From Crypto King To Inflicting One Of The Biggest Financial Frauds, The Rise And Fall Of FTX's SBF

Sam-Bankman Fried popularly referred to as SBF by friends, is a known figure in the crypto world, and received the verdict of his lifetime. Falling from grace, SBF is now facing decades of jail time as the 31-year-old was found guilty of perpetrating one of the biggest financial frauds in the history of the crypto world that rocked this market since late 2022s. A 12-member jury in Manhattan federal court has finally reached a verdict that will change the life of the former billionaire. His sentencing is reportedly set for 28 March 2024.

SBF was on trial for siphoning money from FTX to Alameda. The prosecutors argued that Alameda used the money lent by FTX to pay off its debt and also lent Bankman-Fried and other executives who made venture investments. SBF has reportedly testified stating that he thought he could build the best product in the crypto market, however, things turned out the opposite.

SBF is found guilty of all seven counts of fraud and money laundering.

Sam-Bankman Fried is a tale that will be remembered for many years. A man who went from becoming the crypto king to a fraudster led to the loss of billions of dollars of cryptocurrency investors' wealth.

Here's how SBF's rise and fall have impacted the crypto market:

The RISE!

Born on March 6, 1992, SBF came from a family of intellectuals. For instance, his parents Barbara Fried and Joseph Bankman are both professors at Standford Law School, while his aunt is the the dean of Columbia University Mailman School of Public Health. Following their footsteps, SBF graduated in 2014 with a bachelor's degree in physics and a minor in mathematics from the Massachusetts Institute of Technology.

It would take SBF another three years from graduation and working different jobs, to finally reach his life-changing decisions. His success story began at Jane Street in 2017, in Berkeley, California. It was the year 2017, the month of November, when SBF along with Tara Mac Aulay of Centre for Effective Altruism (CEA) co-founded quantitative trading firm Alameda Research.

Two months into the existence of Alameda, SBF did the unthinkable by organizing an arbitrage trade in January 2018 that took the advantage of higher price of Bitcoin in the island country of East Asia, Japan compared to the prices in the United States. He succeeded and moved up to making 25 million dollars per day! If no one knew SBF before, they were finally paying attention to him now!

Soon after, he moved to Hong Kong in late-2018. Later on, in the initial months of 2019, SBF along with Zixiao "Gary" Wang founded a derivatives exchange, FTX Trading Ltd, commonly known as FTX.

2-years since its inception, FTX was already making headlines despite being within Alameda. From being liked by Changpeng Zhao of Binance who bought a 20% stake in FTX for $100 million six months after incorporation, to acquiring a cryptocurrency portfolio tracking app, Blockfolio for $150 million in August 2020.

Not just that, FTX went on to raise $900 million at an $18 billion valuation from over 60 investors in July 2021 from renowned investors like Softbank, Sequoia Capital, and others. Later, rich and loaded, SBF bought back the shares held by Zhao who is currently the only billionaire in the crypto market, for approximately $2 billion. FTX's headquarters was moved from Hong Kong to The Bahamas in 2021 as well.

At its peak, FTX had over 1 million users under its ambit and was the third-largest crypto exchange in terms of volume. By 2021 end, FTX will have a revenue of $1.02 billion, an operating income of $272 million and a net income of $388 million.

The first half of 2022 also looked pleasant for investors of FTX, unaware of the cracks that were deeply rooted in the crypto exchange's financial books which were yet to come to light.

Despite the escalation of geopolitical uproar in Russia and Ukraine, followed by severe market volatility globally, a flash-crash of $40 billion of worth investment in Terra sisters founded by Do Kwon who is also convicted for fraud, and illiquidity crunch among crypto exchanges --- FTX was untouchable, making acquisitions and saving troubled-crypto exchanges in at least the first nine months of 2022.

In 2022, FTX in January launched a $2 billion venture fund named FTX Ventures and even raised $400 million in Series C funding, taking its valuation to a massive $32 billion in January month. In February, SBF was even more busy with plans to offer stock trading to US customers, and reportedly creating a gaming division which will enable developers to add cryptocurrency, NFTs, and other blockchain-related assets into video games. In July, FTX finalized a $240 million deal to acquire BlockFi which was on the verge of collapse, including a credit facility of $400 million to the latter as well. SBF-led FTX was also among the bidders for Voyager's assets, and there were reports of the exchange even planning to bail out bankrupt Celsius.

There were even reports that SBF wanted to invest in Elon Musk's Twitter deal. It was said in September 2022, that SBF's advisors had offered funds on his behalf to help Elon Musk's purchase of the blue bird, Twitter now known as X.

But FTX met its doomsday in November 2022, and along came tumbling down SBF from his glorious days!

The First Few Signs Of Problems:

The first sign of problems was reported by Bloomberg in September 2022, when the news channel revealed the close relationship between Alameda Research and FTX.

As per Bloomberg's report, Alameda had functioned as a market maker for FTX early in the exchange's history, and the trading firm remained, in June and July 2022, the biggest known depositor of stablecoins on FTX. That time, the news channel pointed out that the regulatory oversight which applies to companies operating in traditional equities markets would have prohibited the relationship between the two firms were it applicable.

This meant that Alameda's trading on FTX could have led to a potential scenario of the trading exchange gaining financially even when others were losing money on the exchange. SBF had defended the FTX's usage of Alameda as a liquidity provider.

Notably, from early 2021 to March 2022, it was being reported that Alameda Research amassed crypto tokens ahead of FTX announcing its plan for public listing.

Another report by Wall Street Journal in late 2022, revealed that the trading exchange FTX lent $10 billion of its customers' assets to Alameda Research in the same year. It was reported that Alameda CEO Caroline Ellison had disclosed to the company's employees about her, Sam Bankman-Fried, Gary Wang, and Nishad Singh being aware of the $10 billion lending to Alameda. The WSJ reported that Ellison told the employees that the customers' funds that FTX lent were used to pay loans taken by Alameda for investments.

Later, the New York Times citing anonymous sources also confirmed the same.

It needs to be noted that as of 2021, SBF owned 90% of Alameda Research.

Unfolding of Crisis:

A few weeks later of the first Bloomberg report, on November 2nd, CoinDesk reported that as per the documents reviewed by them, even though Alameda and FTX are two separate businesses, the division breaks down in a key place: on Alameda's balance sheet. That balance sheet is full of FTX - specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace. Although, there was nothing wrong about it, yet it indicated that SBF's trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto.

And that had escalated the fear of FTX's financial stability. Although, SBF assured and reiterated multiple times that everything was alright in FTX, defying these articles -- sharp sellings had already begun in FTX tokens.

In the months preceding the article of CoinDesk, SBF was already duelling with Binance's Changpeng Zhao on Twitter which was going to bite SBF where it hurt the most. After the CoinDesk article, Zhao announced his Binance plan of selling all of its holdings in FTX, which led to even more panic and mayhem among investors as they followed suit.

Binance's announcement along with the dispute between Zhao and SBF, led to a three-day depositor steep selling of an estimated $6 billion that resulted in FTX meeting its dead-end. There was a brief sign of hope when Zhao announced to completion of the pending sale of FTX irrespective of his dispute with SBF to save the crypto exchange, and honestly, SBF needed that money more than ever. However, the deal was called off soon after, and there was no room for escape for FTX from its dire situation.

Zhao even announced that he expects FTT which is the token of FTX trading on exchanges, will be highly volatile in the days to come as things develop. On this announcement itself, FTX's token nosedived by 80% leading up to an erosion of $2 billion in value.

On November 11, in just a matter of 9 days since CoinDesk's article, FTX filed for bankruptcy in Delaware along with Alameda Research and over 100 other of its affiliates. And SBF who was on the brink of undergoing a long lawsuit, saw his bank account turn from billions to ashes. Before FTX's collapse, SBF was identified as the 41st richest American in the Forbes 400 and the 60th richest person in the world by The World's Billionaires. His wealth had reached as high as $26 billion.

Upon FTX's bankruptcy filing, SBF's wealth had crashed to zero as per the Bloomberg Billionaires Index.

Since then, SBF has been on trial as more findings in the Alameda-FTX matter came to light until his verdict on November 2, 2023.