Sam Bankman- Fried apologized to everyone who would listen before he was arrested. He wrote in the leaked draft that he was sad for his entire life. He wrote and said "f--- up" on the social networking site.
He apologized for ending up in this situation. It wasn't clear what he was apologizing for when he was escorted out of his apartment in Nassau in handcuffs.
According to a filing from the Securities Exchange Commission, the day after Bankman-Fried's arrest, federal prosecutors and regulators filed dozens of pages of charges that accused him of committing a fraud from the beginning.
The SEC and Commodity Futures Trading Commission regulators, along with federal prosecutors from the United States Attorney's Office for the Southern District of New York, alleged that Bankman-Fried was at the center of one of the biggest stock market crashes of all time. One of the highest-profile fraud prosecutions since Enron has been offered insight into the allegations against Bankman- Fried.
Bankman- Fried leased office space in Berkeley, California, for his hedge fund. The scion of two Stanford law professors, Bankman-Fried, had graduated from MIT and worked at the prestigious quantitative trading firm Jane Street Capital.
Alameda Research was an example of a shop that buys and sells at different prices from different exchanges. The price differences in South Korea allowed Bankman- Fried and Wang to make a lot of money.
FTX.com was founded by Bankman-Fried and Wang in April of 2019.
Bankman-Fried was the "unbeknownst to all but a small circle of insiders" when it came to using customer assets for his own bets.
When businesses are allowed to use customer assets, it's called rehypothecation. Customers didn't have permission to gamble with their money. Alameda was not allowed to use customer money for anything until the customer allowed it.
There was a lot of money from the beginning. According to reports from FTX, the futures volume is often over 100 million per day.
Customer money was used for Alameda's bets. Bankman- Fried was indicted by a grand jury in the Southern District of New York. Regulators say Bankman- Fried used customer funds to bankroll his speculative investments.
As recently as two months ago, the one-time king of the industry was hailed as the Savior of the Industry. A person familiar with the matter says Bankman-Fried will turn himself in on Monday to be extradited to the U.S. He will face a criminal trial when he returns to the U.S.
Attorneys for Bankman-Fried and his former companies didn't return calls. A representative for Bankman-Fried wouldn't say anything.
FTX launched its own token, FTT, in July, and got an equity investment from Binance in November.
According to the filing, FTX and its subsidiaries held 15 billion worth of assets and accounted for 10% of global digital transaction volume.
According to the SEC, the firm played with customer money for a long time.
FTX was able to operate effectively because it had a designated market maker. A DMM is a firm that buys and sells securities to and from customers, hoping to clear a profit in any difference in price, called the spread.
Alameda was the market maker from the beginning of FTX. Both ends of Bankman- Fried's empire were helped by Alameda and FTX.
Other market makers came online as FTX grew older. The SEC claims that Alameda was FTX's largest liquidity provider, easing platform function at Bankman- Fried's direction.
Alameda had a set of powerful tools that it could use.
Bankman- Fried directed his team at FTX to program an exception into the exchange's code to allow Alameda to maintain a negative balance in its account.
The SEC filing states that no other customer accounts were allowed to have a negative balance. Alameda was backtopped by customer assets as a result of the negative balance.
In an interview, the former CEO of Alameda mentioned this.
Ellison said that they don't tend to have stop losses.
A stop-loss order is used in traditional finance. When an asset reaches a pre-determined lower limit, the stop-loss order will sell off the asset to prevent losses from getting out of control.
Bankman- Fried was not content with what would eventually become a "virtually unlimited" line of credit from investors.
FTX gave power users access to an interface that allowed them to communicate directly with FTX's back-end systems. To be a normal user, you have to verify that you have enough money in your account.
Alameda traders could use a fast-lane which would allow them to pass other users and shave off several milliseconds from their trade execution times. FTX users engaged in high-frequency trading, which made that valuable.
The hedge fund gave terrible returns despite being in Alameda. According to a court filing, the trading arm lost over three billion dollars over its lifetime.
Alameda's losses and lending structure were crucial to FTX's downfall.
Alameda wasn't just playing with customer money. The hedge fund borrowed from a lot of different people. Both of those companies entered Chapter 11 this year.
Alameda secured its loans with FTX. The majority of the available currency was controlled by Bankman- Fried.
According to the complaint, Alameda should have acknowledged that its token couldn't be sold at the price they said they were worth.
If Alameda tried to sell off their token, it would cause the price of the token to go down.
Alameda recorded their entire amount of FTT as being worth the prevailing market price.
Alameda used this methodology with other coins as well, using them to lend money to other players. Industry insiders used to call the token Sam coins.
The tables were turned after the collapse of Luna, a stable coin that wreaked havoc on other firms. The major Alameda lenders declared bankruptcy. Remaining lenders started to liquidate open positions with customers.
A large number of margin calls and loan recalls took place in Alameda.
Alameda didn't have enough liquid assets to service its loans.
FTX's customers were reassured that the exchange and Bankman- Fried were determined to protect their interests, but they weren't.
In October of 2021, Bankman-Fried stepped down from his position at Alameda Research in order to create a false sense of separation between FTX and the hedge fund. Regulators claim that he kept exercising control.
Bankman-Fried is said to have ordered Alameda to increase its use of customer assets.
Alameda was able to use its ordinary course access to FTX credit and customer funds to facilitate large withdrawals, which were several billion dollars in notional value.
FTX's customers were owed $8 billion by the middle of the next decade. According to the firm's own bankruptcy filing, FTX possessed almost nothing in the way of record-keeping.
The first domino fell on November 2nd. The balance sheet of Alameda was publicized by CoinDesk. There were over $7 billion of assets that were Bankman-Fried backed. There were $2 billion locked away.
The inner workings of Alameda Research were revealed to be a Potemkin village. The potential calamitous situation for Bankman-Fried was caused by investors withdrawing their holdings from FTX.
If the value of their FTT fell too far, their lender would demand full repayment of the loans.
Alameda couldn't fulfill loan obligations over the summer because they couldn't access customer funds. Alameda and FTX faced a liquidity crunch because of money flowing out of the exchange.
Bankman- Fried claimed that FTX was fully funded and that customer assets were safe. The crack was widened by an old investor-turned-rival, Changpeng "CZ" Zhao.
It was the first outside investor in FTX and it was founded by a man named Zhao. The same year that FTX raised $1 billion, it exited the investment.
A combination of BUSD, BNB, and FTT was used to buy out the company.
BUSD is a stable coin that is pegged to the U.S. dollar. BNB is an exchange token that can be used to pay transaction fees on the exchange.
"Because of recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books," he said.
FTX executives were worried about the damage. For $22 per token, Ellison responded to the offer from Zhao.
Alameda traders were ordered to liquidate their investments and positions by Bankman-Fried. Bankman- Fried was going to bet the house in order to maintain Ellison's public support level.
The price of FTT was held at $22 for two days.
Bankman- Fried continued to operate as if everything was fine. It's fine. He wrote on the 7th that his assets were fine. Bankman-Fried said that all redemptions would be processed.
According to prosecutors, executives were growing more and more alarmed at the increasing shortfall, even though Bankman-Fried was reassuring them on social media. It wasn't just a matter of having enough liquid funds on hand to cover withdrawals.
The executives admitted to each other that the funds were lost because of Alameda.
It was an admission that flew in the face of everything Bankman-Fried would say publicly after his arrest.
The shortfall grew from $1 billion to $8 billion in a single day. Bankman- Fried was trying to get outside investors to invest in a rescue package. There were many parties that declined regardless of the favorable terms being offered.
Customer withdrawals were paused that day. The price of FTT plummeted. Bankman- Fried was in the middle of a high tech run on the bank. He turned to Zhao, who said that he had signed a letter of intent to buy FTX.com.
Reports of mishandled customer funds and federal investigations led to the decision not to go through with the acquisition.
Bankman- Fried resigned as CEO of FTX. John J. Ray was approached by FTX attorneys at Sullivan & Cromwell to take over Bankman- Fried's position.
FTX filed for Chapter 11 protection. Bankman- Fried was arrested by the authorities in the Bahamas on charges of fraud, conspiracy, and money laundered.
Bankman- Fried was driven by an obsessive need to quantify the impact he had on this world. He created a spreadsheet to measure the influence that Alameda had on the planet.
Billions of dollars of customer money are floating in venture funds, political war chests and charitable coffers, which are now at risk of being clawed back due to Bankman-Fried's alleged crimes.
Bankman- Fried asked rhetorically, "Just how much impact can a dollar have?" almost a decade ago.
He said it was one two thousandth of a life.
Over $8 billion dollars of customer funds are missing, according to the Commodity Futures Trading Commission. Customers may have lost their life savings, college funds, and future down payments. His misdeeds were worth four million lives according to Bankman- Fried.
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