The FTX Cryptocurrency Scandal

Only months ago, FTX, short for “Futures Exchange”, cryptocurrency was seemingly a huge success. Being valued at an estimated $32 billion in January and garnering massive support from celebrities. The platform was one of the biggest crypto trading exchanges and was recognized by the community as one of the more transparent crypto operations. However, since then, the organization has hit some major turbulence and appears to be unraveling rapidly.

The cryptocurrency world sits in a generally unregulated area of the financial sector, and most of the world is still learning how trading, owning, and tracking crypto works for users, sellers, and regulators. Initially, the origin of this scandal was believed to be the result of a typical bank-run, where many users feared loss and withdrew their funds, depleting the exchange’s reserves. However, as more evidence is discovered, the story around FTX becomes more and more unclear and possibly involves criminal behavior. Here’s a rough timeline of what led to the downfall of FTX:

Nov 2- CoinDesk, a digital currency news site, publishes a report that reveals Alameda Research – a sister company to FTX – has a balance sheet full of FTT, the cryptocurrency issued by FTX.

Nov. 6:  Binance, another crypto exchange, says they will offload all its remaining FTX tokens “due to recent revelations that have come to light.” FTT prices drop as investors begin to withdraw.

Nov 8: Binance agrees to acquire FTX.

Nov 9: Binance pulls out of its acquisition of FTX and U.S. Regulators reportedly begin investigating.

Nov. 10: FTX warns US users of a trading pause.

Nov 11: FTX files for bankruptcy. CEO and founder, Sam Bankman-Fried, age 30, resigns.

Nov 11: Reports emerge that FTX has transferred $10 billion to Alameda Research, sparking concern about what level of access top leaders have to company finances.

Nov. 12: Customer funds are reportedly missing.

Nov 13: News organizations begin reporting that much of the money transferred out of FTX in its final hours has now disappeared.

Nov. 14: Multiple regulators reportedly begin looking into criminal liabilities surrounding the company.

Reuters reports that at least $1 billion of customer funds are missing from FTX. The Securities and Exchange Commission and Justice Department are investigating the exchange. The authorities in the Bahamas, where FTX was headquartered, also said they were investigating the exchange. Legal experts say FTX’s use of customer money for reasons that were not clearly stated could be the basis for fraud or embezzlement charges.

Either way, Bankman-Fried and quite a few of FTX’s celebrity endorsers now face a class action lawsuit from U.S. crypto investors. Filed last week in Miami, the lawsuit accuses FTX of “false representations and deceptive conduct.”

And the status of FTX has only continued to fall as on:

Nov. 20: FTX states that the company owes 50 of its largest creditors almost $3 billion. With the largest individual claims being $226 million and $203 million each.

Nov. 22: As bankruptcy procedures moved forward, more details of the money behind Bankman-Fried’s empire start to emerge. While FTX executives stated they had found assets worth $1.4 billion, they cautioned that it might still take a while longer to construct a complete balance sheet. Tax papers also show that FTX and Alameda Research had lost a combined total of $3.7 billion between 2019 and 2021, which shows that these organizations were never thriving as they may have seemed.

 

Nov. 28: Cryptocurrency platform BlockFi files for Chapter 11 bankruptcy in New Jersey and stated its failure on its exposure to FTX. The company claimed in a press release that the FTX collapse severely harmed them, thus leading to a liquidity issue.

Dec.10: Bankman-Fried said in an interview with the BBC that he plans to start a new company to reimburse his clients. Bankman-Fried stated that in order to recover the lost assets of his consumers, he would “sacrifice anything” to be able to launch a new business. He also said, “I think at the very least I have a duty to FTX users to do right by them as best as I can.” He added, “I would give anything to be able to accomplish it.”

Bankman-Fried was detained in the Bahamas on December 12th.

Bankman-Fried was detained by Bahamian authorities at the US government’s request, according to US attorney Damian Williams. He is now facing an array of charges including wire fraud, conspiracy, and campaign finance violations. If convicted of all charges, Bankman-Fried could face a maximum of 115 years in Prison. He was also denied bail on December 13th as he posed a flight risk. Bankman-Fried’s next court hearing will take place on February 8th, 2023.

Bankman-Fried’s fate and the story behind FTX continues to develop. Return back for more.