Money & Finance › Fraud, scams & enforcement › Securities fraud: lying to investors and rigging markets
FTX and Sam Bankman-Fried (2022)
Nov 2022· Fraud or scheme
Fact, law or dataA rule, statute, definition or measured number.
FTX, a crypto exchange valued at $32 billion, collapsed in November 2022 after secretly lending customer deposits to its founder's trading firm.
See it on the Money & Finance map →How it works
Sam Bankman-Fried founded FTX in 2019 and also controlled Alameda Research, a trading firm. Hidden code and accounts let Alameda draw billions in customer funds for trading, venture bets, property, political donations and loans to insiders. A November 2 CoinDesk report showed Alameda's assets were largely FTX's own token. Binance said it would sell its holdings, and customers pulled about $6 billion in 72 hours. FTX filed for bankruptcy on November 11 with about $8 billion missing.
Why it matters
It showed how customer deposits can vanish when one person controls both an exchange and a trading firm, and it shaped later US debates over crypto rules.
Think of it like
Like a property manager sweeping tenants' security deposits into his own development company, fine until the tenants ask for them back.
Facts, rules and data
His 2023 trial, where top deputies testified against him; he was convicted on seven fraud and conspiracy counts and sentenced to 25 years. Bankruptcy filings by new CEO John Ray, who had also wound down Enron.
Debates and risks
Customers are being repaid over 100% of claims, but at November 2022 prices, missing crypto's rebound. Bankman-Fried says it was mismanagement, not fraud; the jury disagreed.
Connections (3)
▸Cryptocurrency suffered its most notorious fraud in FTX and Sam Bankman-Fried (2022)Fact, law or data
The connection
Crypto exchanges hold customers' coins and cash much like a broker, but in 2022 most operated offshore without broker-style rules on separating client assets. That gap let FTX treat deposits as a pool its affiliate could tap. Crypto's 2022 price crash hurt Alameda's bets and made its collateral, FTX's own token, fragile.
When and why
FTX in the Bahamas and Alameda Research, 2019–2022; collapse November 6–11, 2022, after Binance moved to sell its FTT tokens.
How we know
Trial testimony and exhibits in federal court in Manhattan in 2023, and bankruptcy filings documenting the shortfall.
Debates and risks
Whether crypto-specific rules would have stopped it, or whether old fraud laws were enough, is still argued in Congress.
▸FTX and Sam Bankman-Fried (2022) was prosecuted by Fraud enforcers: DOJ, FBI and the FTCFact, law or data
The connection
Federal prosecutors in Manhattan charged Bankman-Fried with wire fraud and conspiracy for taking customers' money while telling them it was safe. Top deputies Caroline Ellison, Gary Wang and Nishad Singh pleaded guilty and testified. A jury convicted him on all seven counts after a few hours.
When and why
Arrested in the Bahamas in December 2022; tried in Manhattan in October–November 2023; sentenced to 25 years in March 2024.
How we know
Court records, trial transcripts and the judge's sentencing order, which included an $11 billion forfeiture.
Debates and risks
His appeal argued the judge wrongly barred evidence that FTX could repay customers; prosecutors said later repayment does not undo fraud.
▸FTX and Sam Bankman-Fried (2022) was sued by Commodity Futures Trading Commission (CFTC)Fact, law or data
The connection
Because bitcoin and ether count as commodities under US law, the CFTC could sue for fraud in their markets. Its complaint charged FTX and Alameda with misusing customer deposits, and the court ordered them to pay $12.7 billion, mainly to customers through the bankruptcy.
When and why
Complaint filed December 13, 2022, in New York, alongside an SEC suit; judgment approved August 2024.
How we know
The CFTC complaint and consent order, and the federal court judgment.
Debates and risks
Which agency, the SEC or the CFTC, should oversee crypto trading remains disputed in Congress.