"Hubris, incompetence, and greed" at FTX Group, the failed cryptocurrency exchange led by Sam Bankman-Fried, helped set the stage for its historic collapse.
FTX debtors described in a report a culture in which management "expressed little interest in instituting appropriate oversight or a control framework," and consisted of a small group who "stifled dissent, commingled and misused corporate and customer funds, lied to third parties about their business, and joked internally about their tendency to lose track of millions of dollars in assets."
All that helped the exchange to "collapse as quickly as it had grown," the report said.
FTX lacked key executive roles, a cybersecurity department, and processes for detecting and handling security risks. The firm’s inadequate policies exposed millions of dollars in crypto assets to a "grave risk of loss, misuse, and compromise," according to the report.
Founded in 2018 by MIT graduate and former ETF trader Bankman-Fried, FTX quickly became one of the world’s leading centralized cryptocurrency exchanges, specializing in derivatives and leveraged products. By July 2021, it was the third-largest cryptocurrency exchange, offering a range of trading products including derivatives, options, volatility products, and leveraged tokens.
Cryptocurrency prices tumbled the following year, leading to mounting losses for FTX. The exchange filed for Chapter 11 bankruptcy protection on Nov. 11, 2022, and Bankman-Fried resigned. According to its bankruptcy filing, FTX, which was once valued at $32 billion, had $8 billion of liabilities it couldn’t pay to as many as one million creditors.
Bankman-Fried was indicted by the U.S. District Court in Manhattan on eight counts, including securities fraud and money laundering. At a court hearing on Dec. 22, a federal judge agreed to release Bankman-Fried on a $250 million bond, the largest in history.