As customers withdrew billions of dollars from crypto exchange FTX, founder Sam Bankman-Fried worked the phones in a futile bid to raise $7-billion in emergency funds.
billions of dollars from crypto exchange FTX one frantic Sunday this month, founder Sam Bankman-Fried worked the phones in a futile bid to raise US$7-billion in emergency funds.
Now, a review of dozens of company documents and interviews with current and former executives and investors provide the most comprehensive picture so far of how Bankman-Fried, the 30-year-old son of Stanford University professors, became one of the richest men in the world in just a couple of years, then came crashing down.
FTX made about $400-million in “software royalty” payments to Alameda over the years. Alameda used the funds to buy FTX’s digital coin FTT, reducing supply of the coin and supporting its price. He said FTX and Alameda together made a profit of roughly $1.5-billion in 2021, which was more than all of the expenses put together of both organisations since their founding. “I was unfortunately unable to communicate much of what was going on to the broader company in real time because much of what I posted in Slack appeared on Twitter soon after,” he added.
The booklet flagged the risks of crypto trading, particularly how sudden sales of tokens could trigger a “domino effect” that would lead to a “cascading set of liquidity failures”. It noted that “nothing fundamental” backed bitcoin’s value.Using profits from Alameda, Bankman-Fried launched FTX in 2019.
Bankman-Fried said he lived in a house with nine other colleagues. For his employees, he said FTX provided free meals and an “in-house Uber-like” service around the island.Its logo was emblazoned on a major sports arena in Miami and on Major League Baseball umpire uniforms. Sports stars and celebrities including Tom Brady, Gisele Bundchen and Steph Curry became partners in promoting the company. None of them commented for this article.
Investors loved Bankman-Fried’s ambition. FTX had already received more than $2-billion from backers including Sequoia, SoftBank Group, BlackRock and Temasek. In January, FTX raised a further $400-million, valuing the business at $32-billion. Behind his rapid growth, there was a secret Bankman-Fried kept from most other employees: he had dipped into customer funds to pay for some of his projects, according to company documents and people briefed on FTX’s finances. Doing so was explicitly barred in the exchange’s terms of use, which affirmed user deposits “shall at all times remain with you”.
Around $1-billion of the $10-billion sum is not accounted for among Alameda’s assets, Reuters reported on Friday. Reuters has not been able to trace these missing funds. Over the years, Alameda accumulated a huge holding of FTT, valued at around $6-billion before last week, according to a balance sheet later sent to investors. It used the FTT reserves to secure corporate loans, people familiar with its finances said. This meant that Bankman-Fried’s business empire was dependent on the token.On 2 November, news outlet CoinDesk reported a leaked balance sheet disclosing Alameda’s reliance on FTT.
Bankman-Fried showed the executives spreadsheets that revealed there was a $10-billion hole in FTX’s finances – because customer deposits had been transferred to Alameda and mostly spent on other assets. The executives were shocked. One of them told Bankman-Fried the spreadsheet presentation contradicted what FTX told regulators about its use of client funds.
One of the investors who turned down Bankman-Fried said his numbers were “very amateurish”, without elaborating. Another red flag was that the spreadsheets showed ties between FTX and Alameda, the investor said.
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