Rise And Fall Of The ‘Crypto King’: An Explainer On Sam Bankman-Fried’s Fraud Of The Century

Rise And Fall Of The 'Crypto King': An Explainer On Sam Bankman-Fried’s Fraud Of The Century
SBF rose to fame quickly before his digital currency empire came to an abrupt halt in early November this year | Image sources: Bloomberg/Freepik/Wikipedia

Sam Bankman-Fried, the former CEO of the now defunct cryptocurrency exchange FTX, has consented to be extradited to the United States to face charges, as reported by the BBC.

On Tuesday, the cryptocurrency tycoon was charged in Manhattan’s federal court by the US government’s prosecutors, with a number of offences such as conspiracy to launder money, conspiracy to commit money laundering, conspiracy to commit securities fraud, conspiracy to commit commodities fraud, conspiracy to commit wire fraud, and conspiracy to break US campaign finance laws by investing in Alameda Research LLC, his cryptocurrency hedge fund.

Who Is Sam Bankman-Fried?

Sam Bankman-Fried, also known as “SBF”, is a finance and cryptocurrency entrepreneur. He founded and served as the former CEO of the now defunct cryptocurrency exchange FTX and the cryptocurrency trading firm Alameda Research, which he announced was winding down at the beginning of November 2022.

A number of criminal fraud accusations brought by the US Attorney for the Southern District of New York led to SBF’s arrest on December 12 while he was in the Bahamas. A week later, in addition to the federal prosecutor’s eight-point charge, Bankman-Fried was accused by the Commodity Futures Trading Commission (CFTC) of front-running clients and manipulating the price of the FTT token used by his exchange.

In and out of a Bahamian courtroom, the Bankman-Fried drama plunged into chaos on December 19. The humiliated entrepreneur first requested to study the federal charges through his lawyers. He intended to give up his right to be extradited to the US, according to earlier reports. The attorney, however, informed the judge that his client wanted to read the indictment first before agreeing to surrender his right to extradition. After being taken back to prison and brought back to the courts some hours later, Bankman-Fried made the decision to consent voluntarily, against strong legal advice, to be extradited to the United States, as shared by his lawyer.

The Rise And Fall Of The ‘Crypto King’

With a personal net worth of more than $26 billion and control of one of the biggest cryptocurrency exchanges in the world, Bankman-Fried rose to fame before his digital currency empire came to an abrupt halt in early November this year. Due to prior bailouts and rescue agreements for other crypto companies, Bankman-Fried was once regarded as a hero in the cryptocurrency community.

It soon became apparent, however, that he was likely involved in illicit transactions that cost investors billions of dollars, in what some dubbed a ‘Ponzi scheme’.

Leaving Jane Street in 2017, SBF founded Alameda Research, a quantitative trading firm that actively trades cryptocurrencies between various international markets. In April 2019, he launched the cryptocurrency exchange FTX. He and his Bahamas-based company thrived during the COVID-19 pandemic. 

In 2020, FTX acquired Blockfolio for $150 million. A solid foundation appeared to be in place for SBF in the otherwise typically turbulent cryptocurrency market as its user base expanded. SBF saved cryptocurrency exchange BlockFi from a major liquidity crisis during a subsequent wave of crypto failures.

However, BlockFi also filed for bankruptcy at the end of November. In addition, SBF offered to buy the assets of Celsius, which went bankrupt at the same time as Voyager. He acquired LedgerX, a derivatives trading platform that was never fully incorporated into FTX. Forbes estimated SBF’s peak net worth at $26.5 billion. The value of FTX and its FTT cryptocurrency token, however, accounted for a significant portion of that value. He lost around $16 billion in value during the long down market for cryptocurrency that followed.

Binance CEO Changpeng “CZ” Zhao disclosed a non-binding letter of intent to purchase FTX as a liquidity issue at FTX became obvious, however, he opted out after a day of due diligence. Zhao said that the financial condition was too bad to be fixed in a reasonable amount of money.

Simultaneously, the Securities and Exchange Commission (SEC) and the CFTC announced an inquiry into Alameda Research and FTX US, including charges that the exchange mismanaged client cash. In a civil lawsuit, the SEC claimed that Bankman-Fried had engaged in a plan to mislead FTX’s investors and clients while transferring billions to boost his own wealth. Furthermore, investigators from the US and the Bahamas are still looking into SBF’s role in the FTX scandal from last month.

The financial collapse of FTX then emerged as a real possibility. According to reports, SBF tried to save FTX by “overnighting” a contract to raise billions of dollars. With no buyers prepared to pay an estimated $9.4 billion to salvage the business, FTX filed for Chapter 11 bankruptcy on November 11, and SBF resigned as CEO.

About $1 billion to $2 billion in FTX client cash disappeared the next day. Following the discovery by blockchain monitors that hundreds of millions of dollars had been removed from FTX bitcoin wallets, the company declared that it was looking into unauthorised transactions.

According to a court filing, FTX owes its 50 largest creditors almost $3.1 billion (£2.5bn). It is not clear yet when SBF will be extradited to the US.


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