Who Is Sam Bankman-Fried? – Forbes Advisor

Few names in the world of cryptocurrency are more recognizable than Sam Bankman-Fried, known as SBF. But these days, he’s better known for the collapse of his crypto empire than for any positive contributions to the space.

Bankman-Fried was a crypto wunderkind, dubbed the “world’s richest 29-year-old” by Forbes when he was worth $22.5 billion in 2021. But then, FTX, the mammoth crypto exchange that he founded, came crashing down.

On March 28, 2024, Bankman-Fried was sentenced to 25 years in prison. The U.S. government also fined him $11 billion to pay fraud victims.

The case cracked SBF’s empire and sent seismic waves through the rest of the cryptosphere as FTX and its affiliates were exposed as poorly managed companies that misused customer funds.

In November 2022, SBF and FTX came under investigation in the U.S. and other countries for securities violations as well as how the crypto exchange used $10 billion in customer funds to prop up its sister company Alameda Research.

In the wake of FTX’s downfall, the exchange, Alameda Research and 130 affiliated companies under the banner of FTX Group filed for bankruptcy.

What Were the Charges Against Bankman-Fried?

In November 2023, Bankman-Fried was convicted on all seven charges brought against him as the result of the collapse of FTX and its related companies.

Those charges included two counts of wire fraud, two counts of wire fraud conspiracy and one count of conspiracy to commit money laundering. The charges against Bankman-Fried carried a maximum sentence of 110 years in prison under federal sentencing guidelines.

Due to the “enormous scale” of Bankman-Fried’s fraud, prosecutors argued that the 32-year-old deserved to be imprisoned for 40 to 50 years. However, Judge Lewis Kaplan believed that sentence to be excessive.

Rather than lock up the former crypto leader for the majority of his remaining life, the judge chose instead to give Bankman-Fried a sentence that would keep him for a long time from once again committing the fraud he was found guilty of.

Bankman-Fried Started Out as a Crypto Trader

Bankman-Fried began his professional career as a trader at Jane Street Capital after graduating with a degree in physics from the Massachusetts Institute of Technology in 2014.

At Jane Street, he specialized in arbitrage trading strategies focused on exchange-traded funds, or ETFs. An arbitrage trade is where a trader purchases an asset in one market and instantly sells it for a higher price elsewhere, locking in a risk-free profit.

He worked at Jane Street for three years before stumbling across cryptocurrency in late 2017. At that point, bitcoin (BTC) was gaining substantial traction in mainstream finance, trading at around $10,000 at the end of November 2017.

The industry was still nascent, and crypto trading infrastructure was minimal. Despite the flow of buyers flooding the market, there were few firms providing platforms for buying and selling crypto.

Bankman-Fried immediately saw that the scope for arbitrage in crypto was enormous—prices were very erratic, and the market was highly inefficient.

He began by focusing on a Japanese arbitrage trade, which involved buying bitcoin in the U.S. and selling it in Japan, pocketing up to 10% with the differences in prices.

This trade was related to the “kimchi premium,” when crypto prices are higher in the Korean won than in other currencies.

With money beginning to flow into his operation, Bankman-Fried founded the quantitative trading firm Alameda Research in November 2017, shortly after turning 25.

Bankman-Fried Founded FTX

After setting up Alameda Research, it wasn’t long before SBF turned his attention to building crypto exchange FTX in 2019.

When Bankman-Fried launched FTX, he tweeted, “Alameda’s incentive is just for FTX to do as well as possible.”

Alameda is a liquidity provider on FTX but their account is just like everyone else’s. Alameda’s incentive is just for FTX to do as well as possible; by far the dominant factor is helping to make the trading experience as good as possible.

— SBF (@SBF_FTX) July 31, 2019

Bankman-Fried used Alameda to kickstart liquidity for FTX. He kept the employee count low relative to competitors. He also set up shop in Hong Kong for regulatory reasons before later moving to the Bahamas.

SBF branched off FTX.US in 2020, taking a more conservative tack in handling the strict regulatory environment of the U.S. Still, the contagion of FTX’s implosion was far-reaching, and FTX.US also filed for bankruptcy.

At its peak, FTX amassed a valuation of roughly $32 billion. It was once heralded as the world’s third-largest cryptocurrency exchange by volume before its November 2022 downfall. But that was back when SBF was still ranked among the world’s 100 wealthiest people while his net worth was estimated at $15.6 billion.

FTX Liquidity Crisis

FTX had managed to avoid the liquidity crisis that plagued crypto earlier in 2022 after a wave of contagion rocked the market in the wake of the $60 billion collapse of stablecoin TerraUSD.

But that reprieve would only last a few short months. FTX’s foundation would prove as unstable as TerraUSD’s.

The walls caved in on FTX in early November 2022, with a run on the exchange’s native token FTT. Like many other exchanges, FTX used its crypto token to support its various projects.

But a November 2 report by CoinDesk questioned FTX’s solvency with its use of FTT for liquidity. The report spotlighted that the single biggest asset on Alameda’s $14.6 billion balance sheet was “unlocked FTT,” while the third biggest asset on the books was a $2.16 billion pile of “FTT collateral.”

The news of SBF’s empire’s exposure with FTT spurred the markets into sell-off mode. FTT held a market cap of $3.4 billion on November 1, 2022 before CoinDesk’s story broke. The token was eviscerated after that, however, as more details surrounding SBF’s mismanagement emerged.

FTT’s total market cap was less than half a million as of November 21, 2022.

FTX Bankruptcy

On November 11, Bankman-Fried stepped down from his role as CEO of FTX shortly before the company filed for Chapter 11 bankruptcy.

John Ray III, the attorney who oversaw the $23 billion bankruptcy of Enron in the wake of the energy company’s collapse about two decades ago, took the helm of FTX as its incoming CEO.

In a scathing rebuke of Bankman-Fried’s leadership, Ray said, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

In the bankruptcy court filings, Ray added, “From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”