He was the blue-eyed boy of the crypto world. Many dubbed him as the next Warren Buffet. Now Sam Bankman-Fried, the 30-year-old founder of the collapsed cryptocurrency exchange FTX, has been arrested in The Bahamas.
A month after FTX filed for bankruptcy in the US, leaving users unable to withdraw their funds, Bankman-Fried has been held for “financial offences”. The firm owes 50 of its largest creditors close to $3.1 billion, according to a report in the BBC.
FTX was considered one the largest crypto exchanges in the world and valued at $32 billion. Now Bankman-Fried has been accused of amassing billions of dollars in personal wealth as he along with nine housemates ran the firm from a luxury penthouse in The Bahamas.
Last month, Bankman-Fried stepped down as CEO after FTX filed for bankruptcy. The company’s downfall began after a report in the crypto publication CoinDesk raised questions about the balance sheet of the exchange’s sister firm, Alameda Research.
Also read: After FTX collapse, Sam Bankman-Fried arrested: What went wrong with the crypto giant?
The wunderkid with wild hair
Sam Bankman-Fried, known as SBF, was brought up in California by law two professors at Stanford University, Joseph Bankman and Barbara Fried. He went on to study physics at the coveted Massachusetts Institute of Technology (MIT).
In 2017, he bagged his first job as a trader in Jane Street Capital, a position he held for nearly three and a half years. His decision was influenced by a desire to make money to pursue his interest in effective altruism, a movement that encourages people to prioritise donations to charities, according to a Reuters report. He then enjoyed a stint with a Charitable Organisation called Centre for Effective Altruism.
It was in 2017 that the Wall Street banker spotted a pricing anomaly between Bitcoin prices across different crypto exchanges, which he capitalised on. He started arbitraging, buying Bitcoin for cheap and selling to places where it was trading for more.
Soon, he found himself sitting on a pile of money which in turn made him gain a cult status in the cryptocurrency community, says a report in Moneycontrol.
In 2019, Sam Bankman-Fried founded FTX along with former Google employee Gary Wang. It went on to become the second-largest crypto exchange in the world, trading close to $10 billion of cryptocurrencies a day.
Sam Bankman-Fried’s FTX, one of the world’s largest crypto exchanges, was valued at $32 billion earlier in the year. AFP
The young CEO with wild hair, often sporting a T-shirt and baggy shorts, became an influential figure. Many viewed him as a younger version of Warren Buffet, the legendary US investor.
He earned the moniker of the “King of Crypto” and everything about him became uber-cool, even his obsession with video games. He tweeted in February 2021, “I’m (in)famous for playing League of Legends while on phone calls.”
Bankman-Fried reportedly played an intense League of Legends battle during a high-level video call with the investment team of venture capital giant Sequoia Capital. But it didn’t seem to bother them much. In fact, the group wrote about it in a blog post and then went on to invest $210 million in FTX, according to a BBC report.
SBF could do no wrong.
The family and the connections
Bankman-Fried rubbed shoulders with the who’s who of the political and celebrity world. He appeared on panels with former US president Bill Clinton and former British prime minister Tony Blair and supermodel Gisele Bundchen, reports Reuters.
In Washington DC, he was known as a political donor, mostly backing Democrats and associated groups. A report in The Economist said that he spent millions of dollars “to lobby the Congress on crypto regulation”.
Interestingly, Bankman-Friend used his parents’ reputation to his advantage. In meetings with American policymakers, he would often mention that his parents were professors at Standford Law School, according to a report in The Wall Street Journal (WSJ).
Joseph Bankman was a paid employee of the company for a year. He often accompanied his son to meetings with policymakers in Washington, expanded its philanthropic endeavours and helped connect his son to at least one major investor, the WSJ report said.
Unlike her husband, Barbara Fried did not “work” for her son’s business. However, SBF was among the donors to the political advocacy network, Mind the Gap, which she helped found to support Democratic campaigns and causes, reports The New York Times.
The FTX founder contributed $5.2 million to Joe Biden’s 2020 campaign and became one of the largest donors to Democratic political candidates.
“Nobody was saying that anything was wrong with SBF,” said Marius Ciubotariu, co-founder of the Hubble protocol, a decentralised lending platform told Reuters.
In November, FTX filed for bankruptcy in the US, leaving many crypto users in the lurch as they were unable to withdraw their funds. AP
During his prime years, Bankman-Fried’s estimated net worth was over $26 million, making him one of the richest people in the digital assets arena. Over the last two years, FTX, Bankman-Fried’s parents and the company’s senior executives bought at least 19 properties worth nearly $121 million in The Bahamas, where the exchange is based, the news agency reports.The collapse
FTX which was initially headquartered in China moved to The Bahamas to evade tax regulations. In July 2021, it received $900 million in funding which increased the company’s value to $18 billion.
It bagged sponsorships and investments. SBF had risen as a celebrity in the cryptocurrency circle by building a fortune that attracted endorsements from the likes of National Football League (NFL) legend Tom Brady, NBA star Stephen Curry and American sitcom “Seinfeld” co-creator Larry David.
However, it started going downhill after Bankman-Fried volunteered to save other crypto firms as the cryptocurrency market was falling because of rising interest rates. Some of these deals involved Alameda Research, which led to losses.
The situation turned grim after CoinDesk reported that FTX used the funds of customers to bolster its sister firm Alameda Research. Forty per cent of Alameda’s balance sheet comprised FTX’s FTT tokens, which raised eyebrows among crypto experts.
Overnight, Bankman-Fried’s empire collapsed. Today, traders to common crypto users, all remain in the lurch – unsure if they will ever get back the money trapped in FTX’s digital wallets.
Now SBF is arrested. His parent’s careers have also taken a hit. Fried has resigned from the chair of the board of Mind the Gap. Bankman has postponed a class he was scheduled to teach at Stanford, reports The New York Times.
The rise was quick, the fall even quicker.
With inputs from agencies
Read all the Latest News, Trending News, Cricket News, Bollywood News,India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.