FTX: How Sam Bankman-Fried Built a House of Cards

Lawyers for fallen crypto exchange FTX argued at the company’s bankruptcy hearing on Tuesday that the company served as founder Sam Bankman-Fried’s personal “fiefdom,” with a market cap of $40 billion in January, before crashing to its demise in recent weeks. current valuation of approximately $422 million.

Those who have looked under the hood in the aftermath of the crash, including new FTX CEO John J. Ray III, have expressed dismay at the company’s lack of basic accounting and compliance protocols, raising questions about how Bankman-Fried in was able to carry out such a massive, uncontrolled operation that gave him incredible influence and political power.

Sam Bankman-Fried, founder and CEO of FTX, speaks during an interview at “Bloomberg Wealth with David Rubenstein” in New York on August 17, 2022. (Jeenah Moon/Bloomberg via Getty Images/Getty Images)

So, how did Bankman-Fried do? Ben McMillan, co-founder of IDX Digital Assets, describes it with a simple analogy:

In a hypothetical scenario, imagine someone owns every home in a neighborhood of 100 homes and forces the sale of one home for $1 million, then uses that sale to show that they have $100 million in “equity” . But then the owner is forced to sell all of the remaining 99 homes, and the homes sell for only $100,000 each, meaning $90 million of their so-called equity disappears.


But that equality never existed in the first place.

McMillan told FOX Business that this is exactly what Bankman-Fried did with his FTT tokens as he controlled the float.

FTX logo seen in Miami

The FTX logo can be seen at the entrance to the FTX Arena in Miami on November 12, 2022. (Reuters/Marco Bello/File/Reuters Photos)

According to McMillan, FTX would take care of it and trade a small portion of the FTT and other coins like Serum at a price favorable enough to create the “equity” on the balance sheet. Then Bankman-Fried would borrow a lot of money against what was essentially a very large – and very bogus – asset number.

That, in turn, enabled FTX and its hedge fund, Alameda Research, to artificially inflate assets.


“This is not new or unique to crypto, by the way,” McMillan explains. “It was done by more than a few hedge funds during the 2008 crash — especially in the world of distressed debt.”

FTX and Alameda accelerated the scenario by using the inflated asset number to close very real liabilities, McMillan said. It also appears that Bankman-Fried took over companies and forced them into “custody” with FTX so that he could reportedly continue the cycle using client assets.

Alameda Research CEO Caroline Ellison

Alameda Research CEO Caroline Ellison via Twitter ([email protected])

McMillan says a key clue came when Changpeng Zhao, founder and CEO of major crypto exchange Binance, announced on Nov. 6 that his company was selling a large amount of FTT on the open market, and Alameda CEO Caroline Ellison quickly responded by offering to get all the tokens for $22 each.


Many now speculate that that amount was the crucial number above which FTT had to trade for FTX and Alameda to remain solvent.

“When the FTT fell sharply on Nov. 8,” McMillan notes, “the house of cards came crashing down.”

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