Cryptocurrency maverick Sam Bankman-Fried, who famously became a billionaire before the age of 30, is immersed in a twist of fate so massive and drastic that it has reached record size.
Once considered a financial prodigy, Bankman-Freed is now facing legal battles, possible extradition and bankruptcy as he suddenly shifts from his former high-profile status as a mythical entrepreneur, political sponsor and philanthropist hailed as the bailout of other struggling crypto firms. In short, the saga may have cost some investors their savings.
The collapse of the disgraced Bankman-Fried empire comes as FTX, the company he founded and led as CEO until his recent resignation, struggles with a solvency crisis. Founded in 2018, FTX was one of the world’s largest cryptocurrency exchanges until it filed for Chapter 11 bankruptcy earlier this month. In one day, November 8, 2022, its net worth fell by about 94 percent to 991.5 million dollars according to the Bloomberg Billionaires Index. This devastating drop represents the largest one-day drop in the index’s 10-year history. Commentators say his personal assets could be below zero right now.
This unfolding drama reads like a Hollywood blockbuster in the making. This is followed by a meteoric rise from obscurity and a subsequent decline in worldwide fame, not to mention massive financial donations, announcing my guilt on social media, and a class action lawsuit that mentions the headlines of legends – all in the short span of four years.
The lawsuit, filed by Florida attorney Adam Moskowitz, seeks billions of dollars in damages and also names NFL quarterback Tom Brady and billionaire entrepreneur Mark Cuban, as well as Larry David, Gisele Bündchen, Stephen Curry and Shaquille O’Neal among celebrities. who may be responsible for the approval of the cryptocurrency.
Never in my career have I seen such a complete failure of corporate control and a complete lack of reliable financial information.
The 30-year-old former billionaire, whom The New York Times crowned as the “emperor of cryptocurrencies,” stepped down as CEO of the FTX Cryptocurrency Derivatives Exchange earlier this month.
Investors rushed to withdraw their investments while advisors reportedly struggled to find cash and cryptocurrency among the ruins. While noting poor internal oversight and record keeping, critics draw unwelcome parallels between the collapse of FTX and the collapse of Lehmann Brothers, Enron Corp. and Bernie Madoff’s Ponzi scheme.
Earlier this week, Sheila Bair, a former financial regulator, told CNN that Bankman-Fried, like Madoff, used his reputation and connections to win over investors and regulators who should have noticed the alarming red flags.
“Charming regulators and investors can distract [them] from digging in and seeing what’s really going on,” Bair, a former assistant secretary of the treasury for financial institutions, said of the rise and fall of Bankman-Fried and FTZ. “In that way, it was very much like Bernie Madoff.”
John J. Ray III, the new FTX CEO who previously led Enron’s liquidation, described the unprecedented disaster. According to Bloomberg, Ray III said in a sworn statement, “Never in my career have I seen such a complete failure of corporate controls and a complete lack of credible financial information.”
FTX is now subject to scrutiny by the Securities and Exchange Commission and the Department of Justice.
The company’s main competitor, Binance billionaire Changpeng Zhao, announced on Nov. 9 that it was pulling out of an earlier deal to acquire FTX, citing “mishandling of customer funds and alleged U.S. agency investigations.”
son of a law professor
SBF, as it is also called, is the son of scientists, two professors of law at Stanford University. His mother, Barbara Freed, wrote extensively on distributive justice, tax policy, property theory, and political theory. His father, Joseph Bankman, is a tax law academic who has played an advisory role to FTX on regulation and its philanthropic work, as recently discussed on the company’s podcast of the same name. His brother Gabe Bankman-Freed led Guarding Against Pandemics, a non-profit organization funded in part by the SBF and working to prevent pandemics.
SBF’s work experience includes summer holidays at Mathcamp High School in Canada and the US and undergraduate studies at MIT. His financial collapse raises broader questions about the crypto industry that the entrepreneur entered after working at Jane Street Capital. Shortly thereafter, he founded Alameda Research as a bitcoin quantitative trading company.
From Nassau, Bahamas, SBF and his company FTX have claimed a large stake in the industry, and his personal net worth was estimated to be between $10 billion and $16 billion last month. Six months prior, in March 2022, Forbes estimated that it had grown to $24.5 billion.
The FTX crisis developed rapidly within one week earlier this month when CoinDesk, a cryptocurrency news site, received a leaked document suggesting improper financial ties between FTX and SBF hedge fund, Alameda Research. A digital token called FTT, created by FTX, contained a significant portion of Alameda’s assets.
Ian Ellison, senior reporter for CoinDesk, noted: “While there is nothing reprehensible or wrong in this, it shows that the trading giant Alameda Bankman-Fried is resting on a foundation mainly consisting of a coin that was invented by a subsidiary… an independent asset such as fiat currency or other cryptocurrency.
Binance, the world’s largest cryptocurrency exchange, held assets, including the FTX token, in the company. Binance CEO Changpeng Zhao’s announcement that the exchange would “liquidate all remaining” tokens it received after “leaving FTX capital last year” sparked a bank run among FTX customers. The company was unable to pay billions of dollars on a withdrawal request. As The Wall Street Journal reported, “FTX loaned billions of dollars of client assets to fund risky bets for its affiliate trading firm,” which ultimately “set the stage for the collapse of the exchange.”
What makes this plot twist even more complicated is that the SBF has gained attention for its commitment to “effective altruism”, its membership in an organization called Giving What We Can, in which employees give 10% to effective charitable causes, and its public a promise to donate. away your fortune for your career.
According to Open Secrets, which tracks campaign finances, SBF donated about $40 million to U.S. midterm campaigns for many candidates backed by pro-Israel groups, including the Democratic Majority Israel (DMFI) and the United Democracy Project, an AIPAC-affiliated supercompany. PKK. Last May, SBF also donated $250,000 directly to DMFI PAC. And in the 2020 campaign, he was one of Joe Biden’s biggest campaign contributors, with a personal contribution of $5.2 million.
SBF reportedly does not dabble in sports cars and other luxuries that are common among the super-rich. In a photo released by FTX, obtained by Reuters in July, he epitomizes a casual lifestyle – unshaven, a mop of untamed dark curly hair, a simple olive crew-neck T-shirt. SBF is vegan and reportedly shared a penthouse with 10 roommates.
So far, Reuters has reported that the SBF told the wire service that he was living in his home in the Bahamas. Other outlets suggest that it is for sale.
The SBF has publicly pledged to do everything possible to rectify this situation. Subject of his tweets causes public speculation. On Twitter, which he previously offered to buy with Elon Musk, SBF issued a public apology. While stating that he was sorry, he simply admitted, “I made a mistake and should have done better.”
Questions remain whether politicians who receive donations will be forced to return the funds – and whether the US will extradite SBF for trial or face criminal prosecution.