Sam Bankman-Fried promised his FTX crypto empire would save the world. US authorities say he was lying all along

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Until the Bahamian police knocked on the door of his lavish penthouse, Sam Bankman-Fried seemed to hold out hope that he could clean up his messes.

The 30-year-old was putting the finishing touches to his testimony before the US House Financial Services Committee.

Congress was investigating how FTX, one of the world’s leading digital currency exchanges, was able to collapse so quickly and so dramatically.

In a few chaotic days last month, Bankman-Fried’s $32 billion ($46 billion) company collapsed.

FTX declared bankruptcy, leaving its customers unable to withdraw their money, and Bankman-Fried resigned as CEO.

It was a dramatic disgrace for the young entrepreneur, who once claimed he was on course to become the world’s first billionaire.

Space to play or pause, M to mute, left and right arrows to search, up and down arrows for volume. Sam Bankman-Fried leaves court in the Bahamas, to be extradited to the United States.

Instead, he will be recorded as the man who experienced the biggest collapse in wealth in US history.

Yet as the net tightened around him, Bankman-Fried struggled to free himself.

“I screwed up,” he wrote in his draft congressional testimony that was later leaked to the media.

“I know saying I’m sorry doesn’t mean much. And so I dedicate as much of myself as possible to doing the right thing for customers.”

But he would never have had the opportunity to apologize to Congress and explain what he thought went so wrong.

The day before he testified, Bahamian police arrested him at the request of the US government.

He now faces eight criminal charges, including wire fraud, money laundering and conspiracy to commit fraud in the United States.

The Rise of America’s Scruffy Billionaire

Sam Bankman-Fried launched FTX in 2019, building a cult of personality around him as a millennial mopping genius.

He wore T-shirts and shorts everywhere, slept on beanbags in his office and played video games at meetings with investors.

Sam Bankman-Fried often took naps in the office and played video games during meetings with investors. (Twitter:@SBF_FTX)

He claimed to be a follower of the “effective altruism” philosophy, which encourages people to get gainful employment so they can amass wealth and donate it to charity.

“We’ve been culturally seduced by a story here that…this digital economy is largely driven by narrative and memes,” risk analyst Richard Smith told the ABC.

“Sam Bankman-Fried understood how to play the game, therefore, better than anyone.”

By setting up his offshore company first in Hong Kong and then in the Bahamas, he hoped to take advantage of more flexible financial regulations.

He had promised his clients that FTX was “the cleanest brand in crypto”, guaranteeing “high returns, no risk”.

As his personal wealth skyrocketed, he donated huge sums to Republican and Democratic politicians and pledged to donate 99% of his money.

“You pretty quickly run out of really effective ways to make yourself happier by spending money. I don’t want a yacht,” he told Bloomberg earlier this year.

But in one fateful week in November, FTX crashed when a deposit rush and plummeting crypto prices left it with an $8 billion ($11 billion) shortfall. ).

With his bank account empty and his empire in shambles, US authorities began digging deeper into what was really going on behind closed doors at FTX.

Authorities say FTX was a fraud all along

Bankman-Fried insisted that FTX’s collapse was the result of poor accounting, human error and bad luck.

But the unsealed Southern District of New York indictment makes it clear that authorities believe the 30-year-old engaged in a scheme to defraud customers almost as soon as the business was founded.

Bankman-Fried also faces a separate civil suit filed by the Securities and Exchange Commission (SEC).

Prosecutors and the SEC are focusing on the role played by Alameda, a hedge fund that Bankman-Fried also founded and owned.

“Essentially, Bankman-Fried placed billions of dollars of FTX client funds in Alameda,” the indictment alleges.

“He then used Alameda as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses.”

Bankman-Fried and his FTX associates lived in a penthouse in the Bahamas. (Instagram: @albanybahamas)

Despite his scruffy appearance and promises to donate his billions, authorities say Bankman-Fried lived in a $30 million ($43 million) penthouse in a gated complex in Nassau.

“Bankman-Fried orchestrated a massive, years-long fraud, embezzling billions of dollars of trading platform client funds for his own benefit and to help grow his crypto empire,” the SEC alleges.

Once the deposit race began on FTX, “Bankman-Fried’s house of cards began to crumble,” prosecutors alleged.

Bankman-Fried appears to have lent itself $1 billion

In Bankman-Fried’s absence, the House Financial Services Committee delivered a searing assessment of the practices that led to the collapse of FTX and the subsequent arrest of its former CEO.

Committee chair Maxine Waters began by saying she was “so deeply disturbed to learn how common it was for a Bankman-Fried and FTX employee to steal the cookie jar of customer bonds for finance their lavish lifestyle”.

The committee’s witness was John Ray III, appointed last month to oversee the bankruptcy.

Ray is no stranger to spectacular corporate meltdowns, having overseen the bankruptcy of energy company Enron 20 years ago.

But the 63-year-old told Congress that the corporate control failure at FTX was unlike anything he had seen in his long career.

New FTX CEO John JRay III told Congress he was overseeing an “undocumented bankruptcy.” (Reuters: Elizabeth Frantz)

Bent over and twirling his pen, John Ray told the committee he was dealing with “a paperless bankruptcy”.

“It’s really unprecedented in terms of the lack of documentation,” he said.

“I’ve never seen a complete lack of record keeping, absolutely no internal controls.”

One of the most explosive allegations made during the hearing was that Bankman-Fried appeared to have loaned each other $1 billion ($1.45 billion).

According to documents seen by Ray, he was both the beneficiary and the authorizer of the Alameda personal loan.

“The collapse of the FTX group appears to stem from an absolute concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals,” he said.

During his testimony, Mr Ray confirmed that FTX Australia was not included in the bankruptcy filings due to separate proceedings by local regulators.

On November 16, the Australian Securities and Investments Commission (ASIC) announced that it had suspended FTX Australia’s license, following the appointment of three volunteer directors of KordaMentha.

Tens of thousands of Australians are believed to have been affected by FTX’s collapse.

Ray said regulators in different jurisdictions were working together to maximize outcomes for clients, but he couldn’t set a timeframe for the “painstaking” process of trying to secure assets.

What now for America’s disgraced crypto king?

For a brief court appearance in Nassau, Bankman-Fried swapped his signature shorts for a suit and tie.

The timing of his extradition from the Bahamas to the United States is still unclear.

While nations have an extradition treaty, the process can take several weeks and possibly a long time if an accused disputes it.

In congressional testimony that he was never able to deliver, Bankman-Fried complained about the loss of his once budding wealth.

“Last year, my net worth was valued at $20 billion,” Bankman-Fried wrote.

“Last I saw, I believe my bank account had about $100,000 in it.”

Her parents say they fear her legal fees will wipe out whatever is left.

SamBankman-Fried appeared in court in Nassau under heavy police surveillance. (Reuters: Dante Carrer)

The 30-year-old’s dramatic fall from grace has set off a chain of events that could have major implications for the future of the cryptocurrency industry.

Once seen as a ticket to quick riches, people who bought at the height of the price rise potentially found themselves with significant losses.

The collapse of FTX further damaged the reputation of an industry that was supposed to be safer than traditional currencies.

Sam Bankman Fried claimed to have spent about a quarter of every workday trying to woo politicians into supporting light crypto regulation.

With its dramatic drop, those who have had crypto in their sights are seeing their chance to strike.

“I’m afraid we see Sam Bankman-Fried as one big snake in a crypto Garden of Eden,” said Congressman Brad Sherman, one of Washington DC’s biggest crypto skeptics.

“The fact is, crypto is a snake garden.”

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