What to know about Sam Bankman-Fried, FTX's embattled founder

Bankman-Fried was arrested after federal prosecutors filed criminal charges.

ByMax Zahn ABCNews logo
Tuesday, December 13, 2022
Former FTX CEO Sam Bankman-Fried arrested in the Bahamas
The founder and former CEO of FTX, Sam Bankman-Fried, was arrested in the Bahamas.

The collapse of $32 billion cryptocurrency exchange FTX, like other scandal-ridden corporate failures, has yanked a once-celebrated executive into the harsh light of public scrutiny.

Sam Bankman-Fried, the 30-year-old founder of FTX, was arrested Monday in the Bahamas after federal prosecutors in New York filed an eight-count indictment including allegations of fraud and conspiracy, against the executive, according to the Royal Bahamas Police Force.

Bankman-Fried had quickly ascended to the top of the cryptocurrency sector, garnering goodwill in recent years as a philanthropist and leading proponent of industry regulation. The cover of Fortune Magazine in August asked readers whether Bankman-Fried, known by some as "SBF," was "the next Warren Buffett."

Lately, however, he faced withering questions over the mismanagement of billions in customer funds. Meanwhile, his net worth plummeted from $16 billion to $0 in less than a week, according to an estimate from Bloomberg.

In the ABC News interview, Sam Bankman-Fried addressed rumors that have swirled since the collapse of FTX and discussed his uncertain path forward.

Concerns of financial instability at FTX -- a top platform where users buy and sell crypto -- triggered a wave of customer withdrawals totaling billions of dollars. But FTX lacked sufficient funds to pay sellers, instead imposing a halt on withdrawals altogether. Some crypto traders, who deposited their savings on the platform, fear they may never get their money back.

Days later, the company declared bankruptcy and Bankman-Fried resigned as CEO. He now faces criminal charges as well as civil charges from the U.S. Securities and Exchange Commission. FTX and Bankman-Fried did not immediately respond to a request for comment.

Here's what you need to know about Bankman-Fried:

Board games and a philanthropic movement

Bankman-Fried was raised in Palo Alto, California, near Stanford University, where both of his parents were law professors.

He attended an elite prep school, where he excelled academically, spending his leisure time playing video games like League of Legends and the card game Magic: The Gathering, according to a profile published by venture firm Sequoia Capital, which invested in FTX.

In 2010, he began attending the Massachusetts Institute of Technology where he lived in a coed group home called Epsilon Theta, which promotes itself as an alcohol-free place for activities like playing board games, square dancing and debating logic problems, its website says.

At MIT, Bankman-Fried met William MacAskill, an early proponent of effective altruism, an approach to philanthropy that believes in a steadfastly rational assessment of how to optimize the positive effects of one's actions.

Some proponents of EA encourage aspiring do-gooders to attain wealth through high-paying careers in business or finance, and in turn donate their earnings in an effort to improve the world as much as possible.

Samuel Bankman-Fried, founder and CEO of FTX, testifies during a Senate Committee on Agriculture, Nutrition and Forestry hearing on Capitol Hill in Washington, DC.
Samuel Bankman-Fried, founder and CEO of FTX, testifies during a Senate Committee on Agriculture, Nutrition and Forestry hearing on Capitol Hill in Washington, DC.
ABC News

With this in mind, Bankman-Fried, a physics major, interned over the summer after his junior year at data-driven trading firm Jane Street, where he continued to work after graduation. After trading at the firm for three years and donating some of his money, Bankman-Fried sought out a new challenge, Sequoia Capital said.

A splash in cryptocurrency

In 2018, then-25-year-old Bankman-Fried turned from quant trading on Wall Street to the relatively new world of cryptocurrency investing.

Almost immediately, he spotted an arbitrage that could deliver massive returns: Bitcoin was trading 10% higher in Japan than it was in the U.S. If Bankman-Fried could buy large amounts of the popular token in the U.S. and sell them in Japan, he stood to make a handsome profit.

In collaboration with friends at Alameda Capital, a hedge fund he had founded, Bankman-Fried moved as much as $25 million in bitcoin each day. "You can do the math," he told New York Magazine. "That was the craziest trade I've ever seen."

Over the ensuing months, drawing in part on the money he'd stockpiled from that trade, Bankman-Fried moved to Hong Kong and founded FTX.

The rise of FTX and Bankman-Fried

FTX, an exchange that allows users to buy and sell cryptocurrency, generated revenue by charging customers trading fees and selling an FTX-created crypto token that allowed users to buy and sell on the platform at a discount.

Customers flocked to the exchange for low trading fees, the variety of coins on offer, and the complex futures and options trades available. In its early years, which coincided with a crypto boom as pandemic-related stimulus drove cash into the sector, FTX added hundreds of thousands of users and some major investors.

In 2021, the company moved to the Bahamas, seeking a favorable regulatory environment.

By July of that year, a $900 million funding round put the value of the company at $18 billion. A few months later, the valuation jumped to $25 billion. Finally, in January, the company saw its value soar to a peak of $32 billion.

The success sent Bankman-Fried's wealth and notoriety soaring.

Last October, Forbes hailed Bankman-Fried as the wealthiest person in the world under 30 years old, estimating his net worth at more than $20 billion.

Donning a characteristic t-shirt and fuzzy hair, Bankman-Fried attended conferences, spoke on TV and testified before Congress. As a prominent ambassador for the wonky world of cryptocurrency, he became a frequent public advocate and private lobbyist in favor of U.S. rules regulating the industry. He even helped bail out other ailing crypto companies.

In keeping with his previous commitment to effective altruism, he also established himself as a prolific philanthropist and political donor. Among a slew of donations made primarily to Democrats, Bankman-Fried gave $5.2 million in support of Joe Biden's 2020 presidential bid, making him the campaign's second-largest donor after former New York City Mayor Michael Bloomberg.

At a cryptocurrency gathering in the Bahamas, in April, Bankman-Fried demonstrated his status in the industry by moderating a panel featuring the former president Bill Clinton and former British Prime Minister Tony Blair.

The decline of FTX and growing scrutiny

The collapse of FTX centers in part on the cryptocurrency exchange's close relationship with Alameda Research, the crypto hedge fund also founded by Bankman-Fried.

Major concerns about FTX started when news outlet CoinDesk published an article that found a significant portion of Alameda Research's assets consisted of FTT, a token created by FTX that allows users of the exchange to access discounted trading fees.

Because FTT cannot be easily exchanged for cash, the report stoked fears about the capital reserves at Alameda Research and thus FTX.

Within days, Changpeng Zhao, the CEO of rival crypto exchange Binance, said he would sell all of the company's holdings in FTT, which amount to $580 million worth of the token.

The major exit from a crypto heavyweight triggered a wider selloff, akin to a bank run, placing immense pressure on FTX to meet the sudden demand for customer withdrawals, forcing the company to halt withdrawals and putting billions in customer funds in peril.

"I'm sorry," Bankman-Fried said in the aftermath of the selloff, adding that he "should have done better."

Meanwhile, the Wall Street Journal reported that FTX lent customer deposits to Alameda Research to help it meet its liabilities, and top executives at Alameda Research were aware of it, raising further scrutiny about the relationship between Alameda Research and FTX.

When FTX ultimately declared bankruptcy in early November, Bankman-Fried resigned.

The collapse of FTX is under investigation by the Securities and Exchange Commission and the Justice Department, the Wall Street Journal reported. Federal prosecutors are also investigating the downfall, a source told ABC News.

On Nov. 16, Vox published an interview in which Bankman-Fried disparages regulators using an expletive, confesses that his previous calls for tighter crypto regulation had been driven by public relations concerns and says he regrets the company declaring bankruptcy.

In the interview, he described his public commitment to ethics as "a dumb game we woke westerners play."

John Ray, the incoming CEO who was installed to guide the company through bankruptcy proceedings, said in a court filing that he had never seen such a "complete failure" of corporate controls in his career, including during his work steering Enron through bankruptcy.

"From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals," Ray said.

"This situation is unprecedented," he added.

On Monday, a day before Bankman-Fried was set to testify before members of the House of Representatives, he was arrested in the Bahamas after federal prosecutors in New York filed criminal charges contained in a sealed indictment, according to the Royal Bahamas Police Force.

The arrest "followed receipt of formal notification from the United States that it has filed criminal charges against SBF and is likely to request his extradition," the Bahamas Attorney General's Office said.

Meanwhile, the U.S. Securities and Exchange Commission on Tuesday charged Sam Bankman-Fried for defrauding investors.

"FTX's collapse highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike," said Gurbir S. Grewal, director of the SEC's Division of Enforcement, in a statement.

ABC News' Aaron Katersky and Melissa Gaffney contributed to this report.