FTX: the giant with neighborhood feet that collapsed in less than a month

A little over a month ago life was smiling on Sam Bankman-Fried and the rest of the FTX executives. But particularly the first. He was not yet 30 years old, and he had already created a cryptocurrency giant: none other than the Second largest crypto asset trading market in the world, FTX. In addition, he had an empire that, according to Forbes, exceeded 20,000 million dollars. Experimenting with cryptocurrencies and trading since he was a student, he used the deficiencies found in the exchanges he used to create his own.

At the same time, with the purchase and sale of assets, his fortune grew along with his prestige and the valuation of his company, of which he became CEO. Last October, Sam Bankman-Fried had a net worth of $10.5 billion. But on November 8, in the midst of the huge solvency crisis that FTX suffered, lost more than 990 million in one day, the biggest drop in a personal fortune in a single day. And by November 11, he had nothing left. What had happened?

The FTX crisis

It all started with various rumors, and in the midst of them, Binance. Towards the end of October there began to be rumors that the accounts of a sister company of FTX, Alameda Research, were not very clear and that it had a quite serious liquidity problem, due to its dependence on tokens considered to be illiquid. Like FTT, developed by FTX. Given the rumors, the CEO of Binance,

The deal comes just a week after multiple sources said there were concerns about the account balances of FTX’s sister company Alameda Research (also majority-owned by Bankman-Fried) due to its heavy reliance on illiquid tokens. Among them the FTT itself.

The situation worsened when already at the beginning of November, Binance CEO Champeng Zhao (CZ) noted that he was going to sell all of his FTT cryptocurrency assets. This executive pointed out that he had made that decision knowing that a good part of what Alameda Research had was investments in FTT, because he had already learned from what happened with Luna. He also sent a message to Bankman-Fried, noting that they were not going to support those who lobby other prominent members of the industry behind their backs.

This was the starting gun for FTX’s plummeting prestige and consideration. In the early hours of Tuesday, November 8, clients of FTX, which was withdrawing funds from the market en masse, began complaining about problems continuing to get their money out of the company. Investors had already withdrawn many Bitcoin in less than 24 hours from the company. So many that his balance fell from 20,000 bitcoin to just one, which was what FTX had on November 8.

The liquidity crisis, then, threatened to take away not only FTX, but also the savings of its clients. Meanwhile, cryptocurrencies were beginning to lose valuation, and soon after, Binance CEO and Sam Bankman-Fried announced that Binace and FTX they had reached an agreement for the first to buy the second. Of course, pending a review of the company’s accounts and books. Everything seemed to have been a scare and Bankman-Fried ensured that customers were protected.

But what would be the mess that the Binance executives found when they began to review the FTX accounts that less than 24 hours later they had withdrawn from the purchase agreement. Panic then seized investors in cryptocurrencies, and while FTX fell hopelessly and its investors and clients began to realize that they had lost everything, the rest of the cryptocurrencies saw their value plummet due to the contagion effect.

Meanwhile, Bankman-Fried was trying to save the furniture by claiming to start a fundraiser to save the company and customer deposits the following week. But he didn’t get to do it. That same Friday, November 11, Sam Bankman-Fried filed for bankruptcy for all companies in the FTX group and resigned from his position in the company.

nothing was what it seemed

While investors resigned themselves to losing their investment in FTX, little by little the truth about Sam Bankman-Fried began to emerge, whose real image was far from what he projected. Until the fall of his company, everyone thought that he was some kind of guru who lived quite austerely (yes, in the Bahamas), and who moved around the island with a car of the lot. But the reality was different.

The manager had bought numerous luxury properties in the archipelago, and lived at full speed with the directors of the company and the CEO of Alameda Research. The first details of her lifestyle began to become public when her properties began to go on sale. Among them, a luxurious penthouse in one of the most exclusive areas of Nassau, the capital of the Bahamas. Specifically, in the luxury resort Albany Towers.

In addition, according to Reuters, both Sam Bankman-Fried and his parents and the rest of the FTX executives had bought various properties in the Bahamas in the last two years. There are at least 19, and the sum of them has a value of around 121 million dollars.

While all this was beginning to become public, speculation began about the whereabouts of Bankman-Fried, who many said was trying to escape to Dubai, the same as the rest of the FTX executives. The truth is that the Bahamian authorities were holding him in Nassau, and under “special surveillance” in his attic. Meanwhile, the Bahamas Securities and Exchange Commission suspended FTX’s registration and froze assets linked to the company. In addition, the area’s financial crimes division is working with the Bahamas Securities and Exchange Commission to clarify the facts.

At the same time, in the United States several investigations have been opened to FTXbetween more than reasonable doubts by the management of the company and the dubious use that the former CEO of FTX has made of the funds and deposits of his clients, among other things to inject funds into Alameda Research, but perhaps also for the benefit own self.

The main investigation in this regard is being developed by the Securities and Exchange Commission and the Department of Justice. It is probable that in addition, Bankman-Fried and the rest of the directors of FTX have to face a class action lawsuit filed by his former clients, because of the losses they have caused them.

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