Who Is Sam Bankman-Fried?

Julie Bang / Investopedia

Early Life, Education, and Career

Sam Bankman-Fried was born on March 6, 1992, in California. The son of two professors at Stanford Law School, Bankman-Fried grew up in a highly educated family. He attended high school at Crystal Springs Uplands School in Hillsborough, California. He also participated in a summer academic program for gifted high school students in mathematics.

Bankman-Fried graduated from the Massachusetts Institute of Technology (MIT) in 2014 with a degree in physics and a minor in mathematics. In the summer of 2013, he worked as an intern for New York-based Jane Street Capital, where he returned to the proprietary trading firm as a full-time employee after graduating.

Founding of a Cryptocurrency Empire

In 2017, Bankman-Fried left Jane Street and founded Alameda Research, a quantitative trading firm making millions of dollars per day actively trading cryptocurrency among various international markets. He founded the cryptocurrency exchange FTX in April 2019 and launched it the next month.

As the cryptocurrency world burst into prominence during the COVID-19 pandemic, Bankman-Fried and his Bahamas-based company thrived. FTX acquired the Blockfolio exchange and platform in 2020 for $150 million. FTX’s user base expanded, and Bankman-Fried appeared to be on a solid foundation in the otherwise usually turbulent cryptocurrency markets.

During a subsequent wave of crypto failures, Bankman-Fried offered a financial lifeline to cryptocurrency exchange BlockFi, saving it from a major liquidity crisis. (By late November 2022, however, BlockFi also had filed for Chapter 11 bankruptcy.)

Bankman-Fried bought failed crypto lending platform Voyager and made an offer for the assets of Celsius, which went bankrupt at the same time. He also acquired LedgerX, a derivatives trading platform that was never fully integrated into FTX.

Bankman-Fried told New York Times columnist Andrew Ross Sorkin on Nov. 30 that the sum of his wealth was $100,000 in a bank account. That balance represents quite a fall, if true. According to Forbes, Bankman-Fried had an estimated peak net worth of $26.5 billion. However, much of that value was tied to the value of FTX and its FTT cryptocurrency token. During a long down market for cryptocurrency that followed, Bankman-Fried saw his net worth fall to around $16 billion as of late September 2022.

Financial Downfall and Resignation as CEO

Bankman-Fried never let on about any financial challenges or major risk of bankruptcy for FTX through October of 2022. On Nov. 2, 2022, a report found that much of the cash held by FTX was in the form of its own token, FTT, which it centrally controls.

In the wake of the news, the CEO of FTX rival Binance announced on Nov. 6 an intent to sell all FTT holdings. The announcement and sales pushed down the price of FTT and tore through the rest of the cryptocurrency markets.

As a liquidity crisis at FTX became apparent, Binance CEO Changpeng “CZ” Zhao announced a nonbinding letter of intent to buy FTX. After a day of due diligence, however, Binance opted out. Zhao shared that the financial situation was too dire for a cost-effective fix. At the same time, regulators at the Securities and Exchange Commission (SEC) and the CFTC announced an investigation into Alameda Research and FTX U.S., including allegations that the exchange mishandled customer funds.

At that point, the financial collapse of FTX became a clear possibility. Bankman-Fried reportedly attempted to raise billions of dollars in an overnight deal to rescue FTX.

With no suitors willing to hand over a reported $9.4 billion to save the company, FTX filed for Chapter 11 bankruptcy and Bankman-Fried resigned as CEO on Nov. 11.

The following day, about $1 billion to $2 billion in FTX customer funds went missing. FTX said it was investigating “unauthorized transactions” after blockchain watchers spotted hundreds of millions of dollars moved out of FTX cryptocurrency wallets.

New York Times Interview With Sorkin and Reaction

In a wide-ranging interview with New York Times columnist Andrew Ross Sorkin at the DealBook Summit on Nov. 30, Bankman-Fried said that FTX’s collapse stemmed from sloppy accounting, a market crash, and not from criminal activity. The former CEO joined the summit virtually from the Bahamas, FTX’s base, and said his participation was against the advice of his lawyers.

In general, during the interview Bankman-Fried feigned ignorance of what was going on between FTX and Alameda Research, its trading arm, and said he neither oversaw compliance of the two entities, nor appointed an officer to do so—a failure he said he now regrets. To Sorkin’s question of whether Bankman-Fried commingled funds of FTX and Alameda Research, the former CEO said he didn’t “knowingly” do so.

During an online panel discussion on CoinDesk following the New York Times interview, Lawrence Lewitinn, the editor at large, questioned the veracity of Bankman-Fried’s response and said commingling of funds is a deliberate act that doesn’t occur by accident. “You have to do work to commingle funds,” Lewitinn said. “You set up accounts when it’s online. You have to have a process to commingle.”

The Bottom Line

As for the future, it’s likely to be difficult both for Bankman-Fried and for the investors in FTX who have lost billions. Having been charged with multiple instances of fraud by federal prosecutors, he was extradited to the U.S. from the Bahamas on Dec. 21, and appeared before a federal judge at a court hearing on Dec. 22, in which he was released on a $250 million bond, the largest in history. FTX’s investors and consumers are unlikely to recover the funds lost in FTX’s collapse.

With massive investor and customer losses playing out, FTX and Bankman-Fried likely will be the targets of many future lawsuits and bankruptcy proceedings. The huge losses and allegations of fraud and cover-up of severe financial troubles could plague Bankman-Fried for years and lead to a stiff prison sentence.

What Is Sam Bankman-Fried’s Background?

He was born on March 6, 1992, in California, is the son of two professors at Stanford Law School, and a member of a highly educated family. Bankman-Fried graduated from the Massachusetts Institute of Technology (MIT) with a degree in physics and a minor in mathematics. In the summer of 2013, he worked as an intern for New York-based Jane Street Capital, where he returned to the proprietary trading firm as a full-time employee after graduating.

What Is Sam Bankman-Fried Known For?

Bankman-Fried is the former co-founder and CEO of the cryptocurrency exchange FTX and played a large role in the cryptocurrency industry. He now is alleged to have committed one of the biggest financial frauds in American history. According to Forbes, Bankman-Fried once had a top net worth of $26.5 billion. But it fell to roughly $16 billion—and then to nearly zero in one week in November 2022. Bankman-Fried told the New York Times he had about $100,000 in his bank account during an interview at the DealBook Summit on Nov. 30. During a federal court hearing in New York on Dec. 22, a federal judge decided to release him from custody after Bankman-Fried’s attorneys and federal prosecutors agreed to a $250 million bond, the largest in history.

What Is a Ponzi Scheme?

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. A Ponzi scheme generates returns for earlier investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.