If the rise of the boss of the huge cryptocurrency exchange FTX was dizzying, then the fall today is just as dizzying. In 24 hours, Sam Bankman-Fried lost 94% of his fortune and was forced to step down as CEO of FTX after he declared the group bankrupt and plunged his clients into uncertainty that they would ever see their money again. In his thirties, this American became the king of the cryptocurrency industry and, by the way, a multi-billionaire. Some compared him to Warren Buffett, others compared him to John Pierpont Morgan, the founder of one of the most powerful banks in the world.
However, he did not have the cliches of the golden boys of the financial markets, and he was far from luxurious cars and yachts. Having studied physics and mathematics at the prestigious Massachusetts Institute of Technology (MIT), Sam Bankman-Fried, even after his first billions, retained the appearance of a disheveled computer scientist, appearing in a T-shirt and shorts with American deputies. “He swears by his vegan diet, shares an apartment with his roommates,” Nikkei Asia reported in June 2021, also calling him “the world’s richest man under thirty.” A strong proponent of “effective altruism” (a philosophy that encourages its followers to earn as much as possible and then give as much as possible to minimize suffering in the world), he has promised to one day dedicate his fortune to charities.
Someone who wanted to transform the financial industry
At 28, he launched his first cryptocurrency trading company, Alameda Research. From Hong Kong in 2019, he then created FTX, a buying and trading platform, before moving it to the Bahamas for his “Comprehensive Cryptocurrency Licensing Regime.” The offshore exchange system (located in a state with very favorable non-resident tax rules for silver transactions) FTX allows investors to make risky crypto transactions, which is not allowed in the United States. The success was immediate. In three years, the group has become a giant in the crypto industry, and “SBF” – his nickname – is the boss of a company valued last January at $32 billion.
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Sam Bankman-Fried has a dream: to modernize the financial industry and democratize cryptocurrency trading by making it accessible to everyone. To achieve his goal, he spent millions of dollars over several years to see the FTX name in Superbowl ads; displays its logo on Major League Baseball umpires. He even hired American football superstar Tom Brady as an ambassador, who is now in danger of losing the $600 million he allegedly entrusted to FTX.
The thirty-year-old man does not hesitate to move forward. Nor intervene in the political world to defend more flexible rules regarding the crypto industry. He is the face of his brand on Twitter, where he talks a lot, as well as on TV and podcasts he participates in, such as Bloomberg Podcasts, where he advises listeners on the best way to make money with cryptocurrencies.
Another lobbying strategy: campaign donations. Before becoming the Democrats’ second-biggest mid-term backer, he paid Joe Biden a $5 million check during his 2020 presidential campaign “Action Plans,” which promote politicians who support the development of cryptocurrencies. Last March, he appeared in Philadelphia with Democratic House Financial Services Committee Chair Maxine Waters, the Washington Post notes in an article. A few weeks later, he held a meeting on Capitol Hill to present his cryptocurrency regulation program to half a dozen Democratic Senate aides.
Accused of stealing money from his clients
But on November 11, after a week of turmoil, everything around the young prodigy collapsed. Within a day, he lost almost all of his fortune, was forced to file for bankruptcy at FTX after he tried to sell his firm to his main competitor, fellow crypto mogul Chengpeng Zhao. The Binance Coin boss turned down the offer in the face of allegations of embezzlement that plague SBF.
According to the Wall Street Journal, FTX would use several billion dollars held by its platform clients (who would hold up to $16 billion on behalf of their clients) to lend nearly $10 billion to its investment firm Alameda Research. . The group is currently under investigation by the Securities and Exchange Commission and the New York Department of Justice, the New York Times reported, citing sources familiar with the matter.
For their part, FTX and its new CEO, John Ray, said they were investigating “unauthorized transactions” and “doing their best to protect all assets, wherever they are.” In a lengthy Twitter thread posted Nov. 10, Sam Bankman-Fried issued a confusing apology, not admitting there was a conflict of interest. He promised to “do everything to raise funds” and that “every penny of it (…) will go directly to the users.”
In general, the cryptocurrency industry, notorious for its volatility, has experienced major upheavals in recent months. The value of bitcoin dropped from around $68,000 to $17,000 in a year after a chain reaction that caused several cryptocurrency lenders and funds to plummet. The market has lost two-thirds of its market value, or about $2 trillion. The fall of FTX should be another blow to this young industry that is struggling to stabilize itself.
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