RED FLAGS
On November 2, 2022, a suspicious document would be released: the balance sheet of a mysterious trading firm called Alameda Research. Alameda Research was the sister firm of the famed cryptocurrency empire that was FTX, and at first glance, this document was actually reassuring.
It showed that Alameda's research had $14.6 billion worth of assets, a testament to the pure size and scale of the FTX empire. But, on closer examination, there were a few concerning line items, specifically Alameda’s unusually large stake in FTT, an altcoin created by FTX.
Not only did FTT account for $3.66 billion but it was the single largest asset on their balance sheet. And the 3rd largest asset on their balance sheet was $2.16 billion worth of collateral on FTT. This made it clear that Alameda Research and FTX were far more connected than anyone initially expected but this in itself didn’t implicate FTX.
All we knew was that FTX was likely using their sister company to pump up the price of their own token. But all of this would change just 4 days later when the CEO of Binance, CZ, announced that they would be liquidating their entire stake in FTT due to recent revelations. Just 15 minutes later, Alameda Research who was scrambling would announce that they would buy Binance’s entire stake in a behind-the-scenes deal to soften the sale’s impact on the market price of FTT.
Now, this was a red flag. Why was Alameda so scared of an open market sale? How dependent were they really on FTT? We didn’t get the answer to this immediately but we would hear some more unexpected news.
On November 8, 2022, Binance announced that they were entering a nonbinding contract to buy FTX to help them with their “liquidity crunch”. Now, this was really concerning. Up until this point, FTX was the one that was bailing out other exchanges and now FTX themselves needed a bailout?
This couldn’t be good news and as expected, just one day later, Bloomberg announced that US regulators were investigating FTX for mishandling customers funds. This was the beginning of the end for Sam Bankman Fried and FTX. Here’s what happened next.
ARRESTED
Once regulators got involved, Sam would throw in the towel almost immediately. He would announce that Alameda Research was shutting down, and just one day after that, FTX would file for bankruptcy. In retrospect, it’s obvious why Sam decided to do this but at the time, this move was more concerning. This was the first indication from Sam himself that there was more going on than what met the eye.
If all FTX needed was just funding, there was no need to throw in the towel so early as they may have still been able to get funding given their size and reputation. But, if there was something more sinister going on, it was better that Sam came clean sooner rather than later given that this would no longer be about saving FTX, it would be about saving himself.
And just as people worried, FTX users’ worst fears would come to fruition just two days later. $1 billion worth of client funds were missing. And just when you thought things couldn’t get worse, FTX would get hacked leading to $477 million moving off the exchange. The walls were quickly closing in on Sam and he knew it.
On November 15, a class action lawsuit would be filed against FTX and all of its celebrity influencers including the likes of Kevin O’Leary, Shaquille O’Neal, and Stephen Curry. Congress would also soon get involved announcing that they would be holding hearings regarding the FTX implosion in December. But, despite all of this, Sam would play it off rather cool at least publicly.
While he admitted that he had screwed up big time, his biggest regret was actually having filed for bankruptcy. He went on to argue that he may have been able to raise the required funds and that this entire crisis could have been avoided if he hadn’t filed for bankruptcy. But, while there may have been some reality in which this may have worked, this isn’t exactly making customers whole.
Rather, this would just extend the deception. Not only would customers be getting fooled but so would investors who would all be covered for what at best was gross negligence and ignorance and what at worst was straight-up financial fraud on Sam’s side. And make no mistake, those are the only two options as it’s highly unlikely that this was actually just an honest mistake.
You see, even before the whole FTT token thing, Alameda research had lost $3.7 billion between 2019 and 2021, so the core of FTX was never really as strong as Sam portrayed and people were starting to realize. And in a last-ditch effort to save face, Sam would try pulling off a massive publicity stunt.
Starting in November, Sam would constantly appear on financial news networks, crypto podcasts, conferences, and community town halls. His goal with all of this was crystal clear: he wanted to paint his own narrative.
Yes, he had messed up with FTX but it wasn’t because of malicious intent or deliberate wrongdoing. It was because he just didn’t know. And hey maybe that is his truth, but the reality for everyone else doesn’t get any better whether he did it on purpose or not.
And soon enough, he too would understand this reality as his Congress hearing was rapidly approaching on December 13. But this hearing would never take place as on December 12, 2022, Sam Bankman would be arrested in the Bahamas.
Also Read: Why AI Will Never Replace Our Jobs
THE CARDS FALL
Sam would continue holding strong to his story but the same could not be said about his business partners or should I say, accomplices. Less than 10 days after Sam’s arrest, FTX co-founder, Gary Wang, and Alameda Reserach co-CEO, Caroline Ellison would both plead guilty and agree to cooperate with prosecutors.
Wang pled guilty to conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud, and conspiracy to commit securities fraud. Ellison pled guilty to two counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, and conspiracy to commit money laundering.
And now that these two had turned on Sam, we would see a lot more damning evidence come out about just how involved Sam may have really been. According to Gary Wang, Sam had directly instructed him to create a secret backdoor to siphon client funds from FTX into Alameda research. Gary went on to accomplish this by hiding a single line of code in a sea of millions giving Alameda a total credit line of wait for $65 billion.
Alameda allegedly used some of this money to buy planes, houses, throw parties, and make political donations. Apparently, FTX owned a total of a quarter billion dollars worth of Bahamian real estate and spent as much as $6.9 million on food and entertainment within a matter of 9 months.
Officially speaking, FTX wasn’t stealing any client's funds, they were just “borrowing it” without permission. It looks like Sam took Mr. Krab's advice to heart. Luckily for Sam though, he only had to spend 10 days in jail until he would make bail for a whopping $250 million which is thought to be the largest bail in history.
If this was just 2 months earlier, Sam being able to afford $250 million for bail by himself wouldn’t have been all that surprising, but with FTX being bankrupt, you’re probably wondering how he secured the bond. Well, a part of the answer is that he got help from his parents who put up their Palo Alto home as collateral.
Speaking of their Palo Alto home, after making bail, Sam would be put under house arrest at his parent’s home. Since then, Sam has mostly flown under the radar only talking to the press behind the scenes but he has made some notable appearances on headlines here and there the first of which was on Jan 3, 2023, when he pled not guilty as expected.
Something that was not expected though was his headline appearance in mid-February when a judge ordered him to stop using VPNs to access the internet. According to his lawyers, Sam was just using a VPN to watch the Super Bowl, but it’s very possible that he could have been doing something to influence the case in his favor which would not be all that surprising given that he would do exactly that just 6 months later.
In August of 2023, it came out that Sam may have been tampering with the witnesses. According to prosecutors, Sam had shared documents with the press that made it seem that Caroline was just a “jilted lover” who had worked alone. This of course could not only influence how Caroline testifies but may also influence how other witnesses testify. As such, a federal judge would revoke Sam’s bail putting him back behind bars on August 11, 2023.
Also Read: Why People Are Switching From Android to iOS
TRIAL BEGINS
Sam’s lawyers have tried to argue that Sam being in jail is preventing him from being able to prepare for trial, but a judge knocked this argument down saying that Sam has already had several months and extensive access to electronic resources to prepare. And all of this leads us into Sam’s trial which officially began on October 3, 2023, with jury selection.
The criminal trial is expected to last up to six weeks meaning that most of the case should play out by mid-November, but that doesn’t mean that we’ll get a verdict right after. Jury deliberations can take anywhere from a few minutes to even a few months.
Also, Sam may be up for a second trial next March but we don’t know if that trial will ever see the light of day. So, chances are that unless we see some sort of crazy roadblock, we should have a verdict by the end of this year.
What will that verdict be?
Well, Sam is currently facing these above-shown 7 charges which carry more than 100 years worth of prison time. But, even if he does convicted on all these charges, it’s almost certain that Sam won’t be spending anywhere near 100 years in prison. According to legal experts, similar charges are usually grouped meaning that prison time will be assigned in a concurrent manner as opposed to a consecutive manner.
As such, if Sam does end up getting convicted, his total prison sentence will probably be in the 10 to 20-year range. It’s unlikely, however, that he would actually end up spending all of that time in prison. For starters, if the case isn’t going his way and his lawyers feel that he’s probably gonna be found guilty, it’s very possible that they negotiate a plea deal with the prosecutors which could bring his prison time to less than 10 years.
Also, if he is guilty, he would likely have a lot of dirt on the people around him that made all of this possible meaning that he could cash in his knowledge for an even shorter sentence. This is exactly what the Wolf of Wall Street did.
Originally, he was sentenced to 4 years in prison, but by turning on his associates, he was able to get out after 22 months. With that being said, it’s highly unlikely that Sam gets away with no prison time either just due to the scale of his disaster. So, the most likely outcome is probably some amount of prison time but not for the rest of his life which if he is guilty, you could argue he deserves.
With over $8 billion worth of customer funds missing according to the CFTC, it’s no question that Sam has completely ruined the lives of countless people. We’re talking about people who lost their entire life savings, college funds, retirement funds, and house funds.
And according to Sam himself, this money is invaluable. In fact, in a post he made about altruism before all of this, he posed the question “Just how much impact can a dollar have?” His answer was 1/2000 of a life.
Also Read: Publix Pharmacy vs. Walmart Pharmacy: Which One Is Right for You?
So, if Sam really is the reason that people lost over $8 billion, then Sam’s “mistake” in his own words are worth four million lives. And whether he spends the rest of his life in jail or not, this damage is something that he’ll likely never be able to make up for, and that’s what happened to Sam Bankman-Fried
