Sam Bankman-Fried / FTX Collapse

Samuel Benjamin Bankman-Fried, commonly known as SBF, founded the cryptocurrency exchange FTX in 2019 alongside co-founder Gary Wang ^[1]. He also controlled Alameda Research, a cryptocurrency trading firm. At its peak, FTX was one of the largest crypto exchanges in the world, with over 130 international affiliates and a valuation exceeding $30 billion ^[1]. Bankman-Fried cultivated a public image as a philanthropic wunderkind committed to effective altruism, and became one of the most prominent figures in the cryptocurrency industry.

The collapse began on November 2, 2022, when CoinDesk published a report revealing that Alameda Research held a significant portion of its assets in FTT, the native token of FTX, raising serious questions about the financial entanglement between the two entities ^[2]. The report triggered alarm across the crypto industry. On November 6, Binance CEO Changpeng Zhao announced he would liquidate his holdings of FTT, worth at least $580 million, citing "recent revelations" ^[2]. This sparked a wave of customer withdrawals from FTX that the exchange could not meet, exposing an approximately $8 billion hole in its accounts ^[3].

Binance briefly offered to acquire FTX on November 8, but withdrew the offer within a day after reviewing the company's finances and discovering the depth of its problems ^[3]. On November 10, 2022, FTX filed for Chapter 11 bankruptcy protection, and Bankman-Fried resigned as CEO ^[3]. The company turned over control to John J. Ray III, the restructuring specialist who had previously handled the liquidation of Enron, who later testified that he had never seen "such a complete failure of corporate controls" ^[4].

Investigations revealed that billions of dollars in FTX customer deposits had been secretly transferred to Alameda Research to fund risky trades, venture capital investments, real estate purchases, and political donations ^[5]. The misuse of customer funds was not disclosed to depositors.

On December 12, 2022, Bankman-Fried was arrested at his apartment in Nassau, Bahamas, at the request of U.S. prosecutors based on a sealed indictment filed by the Southern District of New York ^[6]. He was extradited to the United States on December 21, 2022, and released on a $250 million bond into his parents' custody ^[6]. Three of his closest associates -- former Alameda Research CEO Caroline Ellison, FTX co-founder Gary Wang, and FTX engineering director Nishad Singh -- pleaded guilty to fraud charges and agreed to cooperate with prosecutors ^[7].

Bankman-Fried's trial began in October 2023 in U.S. District Court in Manhattan. Over 15 days of testimony, prosecutors presented evidence that he had orchestrated what U.S. Attorney Damian Williams called "one of the biggest financial frauds in American history" ^[5]. Ellison, the prosecution's star witness, testified over nearly three days that Bankman-Fried had directed her to commit crimes and mislead Alameda's lenders about the firm's exposure to FTX ^[7].

On November 2, 2023, after approximately four and a half hours of deliberation, the jury found Bankman-Fried guilty on all seven counts, including wire fraud, conspiracy to commit wire fraud, securities fraud, and money laundering ^[5]. On March 28, 2024, U.S. District Judge Lewis Kaplan sentenced Bankman-Fried to 25 years in federal prison and ordered the forfeiture of $11.02 billion ^[8]. Judge Kaplan stated there was "a risk that this man will be in a position to do something very bad in the future" ^[8].

Caroline Ellison was subsequently sentenced to 24 months in prison on September 24, 2024. Judge Kaplan praised her cooperation as "very, very substantial" but said a custodial sentence was warranted given the scale of the fraud, which he characterized as potentially "the greatest financial fraud ever perpetrated in this country" ^[7].

Indictment and Charges

On December 12, 2022, Bahamian authorities arrested Sam Bankman-Fried at the request of the U.S. government, based on a sealed indictment filed by the U.S. Attorney's Office for the Southern District of New York ^[1]. The indictment charged him with seven counts, including wire fraud, conspiracy to commit wire fraud against FTX customers and Alameda Research lenders, conspiracy to commit securities fraud, conspiracy to commit commodities fraud, and conspiracy to commit money laundering ^[1]. The Securities and Exchange Commission separately authorized civil charges relating to violations of securities laws ^[1]. Bankman-Fried was extradited to the United States on December 21, 2022, and released on a $250 million personal recognizance bond, one of the largest in history, into the custody of his parents at their home in Palo Alto, California ^[2].

Cooperating Witnesses

Three senior FTX and Alameda Research executives pleaded guilty and cooperated with prosecutors. Caroline Ellison, former CEO of Alameda Research and Bankman-Fried's former girlfriend, pleaded guilty to multiple fraud charges in December 2022 and became the government's key cooperating witness ^[3]. FTX co-founder Gary Wang and engineering director Nishad Singh also pleaded guilty and cooperated ^[2]. Their testimony provided prosecutors with detailed insider accounts of how customer funds were misappropriated.

Trial and Conviction

The trial of Sam Bankman-Fried began in October 2023 before U.S. District Judge Lewis Kaplan in the Southern District of New York. Over 15 days of testimony, prosecutors presented evidence that Bankman-Fried had directed the transfer of billions in FTX customer deposits to Alameda Research for risky investments, real estate, and political contributions, without customer knowledge or consent ^[4]. Ellison testified over nearly three days that Bankman-Fried instructed her to commit crimes and to mislead Alameda's lenders about the firm's financial exposure ^[3]. On November 2, 2023, the jury found Bankman-Fried guilty on all seven counts after approximately four and a half hours of deliberation ^[4]. U.S. Attorney Damian Williams characterized the scheme as "one of the biggest financial frauds in American history" ^[4].

On March 28, 2024, Judge Kaplan sentenced Bankman-Fried to 25 years in federal prison ^[5]. While sentencing guidelines permitted up to 110 years, and prosecutors had sought approximately 40 to 50 years, the judge imposed the 25-year term, noting there was "a risk that this man will be in a position to do something very bad in the future" ^[5]. The court also ordered forfeiture of $11.02 billion, with forfeited assets directed toward repaying victims of the FTX collapse ^[5]. There is no parole in the federal system, though Bankman-Fried may serve as few as 12.5 years with full good-time credit.

Co-Defendant Sentences

Caroline Ellison was sentenced on September 24, 2024, to 24 months in prison ^[3]. Judge Kaplan described her cooperation as "very, very substantial" but stated that a custodial sentence was necessary given the magnitude of the fraud ^[3]. She was also ordered to forfeit $11 billion and report to prison by November 7, 2024 ^[3].