What Sam Bankman-Fried Allegedly Did, Explained Like You’re Five

A once crypto-superstar, Sam Bankman-Fried, goes on trial for 13 charges of fraud and conspiracy centered around the alleged mismanagement and/or misappropriation of FTX exchange customer’s crypto holdings. 

Sam Bankman-Fried co-founded Alameda Research in 2017 and the FTX cryptocurrency exchange in 2019. He quickly became an icon of the cryptocurrency industry, garnering mainstream attention for crypto, even helping to turn Super Bowl 2022 into “Crypto Bowl” with other advertisers. 

Today, Bankman-Fried stands accused of multiple accounts of fraud and conspiracy to commit fraud and is instead an illustration of the controversies and concerns surrounding a still unregulated cryptocurrency industry.

What happened to FTX? And what are the charges against Bankman-Fried?

In November 2022, rumors surfaced that much of the billions of dollars in holdings of Alameda Research were in the crypto FTT, the token launched by the FTX exchange. FTX and Alameda owned most of the FTT in circulation, implying that Alameda was critically vulnerable to a sell-off of FTT. 

A chain of events followed that collapsed FTX and Alameda, wiped out a fifth of the value of the cryptocurrency market, and ultimately led to the arrest of Bankman-Fried. Immediately after the rumors surfaced, Binance founder Changpeng Zhao announced he would sell his FTT holdings, worth around $580 million, plummeting the price of FTT by 75% and leading to a run on the FTX exchange by panicked investors. FTX couldn’t fund the sudden massive volume of withdrawals. Up to $10 billion was reported missing shortly after, and the rest, when all is said and done, will go down in crypto history.

A timeline of Sam Bankman-Fried and FTX

2017

November – 25-year-old US-born Bankman-Fried launches Alameda Research with Tara Mac Auley after leaving his job as a quantitative trader at Jane Street Capital and a brief stint as the director of development for the Centre of Effective Altruism.

2019

May – Bankman-Fried and Gary Wang, a former Google employee, launch cryptocurrency exchange FTX, incorporated in Antigua and Barbuda with its base of operations in the Bahamas. 

July – The FTT token was initially launched privately and then publicly as an exchange token. Its benefits included rewarding users with lower fees on the exchange. 

August – FTX closes an $8 billion seed round with funding from the likes of Pantera Capital, Sequoia Capital, Digital Currency Group, Binance, Binance Labs, and Consensus Labs.

2020

October – FTX launches “fractionalized stock trading” for Tesla, Apple and Amazon derivatives.

December – FTX tokenizes stocks for five Cannabis companies. 

2021

July – FTX has over one million users and becomes the third-largest cryptocurrency exchange in the world by volume traded. The exchange raises a further $900 million from 60 high-profile investors and buys out early investor and shareholder Binance and Zhao for what is suggested to have been in the region of $2 billion. Zhao is left owning $580 million in FTT. 

October – FTX raises $420 million in venture funding, leading to a valuation of $25 billion. Bankman-Fried is listed as a Forbes billionaire for the first time, with an estimated net worth of $22.5 billion.

By the end of 2021, Bankman-Fried would be worth an estimated $26 billion, with most of this wealth from his half-ownership in FTX and the FTT tokens he owned. FTX completed the year having stuck marketing deals with the likes of Formula 1 teams, esports teams Furia and Team SoloMid, and partnerships with prominent sports stars like Tom Brady. 

2022

January – FTX launches FTX Ventures, a $2 billion venture fund that raises $400 million in funding, and FTX reaches a valuation of $32 billion.

February – The NFL Super Bowl features numerous cryptocurrency adverts, including one for FTX where actor Larry David’s skepticism for FTX is made analogous to early humans questioning the invention of the wheel. 

May – Stanford University, the employer of Bankman-Fried’s parents, has received $5.5 million in donations from FTX by this point in time. 

July – Bankman-Fried “saves” struggling crypto ventures, his lending BlockFi $250 million and giving $200 million in credit to Voyager Digital, just two examples. 

September – Bloomberg questions a conflict of interest that Alameda, making millions of dollars per day in Bitcoin arbitrage trading, is a “market maker” for the FTX exchange. Bankman-Fried argues Alameda provides liquidity. 

November 2 – CoinDesk publishes leaked Alameda Research documents revealing the company’s FTT holdings. Alameda is said to own $3.66 billion of $5.1 billion total FTT in circulation plus further billions in FTT collateral. 

November 6 – Binance CEO Zhao says he’ll sell his $580 million in FTT.

November 8 – FTX customers request a combined $6 billion in withdrawals, and withdrawals are halted. Zhao offers to buy the non-U.S FTX exchange but backs out a day later.

November 10 – The Securities and Exchange Commission and the US Justice Department investigate FTX. 

November 11 – Bankman-Fried resigns as CEO of FTX, and the exchange files for bankruptcy in the US. Reports indicate upwards of $10 billion in FTX customer assets are missing. 

November 16 – Larry David and other celebrities who have promoted FTX face lawsuits for deceptive practices.

December 12 – Bankman-Fried is arrested in the Bahamas and later indicted by a U.S. federal grand jury for fraud and conspiracy.

December 21 – Bankman-Friend agrees to be extradited to the US. FTX co-founder Gary Wang and Bankman-Fried’s on-and-off girlfriend, Alameda CEO Caroline Ellison, plead guilty to charges. 

December 22 – After an initial appearance in federal court, Bankman-Fried is released on a $250 million bond to his parent’s home in California. 

2023

January – The trial is scheduled for October 2023, as Bankman-Fried pleads not guilty. 

February – FTX director of engineering Nishad Singh also pleads guilty and, like Wang and Ellison, agrees to cooperate with prosecutors, this may aid the case against Bankman-Fried. 

August – Bankman-Fried is remanded to custody when his bail is revoked on suspicion of tampering with witnesses.

October 3 – Disgraced, once crypto superstar, Bankman-Fried will face trial on eight out of 13 charges. 

What charges does Bankman-Fried face and why?

Bankman-Fried historically denied Alameda Research was heavily intertwined with the FTX exchange, stressing it was a completely independent business. The CoinDesk revelations, which became the trigger for the FTX collapse in 2022, exposed otherwise. 

The FTX exchange should have had reserve funds to match the exact value of its customer’s cryptocurrency holdings on the platform. Instead, it couldn’t meet withdrawals when FTX users began to panic in November 2022 because the funds had allegedly been routed elsewhere over the years of FTX operation under Bankman-Fried. 

The case against the former CEO accuses him of sending FTX customer funds to Alameda’s accounts to fund its activities, including high-risk trading.  There are still $8.9 billion of FTX customer funds missing. 

The charges filed by the US Department of Justice stem from allegations that Bankman-Fried and potentially his colleagues either mismanaged or misappropriated funds for trading activity via Alameda Research, other investments, and other acquisitions and purchases, as well as for substantial marketing campaigns and political donations. 

It’s also alleged that Bankman-Fried authorized the use of billions more from FTX to repay debts to external lenders. Add to all this, it’s estimated that Bankman-Fried loaned himself at least $1 billion to find his luxury lifestyle and approved loans to his parents and co-workers. 

The FTX co-founder has a total of 13 charges laid against him, including conspiracy to commit wire fraud on customers of FTX and lenders to Alameda research, wire fraud on customers of FTX and Alameda research, conspiracy to commit fraud on FTX customers relating to the purchase and sale of derivatives, conspiracy to commit securities fraud on investors of FTX and conspiracy to commit money laundering. 

Bankman-Fried will face the first seven charges in the trial beginning October 3, 2023, and a second trial for the remaining accusations is set for March 2024.

Decrypt is updating a live blog detailing events and revelations as Bankman-Fried’s trial commences. The trial itself could last up to six weeks and is a case that has been described as “one of the biggest financial frauds” in U.S. history by New York U.S. attorney Damian Williams.