Behind the glamorous facade, how did the FTX empire fade away?
Behind the glamorous facade, how did the FTX empire fade away?
The last days of 2022, the worst time has covered the entire cryptocurrency industry. In the shadow of the consequences of previous crises, the investor community continues to be defeated by the horrifying collapse of the FTX empire. So why did a unicorn startup, once valued at $32 billion, fall from its peak to the abyss?
Under the skillful leadership of "captain" Sam Bankman-Fried (SBF), FTX is continuously expanding its name through a series of huge sponsorship deals, starting from Q1/2021. The list of partners they cooperate with is extensive, focusing mainly on the sports field, including NBA basketball team Miami Heat, esports team Team SoloMid (TSM), couple Tom Brady and Gisele Bündchen, American Baseball League (MLB), North American League of Legends (LCS), Mercedes-AMG Petronas F1 racing team, Super Bowl tournament... However, organizations that received sponsorship from FTX later also massively abandoned their relationship with the exchange.
Unlike other cryptocurrency billionaires, the former FTX CEO quickly built a reputation thanks to his ability to cleverly approach a series of officials and famous figures. From having dinner with New York Mayor - Eric Adams; chat with John Collison - president and co-founder of America's second largest technology startup; to establishing relationships with Orlando Bloom, singer Katy Perry, former President Bill Clinton, Florida Governor - Ron DeSantis and Larry Fink - CEO of BlackRock....
During this time, Sam also took the opportunity to lobby and spend heavily on US elections. Images of the 29-year-old billionaire filled media posters. To the point that Bankman-Fried loudly announced that sooner or later he would buy out Goldman Sachs and become an influential figure in Washington.
Sam's aura caused the media to praise him, calling him a self-made billionaire and the "face" of crypto - a field that is still young but is emerging quickly thanks to technological advances, and the ability to challenge the financial world. main tradition.
Yet that cover of charity and respect is actually a "time bomb" smoldering in the heart of the crypto industry. In a chilling post-bankruptcy revelation, Sam affirmed that it was all just a PR trick and a trick to deceive people. The amount of money invested in the US Congress is not only to enhance the company's reputation but also to be "covered" by the press. From there, they conveniently smear their opponents and get involved in the process of establishing crypto regulations that benefit them.
It wasn't until after the scandal that people broke out about Sam's expensive high-class life. It turns out that behind the image of a simple sleeping chair at the office, there are luxury flights, private jets and a penthouse worth 30 million USD that were paid for with money from FTX customers. Not only did they spend lavishly, they only spent all day worrying about parties and meeting famous people. Company lawyers said FTX spent at least $300 million on real estate in the Bahamas, and there appeared to be no records of these transactions.
Inside the “Curly Sam” empire before the disaster
In May 2022, the cryptocurrency market fell into recession, 60 billion USD was wiped out after the LUNA-UST scandal. On the macro front, the Fed still increases the burden on interest rates to control inflation. At that time, cryptocurrency prices began to fall freely, and a wave of layoffs spread across companies and projects in the market. Following that, Three Arrows Capital (3AC) defaulted, spreading to a series of other brokerage and lending units.
When the first dominoes fell, SBF spent billions of dollars to rescue them, but these deals later collapsed. In June 2022, Alameda Research - FTX's "sister" crypto investment fund - lent Voyager 500 million USD, this was the trigger point for the chain effect. Ultimately, Voyager and Celsius sadly went bankrupt. If only they didn't lend money to each other and underestimate leverage, they might not be left empty-handed.
On the one hand, acting chivalrously, on the other hand, borrowing money all these years. Amid the dilemma, some investors who lent money to Alameda have demanded repayment. And of course, the company could not respond because it had already invested all that money.
As the saying goes, "poverty breeds thieves", FTX arbitrarily took money from customers to guarantee Alameda to pay debt, then lost money and caused a deficit of up to 8-10 billion USD. To Wall Street, this behavior clearly violated US securities laws, to which Sam later childishly responded that he "did not intend" to do so.
The key point here is that FTX siphoned off user credit and "printed" FTT itself, to borrow and whitewash with new transactions. Literally use virtual money to exchange for real money. However, that easy-to-hide past was revealed along with Sam's true face on November 2, 2022...
In just one stormy week, FTX no longer had enough strength to withstand. Then, the sudden departure of the second largest man in the cryptocurrency industry once again "nailed" the level of fragility and elimination of this field.
- On November 2, 2022, news site CoinDesk published an article about a hole in Alameda Research's balance sheet. Of the 14.6 billion USD in assets FTX is holding, more than half is actually FTT and many extremely volatile tokens, without collateral. The shocking revelation pushed the price of FTT from $22 to just $3 overnight.
- On November 6, 2022, rival Binance "added fuel to the fire", announcing the liquidation of 580 million USD in FTT value that the exchange received in the strategic investment transaction in FTX in December 2019. Even though Alameda Research CEO Caroline Ellison issued a correction, users still massively bank-run from FTX. At the end of the day, Sam begged CZ Binance to "be peaceful and respectful".
- On November 8, 2022, FTX stopped processing withdrawals, there was a panic sell, the exchange tried to raise another 6 billion USD but failed. Late that same evening, the unthinkable happened when Binance reached an agreement to acquire FTX. The earthquake stunned the whole community because they did not think everything would happen so quickly.
- On November 9, 2022, the crypto market experienced a new sell-off, causing Bitcoin to set a new bottom in 2022. FTT continued to plummet, investors gradually realized the uncertain future of this coin. FTX CEO Sam Bankman-Fried wrote a letter of apology to investors, personal assets evaporated by 14.6 billion USD and narrowly lost the title of billionaire.
- On November 10, 2022, Binance pulled out a lifeline and canceled the acquisition deal after looking through FTX's books and seeing the problem. Having run out of options, SBF turned to Justin Sun for help, but could not save the sinking ship.
- On November 11, 2022, FTX Japan ceased operations; Bahamas freezes FTX's assets, finds a liquidator; Floor staff quit their jobs in droves.
- On November 12, 2022, FTX officially declared bankruptcy for FTX.com, FTX.US, Alameda Research and more than 130 subsidiaries; FTT lost all value; Sam Bankman-Fried went from the "face" of the cryptocurrency industry to a "villain", handing over his ruined empire to new CEO John J. Ray III.
If Sam is the only one who lost money in this incident, there is nothing to discuss. However, bankruptcy filings show that FTX has more than 9 million creditors and is waiting in vain for refunds. The company's debt to the 50 largest creditors alone has reached 3.5 billion USD. In fact, it is impossible to make a detailed list because the number is too large.
The war not only buried the capital of hundreds of thousands of investors, but also caused a domino effect throughout the industry. Thousands of companies, media agencies, governments, and large technology companies such as Apple, Google, Meta, LinkedIn, Twitter, TikTok,... are also on the exchange's 115-page list of creditors. Part of the investment money was later found in luxury properties that Sam bought for colleagues and relatives.
The heaviest is BlockFi, one of the world's largest cryptocurrency lenders. The platform has shown difficulties since mid-2022, forcing an emergency loan of up to 400 million USD from FTX to continue operating. After FTX defaulted, the platform stopped withdrawing funds and went bankrupt at the end of that month.
An equally shameful name is Genesis, a victim of both 3AC and FTX. Genesis is also FTX's largest individual creditor, with a debt repayment request of up to 226 million USD.
The list of affected parties is growing longer and longer. Can say about:
- Galois Capital and Midas Investments closed due to involvement with FTX.
- Sequoia Capital recorded a loss of 213.5 million USD.
- Temasek of the Singapore government lost 275 million USD.
- Ontario - Canada's largest pension fund lost 95 million USD.
- Multicoin Capital trapped 10% of assets.
- Sino Global confirms "7-digit" damage, changes name to shake off FTX...
Sam became a criminal and was imprisoned awaiting trial
From the character considered the savior of humanity, Sam Bankman-Fried had to pay a heavy price for his extravagant ego. His assets returned to the starting line after one day and were caught in a spiral of debt.
Sam Bankman-Fried's assets "evaporated" $14.6 billion overnight
In the post-collapse statements, Sam Bankman-Fried's series of violations were gradually revealed. He admitted to poor risk management, but never mentioned that he conspired with Alameda to embezzle assets, or withdraw money through "back doors" and other violations (substance abuse, employee abuse, etc.) FTX and Alameda have an ambiguous overlapping relationship...). He blamed customers' huge margin positions for being liquidated, creating a huge hole in the balance sheet. That customer is none other than Alameda Research, an investment fund in which SBF itself owns a large controlling stake.
On the morning of December 13, SBF was arrested by Bahamian authorities at the request of the US government. By December 21, SBF was extradited to the US, where he is facing three separate indictments of fraud and fraud from the US Department of Justice (DOJ), the Securities Commission (SEC), and the US Securities and Exchange Commission (SEC). Futures Trading (CFTC). Considered one of the largest financial frauds in American history, the total penalty imposed on him was a prison sentence of up to a hundred years.
The charges against Sam Bankman-Fried include:
1. Conspiracy to commit customer deposit fraud;
2. Customer deposit fraud;
3. Conspiracy to defraud creditors;
4. Fraud of creditors;
5. Property fraud conspiracy;
6. Securities fraud conspiracy;
7. Money laundering conspiracy;
8. Conspiracy to defraud the United States and violate financial donation regulations;
9. Bank fraud;
10. Operating an unlicensed money transfer organization;
11. Violation of regulations on political donation mobilization;
12. Conspiracy to make illegal political donations;
13. Bribing Chinese officials;
14. Illegal political donations.
However, after a legal battle, Sam Bankman-Fried's defense attorney successfully convinced the court to only try the first eight charges in the trial in early October, in accordance with the original extradition agreement. between the US and Bahamas authorities on the grounds that the client only agreed to surrender to those crimes.
Appearing for the first time in a New York court, Sam was released on bail under a $250 million bail bond and moved back to his hometown in California while awaiting trial. The former CEO later affirmed that he was not involved in Alameda's money transfer transactions, denied most of the crimes, and was ready to fight legally with the US.
As of January 21, federal authorities have frozen $697 million in Sam's assets and want to gain control of this money. During his probation period, the former CEO was also banned from using smartphones, limited access and speaking to the media, for intentionally contacting witnesses and circumventing barriers using VPN. As a result, Sam returned to prison on August 12 until his trial date.
Perhaps the close relationship with the White House has made Sam Bankman-Fried more "arrogant", as until now no punishment has been given. But wait for the first trial of this infamous character to begin on October 3, 2023.
What is the fate of the other characters?
In related developments, three of Sam's confidants, Caroline Ellison - former CEO of Alameda Research, Gary Wang - former FTX Technology Director and Nishad Singh - former FTX Technical Director, all surrendered to ask for leniency.
In a confession released by the New York court, Caroline Ellison admitted to covering up FTX - Alameda's wrongdoing, misusing user money and concealing the business's financial health.
Another character, former lawyer Dan Freiberg of FTX, also agreed to cooperate with authorities, but has not been charged with any crime. These characters will likely be important witnesses against Bankman-Fried in the upcoming trial.
