FTX: Empire of illusions and biggest crypto fraud

​Customers of the bankrupt cryptocurrency exchange FTX have started receiving payouts. However, this is merely the epilogue to one of the most notorious financial catastrophes in the crypto industry. The story of FTX is not just about the rise and fall of a major exchange but also a scandal that impacted millions of investors worldwide.

How Sam Bankman-Fried built his crypto empire

In late 2017, 25-year-old Sam Bankman-Fried co-founded Alameda Research, a small trading firm that laid the foundation for his future cryptocurrency empire. The company housed a diverse team of traders who worked around the clock analyzing markets—so intensely that some even showered in the gym of the four-story building where the firm was headquartered.

Soon after, Bankman-Fried relocated Alameda to Hong Kong, one of the few regions where crypto trading was largely unregulated. Alameda's core business was arbitrage trading: buying Bitcoin and other cryptocurrencies in one part of the world and selling them in another at a higher price, profiting from the difference.

Like traditional Wall Street firms, Alameda employed quantitative trading methods, relying on mathematical models and algorithms. A key part of its strategy was the aggressive use of leverage, allowing the company to trade with borrowed funds and amplify potential profits.

However, as competition grew and hedge funds entered the crypto arbitrage market, profits began to shrink. That’s when Bankman-Fried had an idea: why not create a cryptocurrency exchange that would not only generate revenue but also sustain Alameda’s liquidity? And so, in 2019, FTX was born.

From the outset, FTX positioned itself as an innovative exchange with sophisticated tools, high liquidity, and favorable trading conditions. Bankman-Fried aggressively promoted the platform, securing partnerships and cultivating his reputation as a visionary in the crypto space. Investors trusted his charisma and business acumen, pouring billions into FTX. But behind this polished facade was a complex and dubious financial scheme.

Behind the scenes, Alameda Research and FTX operated as a single entity. Alameda had privileged access to exchange data, could freely use customer assets, and manipulated the market for its own benefit. This structure laid the groundwork for the eventual collapse.

How Alameda and FTX profited from obscure tokens

One of the key elements of the fraud was a scheme involving obscure cryptocurrencies. Bankman-Fried leveraged his influence to artificially inflate the prices of crypto assets. Alameda Research would acquire tokens before their official listing on FTX, after which the exchange heavily promoted them. As retail investors rushed in, demand skyrocketed, and Alameda cashed out at the peak, securing massive profits.

In essence, this was a large-scale version of a classic "pump and dump" scheme—coordinated price manipulation designed for quick sell-offs. Naturally, such activities are illegal, and those involved in these trading platforms were held accountable for their actions.

The spectacular collapse

In November 2022, FTX abruptly declared bankruptcy. The crisis began with a leak revealing that a significant portion of FTX’s assets actually belonged to Alameda Research, rather than the exchange’s customers. Journalists and investors suspected that FTX was using client funds to finance its trading firm. Panic spread rapidly, and users rushed to withdraw their money.

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When it became clear that FTX had no liquidity, the exchange ceased processing withdrawals. U.S. regulators responded immediately, launching an investigation, leaving millions of investors with nothing.

The charges against Bankman-Fried and the FTX leadership

Sam Bankman-Fried became the central figure in a high-profile legal case. U.S. prosecutors charged him with fraud, money laundering, and conspiracy to deceive customers. Details of his schemes emerged: unauthorized use of client assets, concealed transactions, and real estate purchases worth millions.

Several key figures in the FTX and Alameda Research leadership played critical roles. Caroline Ellison, former CEO of Alameda Research, admitted to fraud and testified against Bankman-Fried. She revealed that Alameda not only misused FTX customer funds for trading, but also deliberately concealed the company’s true financial condition. 

Gary Wang, co-founder of FTX and chief technical officer, also pleaded guilty and confirmed that Bankman-Fried had deliberately altered the exchange’s code to give Alameda privileged trading conditions. Nishad Singh, a top executive, confessed to participating in illicit transfers and fraudulent transactions.

Some key members of FTX and Alameda’s leadership cooperated with authorities, providing testimony against Bankman-Fried, further worsening his legal position. In 2023, he was found guilty, and in 2024, Bankman-Fried was sentenced to 25 years in prison and fined $11 billion—one of the harshest sentences in financial crime history.

The restructuring of FTX and the future of the exchange

Following the collapse of FTX, a bankruptcy court-appointed management team began restructuring the exchange’s assets. The primary goal was to return funds to customers and reorganize the remaining assets. In 2024, proposals were submitted for a possible relaunch of FTX as a regulated platform under new leadership.

Investors and analysts remain skeptical about these plans, as restoring trust in the FTX brand is an immense challenge. Nevertheless, the process of asset recovery and legal resolution could set a precedent for future cryptocurrency exchange regulations.