However, the agreement fell through, and Binance claimed that it was pulling out of the purchase due to mismanagement of customers’ money and U.S. inquiries. Binance then left the agreement just the next day. The exchange said on November 9, 2022, that it was cancelling the deal owing to concerns identified by the business diligence on FTX’s mismanagement of client money, among other matters.
Legal Processes on FTX
On November 16, legal action escalated with the initiation of a class-action lawsuit filed in Florida. The lawsuit levelled damning allegations against FTX, portraying it as a deceitful crypto scheme deliberately preying on inexperienced investors nationwide. The lawsuit implicated several prominent figures, including renowned celebrities and athletes. These individuals were accused of actively promoting FTX and, by extension, were held accountable for their involvement in allegedly misleading investors, intensifying the legal quagmire surrounding the embattled exchange.
On December 12, 2022, Bankman-Fried was taken into custody by Bahamian officials, who did so at the U.S government’s request and then extradited to the United States on December 21. Prior to this, the CFTC and SEC filed enforcement actions to pursue civil claims of commodities and securities fraud, and the U.S. DOJ unsealed an indictment charging him with eight criminal counts alleging money laundering, illegal campaign finance contributions, and wire and securities fraud.
Released and Charged Again
After a courtroom session on December 22, a federal judge made a pivotal decision, granting Bankman-Fried release from detainment. This decision came to fruition following negotiations between his legal team and federal prosecutors, culminating in the establishment of an unprecedented $250 million bond, setting a new record for the highest bail amount ever recorded in the United States. With this substantial bond secured, Bankman-Fried was able to evade immediate confinement pending further legal proceedings. Asserting his innocence, Bankman-Fried formally entered a plea of not guilty to all criminal charges on January 3, 2023.
The DOJ charged Bankman-Fried with four more counts of fraud-related offences and unapproved money transfers on February 23, 2023. The DOJ filed a suit on March 28, 2023, alleging international bribery. Bankman-Fried entered a not-guilty plea to these charges on March 30, 2023.
He was then charged again with attempting to sway Caroline Ellison, a witness, by allegedly providing the New York Times with access to her journal. Ellison assumed leadership of Alameda Research as CEO following the introduction of FTX. A federal judge imposed a gag order on Bankman-Fried on July 26, restricting him from having contact with the press or anybody else.
His bail was revoked on August 11, and he was sent to the Brooklyn-based Metropolitan Detention Center a few days later. Bankman-trial Fried’s for seven of the eight pre-extradition criminal allegations began on October 2, 2023. On November 1, all seven counts in the trial were found guilty.
The Results of the Legal Battle
Following a comprehensive legal proceeding, Bankman-Fried faced judgment and was ultimately found culpable on seven federal charges encompassing a spectrum of fraudulent activities and financial misconduct:
- Dual charges of conspiracy to commit wire fraud
- Dual charges of wire fraud
- Participation in a conspiracy to perpetrate money laundering
- Involvement in a conspiracy to engage in commodities fraud
- Participation in a conspiracy to perpetrate securities fraud
On March 24, 2024, Sam Bankman-Fried received his sentencing, culminating in a protracted legal battle. The court sentenced him to serve a lengthy term of 25 years behind bars, coupled with a staggering financial penalty of $11 billion. He was previously estimated to receive 110 years of imprisonment.
A Call for the Exchange Platforms to Worry?
In the aftermath of FTX’s collapse, numerous crypto industry leaders have faced criminal lawsuits from federal authorities. Additionally, the Securities and Exchange Commission (SEC) has taken legal action against several prominent companies within the sector. Among these, Coinbase, a well-known American exchange that is traded publicly, has been targeted by lawsuits. Similarly, the SEC has filed a lawsuit against Kraken, another major crypto exchange, alleging that it operated without appropriate registration and mixed customer deposits with its own corporate funds.
Changpeng Zhao, the creator of Binance, the biggest cryptocurrency exchange in the world, is another excellent example of a fraud scheme. Zhao entered a guilty plea to charges related to money laundering.
Zhao resigned from his role in the corporation and accepted a $50 million punishment. Senior Justice Department officials have stated that although federal sentence guidelines suggest a maximum of 18 months in prison for Mr. Zhao, the door is still open for prosecutors to seek a more severe punishment.
Binance agreed to pay a whopping $4.3 billion in fines and compensation to federal authorities after acknowledging its guilt. This was a turning point in the firm’s history when Binance reached settlements with various authorities, among other government agencies, that had all carried out extensive examinations into the activities of the company.
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Viktoriia is a marketing researcher and copywriter with a background in international relations. Her professional portfolio includes the writing of research papers focused on the import and export of products to Europe and Asia. Proficiency in the Chinese language and the time she has spent in China have extended her capabilities to master not only European markets but also those in China and Singapore. While currently living in Italy, Viktoriia continues to deepen her knowledge and skills in marketing and copywriting. Her experience allows her to perform analytical work and create texts on a diverse range of topics, ensuring accessibility to a broad audience.
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Viktoriia is a marketing researcher and copywriter with a background in international relations. Her professional portfolio includes the writing of research papers focused on the import and export of products to Europe and Asia. Proficiency in the Chinese language and the time she has spent in China have extended her capabilities to master not only European markets but also those in China and Singapore. While currently living in Italy, Viktoriia continues to deepen her knowledge and skills in marketing and copywriting. Her experience allows her to perform analytical work and create texts on a diverse range of topics, ensuring accessibility to a broad audience.
