FTX’s Original Sin Is a Warning to All of Crypto
Evidence from the criminal trial of Sam Bankman-Fried suggests fraud was built into FTX from the very beginning.
Sometime between FTX’s collapse and Sam Bankman-Fried’s fraud conviction a year later, a consensus formed about the onetime boy genius of cryptocurrency: His wild, curly hair and beanbag chair naps at the office were largely for show, but his company FTX, which had been used by millions of people to buy and sell digital currencies, was the real deal. The crypto faithful see FTX as an almost-success story—if only its owner hadn’t taken customer money to cover side gambles. As the author Michael Lewis put it on 60 Minutes, “They actually had a great, real business.”
That idea has been bolstered by a twist in the FTX bankruptcy: When the company collapsed, $8 billion in customer funds had vanished, but the lawyers running it now say they expect to recover enough money to pay back everyone in full. Bankman-Fried’s allies have used this to suggest that the customer funds weren’t so much stolen as they were redirected into at least a few surprisingly good investments. “Whatever else might be said about Bankman-Fried, he was a brilliant businessman,” the law professors Ian Ayres and John Donohue wrote in a recent essay arguing he was wrong to even declare bankruptcy. His lawyers used this argument to call for a light sentence; on March 28 a federal judge sentenced him to 25 years in prison.