Futures Exchange, or FTX, was founded in 2019 as a platform where people could store and trade cryptocurrencies. FTX was a crypto bank of sorts. It would hold customer funds in a digital vault, and it could act as a go-between for people buying, selling, or trading cryptocurrencies. The result? People were putting a lot of trust in FTX to act as a bank for their digital currency.
FTX was started by an MIT graduate named Sam Bankman-Fried, also known as "SBF." He was just 26 years old as FTX was really taking off, and he gained this reputation in the world of finance and tech as an industry titan for a new generation, even at one point being called "the J.P. Morgan of crypto."
"He really just had this this aura of money and knowledge," said Paul Vigna, a longtime finance reporter and author of books on cryptocurrency. "Everything about his persona gave you this impression that he was somebody that was focused on something else over there and it was probably going to make you money."
"He was a pretty awesome, figure because of his reputed skill and intelligence and wisdom on the subject of digital currency," said Kevin O'Brien, a former federal prosecutor for the U.S. Department of Justice.
SBF was one of the youngest billionaires in the world. Before he even turned 30 years old, he was worth more than $22 billion.
And SBF became a public figure who was known not just for his business, but also for the way he did business: Playing a video game during a call with one of the biggest investment firms in the world, or wearing a T-shirt and cargo shorts in a formal business setting. It might have looked like SBF wasn't taking all this very seriously, but as long as FTX was growing, these were seen as character quirks, not as any sort of red flag. It all fed into a "boy genius" reputation for him.
By 2020, FTX had become hugely popular. It drew a lot of media attention, but it was often for things other than just the core business.
"They really tried to permeate pop culture, mainstream media very quickly when it came to sports and celebrities and getting celebrity endorsements," said Aaron Kaplan, founder and co-CEO of cryptocurrency platform Prometheum.
"What happened with FTX – nobody was doing it more and better," said Greg Johnson, CEO of Rubicon Crypto. "The sponsorship deals with Major League Baseball, the NBA, Miami Heat, and many, many, many other outlets were just the tip of their global sports and media strategy in the celebrity. Not only that, but the celebrity endorsements that they signed were of a constellation of global athletes, most notably the United States, of course, Tom Brady."
"They were incredibly effective ads, but they really brought out all the worst in crypto. Instead of it being about the technology, the innovation, this incredibly brilliant generation of developers, all the new capabilities that were still early in development, it became more about a lottery ticket and getting rich quick."
"By attracting celebrities who obviously did not know what they were investing in and promoting, he was able to reach a wider audience," said Natalie Brunell, host and managing editor of Hard Money. "He had a Super Bowl commercial. He had a stadium with the company's name on it."
One of FTX's big early investors was Changpeng Zhao, or "CZ." He's a Canadian businessman born in China, and he founded a company called Binance which became the largest crypto exchange platform in the world.
As FTX grew from just an investment opportunity into a real competitor to Binance, SBF didn't like that CZ had this chunk of FTX, and so he decided to buy out CZ's part of the company. But SBF didn't pay CZ in U.S. dollars. He bought him out in FTX's own created currency, called FTT coins. And this is where the FTX story really starts to go off the rails.
"One of the things that I think FTX tried to do, and we're very effective at it for a long period of time, was minting their own coins," Johnson said. "And part of the rationale for that was to use the minting of these coins almost as a new age loyalty program. Where the story goes off the rails is when they started borrowing back and forth from their own supply, when they started taking poetic license with generally accepted accounting principles. So the issue wasn't really that they were minting their own token. There's nothing inherently wrong with that. It's the application of it, how they used it for leverage, how they used it to inflate their books as being alleged."
"What's interesting about Sam's little crypto empire is there are there are two main segments of it," Vigna said. "One is a trading firm called Alameda Research, which is just a trading firm. The other was a crypto exchange called FTX. They were both owned by Sam Bankman-Fried, but they purportedly were operating separately. There are walls in the traditional finance world that prevent that from happening. In the crypto world, there were no walls.
So you had this situation and basically everybody was just believing Sam when he said that these two things were separate. As we know in reality, in retrospect, one was incredibly influenced by the other."
"If the allegations are true, Almeda was essentially able to use customers money as a slush fund and a piggy bank," Kaplan said. "And if you're familiar with traditional financial services or securities regulation, just regulation in general, co-mingling of customer funds with that of an institution is almost as bad as it gets."
The trouble for FTX started to become clearer when reporting by CoinDesk suggested Alameda Research had been making risky investments and was losing a lot of money, and that SBF had been moving money from FTX to prop up the hedge fund.
At this point, Changpeng Zhao, the head of FTX's rival Binance, decides there could be some trouble here, and decides to sell the FTX tokens that he's still holding. And that starts a run on the bank at FTX.
"What cannot be argued at this point in time is that Binance chose the time and the method of the demise of FTX," Johnson said. "They literally chose exactly the moment when they would light the match, figuratively. And in today's world, of course, it's social media."
People who have FTX tokens wanted to sell them. And people who had money in FTX, wanted their money back.
When those people came back to FTX to return those tokens and get their money back, it simply wasn't there. In total, about $8 billion wasn't there.
"You never mix client assets with assets that are part of a hedge fund operation and are inherently speculative in nature," O'Brien said. "And this really was the core of the case against him."
As FTX was really in freefall and headed toward bankruptcy, some of SBF's most notable interviews weren't with established media. One candid interview took place with independent crypto journalist and influencer Tiffany Fong, who visited SBF on house arrest.
"I'd say the first time I visited, Sam was probably the lowest mood I've ever seen him in, because that was when he was immediately out of jail in the Bahamas," Fong said. "I was one of his very first visitors, but he did seem kind of shaken by his time in prison."
He seemed affected by that week he had in Foxhill (prison) and he basically told me that he had kind of he was going mad there."
A large amount of evidence and testimony around FTX pointed to bad accounting and over-the-top spending on perks and houses for employees in the Bahamas, where FTX was headquartered.
By early 2023, Sam Bankman-Fried was facing several criminal charges.
"The initial indictment was brought with the aid of two of his lieutenants who pled separately, and they gave authorities a sort of inside picture of what was going on," O'Brien said. "The second indictment was much more microscopic. It goes into detail exactly how he was able to effect this massive transfer of client funds over to Alameda, that he flooded the political marketplace with unlawful campaign contributions. And it was done on a bipartisan basis. They quite consciously favored Republicans in some cases and Democrats in other cases. And their goals were partly to obtain what they wanted for their business interests."
"Of course, he may not be convicted. That's something that has to be said at the outset. He's innocent until proven guilty. But if he is convicted, let's just say he's facing a very substantial penalty, probably somewhere in the range of 20 to 25 years."
In hindsight some of the different ways of doing business that had defined Sam Bankman-Fried as a "boy genius," to many people now seem like things that should have been a red flag. And so, there's a question of how SBF escaped scrutiny, and why the red flags weren't clearer earlier?
"The sadly ironic thing is in retrospect, everything was a warning sign, just absolutely everything," Vigna said. "The entire operation was a black box. That's a warning sign. There were a lot of warning signs in retrospect. It's just that at the time, nobody cared about any of it because the crypto markets were going up and everybody was making money."
"We saw that there was no demigods," Kaplan said. "We deified so many people in this industry. We want to anoint someone, uh, a la Mark Zuckerberg to be the next, you know, chosen one. It's not how real life works."
The SBF story, the Elizabeth Holmes story, and other stories of people who shook up their industry and benefitted from positive press before ultimately having a hard downfall have some things in common. And they raise some similar questions about how these titans of industry are treated in press coverage, and how good marketing can cover for bad business.
"Crypto didn't invent bankruptcy, crypto didn't invent fraud, crypto did not invent some of this competitor behavior," Johnson said. "What's new about the collapse of FTX is not the reasons behind it, but the speed in which it collapsed, the use of social media to accelerate that fire."
"There was a name, there was a face," Vigna said. "And I think that's why this one resonated more than others. It was because of Sam Bankman-Fried."