In less than a week in November 2022, Sam Bankman-Fried’s (SBF) giant cryptocurrency platform FTX went bust. The company and its founder have become so well known that Hollywood is racing to film the story of its demise. Many Americans will have to wait for his trial to start later this year to hear all the details, but financial newspapers such as the Wall Street Journal and the Financial Times will be able to do a better job. Based on customer testimonials and emails, they documented the last days and hours of FTX.
It’s one hell of a ride, showing how a bunch of millennials can take down a $40 billion company in just a few hours.
November 7, 2022
SBF instructed its traders to sell positions as soon as their company needed cash. That weekend, a story emerged in the crypto press showing how a connection between Alameda, a Hong Kong-based trading firm run by his predecessor, Caroline Ellison, and cryptocurrency platform FTX worked, and how the two were backed by FTT’s underlying asset, FTX cryptocurrency.
Changpeng Zhao, CEO of rival cryptocurrency platform Binance, is rumored to be looking to sell $500 million worth of FTT coins, if the story is true.
An email from SBF to his traders read: “ETA on getting at least $2b of USD?”
As the value of FTT began to drop, two groups formed within the company. The first group (in the Bahamas) centers on Sam, who believes that if they can find cash quickly, the company can be saved. A second group sat around corporate lawyers in New York arguing that protection from creditors should have been considered.
November 8, 2022
The next morning, Lennix Lai, the big boss of Hong Kong-based cryptocurrency platform OKX, received a call from Sam in the Bahamas. Explaining that the market was panicking, he asked OKX if it could “help him out a little bit.”
Lai said he would speak to management and had Sam call back. When Sam called back two hours later, he said FTX needed “billions of dollars” immediately to avoid “very serious consequences.” The delay would widen the shortfall to $4 billion to $8 billion.
Lai said the amount was too large and suggested that Sam call Binance CEO Changpeng Zhao. According to Lai, that was the only one with the necessary funds.
After some hesitation and repeated phone calls to banks and funds, Sam finally sent a string of “increasingly desperate” messages to his arch-rival.
When he contacted me I thought he was going to ask for a private deal to buy FTT tokens…but when he called me he was quick to suggest they were in big trouble and they were looking for a buyout, CZ later in a crypto Currency Conference explained. I know he is desperate.
Binance agreed to review FTX’s accounting, and the market calmed down for a while after rumors of a possible deal spread. But the folks at FTX sounded all the alarm bells.
Soon, news of FTX’s accident spread throughout the small island nation. Rental car companies in Nassau are demanding the return of their vehicles, fearing they won’t get their money. Hotels and landlords turned into FTX employees, some of whom moved into company-owned properties. Many workers are scrambling to book flights to outlying islands. “If you can catch a flight tomorrow, you will go,” one person said, speaking on condition of anonymity.
According to another source, Bahamian police had raided FTX employees at the airport, so colleagues began throwing away any clothing with the company’s FTX logo on it.
A former FTX employee explained that it was a combination of a real physical hurricane and a psychological hurricane, and it was the craziest, busiest 24 hours of my life. I feel like my worldview is collapsing. FTX isn’t just me and other people’s work. FTX is my life.
As the New York group realized the seriousness of the situation and attempted to wire money to the law firm of Sullivan & Cromwell to protect itself from arrest, the Bahamian government became aware that a multi-billion dollar company could fail on their territory. If this were to happen, there would be very big consequences as many people in the Bahamas work for FTX either directly or indirectly.
Undersecretary of the Treasury Christina Rolle was appointed to oversee the cryptocurrency business. She sent a very urgent email to SBF that read:
Good morning…Please let me know your availability to meet with the Bahamas Securities Commission to discuss recent news regarding liquidity issues and Binance’s possible acquisition of FTX…
In Hong Kong, Caroline Ellisson told her staff that Alameda might have to go bankrupt. Caroline is a huge Harry Potter fan and has been in a relationship with Sam, and she already knows she’s going to have to talk to a lawyer. A few weeks later, she decided to work with the U.S. Justice Department to seek a commutation of her sentence. She made a “pleasure deal” and told the FBI all the details about Sam Bankman-Fried and the FTX and Alameda dealings.
November 9, 2022
CZ decided not to make the purchase after Binance’s financial analyst reviewed FTX’s account.
These messages are sent between SBF and CZ.
- SBF: Hey, we’re still super excited to be working with you guys. We’ve obviously seen a lot of public articles claiming leaks, but we obviously don’t know if that’s true.We’d love to get clarification from you guys and we’d do anything to make this work
- CZ: Sam, we won’t be able to go ahead with this deal. There are so many questions.long march
A few hours later, Binance issued a press release, and the value of FTT completely collapsed
November 10, 2022
Lawyers in New York realize FTX and Alameda are worthless and billions in client funds are gone. They tried to convince Sam to take the company to a judge or a law firm that could resolve the bankruptcy, but Sam refused.
Sam, whose father is a law professor at Stanford University, was also accompanied by his personal attorney when he spoke to him on a video chat. At that moment, the Bankman-Fried family realized that arrest was imminent.
December 12, 2022
Sam tried to appear in court for another month. After learning that the Bahamas would arrest him, he attempted to reopen the FTX website for withdrawals and transfers to bank accounts, but only to customers with accounts in the Bahamas. It turned out he was unemployed, and police arrested him in the Bahamas on December 12. The United States immediately requested his extradition.
Sam’s trial is usually set to begin on October 2, 2023.
Source of information: Compiled from CRYPTOTIPS by 0x Information.Copyright belongs to the author Jeroen Kok, without permission, may not be reproduced