FTX Exchange Collapse and Bankruptcy

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FTX Exchange Collage

FTX Trading Ltd., once a major cryptocurrency exchange firm valued at around $40 billion, collapsed over a 10-day period in November 2022. The catalyst for its fall was a report by CoinDesk on November 2, which revealed that Alameda Research, a quantitative trading firm also run by Sam Bankman-Fried, held a $5 billion position in FTT, the native token of FTX. This disclosure raised concerns about undisclosed leverage and solvency across Bankman-Fried's companies. Sam Bankman-Fried, the former crypto billionaire at the center of this scandal, is now facing the largest-ever pretrial bond, set at $250 million.

This is a global/international case not involving a specific country.[1][2][3][4][5][6][7][8][9][10][11][12][13][14][15][16][17][18][19][20][21][22][23][24][25][26][27][28][29][30][31][32][33][34][35][36][37][38][39][40][41][42][43][44][45][46][47][48][49][50]

About FTX

"FTX Trading Ltd. was one of the largest cryptocurrency exchange firms, known for its specialty in buying and selling crypto derivatives, and once valued at about $40 billion"


Investors to FTX included Temasak, Paradigm, the Ontario Teachers’ Pension Plan Board, and NEA[51].

[52]

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

  • When the service was actually started (if different than the "official story").
  • Who actually ran a service and their own personal history.
  • How the service was structured behind the scenes. (For example, there was no "trading bot".)
  • Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

FTX’s collapse took place over a 10-day period in November 2022.

Key Event Timeline - FTX Exchange Collapse and Bankruptcy
Date Event Description
January 31st, 2022 7:42:00 AM MST FTX Funds Raised FTX Trading, a major cryptocurrency exchange, raises $400 million in its third funding round in six months, increasing its valuation to $32 billion. The funding round saw participation from existing investors, including Temasak, Paradigm, the Ontario Teachers’ Pension Plan Board, and NEA. This comes shortly after FTX U.S., the independently operated sister exchange, also raised $400 million. FTX CEO Sam Bankman-Fried stated that this funding will support expansion into new regions and enhance their offerings. FTX has grown rapidly since its launch two years ago, with a 60% increase in its user base and an average daily trading volume of approximately $14 billion. Despite the recent crypto market downturn, Bankman-Fried expressed optimism, suggesting that the selloff isn't indicative of a long-term "crypto winter." Prior to the funding, Sam Bankman-Fried is worth an estimated $17.1b, the world's richest 29 year old[51].
November 2nd, 2022 CoinDesk Report Catalyst "The catalyst was a Nov. 2 scoop by crypto news site CoinDesk that revealed that Alameda Research, the quantitative trading firm also run by Bankman-Fried, held a position valued at $5 billion in FTT, the native token of FTX.

The report disclosed that Alameda’s investment foundation was also in FTT, the token that its sister company had invented, not a fiat currency or other cryptocurrency. That prompted concern across the cryptocurrency industry regarding Bankman-Fried’s companies’ undisclosed leverage and solvency."

November 6th, 2022 11:00:00 AM MST FTT Token Sale Rival exchange Binance sells all FTT tokens.
November 7th, 2022 Bailout Sought FTX announces liquidity crisis, seeks bailout from venture capitalists, then Binance.
November 8th, 2022 Binance Buy Out Binance says it will buy FTX’s non-U.S. business.
November 9th, 2022 Binance Walks Away Binance walks away from FTX acquisition after conducting due diligence.
November 10th, 2022 Bahamas Asset Freeze The Bahamas freezes assets of FTX’s subsidiary there; Bankman-Fried admits non-U.S. businesses’ liquidity crisis, says affiliate Alameda Research to wind down.
November 11th, 2022 CEO Step Down Bankman-Fried steps down as FTX CEO, is replaced by a court-appointed CEO with restructuring experience. FTX files for Chapter 11 bankruptcy protection.
November 12th, 2022 FTX Assets Hacked FTX reports an alleged hack, suspected to be up to $477 million, and moves its digital assets to cold storage for security reasons.
November 18th, 2022 Bahamas Asset Control The Bahamas takes control of FTX assets held there.
December 12th, 2022 Extradition Bankman-Fried is arrested by Bahamian authorities. He’s later extradited to the U.S.
December 22nd, 2022 Bail Bond Release Bankman-Fried is released on a $250 million bond, the largest in history, by a federal judge.
September 11th, 2023 5:00:06 PM MDT Crypto Liquidation Preparing for liquidation of assets held by FTX.
September 13th, 2023 11:41:00 AM MDT FTX Able To Use Assets CoinDesk reports that a judge in the U.S. Bankruptcy Court for the District of Delaware has ruled that crypto exchange FTX can sell, invest, stake, and hedge its crypto holdings to pay back creditors. The judge approved the motion and overruled objections, allowing FTX to use its crypto assets worth over $3.4 billion for these purposes. FTX had submitted a request for permission to engage in these activities in August, with the goal of limiting potential downside risk and generating low-risk returns on idle digital assets. The exchange also sought to hire Mike Novogratz of Galaxy Digital as an adviser. FTX recently disclosed holdings of $1.16 billion in Solana (SOL) and $560 million in Bitcoin (BTC), along with lesser-known illiquid tokens[53].[50]
September 14th, 2023 7:44:52 AM MDT Traders Impacted By FTX Liquidation Video mentioning FTX liquidation and impact on the market[54].

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $8,000,000,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

Sam Bankman-Fried, the former crypto billionaire at the center of this scandal, is now facing the largest-ever pretrial bond, set at $250 million. The conditions for his release include wearing an electronic monitoring bracelet, undergoing mental health counseling, and restricting his travel to certain U.S. districts.

Bankman-Fried, who voluntarily returned to the U.S. and has significantly reduced financial assets, was described by prosecutors as the mastermind behind "a fraud of epic proportions." Despite once leading a $32 billion crypto empire, he claimed to have only $100,000 left. Comparatively, his bail amount far exceeds those set for other high-profile white-collar defendants like Bernie Madoff, Jeff Skilling, and Elizabeth Holmes.


"In addition to the $250 million package, which prosecutors called “the largest-ever pretrial bond,” the former crypto billionaire would also be required to wear an electronic monitoring bracelet, submit to mental health counseling and restrict himself [to] travel within and between the Northern District of California and the Southern & Eastern Districts of New York.

Judge Gabriel Gorenstein said Bankman-Fried would require “strict” supervision following his release to his parents’ home in California.

His parents, both Stanford Law professors, were present in the courtroom. Bankman-Fried was flanked by two U.S. marshals, dressed in a blue suit and brown shoes. Bankman-Fried entered in ankle shackles as well, but traded them for his ankle monitor while in the courtroom."

"Bankman-Fried was the heart of “a fraud of epic proportions,” Assistant U.S. Attorney Nicolas Roos told the court. But he voluntarily returned to the United States, has no history of flight and has significantly reduced financial assets, Roos said.

Bankman-Fried had previously claimed that he was down to a mere $100,000, a steep fall from grace for a man who was once at the head of a $32 billion crypto empire."

"Bankman-Fried’s bail dwarfs other federal white-collar bonds. Bernie Madoff posted a $10 million bond while awaiting trial on his multibillion-dollar Ponzi scheme. Jeff Skilling, former Enron CEO, posted a $5 million bond, while Elizabeth Holmes, Theranos founder, posted a scant $500,000."

Total Amount Recovered

The total amount recovered is still being determined. A recent court ruling has allowed FTX to start selling and staking assets in order to repay creditors[53].

Ongoing Developments

The sale of assets is still ongoing[53].

Liquidation Impacts On Market

[51]

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.

References

  1. ↑ https://mobile.twitter.com/HsakaTrades/status/1590354614460862465 (Nov 8, 2022)
  2. ↑ https://mobile.twitter.com/RookieXBT/status/1590469179865731073 (Nov 8, 2022)
  3. ↑ @zenith_owl Twitter (Nov 12, 2022)
  4. ↑ https://medium.com/@ignacio.de.gregorio.noblejas/binance-ftx-war-ends-in-collapse-1488a806fff5 (Nov 14, 2022)
  5. ↑ Reddit - Dive into anything (Nov 14, 2022)
  6. ↑ The Fall of FTX (Nov 15, 2022)
  7. ↑ Former FTX CEO Sam Bankman-Fried loses Washington lobbyists (Nov 17, 2022)
  8. ↑ Reddit - Dive into anything (Nov 24, 2022)
  9. ↑ Visualized: FTX's Leaked Balance Sheet (Nov 29, 2022)
  10. ↑ Talking to Sam Bankman Fried - YouTube (Nov 30, 2022)
  11. ↑ I didn't ever try to commit fraud on anyone: Sam Bankman-Fried - YouTube (Nov 30, 2022)
  12. ↑ SBF Explains Losses! - YouTube (Dec 1, 2022)
  13. ↑ Sorry You’re Bankrupt - YouTube (Dec 1, 2022)
  14. ↑ FTX Disaster - 7 Unbelievable Bankruptcy Discoveries - YouTube (Dec 5, 2022)
  15. ↑ UK Treasury finalises plans for crypto regulation amid FTX downfall - reports (Dec 9, 2022)
  16. ↑ You Got Robbed | FTX and BlockFI Crash - YouTube (Dec 11, 2022)
  17. ↑ Sam Bankman-Fried Applauded After Surreal Interview (Dec 12, 2022)
  18. ↑ @unusual_whales Twitter (Dec 13, 2022)
  19. ↑ Projects Benefited By Ftx Collapse (Dec 15, 2022)
  20. ↑ Sam Bankman-Fried in 'Good Spirits' in Rat-Infested Prison - Decrypt (Dec 15, 2022)
  21. ↑ I Accidentally Got SBF To Admit to Fraud - YouTube (Dec 16, 2022)
  22. ↑ FTX Was (And Is) A Complete Mess - YouTube (Dec 18, 2022)
  23. ↑ Reddit - Dive into anything (Dec 22, 2022)
  24. ↑ House Financial Services Committee holds a hearing to investigate FTX collapse — 12/13/22 - YouTube (Dec 24, 2022)
  25. ↑ Alameda Wallets Funnel Over $1.7 Million Via Crypto-Mixers Overnight | ZeroHedge (Dec 29, 2022)
  26. ↑ Sam Bankman-Fried Arrested Immediately After Saying He Wouldn't Be Arrested (Jan 11, 2023)
  27. ↑ @cz_binance Twitter (Sep 12, 2023)
  28. ↑ FTX: Collapsed crypto giant recovers over $5bn of assets - BBC News (Sep 12, 2023)
  29. ↑ FTX founder Sam Bankman-Fried to be released on $250 million bail, will live with his parents (Sep 14, 2023)
  30. ↑ ‘No Cooperation’: How Sam Bankman-Fried Tried to Cling to FTX - The New York Times (Sep 14, 2023)
  31. ↑ @coffeebreak_YT Twitter (Sep 14, 2023)
  32. ↑ Rekt - SBF - MASK OFF (Sep 14, 2023)
  33. ↑ @SCBgov_bs Twitter (Sep 14, 2023)
  34. ↑ Reddit - Dive into anything (Sep 14, 2023)
  35. ↑ US senators commit to advancing crypto bill despite FTX collapse (Sep 14, 2023)
  36. ↑ Is SBF a 'pawn' and 'useful idiot' in a bigger plot to take down crypto industry? - Mark Yusko - YouTube (Sep 14, 2023)
  37. ↑ Reddit - Dive into anything (Sep 14, 2023)
  38. ↑ I Accidentally Interviewed SBF And He Hated It - YouTube (Sep 14, 2023)
  39. ↑ @RepTomEmmer Twitter (Sep 14, 2023)
  40. ↑ @AutismCapital Twitter (Sep 14, 2023)
  41. ↑ Sam Bankman Fried Was Arrested - YouTube (Sep 14, 2023)
  42. ↑ - YouTube (Sep 14, 2023)
  43. ↑ Caroline Ellison (CEO of Alameda) has been found! - YouTube (Sep 14, 2023)
  44. ↑ Kevin O'Leary Just Shocked Everyone With His Response To The FTX Collapse - YouTube (Sep 14, 2023)
  45. ↑ SEC Charges Caroline Ellison and Gary Wang with Defrauding Investors in Crypto Asset Trading Platform FTX - Reddit (Sep 14, 2023)
  46. ↑ FTX Is About To Liquidate $3.4 BILLION Of Crypto! (Alts Are In Trouble) - YouTube (Sep 14, 2023)
  47. ↑ FTX gets court approval to sell crypto assets - Reuters (Sep 14, 2023)
  48. ↑ The Collapse of FTX: What Went Wrong With the Crypto Exchange? - Investopedia (Sep 14, 2023)
  49. ↑ What Happened To FTX? The Crypto Exchange Fund’s Collapse Explained. - Forbes (Sep 14, 2023)
  50. ↑ 50.0 50.1 Billion Dollar Crypto Exchange FTX Gains Regulatory Nod to Offload $3.4 Billion in Bitcoin, Ethereum, and Ripple (XRP): No Market Impact Foreseen - Dispelling FUD - Crypto News Flash (Sep 14, 2023)
  51. ↑ 51.0 51.1 51.2 Billionaire Bankman-Fried’s Crypto Exchange FTX Lands $32 Billion Valuation And $400 Million In New Funding - Forbes (Sep 14, 2023)
  52. ↑ FTX Logo - VectorSeek (Sep 14, 2023)
  53. ↑ 53.0 53.1 53.2 FTX Secures Court Approval to Sell Crypto Holdings, Including BTC and SOL - CoinDesk (Sep 14, 2023)
  54. ↑ Why The FTX Liquidation Will SURPRISE Everyone! - YouTube (Sep 14, 2023)
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