As the “boy wonder of crypto”, Sam Bankman-Fried “got richer faster than almost anyone in history, amassing an estimated $26bn in personal wealth”, appearing on countless magazine covers, and rubbing shoulders with the rich and powerful, says the BBC.
SBF, as he is known, was never shy about it: he wanted to get rich. “An overachieving child born to two overachieving parents,” SBF studied at MIT and fell under the spell of “effective altruism” – the idea that making as much money as you can, so you can give it away, is the best way to be charitable. At the age of 25, he founded Alameda Research to exploit arbitrage opportunities in cryptocurrencies. In 2019, he founded FTX, an exchange for digital tokens. Within months, the volume of daily trading hit $300m.
His fall from grace was equally rapid. On 7 November 2022, a rival executive expressed concern about FTX’s finances, sparking a multibillion-dollar bank run. in November 2023, following 15 days of testimony, a jury took only four and a half hours to find him guilty of defrauding his customers and lenders, and of conspiring with others to commit securities fraud, commodities fraud and money laundering, says The Economist.
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Just months into its existence, Alameda was borrowing customers’ deposits for its own purposes. To prove fraud, the prosecution often needed simply to use SBF’s own words against him. At one point his lawyer asked if a document was being offered for its truth. “Your honour, it’s the defendant’s own statements... No, it’s not being offered for its truth,” the prosecutor said. SBF faces further charges in a trial scheduled for March and a maximum sentence of 110 years.
Still, SBF has provided investors and the financial system with “a valuable service”, says Bloomberg. Millions of “crypto believers” have entrusted their money to unregulated financial intermediaries that “don’t face the same requirements for safety [and] soundness... that banks and stock exchanges do”. Most of the tokens being traded are “fundamentally worthless”.
FTX’s collapse has brought such truths to light. The hope is that legislators and regulators will now step in. In the meantime, just three letters might serve to warn people away: FTX.
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