The decade's most triggering comedy
Former FTX CEO Sam Bankman-Fried spent the weekend soliciting new investments for his bankrupt cryptocurrency platform in the hopes of repaying customers.
The company filed for bankruptcy on Friday after users discovered that firms controlled by Bankman-Fried were allegedly fraudulently intertwined, causing his multibillion-dollar fortune to disappear overnight. According to a Tuesday report from The Wall Street Journal, Bankman-Fried and a handful of remaining employees have been calling investors, asking for commitments to refund existing customers.
Bankman-Fried is attempting to cover an $8 billion deficit in client funds. Companies do not usually raise new equity during bankruptcy proceedings since they are required to prioritize repaying debtholders with any remaining assets.
Alameda Research, a trading firm launched by Bankman-Fried and led by his girlfriend, Caroline Ellison, allegedly borrowed customer funds from FTX to make trades, according to a report from CNBC citing one unnamed source. The company underestimated the amount FTX would need to keep on hand in case customers wanted to remove their funds.
Institutional investors and individual traders suddenly demanded withdrawals last week after an article published by CoinDesk revealed that FTX and Alameda Research allegedly had significant overlap on their balance sheets in the form of the cryptocurrency FTT, which FTX invented.
FTX, which is headquartered in the Bahamas and incorporated in Antigua and Barbuda, boasted a value of more than $30 billion before the sudden liquidity crisis. Sequoia Capital, one of the leading venture funds in Silicon Valley, announced a $150 million loss due to the collapse in a letter to investors defending the company’s due diligence process. “We are in the business of taking risk. Some investments will surprise to the upside, and some will surprise to the downside,” the letter remarked. “We do not take this responsibility lightly and do extensive research and thorough diligence on every investment we make.”
Reports of the suspicious fundraising techniques utilized by FTX during the company’s launch three years ago emerged online after the company’s bankruptcy. One email from Alameda Research sent to potential investors promised “high returns with no risk.”
Bankman-Fried donated nearly $39 million during the recent midterm elections, with nearly all of his donations benefiting Democratic candidates or political action committees, according to data from Open Secrets, which listed him as the nation’s sixth-largest individual midterm donor. FTX Co-CEO Ryan Salame donated heavily to right-leaning organizations, according to more data from Open Secrets.
FTX spent considerable funds on aggressive mass-market advertising campaigns over the past three years. Tampa Bay Buccaneers quarterback Tom Brady and supermodel Gisele Bündchen, who divorced last month, were reportedly once brand ambassadors with the company and held equity stakes, while Golden State Warriors player Steph Curry agreed to a similar arrangement. The company also signed deals to become the “official cryptocurrency exchange partner” of Major League Baseball and established an arrangement to rename the Miami Heat’s home court the FTX Arena until at least 2040. It is not clear whether celebrities paid in cryptocurrency continue to hold their digital coins in at-risk FTX accounts.
Bankman-Fried, a self-proclaimed “effective altruist,” had been preparing to spend as much as $1 billion during the 2024 election cycle to keep the Democratic Party in control of the White House. His parents, Stanford Law professors Joseph Bankman and Barbara Fried, are well-connected within Democratic circles.