The overnight implosion of Sam Bankman-Fried's crypto empire remains an enigma for business and political circles still trying to figure out what happened.
What were the causes that led to the bankruptcy in a few days of the FTX cryptocurrency exchange, which was valued at $32 billion in February is the question the crypto space and regulators have been asking.
U.S. regulators on December 13 announced a series of civil and criminal charges against Bankman-Fried, including allegations of fraud to mislead FTX customers and investors.
Justice Department prosecutors filed eight criminal counts against Bankman-Fried, according to the indictment unsealed on Dec. 13. Four of the charges, including conspiracy to commit wire fraud on customers and lenders and wire fraud, indicate that the alleged acts began at least in 2019. That was the year FTX was created.
Two Behemoths At War
According to the federal prosecutors, Bankman-Fried SBF lied or made misleading statements.
"From at least in or about 2019, up to and including in or about November 2022," Bankman-Fried "and others known and unknown, willfully and knowingly did combine, conspire, confederate, and agree together and with each other to commit wire fraud," prosecutors within the U.S. Department of Justice's Southern District of New York alleged.
"Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the S.E.C. alleges in a separate civil complaint.
The former trader, 30, was arrested on December 12 in the Bahamas, where he lives, at the request of the American authorities. He was denied bail at an arraignment hearing on December 13.
He will therefore remain in jail until the holding of an extradition hearing scheduled for February 8 unless he decides not to fight the request of the American authorities.
This series of events still does not make it clear what happened. In a US Senate hearing on the December 14th about the downfall of FTX, celebrity investor Kevin O'Leary was asked what he believed had caused the failure of FTX and Bankman-Fried in general.
It is important to remember that O'Leary, aka Mr. Wonderful, was an FTX ambassador. He was offered a $15 million contract to promote the platform when the opportunity arose. He is one of a list of celebrities who have been sued in a class action lawsuit in Florida by aggrieved FTX customers.
"Why did you believe SBF fail?" Republican Senator Pat Toomey asked O'Leary.
"I have an opinion, I don't have the record. here it is," the TV reality star said. He went on to explain that before FTX's bankruptcy, the crypto industry was dominated by two behemoths: Bankman-Fried and Changpeng Zhao, the founder and CEO of Binance, the world's largest cryptocurrency exchange. So on one side Bankman-Fried and FTX and on the other side Zhao and Binance.
"These two behemoths that own the unregulated market together and grow these incredible businesses in terms of growth were at war with each other," O'Leary said. "And one put the other out of business intentionally."
"Now, maybe there is nothing wrong with that, maybe there is nothing wrong with love and war but Binance is a massive unregulated global monopoly now. They put FTX out of business."
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The Tweet
In an email to Binance employees on November 9, Zhao wrote that he "did not master plan” the collapse of FTX.
History however will remember that it was a tweet from Zhao that triggered the end of the Bankman-Fried empire
On November 6, Zhao announced in a post, on Twitter, that his company had made the decision to sell $530 million worth of FTT coins, a cryptocurrency issued by FTX. Binance had received its coins when the firm sold its stake in FTX in 2021.
In his announcement, he added that the decision to liquidate FTT coins was due to recent revelations which appeared to be about Alameda's balance sheet.
In a November 2 article, Coindesk claimed that most of the balance sheet from Alameda Research, Bankman-Fried's trading platform, was comprised of the FTT token, the cryptocurrency issued by FTX. Clearly, if the token collapsed, Alameda would be left with nothing. This revelation surprised investors who thought the firm had other assets.
However, although he was worried about all these developments and was considering emergency scenarios as he revealed in the November 30 interview, Bankman-Fried said on November 7 that his companies had no liquidity problems.
"A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine," he posted on Twitter on November 7. "FTX has enough to cover all client holdings. We don't invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be."
The tweet has since been deleted.
