What you should know about FTX's embattled founder, Sam Bankman-Fried
The crypto star is under investigation following the collapse of his $32 billion company.
The $32 billion cryptocurrency exchange FTX's demise, like other scandal-plagued corporate failures, has thrust a once-celebrated executive into the harsh light of public scrutiny.
Sam Bankman-Fried, the 30-year-old founder of FTX, rose quickly to the top of the cryptocurrency sector, earning a reputation as a philanthropist and leading proponent of industry regulation in recent years. In August, the cover of Fortune Magazine asked readers if Bankman-Fried, dubbed "SBF" by some, was "the next Warren Buffett."
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However, he has recently faced vexing questions about the mismanagement of billions of dollars in customer funds. Meanwhile, according to Bloomberg, his net worth has dropped from $16 billion to $0 in less than a week.
Concerns about financial instability triggered a wave of customer withdrawals totaling billions of dollars at FTX, a top platform where users buy and sell cryptocurrency.
However, FTX did not have enough funds to pay sellers, so withdrawals were halted entirely. Some crypto traders who deposited their savings on the platform are concerned that they will never see their money again.
The company declared bankruptcy a few days later, and Bankman-Fried resigned as CEO. FTX and Bankman-Fried did not respond immediately to requests for comment. What you should know about Bankman-Fried:
Chess and the charitable movement
Bankman-Fried grew up in Palo Alto, California, near Stanford University, where both of his parents taught law.
According to a profile published by venture firm Sequoia Capital, which invested in FTX, he attended an elite prep school where he excelled academically while spending his spare time playing video games like League of Legends and the card game Magic: The Gathering.
In 2010, he began attending the Massachusetts Institute of Technology, where he lived in Epsilon Theta, a coed group home that promotes itself as an alcohol-free environment for activities such as playing board games, square dancing, and debating logic problems, according to its website.
Bankman-Fried met William MacAskill at MIT, an early proponent of effective altruism, a philanthropic approach that believes in a steadfastly rational assessment of how to maximize the positive effects of one's actions.
Some EA proponents encourage aspiring do-gooders to achieve wealth through high-paying careers in business or finance and then donate their earnings to help improve the world as much as possible.
With this in mind, Bankman-Fried, a physics major, interned at the data-driven trading firm Jane Street over the summer following his junior year, where he continued to work after graduation.
Bankman-Fried sought a new challenge after trading at the firm for three years and donating some of his money, according to Sequoia Capital.
A Ripple in cryptocurrency
In 2018, Bankman-Fried, then 25, transitioned from quant trading on Wall Street to the relatively new world of cryptocurrency investing.
Identifying an arbitrage that could yield massive returns: Bitcoin was 10% more expensive in Japan than in the United States.
Bankman-Fried stood to profit handsomely if he could purchase large quantities of the popular token in the United States and sell them in Japan.
Bankman-Fried moved up to $25 million in bitcoin per day in collaboration with friends at Alameda Capital, a hedge fund he founded. "That was the craziest trade I've ever seen," he told New York Magazine.
Bankman-Fried moved to Hong Kong and founded FTX over the next few months, using some of the money he'd saved from that trade.
The rise of Sam Bankman-Fried
FTX, a cryptocurrency exchange that allows users to buy and sell cryptocurrency, made money by charging customers trading fees and selling an FTX-created crypto token that allowed users to buy and sell at a discount on the platform.
Customers flocked to the exchange because of its low trading fees, wide range of coins, and complex futures and options trades. FTX gained hundreds of thousands of users and some major investors during its early years, which coincided with a crypto boom as pandemic-related stimulus drove cash into the sector.
In 2021, the company relocated to the Bahamas in search of a more favorable regulatory environment. By July of that year, a $900 million funding round had increased the company's value to $18 billion. After a few months, the valuation had risen to $25 billion.
Finally, in January, the company's value reached a high of $32 billion. Bankman-Fried's wealth and fame skyrocketed as a result of his success. Forbes named Bankman-Fried the world's wealthiest person under 30 years old in October, estimating his net worth at more than $20 billion.
Bankman-Fried attended conferences, spoke on TV, and testified before Congress while wearing his trademark t-shirt and fuzzy hair. He became a frequent public advocate and private lobbyist in favor of U.S. rules regulating the industry as a prominent ambassador for the wonky world of cryptocurrency. He even assisted in the bailout of other struggling cryptocurrency companies.
He established himself as a prolific philanthropist and political donor, in keeping with his previous commitment to effective altruism. Bankman-Fried gave $5.2 million to Joe Biden's 2020 presidential campaign, making him the campaign's second-largest donor after former New York City Mayor Michael Bloomberg.
In April, Bankman-Fried demonstrated his industry status by moderating a panel discussion with former President Bill Clinton and former British Prime Minister Tony Blair at a cryptocurrency gathering in the Bahamas.
The fall of SBF
The cryptocurrency exchange's demise is linked to its close relationship with Alameda Research, a crypto hedge fund also founded by Bankman-Fried.
Concerns about FTX arose after news outlet CoinDesk published an article revealing that a significant portion of Alameda Research's assets was made up of FTT, a token created by FTX that allows exchange users to access discounted trading fees. Because FTT cannot be easily exchanged for cash, the report raised concerns about Alameda Research's capital reserves and thus FTX.
Within days, Changpeng Zhao, CEO of rival crypto exchange Binance, announced that he would sell all of the company's holdings in FTT, totaling $580 million.
The large withdrawal from a crypto heavyweight triggered a larger selloff, similar to a bank run, putting enormous pressure on FTX to meet the sudden demand for customer withdrawals, forcing the company to halt withdrawals and putting billions in customer funds at risk.
In the aftermath of the selloff, Bankman-Fried said, "I'm sorry," adding that he "should have done better."
Meanwhile, the Wall Street Journal reported that FTX lent Alameda Research customer deposits to help it meet its liabilities, and those top executives at Alameda Research were aware of it, casting further doubt on the company's relationship with FTX. Bankman-Fried resigned when FTX declared bankruptcy last Friday.
The Securities and Exchange Commission and the Justice Department are investigating FTX's demise, according to the Wall Street Journal. A source told ABC News that federal prosecutors are also looking into the incident.
Vox published an interview in which Bankman-Fried uses an expletive to describe regulators, admits that his previous calls for tighter crypto regulation were motivated by public relations concerns, and expresses regret over the company's bankruptcy.
In the interview, he called his public commitment to ethics "a dumb game that we woke westerners play."
In a court filing, John Ray, the company's new CEO, stated that he had never seen such a complete failure of corporate controls in his career, including while steering Enron through bankruptcy.
Original reporting by ABC News and all rights reserved for ABC News, “What to know about Sam Bankman-Fried, FTX's embattled founder”
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