Sam Bankman-Fried
Sam Bankman-Fried, popularly known as SBF, is an American entrepreneur and investor. He was the founder and former CEO of FTX, a cryptocurrency derivatives exchange, and associated trading firm Alameda Research. [1]
On November 11, 2022, Sam stepped down as the CEO of FTX after filing for Chapter 11 Bankruptcy in the US. It was discovered that FTX owed $9 billion in liabilities while holding under $1 billion in assets before its bankruptcy filing. [4][10][11]
Early Life & Education
Sam Bankman-Fried was born on March 6, 1992, in Stanford, California, U.S.A., to parents Barbara Fried and Joseph Bankman, who are both Stanford law professors. Alongside his brother Gabe Bankman-Fried, he was raised with utilitarian ideals, which influenced his philanthropic pursuits in the future. [6]
He attended Crystal Springs Uplands School in Hillsborough, California and graduated in 2010. Bankman-Fried attended Canada/USA Mathcamp as a high school student, a summer program for mathematically gifted Students.[7]
In 2014, Sam graduated with a bachelor's degree in Physics and a minor in Mathematics from the Massachusetts Institute of Technology (MIT). Sam joined Epsilon Theta, a STEAM-focused coed fraternity at MIT, where members spent their time playing board and computer games. [8]
During his time as a physics major at MIT, Bankman-Fried was introduced to effective altruism through a talk on career ethics by William MacAskill. Motivated by the idea of doing good, Bankman-Fried chose to prioritize accumulating wealth with the intention of eventually giving it away for charitable purposes. [8]
While still at college, Bankman-Fried interned at Jane Street Capital, a Wall Street trading firm that trades international ETFs. After college, he returned full-time, donating more than half of his earnings to charity.[5]
Career
In June 2014, Sam started working for Jane Street Capital in New York full-time. He gained diverse experience at the firm, including trading a variety of crypto ETFs, futures, and equities. He also created the company's OTC trading system. He worked at Jane Street for three years before stumbling across cryptocurrency in 2017.[3]
He left Jane Street Capital in September 2017 and briefly worked as the director of development at the Center for Effective Altruism Berkeley, CA, while planning to start his own cryptocurrency trading firm. [5]
Alameda Research (2017)
Sam Bankman-Fried launched Alameda Research along with his college friend Gary Wang in late 2017. It was named after Alameda County in California, the home county of Sam. While operating Alameda, Bankman-Fried moved to Hong Kong in 2018.[1]
Initially, Alameda focused on capitalizing on the Japanese Bitcoin premium using arbitrage trading, a strategy that exploits price disparities between identical assets in various markets. By buying at one exchange and selling at another, they generated substantial profits. For a period of two years, Alameda performed exceptionally well, earning profits of up to $1 million per day. In the first few months alone, the company made around $20 million and remained profitable until its eventual collapse in 2022. [5]
Alameda Research Collapse
The reason for its collapse which happened in November 2022 was that Alameda Research borrowed billions in customer funds from its SBF's exchange, FTX. The crypto exchange underestimated the amount FTX needed to keep on hand if someone wanted to cash out, according to the source. Trading platforms are required by their regulators to hold enough money to match what customers deposit. [13]
FTX provided up to $10 billion in loans using money that customers had deposited. Since FTX had $16 billion in customer assets, the exchange had lent more than half of its customer funds. Aside from FTX, Alameda had to take out additional loans from other financial firms too, which totals $1.5 billion, the report said, citing people familiar with the matter. [14]
FTX (2019)
In April 2019, Sam founded FTX, a cryptocurrency derivatives exchange. Bankman-Fried and Wang launched their own cryptocurrency exchange platform with more trading options and enhanced security. In April 2019, FTX registered in Antigua and Barbuda before launching in Hong Kong the following month. [5]
FTX is an abbreviation for "Fu-Tures eXchange." FTX was a pioneer in allowing traders to hold all of their margins in one wallet as collateral, rather than having to manage multiple waits for different assets. FTX also consistently expanded its product offerings, which included crypto derivatives, options, tokenized stocks, prediction markets, leveraged tokens, OTC, and pre-IPO tokenized stocks. [5]
With the beginning of COVID-19, Bankman-Fried relocated the company's headquarters from Hong Kong to the Bahamas, where it would be easier to run the business. A year after its launch, the company was worth more than $1 billion, and $32 billion three years later. The exchange had over one million users as of early 2022.[10]
Controversy
Bankruptcy of FTX
In November 2022, FTX was accused of using customer funds and suffered a liquidity crunch, leading to its native FTT token crash and the firm’s bankruptcy.[12]
On November 2nd, 2022, CoinDesk published a report based on a leaked Alameda Research balance sheet which showed Alameda claiming to have $14.6 billion of assets as of June 30, of which most were reviewed to be majorly FTT tokens. The cryptocurrency lost about 10% in its price on November 6th, 2022 after Binance CEO Changpeng Zhao announced it would liquidate its FTT holdings worth over $580 million. [15]
Anonymous sources stated that, earlier in 2022, Bankman-Fried had transferred at least $4 billion from FTX to Alameda Research, without any disclosure to the companies' insiders or the public. The sources said that the money transferred included customer funds and that it was ostensibly backed by FTT and shares in Robinhood. [15]
An anonymous source cited by the Wall Street Journal also stated that Bankman-Fried had disclosed that Alameda owed FTX about $10 billion which was secured through customer funds held by FTX when FTX had, at the time, $16 billion in customer assets. The Chief Executive of Alameda Research Caroline Ellison told employees that Bankman-Fried was aware that FTX had lent its customers’ money to Alameda to help it meet its liabilities. [16]
This forced FTX to stop customer withdrawals on November 8, 2022. A later article by the Wall Street Journal, citing people familiar with the matter, claimed FTX used billions of dollars worth of customer funds on risky bets to help run Alameda. [16]
On November 11, 2022, FTX filed for Chapter 11 Bankruptcy in the US, leading to the resignation of Sam Bankman-Fried, who was replaced by John J. Ray III. On November 17, Ray stated in a sworn declaration submitted in bankruptcy court that according to the firm's records, Alameda Research had lent $1 billion to Bankman-Fried. [16][17]
Arrest & Charges
On December 13, 2022, Sam Bankman-Fried was arrested in his apartment complex in the Bahamas by the Royal Bahamas Police Force. The arrest was made in response to charges brought against him by the Southern District of New York, including "wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering." [18]
The Prime Minister of the Bahamas, Philip Davis, stated that both the Bahamas and the United States have a shared interest in holding accountable individuals associated with FTX who may have violated the law and public trust. Additionally, the Bahamas would continue its regulatory and criminal investigations into the collapse of FTX. [18]
Bankman-Fried could potentially face a maximum of 115 years in prison if convicted on all eight counts, with consecutive sentencing. Braden Perry, a former senior trial lawyer at the Commodity Futures Trading Commission, mentioned that a conviction on any of the charges could lead to a prison sentence spanning years or decades. [19][20]
After being held at Fox Hill Prison in Nassau for 10 days, Bankman-Fried agreed to his extradition from the Bahamas to the United States in order to face fraud charges on December 15, 2022. He was granted bail at $250 million by a US judge on December 16, 2022, and he has to surrender his passport and wear an ankle monitor. [21]
On January 3, 2023, Bankman-Fried entered a not-guilty plea to the fraud and other charges against him[21]. Subsequently, on February 1, 2023, Judge Lewis Kaplan overseeing the case imposed stricter bail conditions, prohibiting Bankman-Fried from contacting current or former FTX employees without attorneys present. The judge made this decision due to concerns of potential inappropriate contact with prospective witnesses, which could pose a material threat and possibly lead to a request for him to be jailed pending trial. [22][23]
On February 23, 2023, four more criminal charges were announced against Bankman-Fried, with the primary focus on his involvement in "more than 300 illegal political donations." According to a March 2023 indictment, Bankman-Fried and others allegedly facilitated the transfer of at least $40 million in cryptocurrency to Chinese government officials to unfreeze accounts belonging to Alameda Research. [24]
On July 26, 2023, the judge presiding over Bankman-Fried's fraud case was scheduled to assess whether he can remain free on his current bail conditions before his trial on October 2, 2023. Prosecutors accused SBF of witness tampering after providing a reporter with personal writings from Caroline Ellison, the former chief executive of his crypto hedge fund, Alameda Research. [26]
On the same day, prosecutors dismissed a campaign finance charge against him due to treaty obligations with The Bahamas. [25][27]
"The Government has been informed that The Bahamas notified the United States earlier today that The Bahamas did not intend to extradite the defendant on the campaign contributions count," the DOJ letter said.
"Accordingly, in keeping with its treaty obligations to The Bahamas, the Government does not intend to proceed to trial on the campaign contributions count."[28]
On October 3, 2023, Bankman-Fried’s trials took place. Federal prosecutors asserted that Bankman-Fried, along with several associates, including his intermittent girlfriend Caroline Ellison, diverted billions of dollars for his personal gain. Ellison, who pleaded guilty to her involvement in the alleged conspiracy in December, was expected to be a pivotal witness for the prosecution in Bankman-Fried's upcoming trial. Prosecutors planned to present recordings from a November 9th Alameda staff meeting, during which Ellison tried to address staff concerns. [40]
Donations
Politics
Pre-2020
Bankman-Fried made a $1,000 contribution to Michael Bennet in 2010. In the 2020 U.S. elections, he donated $5.2 million to two super PACs supporting the Joe Biden 2020 presidential campaign. In the 2020 election cycle, he ranked as the second-largest individual donor to Biden, following Michael Bloomberg. [29]
2021-2022
In 2022, he provided initial financial support of $10 million for Protect Our Future PAC, a political action committee of the Democratic Party. The PAC aimed to support lawmakers focusing on long-term policymaking in areas such as pandemic preparedness and planning, according to Politico. In total, Bankman-Fried donated $27 million to this PAC. [30]
In the 2021–22 cycle, Bankman-Fried's donations to Republican Party campaigns amounted to approximately $262,200. Among the recipients were senators Susan Collins of Maine, Mitt Romney of Utah, Lisa Murkowski of Alaska, and Ben Sasse of Nebraska. Journalist Matthew Kassel suggests that Bankman-Fried has frequently supported politicians fostering strong Israel–United States relations. However, it remains uncertain whether his backing of pro-Israel candidates was coincidental or driven by any personal interest in Middle East policy. [31]
Bankman-Fried has claimed he also donated large amounts of money to Republicans through dark money channels. [32]
2022 U.S. Midterm Elections
In the 2022 U.S. elections, Bankman-Fried emerged as the second-largest individual donor to Democratic causes, contributing a total of $39.8 million. His donations ranked below only George Soros, with $27 million of his contributions going to the Protect Our Future PAC. Other beneficiaries included The Next 50 PAC, Guarding Against Pandemics PAC, and the leadership PAC for Brendan Boyle. [33][34]
In February 2022, Bankman-Fried stated that his political contributions were not intended to influence his cryptocurrency policy goals, although FTX circulated suggestions to policymakers. He expressed a preference for the Commodity Futures Trading Commission (CFTC) to play a larger role in regulating and guiding the crypto industry. The CFTC's approach to industry regulations was seen as relatively lenient compared to other regulators like the Securities and Exchange Commission, as reported by The New York Times. [35]
Bankman-Fried lobbied Congress for regulations through the Digital Commodities Consumer Protection Act (DCCPA), which was seen as advantageous for FTX but potentially detrimental to the broader industry, particularly DeFi competitors. He announced in May 2022 that he intended to spend "north of $100 million" in the 2024 presidential election, with a "soft ceiling" of $1 billion. However, in October 2022, he backtracked on this commitment, acknowledging it as a "dumb quote on my part." [36]
Following the FTX scandal, political campaign contribution recipients have been donating equal amounts to charitable organizations. Beto O'Rourke's campaign also received a $1 million donation from Bankman-Fried in October 2022, but the funds were returned in early November before the election. [37][38]
Pandemic Contributions
Bankman-Fried and his brother made significant contributions to pandemic prevention initiatives, including support for the Guarding Against Pandemics PAC and a $18 million donation from FTX to back the global expansion of the TOGETHER Trial, recognized with the Trial of the Year Award for their COVID-19 treatment work. [39]
On July 20, 2023, an Insiders Avoidance Complaint was filed against Bankman-Fried and three former FTX/Alameda senior executives. The complaint aims to recover "hundreds of millions of dollars that Defendants misappropriated." It highlights that Guarding Against Pandemics, which received $35 million from Bankman-Fried between October 2021 and May 2022, and its associated political action committee did not effectively prevent pandemics, as suggested. [30]
