Sam Bankman-Fried, from crypto hero to zero

It is an earthquake with endless aftershocks. of the fall of the FTX crypto empirewhich filed for bankruptcy last Friday after running out of cash, raising fears of a long-term nuclear winter for an industry already reeling from summer clash in Luna/Terra. At the heart of this scandal compared to the bankruptcy of Enron and Lehman Brothers, one man: Sam Bankman-Fried. Suspected of using his clients’ funds to cover the losses of his trading company Alameda Research, the 30-year-old, who in a week saw his fortune melt from $16 billion to almost zero, is the target of judicial investigations in the United States and the Bahamas.

People under the spell

The son of two Stanford University law professors, Sam Bankman-Fried (“SBF”) got his start on Wall Street after attending the prestigious MIT in Boston. In 2017, he founded the trading firm Alameda Research. He earns nearly $20 million in a few weeks by buying bitcoins in the United States, which he resells at a higher price in Japan.

Bankman-Fried launched FTX in 2019 in California and then moved to Hong Kong, where regulations are more flexible. The rise is meteoric. In three years, FTX, which moved to the Bahamas for tax reasons, became the second largest crypto exchange in the world after China’s Binance. Everyone wants their part, including celebrities. Tom Brady and Gisele Bündchen, but also Steph Curry, become brand ambassadors and participate in the capital. Miami Heat basketball arena becomes FTX Arena, with rights purchased for $130 million. Larry David plays the skeptics in a commercial broadcast during the Super Bowl. Bill Clinton and Tony Blair attend a crypto conference in the Bahamas. Sam Bankman-Fried, who runs his empire with a dozen roommates who all live together in a heavenly mansion, is the king of the world.

An “altruistic” white knight.

While the decentralized and deregulated Far West of cryptocurrencies most often attracts right-wing libertarians, Bankman-Fried clashes. The T-shirt-wearing nerd is a left-wing vegetarian advocating “effective altruism.” He becomes the second largest donor to the Democratic Party in the 2021-2022 election after George Soros, with nearly $40 million given to progressive candidates.

When the crypto sector experienced severe turbulence last summer, SBF became a white knight. In particular, it flies to the aid of creditors Voyager Digital and BlockFi. The young entrepreneur claims he has “several billion” available to help stabilize a struggling industry.

decline

In reality, it was FTX that needed help. On November 2, the specialist site Coindesk, which received an accounting balance sheet from Alameda Research, revealed the incestuous links between the two entities. The trading company is run by Caroline Ellison, who is believed to be an ex-girlfriend of Sam Bankman-Fried. And more than half of Alameda Research’s assets are actually tokens of the cryptocurrency issued by FTX, called FTT. A particularly worrying lack of diversity given the hyper-volatility of the sector.

The chain reaction is brutal. Changpeng Zhao, the billionaire CEO of Chinese exchange Binance, announced on November 6 that he will liquidate more than $500 million in FTT he owns. FTT price drops by 80% in three days. FTX customers panicked and pulled nearly $6 billion from the exchange, akin to a “bank run.” Binance Announces It Will Take FTX then give up after conducting an audit.

According to New York Times, FTX reportedly loaned up to $10 billion to Alameda Research, which they reportedly were unable to repay. Crypto exchanges file for bankruptcy protection on November 11. Sam Bankman-Fried is replaced as CEO by John Ray, a lawyer who oversaw Enron’s bankruptcy. The fallen boss, he apologized on Twitter for “messing up”. An understatement.

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