**The Fall of FTX: A Look Back at the Bankruptcy of Sam Bankman-Fried’s Crypto Empire**
The trial for Sam Bankman-Fried, the former CEO of bankrupt exchange FTX, is scheduled to begin on October 3. This trial could potentially lead to a prison sentence of up to 100 years for the disgraced founder. To understand how it all unraveled for Bankman-Fried and his crypto empire, let’s take a trip down memory lane.
Pre-Bankruptcy Events
Contrary to popular belief, FTX’s problems did not start when Binance CEO Changpeng “CZ” Zhao tweeted about liquidating their FTT holdings. The trouble began with a Coindesk article released on November 2, 2022, which revealed that FTX’s sister company, Alameda Research, had a significant portion of its assets in crypto tokens. The majority of these assets were tied up in FTT and SOL tokens. This raised concerns because FTT’s price was dependent on the actions of the crypto exchange.
Binance’s Decision to Liquidate
Binance held a substantial amount of FTT tokens and decided to liquidate them following the revelations about Alameda Research’s assets. This news caused a sell-off, negatively impacting FTT’s price. Many suspected that Binance’s tweet was an attempt to trigger a bank run on FTX, as the two exchanges were direct competitors. The panic led to billions of dollars in withdrawal requests from FTX users, forcing the exchange to pause withdrawals when it couldn’t fulfill them.
FTX Turns to Binance for Help
Amidst the liquidity crisis, FTX reached out to Binance for assistance. They signed a non-binding letter of intent (LOI) with plans for Binance to acquire FTX and help cover the liquidity crunch. However, after conducting due diligence and considering reports of mishandled customer funds and alleged investigations, Binance decided not to proceed with the acquisition. Many blamed CZ for FTX’s collapse, but it was clear that FTX and Alameda had underlying liquidity issues.
FTX Files for Bankruptcy
On November 11, 2022, FTX, FTX US, Alameda Research, and approximately 130 affiliated companies filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Sam Bankman-Fried stepped down as CEO, and John J. Ray III took over to lead the company’s recovery efforts. The bankruptcy filing revealed poor management practices at FTX, including improper handling of customer deposits and misappropriation of funds by top executives.
Authorities Step In
FTX’s headquarters were located in the Bahamas, where Bankman-Fried resided. The Securities Commission of the Bahamas (SCB) froze the exchange’s assets and appointed PricewaterhouseCoopers (PwC) as joint provisional liquidators. The Royal Bahamas Police Force also began investigating potential criminal misconduct at FTX. There were discussions between American and Bahamian authorities about extraditing Bankman-Fried to the US to face charges related to FTX’s collapse.
Sam Bankman-Fried’s Arrest
On December 12, 2022, Bankman-Fried was arrested by authorities. He denied any involvement in fraudulent activities during interviews and public appearances. However, evidence suggested that he had commingled funds between Alameda Research and FTX.
Hot Take: The downfall of Sam Bankman-Fried and his crypto empire serves as a cautionary tale about the importance of transparency and proper management in the cryptocurrency industry. It highlights the risks associated with unregulated exchanges and emphasizes the need for accountability to protect investors’ funds. As the trial begins, it remains to be seen what consequences Bankman-Fried will face for his actions.
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