December 3, 2023

Sam Bankman-Fried’s former business partners at FTX have been in the courtroom over the past two weeks, and it's not looking good for the ex-CEO and disgraced crypto mogul.

Key witnesses, including co-founder of FTX Gary Wang, and ex-Alameda Research CEO Caroline Ellison, have given damning testimonies. And even SBF's parents were in attendance, who are set to face charges themselves for abusing their positions within the collapsed exchange.

Ellison, SBF’s ex colleague and lover has stood in front of the jury and indicated that it was Sam who directed both her and Gary to commit fraud.

In addition, the on and off romantic relationship between Ellison and Bankman-Fried further muddied the water when they were business partners and indicates the toxic work environment at FTX. 

“The whole time that we were dating he was also my boss at work, which created some awkward situations,” said Ellison.

Although the use of customer funds to plug Alameda Research and FTX losses was solely down to Sam, Caroline has admitted to committing “fraud, conspiracy to commit fraud and money laundering” with SBF. However, thanks to the plea deal Ellison signed, she may avoid jail time depending on the trial’s outcome and veracity of her testimony. 

FTX Had the World at Their Fraudulent Fingertips

Sam Bankman-Fried had built up the United States' largest crypto exchange in only a few years. 

There were billions of dollars in transactions, celebrity endorsements and branding all over the world. After three years of aggressive business moves and relentless marketing, they were at the top of the crypto world by 2021.

Here are some FTX statistics from before their downfall: 

  • FTX's highest 24-hour trade volume was $21 billion in 2021.
  • Annual trading volume peaked at $385 billion in 2020.
  • Between 2020 and 2021, their net income had a 2182% change.
  • A total of 1.2 million users were registered by 2021.

The crypto community and political figures hailed SBF as a savior for his campaign contributions and for bringing cryptocurrency to the masses. 

But his 'effective altruism', unkempt hair and disheveled appearance were all part of his ploy to woo investors and fans alike. As we've just heard, as part of Caroline Ellison's testimony, Sam Bankman-Fried knew what he was doing with his scruffy nerd style; he was cultivating the image of an eccentric genius founder intentionally to raise money and attract customers. 

It was a ruse. But it worked.

Celebrities Couldn't Leave FTX Alone

Celebrity marketing was at the heart of the FTX brand, helping it seem recognizable and accessible. 

FTX would feature top influencers, celebrities and public figures in their campaigns.And it worked. They had millions of users and billions in transactions on their platform. 

Here are some of the famous names that FTX paid to promote their platform: 

  • Tom Brady
  • Gisele Bündchen
  • Larry David
  • Steph Curry
  • Graham Stephan
  • Meet Kevin
  • Kevin O'Leary
  • Andrei Jikh
  • Shaquille O'Neil 

Tom Brady was granted a stakeholder of FTX along with other celebrities and was reported to have had $45 million worth of stock in FTX, along with his ex-partner Gisele Bündchen, who had $25 million. Both would feature in advertisements online and even on national television. 

YouTube finance gurus Meet Kevin, Graham Stephan and Andrei Jikh were some of the most prominent online personalities to push FTX.

With millions of followers each, spread over multiple platforms and accounts, their level of influence in the online world of finance is unmatched. Whilst their fans potentially had their funds stolen , these personalities  collected large paydays for promoting FTX..

The influencers have felt the consequences of their partnerships, enduring both an online backlash as well as lawsuits.

FTX's Strategic Partnerships

The FTX branding became a pivotal aspect of live sports as big names in basketball, American football and motorsports. They went as far as to spend over $100 million on advertising in the sports world in 2021 alone. 

  • FTX's Super Bowl 2022 TV advertisement

The Super Bowl is the place to get your brand out there, and FTX took full advantage of that by featuring in one of their halftime ads.

Comedian Larry David was the main attraction for last year's ad that ran for a whole minute. Not a cheap slot for FTX, as it's reported that a 30-second Super Bowl ad costs around $6.5 million.

  • FTX in the fast-lane with Mercedes

The exchange also went to the length of sponsoring Mercedes AMG in the Formula 1 racing league. FTX paid $210 million to the car brand to push its branding further across the globe outside of the U.S. 

  • FTX were true ballers

To top it off, FTX had their stadium in the heart of Miami. They signed a 19-year deal with the Miami Heat, a top NBA basketball team. Of course, the value was costly, costing FTX a further $135 million

Then, the attention turned to baseball. MLB umpires wore the FTX branding on their jerseys for every game, further branching their reach in the sporting world. 

FTX's Unforeseen Collapse

Just days before FTX imploded, SBF was hailed as the "crypto king" who would bring balance to the blockchain. 

On November 2nd, a crypto news site, Coindesk, released an article covering FTX's questionable relationship with Alameda Research, another of Sam's companies. 

Thanks to a leak of Alameda documents, it became clear that Alameda held 40% of the FTX native token, FTT. Once news broke out, many were left questioning the legitimacy of the exchange despite the media and marketing push it had been put through. 

The Coindesk article published last year dug deep into the finances of FTX and exposed its relationship with the hedge fund. Let's break it down in more detail:

  • Alameda had $14.6 billion of assets - $3.66 billion tied into the FTT token from FTX.
  • They also had billions in other cryptocurrencies, including Solana, Bitcoin and Ethereum. 

While this wasn't the be-all and end-all for FTX's collapse, the news sparked a considerable debate on the legitimacy of their practices. 

Billions of dollars had been poured into the FTT token alongside the FTX platform. Now, traders and investors were left scratching their heads.

Sadly, those who invested in FTT and hadn't sold in time faced a sad fate. The token plummeted by 80% in a matter of hours. 

Binance's Unfortunate Intervention

Once news from Coindesk broke out, this caught the attention of Binance's CEO, Changpeng "CZ" Zhao

Up to this point, Binance and FTX had a strategic partnership that was a great success, and even SBF and CZ had a friendly rivalry. 

But when CZ tweeted that Binance would liquidate their remaining FTT tokens, it sent a shockwave through the crypto community. 

CZ stated they would sell off their holdings slowly to avoid moving the market—something he hoped would stop the FUD - but it was too late. . 

The seeds of doubt had been sewed. 

Oddly, Binance then almost did a U-turn, suggesting they could buy out FTX. But the deal soon fell through after Binance's due diligence report. 

Unfortunately, a mass sell-off of FTT tokens and a bank run on FTX ensued. And the rest, as they say, is history. 

FTX Had Bitten Off More Than They Could Chew

Users began withdrawing from the exchange once the news was out about its  insolvency  and confidence in SBF waned. He then went on a media campaign to try to clear his name. But, the more he talked, the bigger the hole he dug himself. 

 Soon the American authorities intervened and  Sam was arrested for " violations of our securities laws."

The U.S went ahead and charged Bankman-Fried with:

  • Wire fraud
  • Wire fraud (conspiracy)
  • Securities fraud
  • Securities fraud (conspiracy)
  • Money laundering

It became clear that in the past, Alameda and FTX had a relationship to inflate prices; FTX also used customer funds to pay off business-related expenses. And both the exchange and the hedge fund were drowning in billions of dollars of debt. 

What Happened Next?

When a business takes advantage of its customers in an unregulated industry, there’s very few legal guardrails in place by ways of consumer protection. it's no surprise that lawmakers catch on. FTX's incident has not been sparred, ultimately sending shockwaves across the crypto space. 

  • Crypto markets under fire 

Due to the amount of crypto on the FTX platform that users could not access, this caused incredible amounts of selling from users across the whole market. Tokens such as Bitcoin, Ethereum, and Solana, all plummeted in value  and reportedly over $150 billion was wiped out from crypto’s total market cap. 

In one day, Bitcoin dropped 22%, and it would later fall to a new yearly low of $16,000. 

FTX themselves also have a substantial amount of crypto that is waiting to be sold off, including: 

  • $685 million in locked Solana tokens
  • $529 million in FTT tokens
  • $268 million in Bitcoin
  • $90 million in Ethereum

The crypto market's value soon dropped to a two-year low of $796 billion, despite only a year earlier being worth just over $1 trillion. 

  • The SEC cracked their whip

Once FTX and SBF were over, the SEC turned on their engine in 2023.

They began making examples out of FTX's competitors, firstly Kraken. In February the crypto exchange agreed to close its staking services and pay the SEC a $30 million fine to settle the lawsuit that posited the company sold unregistered securities. 

Next was Binance. It turned out that they were caught out for selling unregistered securities to customers in the form of crypto assets. Their exchange therefore was unregistered and was unlawfully operating in the U.S. 

Coinbase faced a similar fate to Binance as the SEC sued them because they operated as an unregistered securities exchange. 

You can view the SEC cases in more detail on the official SEC website.

The Trial’s Outcome Could Shape the Crypto Landscape Forever

Caroline Ellison, Sam’s righthand lady, has really thrown him into the dirt, along with co-founder Gary Wang. 

Despite SBF and his claim of ignorance, his old business partners are testifying that Sam was the one orchestrating the whole thing and they were just there at his beck and call. 

In a recent voice recording that has been used in court, Ellison stated “FTX basically always allowed Alameda to, like, borrow user funds, as far as I know,” indicating the involvement and power of SBF.

As the news unfolds, we will keep you in the know! The case  runs until November 9th, so there will be much to unpick during this time!

Stay tuned for more updates on SBF's trial if you enjoyed this article. And in the meantime, why not check out our other crypto-related content?

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Tom F.

Tom is one of the content managers here at Cryptology. While still fresh in his career he has been able to firmly place himself within the world of crypto and content creation, producing work for a number of publications including and The Times of Malta newspaper.