FTX Collapse (November 2022) saw crypto’s second-largest exchange implode in days when founder Sam Bankman-Fried’s $8B fraud was exposed, triggering bankruptcy, arrest, and conviction in crypto’s biggest scandal.
The Empire
FTX launched 2019 by Sam Bankman-Fried (“SBF”)—MIT physics grad, former Jane Street trader, effective altruist. By 2021, FTX was:
- 2nd largest crypto exchange
- $32B valuation
- Celebrity partnerships (Tom Brady, Larry David, Steph Curry)
- Super Bowl ads ($30M)
- Miami Heat arena naming rights ($135M)
- Positioned as “responsible” crypto company
SBF became crypto’s respectable face—lobbying Congress, promising regulation, pledging billions to philanthropy through “effective altruism.”
The Sister Company
Alameda Research—SBF’s trading firm, founded before FTX. CEO: Caroline Ellison, SBF’s ex-girlfriend.
The relationship was problematic: FTX gave Alameda special privileges:
- Unlimited credit line
- Exemption from liquidation
- Backdoor to customer funds
This violated every exchange principle—customer segregation, conflict of interest prohibitions, basic financial controls.
The Collapse
November 2, 2022: CoinDesk leaked Alameda’s balance sheet—$14.6B assets, mostly FTT (FTX’s token) and illiquid crypto.
November 6: Binance CEO CZ tweeted he would sell $500M+ in FTT holdings due to “recent revelations.”
November 7: FTT crashed 80%. Customers rushed to withdraw funds from FTX.
November 8:
- FTX froze withdrawals
- Binance announced acquisition (rescue)
- November 9: Binance withdrew from deal after due diligence (“beyond our ability to help”)
November 11: FTX filed bankruptcy. $8B in customer funds missing.
November 12: SBF resigned as CEO.
The Fraud
Investigation revealed:
- $8B+ in customer funds transferred to Alameda Research
- Alameda used funds for risky trades, lost billions
- FTX lent customer deposits to Alameda (illegal)
- No internal controls, accounting, or oversight
- Executives lived together in Bahamas penthouse
- Alameda trading positions backed by worthless FTT tokens
SBF had created house of cards—using customer money to prop up failing trading firm.
The Aftermath
November 2022:
- 1M+ creditors lost funds
- Celebrity endorsers sued
- Bahamas seized SBF’s assets
- Criminal investigation began
December 2022: SBF arrested in Bahamas, extradited to U.S.
Charges: Wire fraud, securities fraud, money laundering, campaign finance violations (allegedly donated $100M+ illegally)
The Trial
2023:
- Caroline Ellison pleaded guilty, cooperated
- Other executives pleaded guilty
- SBF went to trial claiming ignorance
November 2023: SBF convicted on all 7 counts. Faced 110+ years prison.
March 2024: Sentenced to 25 years federal prison.
The Contagion
FTX collapse triggered:
- BlockFi bankruptcy (lent to Alameda)
- Genesis bankruptcy
- Gemini Earn program losses
- Broader crypto market crash
- Billions in venture capital write-offs
Tom Brady, Gisele Bündchen, Larry David, Steph Curry, Shaq—all faced lawsuits for endorsing FTX.
The Contrast
Unlike Terra’s Do Kwon (arrogant), SBF cultivated image:
- Nerdy, awkward, sleeping-on-bean-bags
- Effective altruist pledging wealth to charity
- Responsible crypto advocate
- Regulatory compliance supporter
The fraud was more shocking because he seemed legitimate.
The Missing Billions
Bankruptcy trustees found:
- $415M worth of Robinhood stock (seized)
- Bahamas real estate ($300M)
- Political donations ($100M+)
- Ventures investments ($5B)
But billions remained missing—likely lost in bad trades, spent on lifestyle/lobbying, or hidden.
The Effective Altruism Reckoning
SBF’s fraud destroyed effective altruism’s reputation:
- He claimed “earn to give” justified fraud
- EA organizations had taken FTX donations
- Philosophy’s “ends justify means” enabled crime
The movement faced existential crisis.
The Regulatory Response
FTX collapse prompted:
- Congressional hearings
- Calls for crypto regulation
- SEC/CFTC enforcement surge
- Global coordination on crypto oversight
The scandal made crypto regulation inevitable.
The Legacy
FTX was crypto’s Enron—massive fraud hiding in plain sight, enabled by:
- No oversight
- Celebrity endorsements
- Cult of personality
- Conflicts of interest
- Greed disguised as altruism
By 2023, SBF was convicted criminal, FTX was bankrupt, customers lost billions. The “responsible” crypto company was crypto’s biggest fraud.
Source: Bankruptcy filings, DOJ indictments, trial transcripts, investigative journalism