FTX Founder Gamed Markets, Crypto Rivals Say

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Since his company imploded, Mr. Bankman-Fried has repeatedly denied accusations that he tried to manipulate the cryptocurrency markets. In a text message, he compared his company’s efforts to support the price of TTF by publicly announcing that it would buy large quantities to share buyback programs in public companies. And he said his companies that traded FTT were designed to keep the market running smoothly by buying coins when people wanted to sell and selling when they wanted to buy. Neither I, nor to my knowledge Alameda, ever intended to manipulate the markets, he wrote.

What to know about the collapse of FTX

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What is FTX? FTX is a now bankrupt company that used to be one of the largest cryptocurrency exchanges in the world. It allowed customers to exchange digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The Bahamas-based company has built its business on risky business options that are not legal in the United States.

Who is Sam Bankman Fried? He is the 30-year-old founder of FTX and former CEO of FTX. Once a golden boy of the crypto industry, he was a major donor to the Democratic Party and known for his commitment to Effective Altruism, a charitable movement that urges adherents to donate their wealth in efficient and logical ways.

How did the FTX problems start? Last year, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, sold his stake in FTX back to Mr. Bankman-Fried, receiving a number of FTT tokens in exchange. In November, Mr. Zhao said he would sell the tokens and expressed concerns about FTX’s financial stability. This decision, which lowered the price of FTT, spooked investors.

What led to the collapse of FTX? Mr. Zhaos’ announcement drove the price down and spooked investors. Traders rushed to pull out of FTX, resulting in an $8 billion shortfall for the company. Binance, FTX’s main rival, offered a loan to save the company, but then pulled out, forcing FTX to file for bankruptcy on November 11.

Why was Mr. Bankman-Fried arrested? FTX’s collapse sparked Justice Department and Securities and Exchange Commission investigations focused on whether FTX improperly used client funds to support Alameda Research, a crypto trading platform Mr. Bankman-Fried had helped get it started. On December 12, Mr. Bankman-Fried was arrested in the Bahamas for lying to investors and committing fraud. The next day, the SEC also filed civil fraud charges.

Signs that Mr. Bankman-Fried is orchestrating deals for the benefit of his companies weren’t so hard to see in the crypto world, according to crypto developers who shared their stories on public forums and investors interviewed by the New York Times. The transactions at the center of many of these schemes were openly visible on the blockchain, the digital ledger that records every transaction made in the public cryptocurrency sphere.

Mr. Bankman-Fried also created FTT to make it easier to trade other coins on FTX. But according to fraud charges filed by the Commodity Futures Trading Commission on December 13, Mr Bankman-Fried kept the value of FTTs artificially high and then used it as collateral to borrow funds from lending companies. In the 40-page complaint, the CFTC said Alameda borrowed up to $10 billion from various digital lenders against FTT and other assets.

At one point, Mr. Bankman-Fried became concerned about the psychological effect of the FTT price falling below a specific threshold and ordered Alameda to buy the FTT to drive the price up, according to reports. separate fraud charges filed by the Securities and Exchange. Commission.

The question has always been: how does FTX have so much money? said Haseeb Qureshi, managing partner of Dragonfly, a San Francisco-based venture capital firm to which Mr. Bankman-Fried and his team have offered investment deals, including new coin launches.

Mr. Qureshi was not the only one with doubts.

As Mr. Bankman-Fried was raising funds to start FTT in mid-2019, there were rumors that Alameda was in trouble. Ryan Salame, a top FTX executive, told an industry participant that Alameda was losing money, according to screenshots of text messages viewed by The Times; the industry participant did not want to be named because he considered Mr. Salame a friend. (A spokesperson for Mr. Bankman-Fried said in a statement that the FTX founder was quite confident that Alameda was making money in 2019.)

Still, the FTT was lucrative for early investors. The price of the coins skyrocketed to almost $80 at the end of 2021, about 40 times what it was worth two years earlier. As the broader crypto market grew, Mr. Bankman-Fried cultivated a public persona as a wunderkind entrepreneur who intended to donate all of his wealth to charity.

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