The Fall of Sam Bankman-Fried: How a single tweet triggered a $6BN, 72-hr, stampede
NEW YORK CITY, NEW YORK: The downfall of billionaire crypto entrepreneur Sam Bankman-Fried and his once-thriving businesses, FTX and Alameda Research, was triggered by a single tweet from his industry competitor, Changpeng Zhao, the CEO of Binance.
Changpeng Zhao's Twitter announcement
Just days before the catastrophic collapse of these crypto giants, Zhao declared Binance's decision to sever ties with Bankman-Fried's enterprises, citing "recent revelations" about the precarious financial state of FTX.
These revelations stemmed from a leaked Alameda Research balance sheet, which exposed the dire financial situation within Bankman-Fried's businesses.
In a tweet posted on November 6, Zhao revealed, "As part of Binance's exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books."
Zhao also clarified Binance's intent to minimize market impact during the liquidation process, which was expected to take a few months.
We will try to do so in a way that minimizes market impact. Due to market conditions and limited liquidity, we expect this will take a few months to complete. 2/4
— CZ 🔶 Binance (@cz_binance) November 6, 2022
However, this announcement triggered a panicked rush by FTX customers to withdraw their assets, amounting to a staggering $6 billion in just 72 hours. Unfortunately, FTX was unable to fulfill these withdrawal requests, leading to the exposure of fraudulent practices within the company.
The crisis ultimately unveiled FTX's fraudulent activities, resulting in Bankman-Fried's wire fraud charges on December 2.
Zhao was swift to dismiss any conspiracy theories, emphasizing that Binance encouraged collaboration within the crypto industry and that the incident was not an attempt to harm a rival.
"Binance always encourages collaboration between industry players. Regarding any speculation as to whether this is a move against a competitor, it is not. Our industry is in its nascency and every time a project publicly fails it hurts every user and every platform," he said.
Several weeks later, Zhao insisted in another tweet that "no healthy business can be destroyed by a tweet." Later adding that Bankman-Fried is "one of the greatest fraudsters in history."
Sam Bankman-Fried quilty of siphoning nearly $10B
Bankman-Fried was found guilty of siphoning approximately $10 billion from unsuspecting customers of his FTX platform.
"This is not about complex issues of cryptocurrencies," Prosecutor Nicolas Roos told the jury on Wednesday, November 1. "It's about deception. It's about lies. It's about stealing. It's about greed."
Bankman-Fried, once estimated to be worth $26 billion, now faces up to 115 years in prison.
Alameda Research, Bankman-Fried's personal hedge fund, had relied on up to $14 billion of client funds for its transactions and investments.
The trial hinged on the crucial question of whether Bankman-Fried knowingly acted wrongly, with the prosecution arguing that he knew it was unethical but proceeded due to overconfidence.
"He knew it was wrong. He did it anyway (and) thought because he was smart he could get away with it," Roos argued.
In order to believe otherwise, the prosecutor said, "You'd have to believe that the defendant was actually clueless. You sat through this trial and you know that none of it is true."
During the trial, Bankman-Fried acknowledged making "mistakes" in managing his crypto empire but vehemently denied committing fraud.
He portrayed himself as an overwhelmed entrepreneur who became aware of Alameda's troubles too late, blaming staff, including his former girlfriend, for the company's woes.
The trial also revealed that Alameda was authorized to borrow up to $65 billion from FTX through a software "back door," using the funds for risky investments, political donations, and real estate purchases.
However, the cryptocurrency industry's series of defaults in 2022 led to a sharp decline in digital currencies and Alameda's assets, per the Daily Mail.
Sam Bankman-Fried's defense attorney says he's portrayed as a 'villain'
Bankman-Fried's defense attorney, Mark Cohen, argued that prosecutors attempted to vilify his client by delving into his personal life and appearance, seeking to portray him as a "villain" and a "monster."
"Every movie needs a villain," Cohen stated. "And let's face it, an awkward high school math nerd doesn't look particularly villainous. So what did they do? They wrote him into the movie as a villain."
"Time and again, the government has sought to turn Sam into some sort of villain, some sort of monster," he added.