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What a Burnt Bagel Can Teach You About the Fed & Inflation
What a Burnt Bagel Can Teach You About the Fed & Inflation

FTX Collapse: Bankman-Fried Denies Fraud

The fallen founder of the cryptocurrency exchange gave his first interview since the collapse of his empire on November 11.
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Sam Bankman-Fried, 30, has spoken for the first time since his crypto empire went bankrupt on Nov. 11. 

The deposed CEO of cryptocurrency exchange FTX gave his first interview on November 30. 

For more than an hour he was questioned about the overnight implosion of his empire made up of FTX and Alameda Research, a hedge fund that is also a trading platform. The question aimed to explain how FTX which was valued at $32 billion in February ran out of cash within days.

"I didn’t ever try to commit fraud on anyone,” Bankman-Fried said contritely to  Andrew Ross Sorkin at the New York Times Dealbook Summit via Zoom. "I saw it as a thriving business and I was shocked by what happened this month.”

"Clearly, I didn't do a good job," he also said because he had duty to employees, customers, investors and regulators "to do right by them."

He admitted to having made "a lot of mistakes."

The intention throughout the interview appeared to be to show that there was no intention to deceive FTX customers and investors.

Bankman-Fried was wearing a black t-shirt, sitting on a chair in a room that was hard to tell if it was a bedroom. There was a painting hung on the wall to his right and a plant to his left. He was live from the Bahamas where he lives and where FTX is headquartered.

Bankman-Fried's empire was a central player in the cryptocurrency industry that is disrupting financial services.

As a crypto exchange, FTX executed orders for clients, taking their cash and buying cryptocurrencies on their behalf. FTX acted as a custodian, holding the clients’ crypto. 

FTX then used its clients’ crypto assets, through its sister company’s Alameda Research trading arm, to generate cash through borrowing or market-making. The cash FTX borrowed was used to bail out other crypto institutions in summer 2022.

At the same time, FTX was using the cryptocurrency it was issuing, FTT, as collateral on its balance sheet. This was a significant exposure, due to the concentration risk and the volatility of FTT.

The insolvency of FTX stemmed from a liquidity shortfall when clients attempted to withdraw funds from the platform. The shortfall appears to have been prompted by FTX’s founder reportedly transferring $10 billion of customer funds from FTX to Alameda Research.