FTX: the legend of Sam Bankman-Fried | FT Film

Summary

The video script details the rise and fall of Sam Bankman-Fried and his crypto exchange FTX. Once hailed as a genius, SBF's company, backed by celebrities and valued at billions, is now accused of massive fraud, with alleged misuse of customer funds and a lack of oversight. The collapse of FTX, which led to billions in losses, has raised questions about regulation and due diligence in the crypto industry, highlighting the need for better governance and transparency.

Takeaways

• 🌐 Sam Bankman-Fried (SBF) was the founder and CEO of FTX, a crypto exchange that rapidly gained prominence and backing from celebrities.
• 🔒 FTX and Alameda Research were closely intertwined despite being supposed to operate independently, leading to alleged misuse of funds.
• 💥 The collapse of FTX occurred swiftly, with significant financial repercussions for investors, including one individual who lost $2.1 million.
• 📉 The downfall began with a CoinDesk article that questioned the financial relationship between FTX and Alameda, particularly concerning the holdings of the FTT token.
• 🤔 SBF's public apologies and media interviews attempted to convey remorse without admitting to fraud, which could be damaging from a legal perspective.
• 💼 The inner workings of FTX were controlled by a small, close-knit group with SBF at the center, lacking a traditional corporate governance structure.
• 👥 Key figures in the FTX saga include Caroline Ellison, Sam Trabucco, Gary Wang, and Nishad Singh, all of whom had personal and professional ties to SBF.
• 🏦 The lack of oversight and risk management at FTX highlights the need for robust corporate governance and distributed decision-making in companies.
• 📊 The FTX debacle has prompted increased regulatory scrutiny and calls for a more transparent and accountable crypto industry.
• 💔 Retail and institutional investors alike suffered from the FTX collapse, with some venture capital firms writing down their investments to zero.
• 🚨 The event serves as a cautionary tale for investors, emphasizing the importance of due diligence and skepticism in the face of high-profile endorsements.

Q & A

What was the role of Sam Bankman-Fried in the crypto exchange FTX?

Sam Bankman-Fried was the founder of FTX and served as its chief executive. He was instrumental in the rapid growth of the company within a span of three years, gaining the support of celebrities and positioning FTX as a safe and easy platform for crypto transactions.

How did FTX market itself to attract customers?

FTX marketed itself as the safest and easiest way to buy and sell crypto, with endorsements from celebrities and high-profile sponsorships, including a deal with Mercedes Formula One and the naming rights to the Miami Heat NBA Stadium. This mainstream awareness helped FTX stand out among other crypto exchanges.

What is the relationship between FTX and Alameda Research?

FTX and Alameda Research had an incestuous relationship despite being supposed to operate as separate entities. Alameda Research was founded by Sam Bankman-Fried and was allegedly involved in the misuse of funds from FTX, leading to its downfall.

What led to the collapse of FTX?

The collapse of FTX was triggered by an article published by CoinDesk that raised questions about the financial relationship between FTX and Alameda Research, particularly the large holdings of FTT tokens by Alameda. This revelation led to a loss of confidence, causing a bank run and eventually the bankruptcy of FTX.

How did Sam Bankman-Fried's personal background influence his career in the crypto industry?

Sam Bankman-Fried's background as the son of law professors, his education at MIT, and his experience at Jane Street, a major market-making trading firm, contributed to his reputation and credibility in the crypto industry, allowing him to rise quickly to prominence.

What was the role of Caroline Ellison in the FTX saga?

Caroline Ellison was the chief executive of Alameda Research and had a close personal and professional relationship with Sam Bankman-Fried. She has since resigned and pleaded guilty to fraud charges, cooperating with law enforcement in the United States.

What were the regulatory issues surrounding FTX?

FTX was based in the Bahamas, which had a tailor-made regulatory regime for digital assets. However, the lack of stringent regulation and oversight, along with the absence of a board and proper risk management procedures, contributed to the company's fraudulent activities going unchecked.

How did the FTX collapse impact investors and the crypto industry?

The collapse of FTX led to significant financial losses for both retail and institutional investors who had placed their trust in the platform. It also raised concerns about the stability and security of the entire crypto industry, prompting calls for increased regulation and oversight.

What was the significance of the FTT token in the alleged misuse of funds by Alameda Research?

The FTT token, issued by FTX, was allegedly held in large quantities by Alameda Research, which was supposed to be a separate entity. The token's value was tied to the financial health of FTX, and its misuse indicated a lack of separation between the two companies' finances.

What actions did Sam Bankman-Fried take after the collapse of FTX?

After the collapse, Sam Bankman-Fried initially tried to reassure the public and the media about the state of FTX, consistently denying any fraudulent intent. However, he was later arrested in the Bahamas and extradited to the United States, where he pleaded not guilty to the charges brought against him.

What were the consequences of the FTX collapse for the broader financial and political landscape?

The FTX collapse raised questions about the regulatory landscape for crypto companies and the influence of political donations on oversight. It also highlighted the need for better governance and risk management within crypto companies to prevent similar incidents in the future.

Outlines

00:00

🚀 Rise and Fall of FTX and Sam Bankman-Fried

The paragraph details the meteoric rise and sudden collapse of Sam Bankman-Fried, the founder and CEO of FTX, a cryptocurrency exchange. It highlights the company's rapid growth, backed by celebrities, and its portrayal as a safe and easy platform for crypto trading. However, it also uncovers the improper use of customer funds and the incestuous relationship between FTX and Alameda Research, leading to allegations of fraud and a swift downfall that resulted in significant financial loss for investors, including a personal loss of $2.1 million by the speaker. The paragraph sets the stage for a narrative of success, trust, and the ultimate betrayal within the crypto industry.

05:00

🏦 The Illusion of Security in the Crypto Market

This paragraph delves into the investor confidence in FTX, despite its connection to Alameda Research, which was revealed to hold a significant amount of FTT tokens, issued by FTX. It discusses the mainstream acceptance of FTX, including endorsements from high-profile figures and institutions, and the company's aggressive marketing strategies, such as Super Bowl ads and securing naming rights for the Miami Heat NBA Stadium. The narrative takes a turn as it describes the market panic triggered by the announcement from Changpeng Zhao, CEO of Binance, of his intention to sell FTT tokens, leading to a rapid decline in their value and a subsequent bank run on FTX.

10:01

📉 The Downward Spiral of FTX and Investor Reactions

The paragraph describes the frantic attempts to maintain the value of FTT tokens by Alameda Research and the eventual failure of these efforts, leading to FTX's insolvency. It portrays the chaos within FTX, with employees resigning and Sam Bankman-Fried trying to reassure the public despite the dire situation. The speaker, a retail investor, recounts their failed attempts to withdraw funds and the realization of the severity of the situation when FTX suspended withdrawals. The paragraph also touches on the broader impact on the market, with various investors, including hedge funds, expressing their inability to retrieve funds from FTX.

15:02

🕊️ Sam Bankman-Fried's Public Apology and Arrest

This paragraph focuses on Sam Bankman-Fried's public statements following FTX's collapse, where he consistently apologized and denied any fraudulent intent. It details his media appearances and the public's skepticism towards his claims of ignorance regarding the misuse of funds. The narrative culminates in his arrest in the Bahamas and subsequent extradition to the United States, where he faces serious charges from multiple regulatory bodies and the prospect of a lengthy prison sentence.

20:02

🤝 The Inner Circle of FTX and Alameda Research

The paragraph examines the close-knit group that operated at the heart of both FTX and Alameda Research, illustrating the intertwined nature of the two companies. It describes the personal relationships between Sam Bankman-Fried and key figures such as Caroline Ellison, Sam Trabucco, Gary Wang, and Nishad Singh, highlighting the lack of corporate governance and oversight. The narrative emphasizes the informal and secretive management structure that contributed to the collapse of FTX.

25:03

📉 The Broader Impact of FTX's Collapse on Crypto and Investors

This paragraph discusses the ripple effects of FTX's collapse on the crypto industry and investors, both institutional and retail. It points out the losses incurred by venture capital firms and professional investors who had to write down their investments in FTX to zero. The paragraph also addresses the role of big-name auditors and the challenges of auditing in the crypto space, as well as the need for better regulation and oversight to prevent similar catastrophes in the future.

🏛️ The Regulatory Response and the Future of Cryptocurrency

The final paragraph contemplates the regulatory implications of FTX's downfall, emphasizing the need for a clear and effective regulatory framework for the crypto industry. It touches on the self-regulated nature of crypto exchanges and the challenges regulators face in understanding and overseeing such dynamic and complex entities. The paragraph concludes with a call for industry collaboration with regulators to establish a robust framework that can protect consumers and ensure the integrity of the market.

Keywords

💡Crypto Exchange

A crypto exchange is a digital marketplace where traders can buy, sell, and exchange cryptocurrencies for other digital assets or fiat currency. In the video, FTX is highlighted as a crypto exchange that experienced a rapid growth and eventual collapse, underscoring the theme of the video which revolves around the rise and fall of a significant player in the cryptocurrency market.

💡Sam Bankman-Fried (SBF)

Sam Bankman-Fried, often referred to as SBF in the script, is the central figure and founder of FTX. He is depicted as a genius in the crypto industry who rose to prominence quickly, only to be implicated in one of the biggest financial frauds in American history. His actions and decisions are central to the narrative of the video, illustrating the personal accountability and leadership in a corporate scandal.

💡Alameda Research

Alameda Research is a proprietary trading firm and market-maker in the cryptocurrency space, founded by Sam Bankman-Fried. The script discusses the incestuous relationship between Alameda and FTX, which were supposed to be separate entities, but allegedly engaged in misuse of funds, highlighting a key aspect of the corporate governance issues at the heart of the FTX collapse.

💡Fraud

Fraud is a legal term describing the intentional deception for personal gain or to damage another individual. The script repeatedly mentions the alleged fraud committed by Sam Bankman-Fried and his associates, making it a central theme of the video. It is the basis for the legal actions and the narrative of deception that led to the downfall of FTX.

💡Bankruptcy

Bankruptcy refers to a legal status where an individual or entity is unable to repay their outstanding debts. In the context of the video, FTX filing for bankruptcy signifies the culmination of its financial woes and the loss of trust from its customers and investors, marking a turning point in the story.

💡Regulators

Regulators are government agencies or officials responsible for overseeing and ensuring compliance with industry standards and laws. The script discusses how regulators were duped by the fraudulent activities of FTX, reflecting on the failure of regulatory oversight and the need for better regulatory practices in the cryptocurrency industry.

💡Venture Capitalists

Venture capitalists are investors who provide financial backing to new, high-risk, and potentially high-reward ventures. The video mentions venture capitalists falling for the legend of Sam Bankman-Fried, illustrating how even seasoned investors can be misled, and the allure of the crypto industry for traditional financiers.

💡Market Maker

A market maker is an entity that stands ready to buy and sell securities or cryptocurrencies at any time, thus providing liquidity to the market. The script mentions that Alameda Research was a market maker, emphasizing its role in the crypto trading ecosystem and the potential for manipulation due to its close ties with FTX.

💡FTT Token

The FTT token is the native cryptocurrency of the FTX exchange. The script discusses how Alameda Research held a large amount of FTT tokens as assets, which raised questions about the true value of these assets and the financial stability of both Alameda and FTX, becoming a catalyst for the unraveling of the companies.

💡Bank Run

A bank run occurs when a large number of customers simultaneously withdraw their deposits due to a loss of confidence in the financial institution. The script describes a bank run on FTX, where customers rushed to withdraw their assets once they lost trust in the platform, leading to its insolvency.

💡Class Action Lawsuit

A class action lawsuit is a legal action in which a group of people with similar claims sue a defendant as a collective. The script mentions a class action lawsuit filed by an individual who lost significant funds through FTX, representing the collective legal response from those affected by the alleged fraud.

Highlights

Sam Bankman-Fried, founder and CEO of FTX, was considered a genius in the crypto space, with the company growing rapidly in just three years.

FTX was marketed as the safest and easiest way to buy and sell crypto, attracting mainstream attention and celebrity endorsements.

An 'incestuous relationship' between FTX and Alameda Research, which were supposed to be separate entities, led to alleged misuse of funds.

FTX's collapse resulted in significant financial loss for individuals and exposed one of the biggest frauds in American financial history.

Sam Bankman-Fried's background includes being the son of law professors, attending Math Camp, MIT, and working at Jane Street.

Bankman-Fried's unconventional lifestyle, including his appearance and work habits, contributed to his unique image in the crypto industry.

Alameda Research was founded in 2017 as a proprietary trading firm, capitalizing on inefficiencies in cryptocurrency markets.

FTX's growth was fueled by institutional buy-in and mainstream interest in digital assets like Bitcoin, leading to high valuations and investment from major firms.

FTX's mainstream awareness was further boosted by high-profile sponsorships and celebrity endorsements.

The narrative of Sam Bankman-Fried as a savior in the crypto market was challenged by the revelation of Alameda's financial ties to FTX.

A CoinDesk article raised questions about the financial practices of Alameda and FTX, triggering a market panic.

Binance's announcement to sell its FTT holdings led to a sharp decline in the token's value and a loss of confidence in FTX.

FTX's insolvency and the subsequent bank run were exacerbated by the company's lack of transparency and oversight.

Bankman-Fried's arrest and the subsequent legal proceedings highlight the lack of governance and risk management within FTX and Alameda.

The inner circle of FTX and Alameda, including key figures like Caroline Ellison and Gary Wang, played a central role in the companies' operations.

The collapse of FTX has prompted a reevaluation of risk and due diligence within the crypto industry and calls for better regulation.

The FTX saga underscores the need for a distributed management structure and multiple layers of governance within companies.

The impact of FTX's failure extends beyond retail investors to venture capital firms and professional investors who lost significant investments.

Transcripts

I did not know that there was any improper use of customer

funds.

Everybody wanted to find the chosen one, the genius.

That person was Sam Bankman-Fried,

and the company that he ran was FTX.

FTX is a crypto exchange.

Sam was the founder of FTX and the chief executive.

FTX grew in about three years, exploded onto the scene,

had the backing of celebrities.

FTX is the safest and easiest way to buy and sell crypto.

It's the best way to get in the game.

At the heart of this you have an incestuous relationship

between two companies that were supposed to be separate

- FTX and Alameda.

There was so much alleged misuse of funds.

And it all came crashing down in a matter of days.

When FTX collapsed, I ended up losing a $2.1mn.

And US prosecutors say this is one of the biggest frauds

in American financial history.

Regulators fell for it.

Venture capitalists fell for it.

Everyone fell for the legend of Sam.

Sam Bankman-Fried, almost universally known

as SBF, or Sam, came from relative obscurity

to King of the Hill in crypto within just a few short years.

He's the son of law professors.

He went to Math Camp.

He went to MIT.

And then, after graduating from MIT

he went to Jane Street, which is one of the world's biggest

market-makers, trading firms.

If you think of Sam Bankman-Fried,

you think of curly, messy hair and cargo shorts.

He barely sleeps.

He sleeps in the office.

He sleeps on a beanbag.

People look for geniuses.

They look for the key man.

He was like Elon, like Zuckerberg.

He was just Sam.

He was SBF.

He wasn't at Jane Street for very long.

The phrase he used once was 'neutral, but a waste

of brainpower.'

He went to work at the Centre for Effective Altruism,

a think-tank that encourages people to give away

lots of their money, in certain ways.

He was working at the charity during the day and trading

crypto all night.

He talks about how he wants to accumulate as much wealth

as possible to distribute it to people who need it,

as fast as he can.

And that's where the idea for Alameda

came from - that they were going to get into this market

and use traditional finance strategies to make

a load of easy money in crypto.

In 2017, Sam founds Alameda Research,

which was a proprietary trading firm, a market-maker.

Imagine it being founded in somebody's basement, five

or six people, college roommates, old friends of Sam

from Math Camp.

The prices of cryptocurrencies, like Bitcoin,

were different on different exchanges

in different countries.

If you bought in one and sold in another,

you could make money for free, because the market

was inefficient.

Supposedly, this is where he made enough money to get

Alameda Research rolling.

Even at that point there were people

who thought that what they were doing was too risky.

So one of their earliest investors walked away.

FTX, which is a company that people have heard of,

comes out of Alameda.

It's basically the same team.

2019...

they're talking about, hey, maybe we

should found our own exchange.

FTX exploded into the mainstream.

I think we're pretty ambitious about FTX,

and certainly, we're aiming to become the biggest crypto

exchange.

2021 was the year where FTX really burst onto the scene.

The wider crypto industry was also

exploding into the mainstream.

At the end of 2020 there was some institutional buy-in,

a lot of interest in digital assets like Bitcoin.

It signed a sponsorship deal with Mercedes Formula One.

It signed up Tom Brady and Gisele Bundchen.

It's not that.

This is big.

It commanded a mainstream awareness

that perhaps no other exchange has enjoyed.

He's everywhere.

And it's the one that you mention

when you're talking about, well, there's

a lot of quite sketchy shops out there in crypto.

FTX is where they do things properly.

My name is Sunil Kavuri.

After graduating from university,

I joined Deutsche Bank and worked

at JPMorgan, Morgan Stanley.

Over 10 years ago I left the City.

I trade for my personal account as a retail investor.

Since 2016 or so, I invested quite a bit into crypto.

I had $6mn, $7mn on FTX at the end of 2021.

They were promoting it to retail investors

and saying, if you want to get in crypto the safest ways

to get into crypto is use FTX.

July 2021, FTX closed the funding round

of $900mn, which valued the company at the time

at about $18bn.

Within two or three years this thing

is supposedly worth $32bn.

The company is worth more than Deutsche Bank was at the time.

That is unbelievable.

Investors were incredibly keen to get

a piece of the crypto action.

It seemed like the market was only going up.

Has investment from a whole bunch

of huge names like Sequoia, like Paradigm,

Temasek from Singapore.

You've got SoftBank, Tiger Global.

You've got the Ontario Teachers Pension Plan -

just these huge investors.

And BlackRock - I mean, a traditional finance who

are very sceptical about crypto -

they invest in FTX, rather than Binance.

So I thought the safest place to park

my money was, obviously, FTX.

Before you know it he's making comments to the FT,

saying, oh, yeah, at some point I'd quite

like to buy Goldman Sachs.

It's FTX.

It's a safe and easy way to get into crypto.

Yeah, I don't think so.

And I'm never wrong about this stuff.

Never.

One of the biggest highs for the exchange came in February 2022,

when it managed to score a big Super Bowl ad.

I left my cane in there!

What!

Hey, that's an expensive cane!

Larry David was the star of the FTX ad.

And then, in June, it also secured the naming rights

to the Miami Heat NBA Stadium.

In some ways what made Sam special

was the mainstream acceptance that he got.

At one point he was literally sharing a stage

with Bill Clinton and Tony Blair.

Something about Sam just drew in really intelligent people.

So there's a really important stage in the narrative arc,

if you like, for FTX.

Around May 2022, there was a so-called stablecoin

and an associated crypto, this Terra Luna pairing that just

unravelled in dramatic style.

It took down with it lending platforms in crypto,

a bunch of trading platforms in crypto,

and who was there to pick up the pieces?

Sam Bankman-Fried.

FTX CEO Sam Bankman-Fried discussing his thought process

behind offering crypto company bailouts, saying, it's, quote,

'worth incinerating a small amount of money to keep crypto

infrastructure going.'

He was the lender of last resort,

and wealthy enough to be able to plug the gap when

bits of the industry got themselves into trouble.

It only took a few months, come November,

for everything to come crashing down.

On the 2nd of November, CoinDesk raised questions about FTT.

Alameda was listing as an asset very, very large holdings

of FTT, a token that is issued by FTX.

They control the supply - the equivalent

of counting your own stock as an asset on your balance sheet.

FTT as a token that is not widely held or traded.

It's not like Bitcoin.

Alameda, the market banking arm that

is supposed to be separate from FTX,

was holding over $5bn worth of FTT token.

That is a significant figure.

The relationship between Alameda Research and FTX

might not be quite what everybody thinks it is.

And a lot of the supposed assets that Alameda Research has

on its books are actually tokens that are

created by FTX out of thin air.

When the CoinDesk article came out - and obviously,

I feel really stupid now - so saying, I wasn't personally...

I wasn't too concerned.

It focused on the Alameda balance sheet, rather than FTX.

FTX is an exchange, whereby you trade assets.

Alameda is a prop hedge fund, totally separate,

and they trade their own balance sheet.

I mean, that's...

that's how it's supposed to be.

I mean, why would I assume otherwise?

So there's various bits of lending

going on here that are backed by these FTT tokens, that

are only worth something if we all kind of look around

the room and agree that they're worth something.

But actually, they're worth absolutely nothing.

They're like loyalty tokens for FTX.

They enable you to trade on the platform

and get certain discounts.

Are they money?

That's a huge assumption.

My name is Nicola White.

I'm the CEO of B2C2, the principal-at-risk liquidity

provider.

We support the institutional trading of crypto,

and we don't face retail investors.

Our clients are the largest banks and trading firms,

globally.

We had the opportunity to work with Alameda earlier

in the year, which we had turned down.

You know, we take a very conservative approach to risk,

and they just didn't fit our risk profile.

Just a few days later, enter stage right, CZ.

Changpeng Zhao.

He runs Binance, which is the other really big, kind of,

global cryptocurrency exchange.

He tweets that he is going to be selling

his holdings or Binance holdings of the FTT token,

due to some recent revelations.

And the price of these tokens really starts cratering, fast.

This really was the moment that caused widespread market panic.

And that sent the price of FTT absolutely plunging.

I was just watching the graph, and it was

going further and further down.

Binance is one of the major holders,

other than FTX and Alameda themselves.

And we know, from the balance sheet of Alameda,

that value of FTT is kind of integral

to the whole financial structure of the San

Bankman-Fried empire.

Very quickly after the CEO of Alameda, Caroline Ellison,

came out and said, we'll buy it.

It kind of smelt a bit funny.

Something's going on here.

Why do they want to hold the FTT token at a certain level?

If they could keep FTT's price supported then

they wouldn't have to kind of accept

that the value of their own assets were falling,

and that they were potentially insolvent.

Then that failed.

Within just a few days, FTX is effectively

running out of money.

This is a bank with nothing backing it.

If you do not trust that your money is safe,

it's very easy for a bank run to develop.

24 hours later, on November 7, Sam tweets that FTX is fine,

and assets are fine.

He was saying, right up to the very last minute, FTX was fine,

or that FTX US was fine, or this is all just

a big misunderstanding.

Insolvency rumours plaguing crypto exchange FTX are being

denied by CEO Sam Bankman-Fried after a CoinDesk investigation

revealed the balance sheet of FTX sister company,

Alameda Research, was loaded with FTX's native exchange

token, FTT.

On November the 8th, CZ said that he

was going to acquire FTX, which was just completely insane.

You've got the head of the world's biggest crypto

company saying that he's going to buy his rival's crypto

company.

Sam is out in public trying to reassure people,

and people have a lot of faith in FTX and Sam Bankman-Fried.

My name is Carol Alexander.

I'm a crypto expert.

I had a small portfolio of crypto,

so that I can teach the students what's happening on exchanges.

My decision to put funds on FTX was just a personal connection

of somebody who'd met Sam Bankman-Fried,

and a lot of people recommended FTX.

I first heard about the problems with FTX

when I was out in Barcelona at the Quant Minds Congress.

It's an annual summit for mathematical finance.

Everybody there was really surprised.

None of us thought it was going to be serious.

Only takes 24 hours - one day later - for CZ

to have a look under the bonnet, look at the books,

and actually decide that, no, he is not going to buy FTX.

And meanwhile, inside the company,

people would describe just total chaos.

Employees are quitting left, right, and centre.

Sam is trying to kind of steer the sinking ship.

The events unfolded very, very quickly.

We tried to withdraw some funds from the exchange,

and those withdrawals weren't processed.

FTX suspends withdrawals.

And in a memo to his employees SBF

says that they're trying to raise funds.

It was when he stopped withdrawals.

That was the biggest thing.

I thought, oh, shit, there's something wrong here.

You have hedge funds.

You have various market participants in crypto saying,

yeah, Sam, can't get my money back here.

I wasn't giving you this money.

I was just trading through you.

I didn't realise that you were going to take these funds away

from me.

We had about $9mn of assets on FTX,

leading up to the time in which they suspended withdrawals.

We felt comfortable that we could

absorb the losses if one or two or three exchanges go down.

On the day that FTX stopped paying back

its customers, which is effectively the day

it collapsed.

That morning, major sophisticated investors

in crypto were still telling me, safe as houses,

it cannot go down.

What was going through my mind was, first and foremost,

how do we mitigate the risk to the firm?

And then, secondly, what are the knock-on effects

for the market, right?

People having their cash tied up at FTX

meant they weren't in the same financial position

as they might have been.

I end up losing $2.1mn US.

Yeah.

I think Sam probably still thought

that FTX could be salvaged.

But of course, he was wrong.

FTX files for bankruptcy in New York,

and Sam resigns as chief executive.

I've never seen anything unravel in that sort of space of time

before.

It's had a significant effect on my life.

I couldn't sleep and eat properly,

for at least a few weeks.

It was just, basically, stolen overnight.

It's been difficult.

On November the 12th, there are reports

that at least $1bn worth of FTX's customer money

has disappeared.

Since then, that number has grown.

There's an alleged $8bn hole of customer money that is just

missing, unaccounted for.

I don't think we've given up on the possibility of getting

funds back.

But we have written them down, from an accounting perspective.

I filed a class action lawsuit, so I

was the lead plaintiff, the international plaintiff,

against all the people who profited and enabled

the alleged fraud, the celebrity promoters.

I felt that I had to do something.

Thankfully, I've had a supportive wife,

and it kept me going, mentally.

I've been probably more difficult, I would say.

After FTX files for bankruptcy, Sam is still in the Bahamas,

where he lives and where he was running FTX from.

He started to tweet a lot.

He's out here tweeting long threads,

trying to explain what happened and how desperately he's

trying to work to get customers' money back,

and how sorry he is.

All the talk online is, when are they going to arrest this guy?

But in this intervening period, Sam Bankman-Fried

hits the media circuit hard.

After apologising profusely on Twitter,

he talks to The New York Times.

He talks to Good Morning America.

I did not know that there was any improper use of customer

funds.

He eventually talks to the FT as well.

His message is absolutely consistent.

He says, over and over again, I fucked up,

and I'm really sorry.

And I didn't mean to do anything fraudulent.

Have I done something fraudulent?

I didn't mean to do anything fraudulent.

You can just imagine his lawyers just tearing their hair out,

like please, Sam, for the love of god, will you shut up

and stop talking to journalists.

There were a number of things I was paying close attention to,

in terms of trading volume and revenue and liquidity.

I wasn't, in terms of balances or positional risk.

Sam gave us an interview shortly before he was arrested.

He said to me, OK, how about 3:00 in the morning?

He starts out sitting, looking normal at a camera,

but he's always moving, and he's kind of shifting around.

The camera angle's changing.

He's moving his laptop.

He's giving this interview from his bed.

You would ask him questions that you would think

are pretty straightforward.

Every answer starts with, I'm not sure.

I don't have access to this.

I don't have access to that.

Let me take a step back.

There may be discussions I don't know about.

I do remember that there were some discussions

around Alameda's position.

I don't remember numbers from those.

I don't remember numbers being said.

I'm not sure they weren't.

Yeah, I think that's all I got.

He was trying to manage the FTX narrative

in a way that really put his apology at the forefront.

But at no point is he saying this was fraud or this

was on purpose.

It's just one big mistake.

It's just one huge misunderstanding.

This is just not how anybody ever

behaves when they are in the kind of legal position

that Sam was.

You do not talk to the press, and any lawyer

would tell you that.

Finally, on December the 12th, Sam Bankman-Fried

was arrested in the Bahamas.

Initially, he resists extradition.

The conditions in the jail in the Bahamas

are notoriously difficult.

He didn't really want to be extradited to the United

States, but I think after a short period

in jail in the Bahamas that idea became a little bit more

appealing to him.

He was flown to the US.

Come on.

You got it, Sam.

He appeared before a judge.

He's pleaded not guilty.

They raise a $250mn bail for him to, effectively,

go and sit in his parents' house in California for as long

as it takes until this goes to trial.

He is charged with eight counts by the Southern District

of New York, which includes wire fraud, conspiracy

to commit wire fraud, campaign finance violations.

The SEC and the CFTC, who are two major regulators

in the States, have also brought charges against Sam.

There is a future where Sam potentially spends

the rest of his life in prison.

This company is really unlike any other.

FTX didn't have a board.

There were no adults in the room.

There was no one overseeing what was going on inside.

No risk management procedures.

They didn't have the corporate structure, perhaps,

people would conventionally imagine.

The whole empire, including Alameda and the various arms

of FTX, were all kind of being run

from a very small inner circle of people

close to Sam Bankman-Fried.

Right at the middle of the circle is SBF,

and he ran the show.

Then you've got Caroline Ellison,

who was chief executive of Alameda Research.

SBF and Caroline had an alleged on-off romantic relationship

for many months.

They shared the same penthouse apartment in the Bahamas,

lived together, worked together, were super, super close.

She has since resigned, and pleaded guilty

to fraud charges, and is co-operating

with law enforcement in the States.

And then, you've got Sam Trabucco,

who was the co-head of Alameda Research,

alongside Caroline, until the summer when he resigned.

And he ran the trading strategies at Alameda

for a while.

And you then have Gary Wang, chief technology officer

and co-founder of not only FTX, but also Alameda Research.

This speaks to the incestuousness,

essentially, of both companies that were meant to be separate.

And him and Sam go way back.

They went to Math Camp together, and then they

were also college roommates when they were both at MIT.

Gary Wang is also co-operating with law enforcement

in the States after pleading guilty to fraud charges.

And then, you've got Nishad Singh,

who was also very close to SBF.

He shared multiple apartments with Sam.

Again, this speaks to the fact that both Alameda and FTX,

which were meant to be separate companies, really,

in many ways, weren't.

They lived together.

They ate together.

They did whatever else it is together.

Everything was financed through FTX - the fast food,

the grocery deliveries.

When I was in the Bahamas I spoke

to a person who worked for a food delivery company.

And they'd be ordering, maybe, 500 bucks

worth of takeout every night.

It was just sort of freeflowing money, and getting

Amazon packages flown in from Miami,

nights out, and beach resorts.

If you're a nerd, and you're working

with a bunch of other nerds, and you're

changing the world through sheer nerdery,

you feel pretty powerful.

No one outside the inner circle knew, really,

what was going on.

There was only a handful, maybe, five or six people

at the top who knew the inner workings of FTX and Alameda

and the crossover there.

Everything that happened with FTX and Sam

really highlights the need for a distributed management

structure.

No one person should be able to make

every decision about a company.

And also, there should be multiple layers

of governance within a company.

It's not just crypto traders, large and small,

that have lost.

Venture capital firms, professional investors

that had helped get FTX off the ground

have had to write down their investments, some

of them worth hundreds of millions of dollars,

down to a big fat zero.

The one that everyone thinks of is Sequoia Capital.

There are VC firms, and there are VC firms.

Sequoia is a very serious VC firm.

And it went to the effort of posting on its website

an article running to 13,800 words talking

about what a genius Sam is, how he has the status of legend.

All of these venture capital investors

say, look, we're as surprised as everybody.

We did the due diligence on FTX.

How?

There's a great attraction for big institutions

to go into crypto.

Although it's high risk, it can be very high returns,

particularly when the odds are stacked in your favour.

Their balance sheets are so large that they

can afford to take risks.

They don't need to do the due diligence.

They just need to get in there early.

They write down the investment.

The people who get hurt are the retail investors.

They - you can't write down, you know -

I'm not going to write down $2.1bn, OK?

And the other guy - it's like, come on.

Many institutional investors parked due diligence,

essentially, over FOMO.

The fear of not being part of this new technology -

people are calling it, like, 'the new internet' -

that probably propelled some of these investors to not look

deep enough and just say, hey, take my money.

It's also possible some investors were turned away,

because they were asking questions

that FTX didn't want to answer.

When you have a line up around the block of other investors

who are ready to write your cheque today,

you don't need to go with the investor who's

asking difficult questions.

One big VC investor, Chamath Palihapitiya,

says that he was approached about putting some money

to work in FTX, and he said, OK, look, this is interesting.

There's a few things we'd want you to do differently.

We'd want you to have a board.

We'd want you to have some sort of oversight.

And he says the response from FTX was, quote,

'go fuck yourself.'

Backing from really big-name venture capital firms,

really big-name investors, really

matters, because it pulls in other people.

It pulls in the hedge funds.

It pulls in the retail traders.

FTX's auditors were not in the Big Four,

but there were Armanino and Prager Metis in the US,

and Armanino is one of the top 20 accounting

firms in the US by revenue.

And the fact that they didn't catch on to any of this...

it just shows a complete failure.

Auditing crypto is really difficult.

You have various tokens that are worth whatever

it is the company says that they're worth.

The big-name auditors are generally

too nervous to get involved in this space.

It's really incumbent on these crypto exchanges

and these other crypto companies to convince big-time auditors

that they should lend their legitimacy to these companies.

And until that happens these legacy issues of transparency

and safety of customer funds - they're going to persist.

We have filled out more due diligence questionnaires

in the last 10 weeks than probably we did in the year

before that.

But I think that's a really good thing, right?

I think it's really good that the counterparties

and the clients that we're facing are diving into details.

They're understanding the risks that they're taking.

We really need to work to build up that level of trust

back in the industry.

But I'm very encouraged by the fact

that people are taking the time to do it.

There's also the question of regulation.

With crypto regulators don't know entirely how

and what to do with it, how to classify it.

Unfortunately, it's taken a catastrophic collapse of one

of the biggest companies in the industry

to prompt regulators to start thinking seriously

about what they should do to protect consumers.

It shouldn't be forgotten that FTX were very close to getting

CFTC regulation.

They'd applied.

They had an excellent margin model

that took account of very high margin requirements,

and were not going to allow their customers 100

times leverage.

Binance even offers 125 times leverage

on some products in some jurisdictions.

So FTX was a completely different animal

- this is FTX US - to Binance.

FTX International, which is the main part of the business -

it's much bigger than the US business -

and is where the problems seem to have come from,

along with Alameda, is based in the Bahamas,

which has a tailor-made regulatory regime that they

rolled out for digital assets.

They see this industry that's booming,

and they don't want to miss out.

It's just not the kind of thing that

could happen if these companies were being regulated

as tightly as companies that perform equivalent functions

in major financial markets.

Regulators are so far behind.

There's a lack of knowledge and a lack of resources.

These exchanges, they call themselves self-regulated,

which basically means, not regulated at all.

There will come a time when regulators eventually

get their act together, and they stop platforms

like Binance operating as shadow banks, their own blockchain,

NFT marketplaces, limit-order books, brokerage, custody,

and clearing and settlements.

I mean, how do you regulate something like that?

It's got to stop.

We want to partner with regulators

to create a framework that is fit for purpose

for crypto and digital assets.

Having worked in traditional finance

for a fairly long period of time,

I think it's important that we don't

try to pigeonhole crypto and digital assets

into that existing regulatory framework.

As soon as you regulate something,

just like with the venture capital firms... that is, boop,

a stamp of approval... this thing has some sort

of regulatory oversight.

It's safe.

I can put my money to work here.

That's not a kind of indemnity that regulators and governments

have wanted to give to crypto.

Sam was really at the forefront of lobbying Democrats

in the US, talking to regulators and lobbying

them to change the crypto regulatory landscape.

The money that was flowing into FTX - some of this money

has ended up as political donations.

A lot of this is to the Democratic party,

and so one of the big lines that people throw about

is, well, obviously, Congress never looked properly

into FTX, because he was pumping money into the Democrats.

It turns out, the firm was also pumping money

into the Republicans.

So a lot of folks saw what Sam was doing

and accused him, effectively, of trying to lobby, not

for crypto's interests in Washington, but for FTX's

and Sam's interests.

US prosecutors say this is one of the biggest frauds

in American financial history.

The most insane alleged fraud to have taken place,

blowing Enron and others out of the water.

The failure of FTX hasn't really affected the price of Bitcoin.

People will cling onto these coins for dear life.

People in the crypto industry say it's just an FTX problem,

it's an SBF problem.

This is a crypto issue.

It's not just an FTX issue.

Sam was the poster child of this crypto industry.

Personally, I'm just taking a break.

People who want to invest...

I don't see why they should stop.

What's happened to FTX tells you that the infrastructure here

that's built on top of an asset - which, to be clear,

has an intrinsic value of zero - is incredibly shaky.

If FTX can disappear in a fortnight, then any of them

can.

2023 is going to be a year where the crypto industry,

writ large, and many chief executives of big crypto

companies are going to have to deal with regulatory scrutiny

that perhaps they wouldn't have had to have dealt with

if it wasn't for FTX's collapse in November.

This is a cautionary tale for investors

who were jumping into stocks for fear of missing out.

You have to do due diligence, first and foremost.

You have to check what's going on.

The crypto bros have been able to say,

it's just FUD, Fear, Uncertainty, Doubt.

Just ignore it.

Turns out, everyone needed a whole lot more FUD.

Sam - what he's trying to do is say - this was all an accident.

And what prosecutors will try and pin

him on is that this is fraud.