Sam Bankman-Fried, often referred to online as “SBF,” is a finance and cryptocurrency entrepreneur and the co-founder and former chief executive officer (CEO) of the now-bankrupt crypto exchange FTX, as well as the crypto trading company Alameda Research. He rose to prominence as head of one of the world’s largest cryptocurrency exchanges, with a personal net worth once exceeding $26 billion, before an abrupt end to his digital currency empire in early November 2022.
On Nov. 11, 2022, Bankman-Fried resigned from FTX and the company filed for Chapter 11 bankruptcy after FTX collapsed earlier that month following a report by CoinDesk highlighting potential leverage and solvency concerns involving Alameda Research. The failure of FTX shook the volatile crypto market, which lost billions at the time, falling below a $1 trillion valuation.
- Sam Bankman-Fried is the founder and former CEO of the failed cryptocurrency exchange FTX.
- Bankman-Fried was arrested, then released from federal custody after his attorneys and federal prosecutors agreed to a $250 million bond, the largest in history.
- Former associates Caroline Ellison, once Alameda Research CEO, and FTX co-founder Gary Wang pleaded guilty to fraud and are cooperating with federal prosecutors.
- Known as “SBF,” Bankman-Fried once made deals to rescue other flailing cryptocurrency businesses before seeing his empire crumble in a few days in November 2022.
- Bankman-Fried became one of the wealthiest cryptocurrency executives before a solvency crisis at FTX led to sudden company bankruptcy and his resignation as CEO.
Bankman-Fried's Arrest, Indictment, Bond Details
Bankman-Fried was arrested in the Bahamas, where FTX was headquartered, and extradited to the U.S. in December. He was indicted on multiple criminal fraud charges levied by the U.S. Attorney of the Southern District of New York, Damian Williams. Williams called Bankman-Fried's actions "one of the biggest financial frauds" in American history.
In addition to the eight-point indictment of the federal prosecutor, Bankman-Fried faces accusations from the Commodity Futures Trading Commission (CFTC) that include manipulating the price of his exchange’s FTT token and front-running customers.
U.S. Attorney Damian Williams said in a video tweeted late on Dec. 21 that Caroline Ellison, former CEO of Alameda Research, and Gary Wang, co-founder of FTX, had pleaded guilty to defrauding investors in a plea bargain agreement. Bankman-Fried continues to maintain that he didn't willingly commit wrongdoing.
He was released on a record $250 million bond on Dec. 22. The 30-year-old former crypto executive will live with his Stanford law professor parents in Palo Alto, California, be confined to the Northern California area, wear an electronic monitoring bracelet, and submit to mental health and substance abuse counseling as part of the agreement between federal prosecutors and a federal judge in New York.
Bankman-Fried pleaded not guilty to all criminal charges against him on Jan. 3, and a trial date of Oct. 2 was set.
Once viewed as a white knight in the cryptocurrency community, thanks to prior bailouts and rescue deals for other crypto companies, Bankman-Fried's reputation quickly shifted to villain status when it was found he was likely implicated in questionable trades that led investors to lose billions, in a type of operation that some have called a Ponzi scheme.
Here’s a closer look at the background, rise, and fall of Bankman-Fried.
Early Life, Education, and Career
Sam Bankman-Fried was born on March 6, 1992, in California. The son of two professors at Stanford Law School, Bankman-Fried grew up in a highly educated family. He attended high school at Crystal Springs Uplands School in Hillsborough, California. He also participated in a summer academic program for gifted high school students in mathematics.
Bankman-Fried graduated from the Massachusetts Institute of Technology (MIT) in 2014 with a degree in physics and a minor in mathematics. In the summer of 2013, he worked as an intern for New York-based Jane Street Capital, where he returned to the proprietary trading firm as a full-time employee after graduating.
Founding of a Cryptocurrency Empire
In 2017, Bankman-Fried left Jane Street and founded Alameda Research, a quantitative trading firm making millions of dollars per day actively trading cryptocurrency among various international markets. He founded the cryptocurrency exchange FTX in April 2019 and launched it the next month.
As the cryptocurrency world burst into prominence during the COVID-19 pandemic, Bankman-Fried and his Bahamas-based company thrived. FTX acquired the Blockfolio exchange and platform in 2020 for $150 million. FTX's user base expanded, and Bankman-Fried appeared to be on a solid foundation in the otherwise usually turbulent cryptocurrency markets.
During a subsequent wave of crypto failures, Bankman-Fried offered a financial lifeline to cryptocurrency exchange BlockFi, saving it from a major liquidity crisis. (By late November 2022, however, BlockFi also had filed for Chapter 11 bankruptcy.)
Bankman-Fried bought failed crypto lending platform Voyager and made an offer for the assets of Celsius, which went bankrupt at the same time. He also acquired LedgerX, a derivatives trading platform that was never fully integrated into FTX.
Bankman-Fried told New York Times columnist Andrew Ross Sorkin on Nov. 30 that the sum of his wealth was $100,000 in a bank account. That balance represents quite a fall, if true. According to Forbes, Bankman-Fried had an estimated peak net worth of $26.5 billion. However, much of that value was tied to the value of FTX and its FTT cryptocurrency token. During a long down market for cryptocurrency that followed, Bankman-Fried saw his net worth fall to around $16 billion as of late September 2022.
Financial Downfall and Resignation as CEO
Bankman-Fried never let on about any financial challenges or major risk of bankruptcy for FTX through October of 2022. On Nov. 2, 2022, a report found that much of the cash held by FTX was in the form of its own token, FTT, which it centrally controls.
In the wake of the news, the CEO of FTX rival Binance announced on Nov. 6 an intent to sell all FTT holdings. The announcement and sales pushed down the price of FTT and tore through the rest of the cryptocurrency markets.
As a liquidity crisis at FTX became apparent, Binance CEO Changpeng “CZ” Zhao announced a nonbinding letter of intent to buy FTX. After a day of due diligence, however, Binance opted out. Zhao shared that the financial situation was too dire for a cost-effective fix. At the same time, regulators at the Securities and Exchange Commission (SEC) and the CFTC announced an investigation into Alameda Research and FTX U.S., including allegations that the exchange mishandled customer funds.
At that point, the financial collapse of FTX became a clear possibility. Bankman-Fried reportedly attempted to raise billions of dollars in an overnight deal to rescue FTX.
With no suitors willing to hand over a reported $9.4 billion to save the company, FTX filed for Chapter 11 bankruptcy and Bankman-Fried resigned as CEO on Nov. 11.
The following day, about $1 billion to $2 billion in FTX customer funds went missing. FTX said it was investigating "unauthorized transactions" after blockchain watchers spotted hundreds of millions of dollars moved out of FTX cryptocurrency wallets.
New York Times Interview With Sorkin and Reaction
In a wide-ranging interview with New York Times columnist Andrew Ross Sorkin at the DealBook Summit on Nov. 30, Bankman-Fried said that FTX's collapse stemmed from sloppy accounting, a market crash, and not from criminal activity. The former CEO joined the summit virtually from the Bahamas, FTX's base, and said his participation was against the advice of his lawyers.
In general, during the interview Bankman-Fried feigned ignorance of what was going on between FTX and Alameda Research, its trading arm, and said he neither oversaw compliance of the two entities, nor appointed an officer to do so—a failure he said he now regrets. To Sorkin's question of whether Bankman-Fried commingled funds of FTX and Alameda Research, the former CEO said he didn't "knowingly" do so.
During an online panel discussion on CoinDesk following the New York Times interview, Lawrence Lewitinn, the editor at large, questioned the veracity of Bankman-Fried's response and said commingling of funds is a deliberate act that doesn't occur by accident. "You have to do work to commingle funds," Lewitinn said. "You set up accounts when it's online. You have to have a process to commingle."
The Bottom Line
As for the future, it’s likely to be difficult both for Bankman-Fried and for the investors in FTX who have lost billions. Having been charged with multiple instances of fraud by federal prosecutors, he was extradited to the U.S. from the Bahamas on Dec. 21, and appeared before a federal judge at a court hearing on Dec. 22, in which he was released on a $250 million bond, the largest in history. FTX's investors and consumers are unlikely to recover the funds lost in FTX's collapse.
With massive investor and customer losses playing out, FTX and Bankman-Fried likely will be the targets of many future lawsuits and bankruptcy proceedings. The huge losses and allegations of fraud and cover-up of severe financial troubles could plague Bankman-Fried for years and lead to a stiff prison sentence.
What Is Sam Bankman-Fried's Background?
He was born on March 6, 1992, in California, is the son of two professors at Stanford Law School, and a member of a highly educated family. Bankman-Fried graduated from the Massachusetts Institute of Technology (MIT) with a degree in physics and a minor in mathematics. In the summer of 2013, he worked as an intern for New York-based Jane Street Capital, where he returned to the proprietary trading firm as a full-time employee after graduating.
What Is Sam Bankman-Fried Known For?
Bankman-Fried is the former co-founder and CEO of the cryptocurrency exchange FTX and played a large role in the cryptocurrency industry. He now is alleged to have committed one of the biggest financial frauds in American history. According to Forbes, Bankman-Fried once had a top net worth of $26.5 billion. But it fell to roughly $16 billion—and then to nearly zero in one week in November 2022. Bankman-Fried told the New York Times he had about $100,000 in his bank account during an interview at the DealBook Summit on Nov. 30. During a federal court hearing in New York on Dec. 22, a federal judge decided to release him from custody after Bankman-Fried's attorneys and federal prosecutors agreed to a $250 million bond, the largest in history.
What Is a Ponzi Scheme?
A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. A Ponzi scheme generates returns for earlier investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers.