Sam Bankman-Fried — the exchange that spent its customers’ deposits

In New York, on November 2, 2023, a federal jury convicted the founder of the cryptocurrency exchange FTX of one of the largest financial frauds of the decade. Samuel Bankman-Fried had built FTX into the world’s second- or third-largest crypto exchange while secretly directing that its customers’ deposits be funneled to Alameda Research, the affiliated trading firm he owned, where the money was used for venture investments, loan repayments, political donations, real estate, and the firm’s own losing bets. When customers tried to withdraw in November 2022, roughly $8 billion that should have been theirs was not there.

The verdict was complete. After a four-week trial in the U.S. District Court for the Southern District of New York, the jury deliberated for roughly five hours and found Bankman-Fried guilty on all seven counts: two of wire fraud, two of conspiracy to commit wire fraud, and one each of conspiracy to commit securities fraud, conspiracy to commit commodities fraud, and conspiracy to commit money laundering. On March 28, 2024, Judge Lewis A. Kaplan sentenced him to 25 years in federal prison and ordered forfeiture of approximately $11 billion.

The numbers were contested only at the margins. At sentencing, Judge Kaplan found losses of roughly $8 billion to FTX customers, $1.7 billion to FTX investors, and $1.3 billion to lenders to Alameda Research, and he rejected the defense’s claim that customers would suffer no real loss as “misleading” and “logically flawed.” FTX had filed for bankruptcy on November 11, 2022, listing more than 130 affiliated entities; the case against its founder was assembled from internal records and the testimony of his closest deputies, three of whom pleaded guilty and cooperated.

What distinguished the FTX collapse was the gap between its presentation and its plumbing. FTX marketed itself as a safe, well-regulated venue and told users their deposits were theirs, held one-to-one. Underneath, the exchange’s software contained features that exempted Alameda from the risk controls applied to everyone else and allowed it to draw effectively without limit on customer funds. The fraud was not an exotic financial instrument; it was the oldest breach in finance, spending money held in trust, executed through code and concealed by the aura of a fast-growing technology company.