FTX - Sam Bankman-Fried
The Story
Sam Bankman-Fried founded FTX cryptocurrency exchange in 2019. Within three years, FTX became the world's second-largest crypto exchange, valued at $32 billion. SBF became a billionaire celebrity.
Behind the scenes, FTX committed massive fraud. SBF secretly transferred billions in customer funds to his hedge fund, Alameda Research. He used customer money for risky investments, luxury real estate, and political donations.
In November 2022, reporting revealed Alameda's balance sheet was propped up by FTX's own token. A bank run ensued. The exchange collapsed in days, revealing an $8 billion hole.
🚩 Red Flags
- Lack of separation between exchange and trading firm
- No independent board
- Headquartered in Bahamas
- Records kept in QuickBooks
- Heavy political donations while losing money
- Refusing third-party audits
⚖️ The Fallout
SBF was convicted in November 2023 on seven counts of fraud, sentenced to 25 years. His co-conspirators all pleaded guilty and testified against him. Customers have recovered some funds through bankruptcy.
📚 Lessons Learned
Showed even 'reputable' crypto platforms can be fraudulent. SBF's public image as responsible billionaire was manufactured while he stole customer money. Celebrity endorsements and media fawning are not indicators of legitimacy.
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