Penthouse to prison: Sam Bankman-Fried’s journey from crypto king to convicted conman

Two
years
ago,
Sam
Bankman-Fried
was
a
30-year-old
multibillionaire
living
in
a

$35
million
Bahamas
penthouse,
partying
with
his
pals
while
running
one
of
the
world’s
most
valuable
crypto
companies.

Today,
he’s
a
32-year-old
inmate
at
the
Metropolitan
Detention
Center
in
Brooklyn,
waiting
for
a
judge
to
tell
him
how
long
he’ll
spend
behind
bars
for
masterminding
“one
of
the
biggest
financial
frauds
in
American
history,”
in
the
words
of
U.S.
Attorney
Damian
Williams.

Bankman-Fried,
the
founder
and
former
CEO
of
failed
crypto
exchange
FTX,
will
head
on
Thursday
to
a
federal
court
in
downtown
Manhattan,
where
U.S.
District
Judge
Lewis
Kaplan
will
deliver
his
sentencing.
Prosecutors
have
recommended
a
prison
sentence
of
40
to
50
years.

It
took
jurors
only
about
three
hours
of
deliberations
in
November
to
find
Bankman-Fried
guilty
of
all
seven
criminal
accounts
against
him.
For
a
high-profile
monthlong
trial
that
involved
nearly
20
witnesses
and
hundreds
of
exhibits,
experts
said
at
the
time
that
they’d
never
seen
such
a
speedy
decision.
Bankman-Fried

plans
to
appeal
his
conviction
and
sentence.

It
was
a
steep
and
swift
fall
from
grace
for
Bankman-Fried,
who
was
once
hailed
as
a
titan
in
the
industry
and
had
a
peak
net
worth
—
on
paper
—
of
roughly
$26
billion.

It
started
with
the
Kimchi
Swap.

In
2017,
as
a
quant
trader
at
Jane
Street,
Bankman-Fried
noticed
something
funny
when
he
looked
at
bitcoin
pricing
on
CoinMarketCap.com.
Instead
of
a
uniform
price
across
exchanges,
Bankman-Fried
would
sometimes
see
a
60%
difference
in
the
value
of
the
digital
currency.
His
immediate
instinct,
he
said,
was
to
get
in
on
the
arbitrage
trade
—
buying
bitcoin
on
one
exchange
and
selling
it
back
on
another,
pocketing
the
difference.

“That’s
the
lowest
hanging
fruit,”
Bankman-Fried

told
CNBC
in
September
2022.

The
arbitrage
opportunity
was
especially
compelling
in
South
Korea,
where
the
exchange-listed
price
of
bitcoin
was
significantly
higher
than
in
other
countries.
It
was
dubbed
the
Kimchi
Premium,
a
reference
to
the
traditional
Korean
side
dish
of
salted
and
fermented
cabbage.

After
a
month
of
personally
dabbling
in
the
market,
Bankman-Fried
launched
Alameda
Research,
named
after
the
California
county
that
housed
his
first
office.

Bankman-Fried
told
CNBC
that
the
firm
sometimes
made
as
much
as
a
million
dollars
a
day
trading
bitcoin.

Alameda’s
success
spurred
the
launch
of
FTX.
In
April
2019,
Bankman-Fried
co-founded
FTX.com,
an
international
cryptocurrency
exchange
that
offered
customers
innovative
trading
features,
a
responsive
platform
and
a
reliable
experience.
FTX’s
success
led
to
a

$2
billion
venture
fund
that
seeded
other
crypto
firms.

The
FTX
logo
soon
adorned
everything
from
Formula
One
race
cars
to
a
Miami
basketball
arena.
Bankman-Fried

talked
about
one
day
buying
Goldman
Sachs,
and
he
became
a
fixture
in
Washington
as
one
of
the
Democratic
Party’s

top
donors.

Then
the
market
turned.

The
so-called
crypto
winter
of
2022
wiped
out
hedge
funds
and
lenders
across
the
crypto
universe.
Bankman-Fried
boasted
that
he
and
his
enterprise
were
immune.
Behind
the
scenes,
Alameda
was
borrowing
money
to
invest
in
failing
digital
asset
firms
to
keep
the
industry
afloat.

May
of
2022
brought
the

crash
of
stablecoin
Luna,
creating
a
domino
effect
that
sent
crypto
prices
plunging,
devastating
other
lenders.

Alameda
had
borrowed
from
lenders
including
Voyager
Digital
and
BlockFi,
which
both
ended
up
going
bankrupt.
Alameda
secured
its
loans
with
FTT
tokens,
minted
by
FTX.
Bankman-Fried’s
empire
controlled
the
vast
majority
of
the
available
currency,
with
only
a
small
amount
of
FTT
actually
circulating
at
any
time.

Alameda
marked
its
entire
hoard
of
FTT
at
the
prevailing
market
price
despite
it
being
a
virtually
illiquid
asset.
The
fund
employed
the
same
methodology
with
other
coins
as
well,
including
Solana
and
Serum
(a
token
created
and
promoted
by
FTX
and
Alameda),
using
them
to
collateralize
billions
of
dollars
in
loans.
Industry
insiders
called
the
tokens
“Sam
coins.”

When
faced
with
margin
calls
due
to
falling
prices,
Bankman-Fried
turned
to
FTX
customers’
deposits
to
the
tune
of
billions
of
dollars
by
the
middle
of
2022.
According
to
the
firm’s
own
bankruptcy
filings,
it
possessed
almost
nothing
in
the
way
of
record
keeping.

On
Nov.
2,
2022,
crypto
trade
site
CoinDesk publicized
details of
Alameda’s
balance
sheet,
which
showed
$14.6
billion
in
assets.
Over
$7
billion
of
those
assets
were
either
FTT
tokens
or
Bankman-Fried-backed
coins
like
Solana
or
Serum.
Another
$2
billion
worth
were
locked
away
in
equity
investments.

Investors
began
withdrawing
their
holdings
from
FTX,
creating
the
threat
of
a
virtual
bank
run.
Alameda
and
FTX
now
both
faced
a
liquidity
crunch.

On
Nov.
6,
four
days
after
the
CoinDesk
article,
Binance
founder
Changpeng
Zhao
dropped
the
hammer.
Binance
was
the
first
outside
investor
in
FTX
in
2019.
Two
years
later,
FTX
bought
back
its
stake
with
a
combination
of
FTT
and
other
coins,
according
to
Zhao.

Zhao
wrote
in
a tweet
that,
because
of
“recent
revelations
that
have
came
[sic]
to
light,
we
have
decided
to
liquidate
any
remaining
FTT
on
our
books.”
FTX
executives
scrambled
to
contain
the
damage,
and
Alameda
traders
managed
to
fend
off
outflows
for
a
couple
days.

On
Nov.
7,
Bankman-Fried
tried
to
show
confidence,
tweeting,
“FTX
is
fine.
Assets
are
fine.”
The
post
was
deleted.

Internal
discussions
were
different.
Bankman-Fried
and
other
executives
admitted
to
each
other
that
“FTX
customer
funds
were
irrevocably
lost
because
Alameda
had
appropriated
them.”
By
Nov.
8,
the
client
shortfall
had
grown
to
$8
billion.
Bankman-Fried
was
courting
outside
investors
for
a
rescue
package
but
found
no
suitors.

FTX
issued
a
pause
on
all
customer
withdrawals
that
day.
FTT’s
price
plummeted
by
over
75%.
Out
of
options,
Bankman-Fried
turned
to
Zhao,
who
announced
that
he’d
signed
a
“non-binding”
letter
of
intent
to
acquire
FTX.com.

But
a
day
later,
on
Nov.
9,
Binance
said
it
wouldn’t
go
through
with
the
acquisition,
citing
reports
of
“mishandled
customer
funds”
and
federal
investigations.

FTX
filed
for
bankruptcy
on
Nov.
11,
and
Bankman-Fried
resigned
as
CEO
of
FTX
and
associated
entities.
He

immediately
lost
94%
of
his
personal
wealth.

Sullivan
&
Cromwell,
FTX’s
longtime
attorneys,
approached
John
J.
Ray,
who
oversaw
Enron
through
its
bankruptcy,
to
assume
Bankman-Fried’s
former
position.

On
Dec.
12,
Bankman-Fried
was
arrested
by
Bahamian
authorities
and
extradited
to
the
U.S.,
where
he
was
taken
into
custody.

Federal
prosecutors
and
regulators
accused
Bankman-Fried
of
perpetrating
a
fraud
“from
the
start,”
according
to
a
filing
from
the
Securities
and
Exchange
Commission. 

Bankman-Fried
was
released
on
a
$250
million
bond
and
was
initially
living
under
house
arrest
with
a
court-ordered
ankle
monitor
at
his
parents’
home
in
Palo
Alto,
California,
on
the
Stanford
University
campus.
He
was
soon
taken

back
into
custody
for
alleged
witness
tampering.

While
Bankman-Fried
awaited
trial,
many
of
his
closest
friends
and
confidants
turned
into
key
witnesses
for
the
prosecution,
leaving
the
former
crypto
billionaire
to
defend
himself.
Less
than
a
year
after
his
arrest,
the
12-person
jury
found
Bankman-Fried
guilty
on
all
criminal
charges
against
him.

—

CNBC’s
Rohan
Goswami
contributed
to
this
report.