The Fall of FTX Crypto – Who Didn’t see that coming?

Who is Sam Bankman Fried and What Did He Do

FTX Scandle Sam Bankmen Fried

What do you think is the probability of a multi-billionaire losing his entire fortune in a single weekend?  Most people would likely say that it’s close to Impossible and yet this is exactly what happened to 30-year-old Sam Bankman Fried, the CEO of FTX, the second-largest crypto Exchange in the world. November 2022 will forever be remembered by the fall of FTX crypto!

Fried was the Golden Boy on the cover of Fortune and Forbes Magazine who reportedly had a net worth of 26 billion dollars!  He watched the Super Bowl with NBA star Steph Curry and had dinner with Jeff Bezos and Leonardo DiCaprio.  Big names like BlackRock and SoftBank invested in his vision, but behind the facade was something completely different and sinister.  Sam’s Empire was a bunch of 10 romantically involved crypto kids running a shady operation out of the Bahamas.

The FTX Empire Falls

The fall of FTX Crypto triggered the collapse of more than 100 unsuspecting companies and wiped out countless savings!  This sad and convoluted story has strange but very real ties to American politics, the war in Ukraine, and Enron.  The story of FTX’s collapse is a wild and tangled story brimming with sinister and arrogant corruption.

Sam Bankman Fried’s History

Sam Bankman Fried, the moppy-haired and unsuspecting, childish, looking 30 year old, is at the center of this story.  He was born in 1992 in California to an academic and politically connected family. His mother, Barbara is a lawyer and the co-founder of multiple Democratic fundraising organizations (I’m sure all completely above board).   Sam’s Father Joseph is a law professor who helped his son, Sam, raise funds for his company in 2014.

Sam graduated from MIT and went on to work at the New York trading firm, Jane Street Capital.  While there he realized that he could make untold wealth trading cryptocurrency.  He exploited a loophole where he would buy Bitcoin cheaper in America and sell it for a higher price in Japan, something known in the crypto space as crypto arbitrage.

FTX Crypto Alert

Reportedly, sometimes he would shift up to 25 million a single day.  His winnings became the seed money he used to start his own investment bank, Alameda Research. The staff at Alameda Research was made up mostly of Sam’s MIT College friends and former work colleagues.  Now in 2022, this firm became a key player in the collapse of FTX

Sam Bankman Fried A Natural Fraud

Sam promoted himself as someone trying to figure out what practical things he could do with his life, so as to have as much positive impact as possible on the world.  Well Sam, “Let me just say you have, definitely, had an impact on the world.”  The only problem is, Sam, your impact has not been positive but negative, hugely negative!  Sam will always be remembered as a scammer that made Bernie Madoff look like a street pickpocket!

In an effort to “fly under the radar,” Sam would drive an average Toyota around instead of the supper cars one would expect to see a billionaire driving.  Yet he lived in a 30-million-dollar mansion in the Bahamas. Numerous social media influencers bought into Sam’s humble brand image and many promoted his companies.

Sam Bankman Fried’s Unsavory Ties

While Sam worked at Jane Street, he became friends with a young lady named Caroline Ellison.  In 2017 when they began dating Caroline was unsure about her carrier goals.  When Sam suggested working at his new company Alameda Research  Caroline agreed.  Despite her inexperience and obvious incompetence she quickly was promoted to CEO of the multi-billion dollar operation, FTX  Crypto Exchange.

According to Fortune Magazine, Alameda Research, “was run by a gang of kids in the Bahamas.” Many of the staff were Sam’s ex-coworkers from the trading firm Jane Street and others were former MIT classmates.  Sam had an inner circle of about 10 people who were all housemates.   The clique partied together and had a twisted saga of romantic involvements.

FTX’s Twisted Culture

Glimpses into the clan’s mentality can be seen now that were just swept under the rug by fawning media, celebrities, and even government officials.  Once on her Twitter feed, the grossly inexperienced CEO, Caroline publicly praised the use of amphetamine drugs.  Then, another time on Tumblr she stated that the only acceptable polyamorous relationship should be in the form of a hierarchy; people should know where they fall within the ranking and there should be vicious power struggles between the high ranks.  Another time during an interview, Caroline joked about pulling all this off with just her basic math skills.  Wow, that sounds like a really upstanding crowd!!

FTX fall & Recovery Trade Assistant

The FTX cryptocurrency derivatives exchange that Sam founded in 2019 incentivized clients and traders to store their money in a token called FTT.  If traders would store their money in this newly minted coin they would receive 15% annual interest, guaranteed.  Did I just hear someone say, “If it sounds too good to be true it usually is?”

The FTX Master Scam is Born

This crypto coin was the brainchild of FTX’s Sam Bankman Fried.  Sam created the FTX token out of thin air and used it to scam the world out of Billions! (more on that later)

The group of young Misfits kept high-level management in the dark about what was going on behind the scenes.  A former FTX employee told Forbes that the group was, “kind of a little click just a bunch of degenerate kids at the end of the day.”

The Firm used customer deposits as loans for trading done by Sam’s other company, Alameda Research.  Before the fall of FTX, Alameda Research received 10 billion dollars in FTX customer funds FTX.  Through the Alameda Research façade, Sam gambled with customer funds without their knowledge.  Incidentally, the offices of FTX and Alameda Research are in the Bahamas within walking distance of one another.

FTX Cryptocurrency trader

Sam Bankman Fried’s Criminal Arrogance

Once, according to a post from Venture Capital Giant Sequoia Capital, Sam was playing the video game League of Legends while on a call to discuss a 210 million dollar investment.

Following the call, Sequoia Capital gave Sam, 210 million in investment capital!  Little did Sequoia know but that was the last they would see of their 210 million!

According to coindesk, current and former FTX and Alameda employees claim that the operations were full of conflicts of interest, nepotism, and a lack of oversight.  An anonymous former employee reportedly said, “Gary Nashard and Sam control the code to the exchange’s matching engine and funds, if they move them around or input their own numbers I’m not sure who would notice.”

FTX’x Unbridled Nepotism

Nashard’s girlfriend, Claire, who used to live with Sam, was hired and immediately promoted to head of HR.  This positioned her so that she could and reportedly often did fire anyone who didn’t agree with Sam.  Other employees claimed that Sam was the ringleader, “Sam wanted to take more risky trades than what others would take.  Sam ran everything we trusted him and believed him.”

In July 2021 it was reported that FTX was averaging 10 billion dollars a day in trading volume across its 1 million users.   By this stage in the game, FTX had a UC Berkeley Stadium named after them, an advertising partnership with the Golden State Warriors and the Mercedes F1 team, and even had an NBA stadium in Miami named after them.

FTX was involved in every corner of the crypto space as FTX grew it became a household name promotional material including stars like Tom Brady, Stephen Curry, Naomi Osaka, and Larry David.  Interestingly enough, according to NBC these Stars received equity in Sam’s company in return.  In fact, it’s reported that Tom Brady put his 650 million dollar Fortune into FTX.

FTX Profit-Zone

Why Was No-One Watching

What amazes me is that all this while no one was asking the question, “why doesn’t FTX have a board of directors?”  Who did everyone think Sam, Gary, and their lawyer were accountable to?  He, obviously, had no accountability, and that’s why we’re talking about the fall of FTX Crypto today!  I just find it hard to fathom why no one even asked the question!

FTX’s Big Money Buys Political Influence

FTX even got its hands into politics.  It became a partner of the world economic forum.  FTX built the infrastructure to supply funds to Ukraine. They accomplished this by basically converting cryptocurrency donations into fiat currency.  They then deposited the funds at the National Bank of Ukraine (or at least that is what they say).

At this stage, Sam became knee-deep in USA politics when he donated five million dollars to Joe Biden in 2020.  Then dumped 50 million dollars to politicians ahead of the 2022 midterm elections.  One has to wonder if these millions of dollars donated to politicians will be Sam’s, “Get out of Jail Free” card!  It certainly seems that this company was buying political influence and nobody was paying attention.  Time will settle that question.  I just hope the politicians who received FTX’s dirty money will have enough spine to serve justice!

The Free Market Prevails

Where governments failed however the free market prevailed.  While Sam bought influence and hid behind his computer and a gang of misfit friends someone was paying attention.   His name was Chang Pang Zhao, the CEO of FTX’s biggest competitor.  A single tweet from this man started a chain reaction that brought about the collapse of Sam’s Empire.

As questions began to surface about the financial stability of FTX, Binance DEO Chang took the opportunity to step in.  Binance purchased 20% of FTX for about 100 million.   Sam, reportedly later bought back the stock for two billion dollars.  The catch we now learn is that part of that payment was in FTX’s own token, FTT.  A token that was not tied to any set value just created out of thin air!

FTX crypto Bot Learn More

Back Stabbing and High Level Corruption

It is reported that Chang became bitter when he found out that Sam was lobbying behind his back for the creation of a brokerage-like licensing system for decentralized finance.  Chang then began to shine a light on Sam’s backhanded ways.  Subsequently, an email from the SEC was leaked saying that there was “no action relief” against FTX.  Basically, this means that the SEC was saying, “hey we know you are breaking the rules but we are looking in the other direction.”

On the surface, such a statement by the SEC seems incredible.  However, as you unravel the dark web of inner connections it starts to make sense!  You see, the head of the SEC, Gary Gensler, and Caroline’s dad Glenn Ellison both worked at MIT as professors.  Not only did they both work as professors but Ellison was Gensler’s boss!  I have a feeling we are only beginning to see all the corruption involved in this FTX scandal!

The Sad Fallout of FTX’s Extortion

As Father Time steamed through the early part of November 2022, the FTX house of cards began to crumble.  By the second weekend of November FTX had nine billion dollars in withdrawals and only 900 million in liquid assets.  If you are good with math you understand that they only had 10% of what they needed to return their customer’s money.

Reports say a teacher’s pension fund in Canada invested almost 100 million dollars into FTX.  They have now no way to recover their 100 million.  FTX’s bankruptcy files list 134 companies across the world are own up to 50 billion dollars!  This 50 billion figure is over twice the liabilities that Enron defaulted on!  The Enron scandal that rocked the world a few years ago totaled 23 billion.

FTX Winning with crypto

Hacking – An Inside Job?

If all this were not bad enough, we now know that FTX was hacked and an undisclosed number of funds removed.  While the rumors are unconfirmed theory has it the hack was an inside job!  The story is circulating that Sam siphoned funds out without detection by hacking his own system.  When Reuters asked Sam about the funds via Twitter, Sam’s reply was three question marks. 

On November 16th Sam tweeted that he was going to meet Regulators to try and repay customers.  The comments under the Tweet could be summarized as basically,  “what are you doing you should be in jail.” Meanwhile, Bloomberg reports that U.S and Bahamian authorities are in talks to bring Sam back to the US for questioning. Again, we will see how much influence his political donation money has. 

Final Thoughts

As of right now, we’re just going to have to wait and see what happens with the market.  Reputable exchanges and crypto coins will weather the storm.  However, no one knows how bad or long the storm will last.  Let’s hope that arrests are made and that regulatory agencies do the right thing.  Most of all I hope we in the crypto community have learned some lessons.

Please never give your money to an exchange that is not governed by a reputable board of directors and regulated by an established governmental body like the SEC. Additionally, never invest more than you can afford to lose.

Share your thoughts on all this in the comments below!

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