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Sam Bankman-Fried: The rise and fall of the FTX crypto mogul

March 28, 2024

Sam Bankman-Fried, the former billionaire cryptocurrency wunderkind, has finally been sentenced over his conviction for stealing $8 billion from customers of the now-bankrupt FTX exchange he founded.

FTX founder Sam Bankman-Fried leaves Manhattan federal court flanked by police officers
During the final hearing Bankman-Fried told the courtroom that he was 'sorry about what happened at every stage'Image: Seth Wenig/AP Photo/picture alliance

Once the poster child for responsibility in the cryptocurrency sector, Sam Bankman-Fried was sentenced to 25 years in jail on Thursday (March 28, 2024) following his conviction in November in what prosecutors called one of the biggest financial fraud cases in history.

US prosecutors were seeking a prison term of between 40 to 50 years, after a jury found him guilty on seven fraud and conspiracy counts contributing to the downfall of his FTX company — once a leading crypto exchange.

Sam Bankman-Fried, known in the crypto community as "S.B.F.," founded the collapsed FTX exchange in 2019, after launching the crypto hedge fund Alameda Research in 2017. Prior to his involvement in the cryptocurrency sector, he worked as a trader on Wall Street. At his peak, Bankman-Fried held a fortune of $26 billion (€24 billion).

FTX CEO Sam Bankman-Fried attends a press conference at the FTX Arena in downtown Miami on June 4, 2021
At his peak, Bankman-Fried was able to acquire major branding deals and celebrity endorsements for his crypto exchangeImage: Matias J. Ocner/Zuma/IMAGO

Bitcoin and digital assets saw a meteoric rise in 2020 and 2021. During that time, Bankman-Fried — who is known for his curly hair and disheveled appearance — became a symbol of responsibility in the cryptocurrency sector. This reputation played a key role in the success and survival of FTX when market conditions eventually took a downturn.

Under Bankman-Fried, prominent branding efforts, endorsements by celebrities and generous acts of philanthropy helped FTX, and cryptocurrencies in general, gain an image of reputability with much of the public prior to the collapse of his exchange in 2022.

The fallen 'benefactor'

The 32-year-old American was facing seven counts of fraud and conspiracy, including accusations that he embezzled money from FTX depositors. 

During the trial, prosecutors claimed actions taken by Bankman-Fried and his close colleagues endangered the availability of the funds to its users, leading to the collapse of FTX as cryptocurrency prices declined.

When a yearslong rally in the cryptocurrency market came to an end in 2022, Bankman-Fried claimed that his business was still healthy. In reality, his enterprise had also been hit hard by the fall in the cryptocurrency market.

In an effort to support the struggling industry, Alameda borrowed money to invest in failing digital-asset firms before reportedly skimming from FTX customers' deposits to meet its own immediate financial obligations.

A picture of U.S. Attorney Damian Williams speaking during a news conference about the criminal charges filed against FTX founder Sam Bankman-Fried,
US Attorney Damian Williams said in the sentencing memorandum, the defendant's life had been 'one of unmatched greed and hubrisalization'Image: Julia Nikhinson/AP Photo/picture alliance

Bankman-Fried was also accused of directing former FTX technology chief Gary Wang to make changes to the exchange's computer code to allow Alameda to borrow unlimited sums of money, a privilege not granted to other users on the exchange. This allowed Alameda to borrow significant funds from FTX.

Prosecutors argued Bankman-Fried used FTX deposits to plug losses at Alameda, engage in personal real-estate transactions and contribute to political campaigns.

This illustration photo shows a smart phone screen displaying the logo of FTX, the crypto exchange platform, with a screen showing the FTX website in the background in Arlington, Virginia on February 10, 2022.
The now-defunct FTX had been one of the world's largest crypto exchangesImage: OLIVIER DOULIERY/AFP/Getty Images

What caused the FTX collapse?

Starting in 2021, growing regulatory scrutiny and rising interest rates pushed many traders away from riskier assets like cryptocurrencies and toward more traditional investments.

In November 2022, the cryptocurrency news website CoinDesk published an exposé stating that Alameda had substantial exposure to FTT — a crypto token issued by FTX itself. This revelation led to a further loss of customer confidence, causing a significant outflow of funds from the exchange from which FTX could not recover.

That vast majority of Bankman-Fried's wealth evaporated practically overnight. He was arrested in the Bahamas in December 2022 and was extradited to the United States

In a courtroom sketch, defense attorney Mark Cohen, pleads "not guilty" for his client Sam Bankman-Fried, founder and former CEO of cryptocurrency exchange FTX, at his plea hearing in Manhattan federal court in New York City, US, January 3, 2023
Bankman-Fried pleaded 'not guilty' to charges of fraud and conspiracy and is now likely to appeal the sentenceImage: Jane Rosenberg/REUTERS

What happened in the trial?

Bankman-Fried acknowledged inadequate risk management, but denied stealing funds. His defense argued that Bankman-Fried believed his treatment of customer funds was in line with FTX's terms of service and the law, emphasizing a "good faith" belief.

The prosecution called former members of Bankman-Fried's inner circle who have pleaded guilty and agreed to cooperate. Bankman-Fried's defense aimed to demonstrate that the FTX collapse resulted from business mistakes rather than a deliberate fraud scheme. 

Overseeing the case was US District Judge Lewis A. Kaplan, who had previously handled defamation lawsuits against former US President Donald Trump and a sexual abuse lawsuit against Britain's Prince Andrew.

What does this all mean for the cryptocurrency market?

Initially, the trial surrounding Bankman-Fried and the collapse of FTX contributed to existing uncertainties in the industry.

"The fall of FTX could be the moment that really kicks off the broader decline — maybe even demise — of cryptocurrency," James Royal, principal reporter at Bankrate, told CNBC at the time of the collapse. 

What is cryptocurrency?

Crypto doomsayers, however, have since been proven wrong, with the value of prominent cryptocurrency Bitcoin having surged by over 300% in recent months, compared with November 2022, when it dipped below $20,000. 

The unit hit a fresh record above $71,000 on March 11 as demand for the cryptocurrency picks up amid optimism that the US Federal Reserve will cut interest rates this year. 

The cryptocurrency market capitalization also hit a record high of nearly $1.35 trillion. The combined value of the total crypto market currently stands at around $2.5 trillion — its highest level since the time when Bankman-Fried's FTX exchange was still in business.

Editor's note: The article was updated on March 28 to reflect the sentencing of Sam Bankman-Fried in New York.

Edited by: Uwe Hessler

Kristie Pladson
Kristie Pladson Business reporter, editor and moderator with a focus on technology and German economy.@bizzyjourno