Category:FTX Scandal

The FTX Scandal refers to the collapse and criminal prosecution arising from FTX, once one of the world's largest cryptocurrency exchanges. Founded in 2019 by Sam Bankman-Fried and Gary Wang, FTX grew rapidly to become a dominant player in the cryptocurrency industry before its spectacular collapse in November 2022. The scandal resulted in approximately $8 billion in customer losses and led to one of the largest financial fraud prosecutions in American history.

The FTX case became a defining moment in cryptocurrency regulation and enforcement, demonstrating both the risks of the unregulated crypto industry and the ability of federal prosecutors to pursue complex financial crimes involving digital assets. The prosecution of FTX executives produced landmark sentences and established important precedents for cryptocurrency fraud cases.

FTX was founded in May 2019 by Sam Bankman-Fried and Gary Wang. The exchange grew rapidly through aggressive marketing, including:

• A $135 million naming rights deal for the Miami Heat arena
• Celebrity endorsements from Tom Brady, Gisele Bundchen, and others
• A Super Bowl advertisement
• Political donations totaling tens of millions of dollars

At its peak, FTX was valued at $32 billion and processed billions of dollars in daily trading volume.

Alameda Research, a cryptocurrency trading firm also founded by Bankman-Fried, played a central role in the fraud. Prosecutors alleged that FTX customer funds were secretly funneled to Alameda to cover trading losses and fund investments.

On November 2, 2022, a CoinDesk report revealed that Alameda's balance sheet was largely composed of FTT, FTX's own token. This sparked a crisis of confidence:

• Binance announced it would sell its FTT holdings
• Customers rushed to withdraw funds
• FTX halted withdrawals on November 8, 2022
• FTX filed for bankruptcy on November 11, 2022

Federal prosecutors charged multiple FTX executives:

• Sam Bankman-Fried: Convicted of fraud, sentenced to 25 years
• Caroline Ellison (Alameda CEO): Cooperated, sentenced to 2 years
• Gary Wang (FTX CTO): Cooperated, no prison time
• Nishad Singh (Director of Engineering): Cooperated, no prison time
• Ryan Salame (FTX Digital Markets co-CEO): Did not cooperate, sentenced to 7.5 years

Sam Bankman-Fried's trial took place in October-November 2023 in the Southern District of New York. He was convicted on all seven counts, including wire fraud, securities fraud, and money laundering conspiracy. In March 2024, he was sentenced to 25 years in federal prison.

Three key executives—Caroline Ellison, Gary Wang, and Nishad Singh—pleaded guilty and cooperated extensively with prosecutors. Their testimony was crucial to securing Bankman-Fried's conviction. All three received significantly lighter sentences due to their cooperation.

Ryan Salame, who did not cooperate with prosecutors, was sentenced to 7.5 years for campaign finance violations and operating an unlicensed money transmitting business.

Approximately $8 billion in customer funds were unaccounted for at the time of bankruptcy. However, the FTX bankruptcy estate has recovered substantial assets, with some estimates suggesting most customer funds may eventually be returned.

The FTX collapse prompted:

• Increased regulatory scrutiny of cryptocurrency exchanges
• Congressional hearings on cryptocurrency regulation
• Enhanced SEC and CFTC enforcement in the crypto space
• Industry discussions about proof of reserves and customer protection

• Sam Bankman-Fried
• Gary Wang
• Nishad Singh
• Ryan Salame
• Caroline Ellison
• Cryptocurrency Fraud
• Securities Fraud
• Wire Fraud