FTX: When One Person Controls the Money and No One Checks

Two Companies, One Boss

Sam Bankman-Fried founded Alameda Research, a cryptocurrency trading and investment firm, in 2017. Two years later, he and Gary Wang co-founded FTX, an online exchange where customers could deposit money and buy and sell crypto assets. FTX, headquartered in the Bahamas, grew quickly and even created its own digital token, called FTT. In funding rounds in January and the fall of 2022, investors valued the main FTX exchange at $32 billion.

The two businesses had very different jobs. An exchange holds its customers’ money so they can trade. A trading firm like Alameda invests money in hopes of earning a profit. FTX told customers that their deposits were safe and kept separate from the company’s own assets. But the same person controlled both businesses: Bankman-Fried. Caroline Ellison ran Alameda as its CEO, and Nishad Singh later served as FTX’s chief engineer.

Nine Days in November

The trouble became public on November 2, 2022, when the crypto news site CoinDesk reported on a leaked Alameda balance sheet showing billions of dollars of its holdings in FTT—the token FTX itself had created. On November 6, the CEO of Binance, a rival exchange, announced that Binance would sell its FTT. Other FTT holders started selling, and FTX reportedly faced about $5 billion in customer withdrawals. By November 8, Bankman-Fried said withdrawals were effectively paused. That day, Binance announced a non-binding agreement to buy FTX’s non-U.S. business; it dropped the plan the next day, citing its own review of the company, news reports about mishandled customer funds, and reported U.S. investigations.

On November 10, regulators in the Bahamas froze the assets of FTX’s local subsidiary. At about 4:30 a.m. on November 11, Bankman-Fried agreed to resign. That same day, FTX, Alameda, and more than 130 related companies filed for Chapter 11 bankruptcy protection in Delaware, and restructuring expert John J. Ray III took over as CEO.

What the New CEO Found

Ray had more than 40 years of legal and restructuring experience, including work on the Enron case. Six days after taking over, he described what he had found in a sworn statement to the bankruptcy court: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

His filing listed problem after problem. The companies had no accounting department of their own; that work was outsourced. No one kept central control of the group’s cash, and there was no accurate list of its bank accounts. Workers requested payments in an online chat, and supervisors okayed them by reacting with personalized emojis. Corporate money had also paid for houses and other personal purchases for staff and advisers. Many of the group’s companies never held board meetings. Ray also pointed to a secret exemption that spared Alameda from parts of FTX.com’s automatic liquidation rules, which applied to other traders, and to software used to hide the misuse of customer funds.

Outside checks were thin, too. Two accounting firms had audited parts of the business—Armanino for the U.S. companies and Prager Metis for the international exchange—but Ray said he had substantial concerns about the information in those audited statements, and his team had not been able to find any audited financial statements for Alameda. The main U.S. regulators of securities and commodities markets—the SEC and the Commodity Futures Trading Commission (CFTC)—did not register or oversee either the main FTX exchange or FTX.US.

From Bankruptcy Court to Criminal Court

Federal prosecutors charged Bankman-Fried with fraud. According to the U.S. Department of Justice, he funneled billions of dollars in customer deposits from FTX to Alameda and had other insiders rewrite parts of FTX’s software so that Alameda could pull out almost unlimited amounts of crypto. Prosecutors said customer money paid for personal investments, political contributions, real estate, and repayment of Alameda’s loans, and that he gave lenders and investors false financial information.

Ellison, Wang, and Singh all pleaded guilty and testified against Bankman-Fried at his trial in the fall of 2023. Wang testified that a few simple changes to FTX’s code allowed Alameda to take as much as $65 billion from FTX customers without their knowledge. In November 2023, a jury convicted Bankman-Fried on seven counts, including wire fraud and conspiracies to commit securities fraud, commodities fraud, and money laundering. On March 28, 2024, a federal judge sentenced him to 25 years in prison and ordered him to forfeit $11 billion. The Justice Department said he had stolen more than $8 billion from customers and had defrauded FTX investors of more than $1.7 billion and Alameda’s lenders of more than $1.3 billion. At sentencing, Bankman-Fried planned to appeal both his conviction and his sentence.

Picking Up the Pieces

The bankruptcy case lasted more than two years. On October 8, 2024, the bankruptcy court confirmed (approved) FTX’s plan for repaying customers and other creditors, and the plan took effect on January 3, 2025. In 2026, the FTX Recovery Trust was still filing and pursuing lawsuits against other companies and individuals in the bankruptcy court.