- On Thursday morning in Manhattan, U.S. District Judge Lewis Kaplan will sentence Sam Bankman Freed on the number of years in prison.
- The FTX founder was found guilty on all seven criminal counts in November.
- Just two years ago, Bankman Fried was respected as a giant in the crypto industry.
Samuel Bankman Freed poster in downtown San Francisco.
Mackenzie Sigalos | CNBC
Two years ago, Sam Bankman Freed was a 30-year-old billionaire living in a $35 million Bahamian penthouse, running one of the world's most valuable cryptocurrency companies, and spending time with his friends. was enjoying the party.
He is currently a 32-year-old inmate at Brooklyn's Metropolitan Detention Center, awaiting a judge to tell him how long he will serve for masterminding “one of the largest financial frauds in American history.” waiting. Words from U.S. Attorney Damien Williams.
Bankman Fried, the founder and former CEO of failed cryptocurrency exchange FTX, will appear in federal court in downtown Manhattan on Thursday, where U.S. District Judge Lewis Kaplan is scheduled to hand down his sentence. is. Prosecutors recommended a sentence of 40 to 50 years in prison.
In November, jurors found Bankman Freed guilty of all seven criminal charges after deliberating for only about three hours. Experts said at the time that they had never seen such a swift decision in the high-profile trial, which involved nearly 20 witnesses and hundreds of pieces of evidence. Bankman Freed plans to appeal the conviction and sentence.
It was a sudden and rapid fall for Bankman Fried, who was once hailed as an industry giant and had a record net worth (on paper) of about $26 billion.
Indicted FTX founder Sam Bankman Fried leaves federal court in New York City, July 26, 2023.
Amr Alfiqi | Reuters
It started with a kimchi exchange.
In 2017, Bankman Fried, a former quantitative trader at Jane Street, noticed something interesting when he looked at the price of Bitcoin on CoinMarketCap.com. Bankman Fried said that prices are not uniform across exchanges, and he has seen sometimes as much as a 60% difference in the value of digital currencies. His immediate instinct was to participate in arbitrage, which means buying Bitcoin on one exchange, selling it back on another, and pocketing the difference, he said. Told.
“This is the lowest hanging fruit,” Bankman Fried told CNBC in September 2022.
Arbitrage opportunities were particularly attractive in South Korea, where Bitcoin's exchange-listed price was significantly higher than in other countries. Kimchi Premium is named after the traditional Korean side dish of salted and fermented cabbage.
After dabbling in the market privately for a month, Bankman Fried launched Alameda Research, named after the state of California where his first office was located. Bankman Fried told CNBC that his company once made as much as $1 million in one day trading Bitcoin.
Alameda's success spurred the launch of FTX. In April 2019, Bankman-Fried co-founded FTX.com, an international cryptocurrency exchange that provides customers with innovative trading features, a responsive platform, and a reliable experience. FTX's success has spawned a $2 billion venture fund that will seed other crypto companies.
The FTX logo soon adorned everything from Formula 1 race cars to a basketball stadium in Miami. Mr. Bankman Fried has talked about someday buying Goldman Sachs and has gained a reputation in Washington as one of the Democratic Party's top donors.
Then the market changed.
The so-called crypto winter of 2022 wiped out hedge funds and lenders across the crypto world. Bankman Fried boasted that he and his business were exempt. Behind the scenes, Alameda was borrowing money and investing in failed digital asset companies to keep the industry afloat.
The collapse of stablecoin Luna occurred in May 2022, causing the price of the cryptocurrency to plummet, creating a domino effect that devastated other lenders.
Alameda borrowed from lenders such as Voyager Digital and BlockFi, both of which eventually filed for bankruptcy. Alameda secured the loan with his FTT token issued by FTX. Bankman Freed's empire controlled most of the available currency, and only a small amount of FTT was actually in circulation at any given time.
Alameda sold all of its holdings in FTT at prevailing market prices, despite the fact that it was an illiquid asset. The fund used the same technique with other coins, such as Solana and Serum (tokens created and promoted by FTX and Alameda), and used them to collateralize billions of dollars in loans. Industry insiders called the token “Sumcoin.”
Facing margin calls due to falling prices, Bankmanfried has set its sights on billions of dollars in FTX customer deposits by mid-2022. According to the company's own bankruptcy filings, it had little in the way of record-keeping. .
On November 2, 2022, cryptocurrency trading site CoinDesk published details of Alameda's balance sheet showing assets of $14.6 billion. More than $7 billion of these assets were either FTT tokens or Bankman Freed-backed coins such as Solana and Serum. Another $2 billion worth was locked up in equity investments.
Investors began withdrawing their holdings from FTX, effectively threatening a run. Alameda and FTX are both currently facing liquidity shortages.
On November 6th, four days after the CoinDesk article, Binance founder Changpeng Zhao brought down the hammer. According to Chao, Binance became the first external investor in FTX in 2019. Two years later, FTX reportedly bought back the shares using a combination of FTT and other coins.
Mr. Zhao wrote Tweet This is due to “recently revealed facts”. [sic] FTX executives scrambled to contain the damage, and traders in Alameda managed to prevent the outflow for several days.
On November 7, Bankman Fried tried to show confidence by tweeting, “FTX is fine. Assets are fine.” Post has been deleted.
Sam Bankman Fried, the imprisoned founder of bankrupt cryptocurrency exchange FTX, appears in court in New York, US, on February 21, 2024, to be sworn in for the first time since his fraud conviction in November. This courtroom sketch.
Jane Rosenberg Reuter
Internal discussions were different. Bankman Fried and other executives acknowledged to each other that “FTX customer funds were irretrievably lost due to Alameda's misappropriation.” By November 8, the customer shortfall had grown to $8 billion. Bankman Fried sought relief from outside investors, but found no suitors.
FTX suspended withdrawals for all customers that day. FTT prices plummeted by more than 75%. Out of options, Bankman Freed turned to Zhao, who announced that he had signed a “non-binding” letter of intent to acquire FTX.com.
However, the next day, on November 9, Binance announced that it would not proceed with the acquisition, citing reports of “mishandling of customer funds” and a federal investigation.
FTX filed for bankruptcy on November 11, and Bankman Fried resigned as CEO of FTX and its affiliates. He instantly lost his 94% of his personal assets.
FTX's longtime lawyer, Sullivan & Cromwell, approached John J. Ray, who oversaw Enron through bankruptcy, to take over his former position at Bankman Freed.
On December 12, Mr. Bankman Freed was arrested by Bahamian authorities and extradited to the United States, where he was detained. Federal prosecutors and regulators accused Bankman Freed of fraud “from the beginning,” according to SEC filings.
Bankman Fried was released on $250 million bail and was initially living under house arrest at his parents' home on the Stanford University campus in Palo Alto, California, with a court-ordered ankle monitor. Ta. He was soon remanded into custody on suspicion of witness tampering.
While Bankman-Fried was awaiting trial, the former crypto billionaire was left to defend himself as many of his closest friends and confidants became key witnesses for the prosecution. Less than a year after his arrest, a 12-person jury found Bankman Freed guilty on all criminal charges.
— CNBC's Rohan Goswami contributed to this report.
clock: Prosecutors recommend 40 to 50 years in prison for Bankman Fried
