Sam Bankman-Fried

• In the fast-paced world of cryptocurrency, vast sums of money can be made or lost in the blink of an eye.
• In early November 2022, the crypto exchange FTX was valued at more than US$30 billion.
• They explain how and why this incredible collapse happened, what effect it might have on the traditional financial sector and whether you should care.

1. What happened?

• FTX was where many crypto investors traded and held their cryptocurrency, similar to the New York Stock Exchange for stocks.
• Bankman-Fried also founded Alameda Research, a hedge fund that invested in cryptocurrencies and crypto companies.
• But in early November 2022, news outlets reported that a significant proportion of Alameda’s assets were a type of cryptocurrency released by FTX itself.
• This left huge numbers of investors who bought cryptocurrencies through the exchange with no good way to get their money back.

2. Did a lack of oversight play a role?

• Liquidity is the ability of a firm to sell assets quickly without those assets losing much value.
• Solvency is the idea that a company’s assets are worth more than what that company owes to debtors and customers.
• But the crypto world has generally operated with much less caution than the traditional financial sector, and FTX is no exception.
• In addition, nearly 40% of Alameda’s assets were in FTX’s own cryptocurrency – and remember, both companies were founded by the same person.

3. Why is this a big deal in crypto?

• Bank runs are rare in traditional financial institutions, but they are increasingly common in the crypto space.
• Given that Bankman-Fried and FTX were seen as some of the biggest, most trusted figures in crypto, these events may lead more investors to think twice about putting money in crypto.

4. If I don’t own crypto, should I care?

• While investors and regulators are still evaluating the consequences of this fall, the impact on any person who doesn’t personally own crypto will be minuscule.
• In high-risk environments like crypto, it’s possible to lose everything – a lesson investors in FTX learned the hard way.

5. What does the trial reveal about the regulatory environment for crypto?

• The trial of Bankman-Fried has brought attention to the ever-evolving and complex nature of cryptocurrency regulation and oversight.
• At the conclusion of the case, Damian Williams, the federal prosecutor for the U.S. Justice Department, underlined the department’s dedication to fighting fraud, even in the relatively new crypto space.
• Despite a recent crypto crackdown by the SEC, the U.S. continues to lag behind other nations in establishing comprehensive crypto regulations.
• This is evident in the formal regulatory frameworks introduced by places such as the U.K. and the European Union.

The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

• Washington, D.C.--(Newsfile Corp. - February 28, 2023) - The Securities and Exchange Commission today charged Nishad Singh, the former Co-Lead Engineer of FTX Trading Ltd. (FTX), for his role in a multiyear scheme to defraud equity investors in FTX, the crypto trading platform started by Singh along with Samuel Bankman-Fried and Gary Wang.
• The complaint alleges that Singh knew or should have known that such statements were false and misleading.
• The complaint also alleges that Singh was an active participant in the scheme to deceive FTX’s investors.
• In a parallel action, the U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC) today announced charges against Singh.

• However, the FTX crash, arguably the biggest crypto disaster in terms of capital loss, lacks an impact proportional to its magnitude.
• Raj Chowdhury expressed his displeasure with the gross mismanagement of investor assets that led to FTX squandering its $32 billion wealth to eventual bankruptcy.
• Exchanges like PayBito or Coinbase, which safeguards and segregates investor assets, will never deal with the issues faced by FTX.
• The PayBito CEO, Raj Chowdhury, stated, "FTX collapse was a cautious stable movement.

• Washington, D.C.--(Newsfile Corp. - December 13, 2022) - The Securities and Exchange Commission today charged Samuel Bankman-Fried with orchestrating a scheme to defraud equity investors in FTX Trading Ltd. (FTX), the crypto trading platform of which he was the CEO and co-founder.
• In his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets.
• It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority.
• "FTX’s collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike.