Since the fall of his crypto empire on Nov. 11, almost everything has been said about Sam Bankman-Fried.
His crypto bros called him "criminal." They accused him of lying to the clients and investors of his companies FTX and Alameda Research, a hedge fund that also operates as a trading platform.
"They lied. FTX lied. I think Sam lied to his employees, his users, his shareholders, regulators all around the world and all the users," Changpeng Zhao, founder and CEO of Binance, said during a Twitter event on Nov. 14. "So yes, he should take most of the blame."
Binance is the world's largest crypto exchange.
Regulators in the United States and the Bahamas, where Bankman-Fried lives and where FTX was headquartered, have launched investigations. He was questioned by the Bahamian police on Nov. 12, but remains a free man. Congress plans a hearing to question him in December, but no date has yet been set.
'I'd Be Afraid'
The Bankman-Fried regime has been heavily criticized by the new FTX CEO in charge of the restructuring John Ray, who said that the former trader and his two associates have failed on every level.
"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here," wrote John Ray, in a 30-page document filed with the United States Bankruptcy Court in the District of Delaware.
"From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented."
The insolvency of FTX was due to a liquidity shortfall when clients attempted to withdraw funds from the platform. The shortfall appears to have been the result of FTX’s founder reportedly transferring $10 billion of customer funds from FTX to Alameda Research.
Bankman-Fried remains free for the time being. No charges have been brought against him, despite the fact that FTX's top 50 creditors are claiming $3 billion from the exchange and millions of retail investors may never recover their investments.
But for billionaire Mark Cuban, Bankman-Fried should end up in prison. This is what he has just stated to TMZ. He claimed that jail is imminent for the former king of cryptocurrencies.
"I don't know all the details, but if I were him, I'd be afraid of going to jail for a long time," the Dallas Maverick owner said. "I talked to the guy and thought he was smart."
"I had no idea he was going to take other people's money and put it to his personal use."
Personal Loans
Bankman-Fried received a personal loan of $1 billion from Alameda, according to Ray. The firm also gave a $543 million personal loan to Nishad Singh, the FTX Director of Engineering, and $55 million to Ryan Salame, the co-CEO of FTX Digital Markets, one of FTX's affiliates.
"I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas," the liquidator said.
He further wrote that, to be reimbursed for business expenses, employees only had to submit the request by chat and a supervisor would immediately approve with a personalized emoji.
As a crypto exchange, FTX executed orders for their clients, taking their cash and buying cryptocurrencies on their behalf. FTX acted as a custodian, holding the clients’ crypto currencies.
FTX then used its clients’ crypto assets, through its sister company’s Alameda Research trading arm, to generate cash through borrowing or market making. The cash FTX borrowed was used to bail out other crypto institutions in the summer of 2022.
At the same time, FTX was using the cryptocurrency it was issuing, FTT, as collateral on its balance sheet. This represented a significant exposure, due to the concentration risk and the volatility of FTT.
