But on Friday, Sam Bankman-Fried, a curly-haired crypto kingpin and Democratic mega-donor who claimed to be reinventing digital finance, abandoned a weeks-long battle to save FTX, which in three short years since its launch had become the the second largest digital currency exchange in the world. He stepped down as CEO and the company and 130 subsidiaries were placed under US bankruptcy protection. Within days, the 30-year-old lost a fortune of $17 billion as a series of crises piled up. Concerns about FTX grew until Sunday, when players pulled $5 billion of their cash from its digital coffers. The streak ended on Tuesday morning when FTX blocked further withdrawals in an attempt to remain solvent. Bloomberg called it the biggest one-day collapse of personal wealth ever. FTX’s lawyer said the company was “investigating anomalies with wallet movements related to the consolidation of FTX balances on exchanges.” This came after Reuters reported that at least $266 million had been withdrawn from FTX within 24 hours and that Bankman-Fried may have secretly transferred $10 billion of FTX client funds to Alameda Research, a hedge fund that owns and run by his friend Caroline Ellison. . Bankman-Fried dined with celebrities including singer Katy Perry and actor Orlando Bloom. Photo: Robyn Beck/AFP/Getty Images This week, Bankman-Fried sought a rescue from would-be rival Changpeng “CZ” Zhao, founder of Binance, the world’s largest cryptocurrency exchange. Zhao initially agreed, then pulled out, leaving Bankman-Fried even more exposed and asking other investors to fill a reported $8 billion hole in its trade balance. The collapse has huge implications for thousands of FTX customers and for the crypto industry and brand of hyper-profit capitalism. Bankman-Fried had established himself as the accepted face of a shadowy sector that regulators viewed with deep suspicion as a haven for criminals, money launderers and sanctions busters – as a giant online casino in which bedroom traders could take losses that changed their lives. He spent millions to fund Joe Biden’s presidential campaign, becoming the biggest donor to the Democratic Party after financier George Soros and attracting other left-wing politicians. “Politicians talk loudly about the source of other candidates’ money,” Charles Elson, a corporate governance expert, said before FTX collapsed. “If you’ve taken money from someone who blows up, you’re going to be asked questions.” In Washington, Bankman-Fried lobbied for tighter regulations in an effort to promote his own business and make the industry palatable to US banking regulators. Now the reputation he built has been trashed. “I deeply regret that we got into this place and my role in it,” Bankman-Fried told employees Tuesday morning. “Fucked.” Former UK Prime Minister Tony Blair and former US President Bill Clinton attend the Crypto Bahamas event in Nassau with Bankman-Fried in May 2022. Photo: Trustnodes Within the industry, the collapse of FTX is being called crypto’s “Lehman moment,” a reference to the 2008 collapse of Lehman Brothers that triggered the global financial crisis. The figure at the center of the story is in many ways the archetypal Silicon Valley lover – young, nerdy, socially awkward, intelligent, and entrusted with the controls of mysterious but powerful financial instruments that can affect the real-world economy. A New York Times profile said his clumsiness seemed “self-inflicted,” but for a time it seemed that Bankman-Fried – or SBF, as he calls himself – had a truly savvy knack for the crypto business. He grew up in the San Francisco Bay Area in a family of academics, attending one of the top private high schools, Crystal Springs Uplands in Hillsborough, California. His parents are both law professors at Stanford University, and he was born on its campus. Of Aunt Linda Fried’s academic career is even more illustrious. An epidemiologist, he is dean of Columbia University’s Mailman School of Public Health. In 2014, after graduating from the Massachusetts Institute of Technology with a degree in physics, he joined the New York trading firm Jane Street Capital, having worked there as an intern during his student days. Of his education, he said, “Nothing I learned in college ended up being useful … except, like, social development. On the academic side, though, it’s all useless… School just isn’t useful for most jobs.” In 2017, he returned to California, where he worked for the philanthropic Center for Effective Altruism. Shortly thereafter, he founded Alameda Research, a quantitative trading firm named after a California town but based in Hong Kong, and began speculating on bitcoin. FTX was founded two years later. His wealth soared during the pandemic, and as he grew richer, Bankman-Fried also became a public figure. He spoke of his commitment to “effective altruism” – a data-driven approach to philanthropy favored by tech billionaires. He planned, he said, to give away his fortune. He made Twitter videos with star football quarterback Tom Brady and dined with actor Orlando Bloom and singer Katy Perry. FTX put its name on the Miami Heat sports stadium in Florida. When Bankman-Fried began rescuing other crypto platforms during the industry’s latest crash over the summer, he won high praise from Anthony Scaramucci, Donald Trump’s short-lived White House spokesman, who compared him to bank founder JP Morgan. “Sam Bankman-Fried is the new John Pierpont Morgan – bailing out cryptocurrency markets like the original JP Morgan did after the 1907 crisis,” Scaramucci praised. Morgan’s bank went on to dominate Wall Street for more than a century. FTX lasted three years. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. FTX is simple in concept: a trading platform like any stock exchange. Operated from offices in Chicago and then Miami, but based in the opaque tax haven of the Bahamas, it took advantage of what local authorities promoted as a regulatory jurisdiction ideal for “creating abundance” for “a financial center of the future.” Brazilian supermodel Gisele Bündchen at the 2019 Hollywood for Science Gala in Los Angeles, California. He was among the celebrities who attended the Crypto Bahamas event in Nassau with Bankman-Fried in May. Photo: Jon Kopaloff/FilmMagic FTX organized ostentatious public events. In May, the Crypto Bahamas event brought people to Nassau for a lavish gathering attended by supermodel Gisele Bündchen and her then-husband, Tom Brady. Wearing his usual cargo shorts, Bankman-Fried shared a stage with Bill Clinton and Tony Blair. In Washington, D.C., home to the US Securities and Exchange Commission, the body that seeks to bring crypto into compliance with US securities laws, Bankman-Fried presented himself as the man you could do business with. He supported Democratic political causes and gave $100 million in the midterm elections that just ended. He recently floated the idea of putting $1 billion into the 2024 presidential campaign, but called the idea “dumb” soon after. He advocated for tighter regulation of cryptocurrencies, promoting the idea of blacklisting digital addresses linked to financial crime. In written testimony at the U.S. Treasury Department’s Financial Stability Oversight Board hearing in July, Bankman-Fried said “FTX aims to combine the best practices of the traditional financial system with the best from the digital asset ecosystem.” However, not everyone shared his worldview. Perianne Boring, founder and CEO of the trade group Chamber of Digital Commerce, said in an interview with Bloomberg: “He is not the face of the industry and never has been.” “FTX hit every red light it could hit,” said Joshua Peck, founder of TrueCode Capital, a crypto asset manager and author of the forthcoming book Managing Cryptocurrency Risk: A Guide for Family Wealth Managers. “It’s registered in the Bahamas, it’s never achieved Soc 2 compliance, which is an industry certification that says your internal processes are high quality and highly leveraged. It’s a huge mess.” FTX has been approached for comment. Bankman-Fried threw up his hands, tweeting on Thursday that “poor internal labeling of bank accounts” meant he was “substantially off” in his calculations of how much the exchange had lent to users to let them make leveraged bets – borrowing money to trade, magnifying potential profits and losses. But there’s another narrative — that Bankman-Fried was undone by his friend-turned-rival at Binance. Zhao had invested $500 million over the summer in FTX coin, a token called FTT. On Sunday, Binance called in the debt. FTX was unable to respond to the request. When other investors ran into trouble, something akin to a bank run started and got out of hand. Some have argued that Zhao resented the SBF’s call for tighter regulations. Binance did not return a request for comment. On Sunday, Zhao posted a tweet explaining his decision to leave FTT. “We’ve been supportive before, but we’re not going to pretend we’re making love after the divorce. We are not against anyone. But we will not support people lobbying against other industry players behind their backs. Front.” But Zhao also said in a memo to employees on Wednesday that the then approaching…
