Sam Bankman-Fried Found Guilty: The Backstory and Collateral Impact

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By A D

Sam Bankman-Fried, known as a former crypto king, became a household name in the cryptocurrency industry. In a short span of time, he rose from relative obscurity to being one of the wealthiest individuals in the world, with an estimated net worth of billions of dollars. His trading firm, FTX, was seen as a game-changer and his influence extended beyond the crypto world into politics and finance.

Read: Bankman-Fried: Crypto Crown to Scam Down!

Sam Bankman-Fried, Alameda Research and FTX Connection

At first glance, Alameda Research appeared to be a financial powerhouse, boasting a staggering $14.6 billion in assets. This signaled the vast scale of the FTX empire, with Sam Bankman-Fried at its helm. However, a closer look at the balance sheet revealed concerning details. Alameda Research held an unusually large stake in FTT, an altcoin created by FTX. FTT represented $3.66 billion, the largest asset in their portfolio. The third-largest asset was $2.16 billion in collateral on FTT. This raised questions about the close ties between Alameda Research and FTX, suggesting that FTX might have been artificially inflating the value of its token.

Four days after these revelations, the cryptocurrency world was rocked by an unexpected announcement from Binance’s CEO, CZ. Binance declared its intention to liquidate its entire stake in FTT due to undisclosed revelations. Within 15 minutes, Alameda Research stepped in to buy Binance’s holdings privately, raising suspicions about the urgency of the deal. This incident sent up a red flag – why was Alameda Research so anxious to prevent an open market sale? It hinted at a deeper connection between Alameda Research, FTX, and FTT.

The Downfall of FTX and Legal Battles

On November 8, 2022, another bombshell hit. Binance revealed its non-binding agreement to acquire FTX due to a “liquidity crunch.” FTX, previously a savior to other exchanges, was now in need of rescuing. The ripples of this announcement were felt the very next day when Bloomberg reported that U.S. regulators were investigating FTX for mishandling customer funds. The regulatory net was closing in, casting a shadow over Sam Bankman-Fried and FTX.

Once regulators entered the scene, Sam Bankman-Fried quickly waved the white flag. He announced the shutdown of Alameda Research, followed by FTX filing for bankruptcy just a day later. This sudden surrender raised eyebrows, as it indicated a deeper crisis than mere financial woes. If FTX only needed funding, they might have found a lifeline given their reputation and size. But this move suggested something more sinister was afoot.

The troubles kept piling up. Two days after Sam’s announcement, a shocking revelation came to light – $1 billion in client funds had vanished. Matters escalated further when FTX fell victim to a hack, resulting in $477 million disappearing from the exchange. With each setback, the noose tightened around Sam Bankman-Fried. On November 15, 2022, a class-action lawsuit dragged celebrity influencers like Kevin O’Leary, Shaquille O’Neal, and Stephen Curry into the legal quagmire filed against FTX. This action intensified the crisis as congressional hearings were announced.

Sam, however, remained outwardly composed and tried to shape the narrative. He appeared on various media platforms and events to explain his perspective. SBF acknowledged his mistakes but argued that filing for bankruptcy was his biggest regret. He believed that he could have raised the necessary funds and averted the crisis. Yet, the evidence pointed to more significant issues than mere mismanagement. Regardless of his intent, he had caused irreparable damage, and it remained unclear whether investors or customers would ever recover their losses.

The Arrest Of Sam Bankman-Fried

The turning point came when key figures in the FTX drama decided to cooperate with prosecutors. FTX co-founder Gary Wang and Alameda Research co-CEO Caroline Ellison pleaded guilty to multiple charges. They detailed their roles and the involvement of Sam Bankman-Fried. Gary Wang disclosed that Sam had instructed him to create a secret backdoor for siphoning client funds. This revelation laid bare the extent of the scheme and raised questions about Sam’s direct involvement in nefarious activities.

Following these developments, Sam was arrested in the Bahamas in December 2022. He was released on a staggering $250 million bail, with his parents using their Palo Alto home as collateral. Under house arrest, Sam’s world seemed to unravel further as he faced charges carrying a potential prison sentence of over 100 years.

The Trial and Verdict

On October 3, 2023, Sam’s trial commenced, with the selection of the jury.The subsequent trial highly anticipated, attracting significant media attention. The prosecution built their case on the simple premise that fraud is fraud, no matter how complex the underlying system.

It didn’t require understanding the intricacies of cryptocurrency; instead, it focused on the basic principles of theft and deception. Accusers accused Bankman-Fried of stealing billions of dollars from FTX customers to fund his crypto-focused hedge fund, Alameda Research.

After weeks of testimony and arguments, the moment of truth arrived. To everyone’s surprise, the jury reached a unanimous verdict in just four and a half hours. The jury found Sam Bankman-Fried guilty on all seven counts, including fraud and conspiracy. In the courtroom, his parents exhibited a sense of shock and devastation as the guilty verdicts were read. Bankman-Fried himself appeared emotionless, standing stoically as the court sealed his fate.

What About FTX?

FTX, the company, is still navigating the tricky waters of bankruptcy court. However, in a surprising turn of events, Matrixport, a crypto financial services company, projected that the company’s reorganization might return an average of 37 cents on the dollar to its creditors. This estimation appears remarkably high, considering the dire circumstances just a year ago. Back then, the company was in freefall, customers were scrambling to recover their funds, and a notorious hack occurred only hours after its Chapter 11 filing.

However, the current recovery estimate might even be conservative. The recent meteoric rise in the price of SOL tokens has bolstered the bankruptcy estate’s value by approximately $1 billion in the past two weeks. It is worth noting that FTX holds a significant stake in SOL tokens, with a large portion locked up and not immediately tradable on the market.

Read: FTX to make a comeback?

How The Drama Around Sam Bankman-Fried Affected The Crypto Landscape

When FTX crumbled in November, it was not just a financial blow; it was a crisis of confidence that rippled through the market. Prices of major cryptocurrencies tumbled, leaving many wondering about the future of this volatile space. However, a closer look reveals a fascinating tale of resilience and renewed faith.

The Crypto Debility

FTX’s bankruptcy filing on November 11, 2022, forever altered the crypto sector. A wave of uncertainty and fear swept through the industry. Other startups, including Genesis and Voyager, declared bankruptcy, and many resorted to layoffs. For instance, Chainalysis, a crypto transaction tracking firm, laid off 150 employees in a recent move.

This disruption inevitably affected venture funding in the crypto sector. The data reveals a significant contrast between the period from the start of 2022 to FTX’s bankruptcy announcement and the time following it. Before FTX’s collapse, crypto startups had secured $14.5 billion in funding through 1,312 deals. However, post-November 11, they managed less than $3.7 billion in funding across 695 deals.

The decline in venture funding was not exclusive to crypto but is notably more pronounced in the second half of the year. Before FTX’s bankruptcy, startups in the crypto space raised $1.9 billion in Q3 of the previous year, outpacing the figures following the collapse.

Change in Regulatory Landscape

The FTX debacle also triggered changes on the regulatory front. The Securities and Exchange Commission (SEC) adopted new rules for venture capital and private fund advisers, aimed at increasing transparency and accountability.

Cryptocurrency giants like Binance, Coinbase, and Gemini, among others, are now heading for their own courtroom clashes with regulators. The regulations require the disclosure of preferential terms given to certain investors, along with quarterly reporting of performance metrics and third-party mandates.

While the due diligence aspect seems particularly relevant in light of the FTX crisis, it’s important to note that the SEC and venture capitalists have traditionally operated independently. Partially attributing the adoption of these rules to the FTX collapse is possible. Importantly, these rules fall short of the earlier proposal that would have allowed limited partners to pursue litigation against investors for insufficient due diligence, a prospect unfamiliar to venture capitalist.

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