06 March 2023
FT Film (2023) ¦ FTX: the legend of Sam Bankman-Fried
FTX’s Fall: The Rise and Collapse of Sam Bankman‑Fried
The making of a crypto celebrity Sam Bankman‑Fried rose from an MIT graduate and Jane Street trader to the public face of a new generation of crypto entrepreneurs. He cultivated an image of relentless work ethic, messy hair, cargo shorts and unconventional philanthropy, presenting FTX as the safest and easiest gateway for retail and institutional investors into digital assets. Backed by celebrity endorsements, lucrative sponsorships and a raft of prominent venture capital investors, FTX’s valuation climbed into the tens of billions and its founder became a mainstream figure who shared stages with former world leaders and spent freely to project success.
How Alameda blurred lines and magnified risk
Beneath the consumer‑friendly narrative lay an “incestuous” relationship between FTX, the exchange, and Alameda Research, the trading firm founded by Bankman‑Fried. Allegations and later evidence showed Alameda holding large amounts of FTX’s native token, FTT, and other exchange‑issued assets that were illiquid and ultimately revealed to be effectively self‑issued claims on value. That concentration of risk and the apparent commingling of funds meant that when questions over Alameda’s balance sheet surfaced, market confidence evaporated quickly.
The collapse in days: contagion and withdrawal freezes
A CoinDesk report in early November exposed Alameda’s heavy holdings of FTT. When Binance announced it would sell its FTT holdings, the token’s price plunged and a run on FTX followed. Withdrawals were suspended, liquidity dried up, and within days the company teetered on insolvency. Customers and professional counterparties found capital inaccessible; losses ranged from retail investors to major institutional backers. Sam Bankman‑Fried publicly insisted the platform was solvent and apologized repeatedly, but internal chaos, mass employee departures and failed rescue talks led to bankruptcy filings and a sudden unraveling of the company.
Accountability, cooperation and prosecutions
Several close associates of Bankman‑Fried — key Alameda figures and co‑founders — pleaded guilty and agreed to cooperate with U.S. prosecutors. Allegations against Bankman‑Fried included wire fraud, conspiracy, and campaign finance violations. He was arrested in the Bahamas, extradited to the United States, pleaded not guilty, and faced potential prison time. Testimony and documentary evidence painted a picture of a corporate culture with few governance structures: minimal board oversight, weak risk controls, and an inner circle that controlled both exchange and trading operations.
The role of investors, auditors and regulators
Major venture capital firms, pension funds and institutional investors were seduced by FTX’s rapid growth and the fear of missing out. Many later admitted their due diligence had been insufficient. Auditors were not among the “big four,” and the audit and transparency gaps in crypto businesses were starkly exposed. The collapse prompted renewed calls for clearer, stronger regulation of crypto exchanges, better custody rules for customer funds, and more rigorous auditing standards to restore trust and protect consumers.
Lessons and consequences for the wider crypto industry
FTX’s failure did not wipe out interest in cryptocurrencies, but it catalyzed a reckoning: platforms cannot self‑regulate without robust governance, and retail and professional investors must demand transparency about custody and counterparty risk. Regulators worldwide began moving more decisively to address gaps in oversight, and industry participants recognized the need to rebuild trust through better disclosure, independent boards, and separation of trading and exchange functions. For many who lost money, the collapse was life‑altering; for the industry, it was a cautionary tale about the limits of celebrity, rapid growth and opaque business structures.