“House of Cards”
Headlines swirl about FTX founder Sam Bankman-Fried, his arrest in the Bahamas, and the downfall of his cryptocurrency company.
Here's What To Know:
"We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto."
U.S. Securities and Exchange Commission Chair Gary Gensler on a civil lawsuit filed against Bankman-Fried on Tuesday. The SEC (oversees financial exchanges, trading, mutual funds, etc.) alleges Bankman-Fried “improperly diverted” FTX customer funds into his crypto hedge fund company, Alameda Research, and then used those funds to make investments, political donations, and purchase real estate without telling investors.
The Fall of FTX
- Nov.: FTX could not complete customers’ withdrawal requests and filed for bankruptcy. It owes creditors at least $3B; its fall is one of the largest corporate bankruptcies ever.
- The Arrest: The U.S. gov’t filed criminal charges against Bankman-Fried on Monday; he was then arrested in the Bahamas.
- The Charges: Bankman-Fried was charged with eight counts, including conspiracy to commit wire fraud on customers and lenders, wire fraud on customers and lenders, and conspiracy to commit money laundering.
Why It Matters
- Bankman-Fried has made headlines for two separate accusations. He was arrested for criminal charges less than 24 hours before he was scheduled to testify on behalf of FTX in a House Financial Services Committee hearing.
- Bottom Line: The U.S. gov’t is accusing FTX of misusing customer funds and invalidating its cryptocurrency platform. The ongoing SEC lawsuit is also intended to mitigate others who might engage in similar practices.
- The SEC lawsuit will likely only proceed after Bankman-Fried faces criminal charges.
Who is SBF?
- Sam Bankman-Fried, 30, is the son of two Stanford law professors. His father is also a “leading tax expert” (The New York Times). He attended MIT and studied physics.
- His first job was as a trader at an investment firm. He then co-founded Alameda Research.
- SBF founded FTX in 2019 and was CEO. FTX soon raised nearly $2 billion from investors.
- It became “one of the leading exchanges for buying and selling crypto derivatives,” per Forbes. In early 2022, FTX and its U.S. operations were valued at $40 billion by private investors.
What is cryptocurrency? Crypto is a type of digital currency that has no central authority, meaning it does not follow the rules of a central authority like a bank or government. It can be used to buy many everyday goods and services and is also an investment, like stocks. Bitcoin and Ethereum are two of the largest cryptocurrencies.
FTX was a cryptocurrency exchange which promoted “the liquidity and transacting of coins and tokens. FTX allowed users to connect their wallets, place trades, exchange digital currencies, enter into derivative contracts, or buy/sell NFTs” (Investopedia).
FTX founder charged in scheme to defraud crypto investors (The Associated Press)
FTX Founder Sam Bankman-Fried Led Yearslong Faud at Company, SEC says (The Wall Street Journal)
The Parents in the Middle of FTX’s Collapse (The New York Times)
by Jenna Lee,