FTX: all the questions raised by the case

A pretty crazy show. While his platform has gone bankrupt and several investigations have been opened against him, Sam Bankman-Fried, aka "SBF", is doing the rounds of the media, radio, TV, press... Almost as if nothing had happened.

The objective? To explain the lightning fall of his empire and what will probably go down as one of the biggest frauds in history.

While some interviews have turned into farce, not least because the journalists don't know the subject very well, others like the one our friends at 'The Block' have just done give us a little more insight into what may have happened with FTX and Alameda Research.

A little clarification: we, too, asked SBF for an interview (we got it in October before the collapse) because a lot of Europeans were FTX International customers (not US), but the 30-year-old American has, so far, not followed up.

Meanwhile, we take stock of what we know about the case, what we don't yet know, and what we'll probably never know. 😐

👉 What we know

Where to start? 😅

Let's start with the losses and the number of "victims".

According to internal FTX documents, more than one million customers, both private individuals and professionals, lost money in the affair. "FTX US customers will get their money back", SBF tried to explain to the media.

But the truth is that they will get little or nothing back, especially those who are FTX International customers. And with good reason: the amount of the losses exceeds $8 billion, not counting the loans and other payment facilities granted to the company...

In total, the bill could climb to $50 billion, unprecedented.

We also know a lot more about the spiral in which FTX found itself: it all started in 2017, with SBF's creation of the Alameda Research fund.

At the time, the barely 25-year-old American was involved in arbitrage, buying bitcoins in the United States and selling them at a slightly higher price in Asia (Japan and South Korea).

Thanks to this activity, the man not yet nicknamed "SBF" was already earning a small fortune - several tens of millions of dollars 🤑 - which gave him ambitions and the idea of creating his own trading platform. It's 2019, just before Covid, and this is the birth of... FTX.

Over the first few months, Alameda Research will act as a liquidity provider to FTX, enabling it to increase its clients' activity (FTX allows them to trade more) and therefore the amount of its commissions.

Until then all is well.

Alameda Research could have remained a liquidity provider for FTX, except that the trading company is going to invest more and more in the ecosystem and projects like Solana and others (we talked about them in the Premium edition).

Except that some bets are going to prove disastrous. Even as the markets rise until November 2021, Alameda Research, which has invested in 500 projects and companies for more than $5 billion, will manage to lose money in 2021. Just over a billion dollars!"

To stay afloat, Alameda will dip into FTX customer deposits. First a few million, then a few hundred million dollars, in complete illegality, and under the noses of the biggest investors on the planet such as Sequoia Capital or SoftBank, who have invested hundreds of millions of dollars in the capital of the company valued just a few months ago at 32 billion dollars.

When questioned several times on the subject, SBF initially denied it. "FTX's deposits were not used by Alameda", the American explained in early December on Good Morning America (find the video excerpt here on Twitter). This is also what he told us at the end of October when we asked him the question.

When asked again about the subject by the Financial Times two days ago, SBF's line changed somewhat: "We have to look at what happened," explained the American.

👉 What we don't know yet

Among the questions that remain unanswered, there is obviously that of the responsibility of SBF, who is still based in the Bahamas where he is under surveillance by the authorities. In the event of a trial in the United States, he could face decades - if not more - in prison.

Was he aware of everything that was going on between Alameda Research and FTX?

In several interviews, the American claimed not, even though he was the decision-maker on everything and was, above all, in a relationship - at least for six months - with the head of Alameda Research, Caroline Ellison.

We also learned that the two companies shared the same office and that employees of one could access the screens of the other. According to several former FTX employees quoted by the New York Times, SBF knew everything that was going on in both companies.

The FTX affair also raises a political issue, as the former billionaire was very generous with US politicians. For the Midterms campaign alone, SBF gave several tens of millions of dollars, mostly to Democrats. It was one of his main associates who gave a lot to... Republicans 👀.

Is this why SBF was so prominently featured by elected congressmen? It's hard to say. In any case, he was the one advising them on crypto legislation.... In a tweet, the Democratic boss of the House Finance Committee, Maxine Waters, asked SBF to come and testify at a session about FTX (that's on 13 December, more on that below).

The American explained that he wasn't sure he would be available 🙃.

👉 What we'll probably never know

Has SBF been planning this from the outset?

This is what some argue, explaining that FTX was designed as a pump to feed Alameda Research.

Unless you find tangible evidence, it seems very complicated to prove such a hypothesis. But as the case has shown from the outset, nothing is impossible (unfortunately) and the next few weeks could still hold some nice surprises...

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