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THE FALL OF FTX: THE BIGGEST CRYPTO SCANDAL IN HISTORY

Introduction

In November 2022, the collapse of FTX, a major cryptocurrency platform, sent shockwaves through the crypto industry and the broader financial world. The platform's founder and CEO, Sam Bankman-Fried, was charged with financial crimes and campaign finance violations including wire fraud and money laundering. What happened at FTX stands as one of the most dramatic failures in financial history, exposing deep vulnerabilities in the cryptocurrency industry.

The Rise of FTX

Before its implosion, FTX was a powerhouse in the cryptocurrency world. The platform was known for its user-friendly interface and quickly rose in prominence, growing from $20 million in revenue in 2019 to $1 billion in 2021. The exchange became the third-largest cryptocurrency trading platform by volume and served over one million users worldwide.

FTX's meteoric rise was fueled by aggressive marketing. The company secured naming rights to Miami Heat's arena, ran Super Bowl advertisements, and enlisted celebrity endorsers including sports figures and entertainment personalities. This marketing blitz created an image of a trustworthy, well-managed platform backed by serious money.

How the House of Cards Collapsed

The Trigger: November 2, 2022

On November 2, 2022, CoinDesk published an article revealing that Alameda Research, a crypto hedge fund owned by Sam Bankman-Fried, held a significant amount of $FTT , a token created by FTX. Because FTT cannot be easily exchanged for cash, the report stoked fears about the capital reserves at Alameda Research and thus FTX.

This single article exposed the intertwined nature of FTX and Alameda Research, raising immediate red flags about the safety of customer funds.

The Bank Run

In response to the CoinDesk report, Changpeng Zhao, CEO of rival crypto exchange Binance, announced he would sell all the company's FTT holdings worth $580 million. This major exit from a crypto heavyweight triggered a wider selloff, placing immense pressure on FTX to meet sudden customer withdrawal demands.

The withdrawal requests cascaded rapidly. In a single day, FTX lost billions of dollars as customers rushed to withdraw their funds. On November 8, FTX blocked customers from taking money out by removing that option online, leaving hundreds of thousands without access to their assets.

The Fraud Exposed

According to SEC complaints, Sam Bankman-Fried orchestrated years of fraud by diverting investor funds to his private hedge fund, which used those funds for venture investments, lavish real estate purchases, and large political donations. Bankman-Fried had systematically stolen customer deposits to cover risky trades and personal expenses.

The Bankruptcy and Legal Aftermath

On November 11, 2022, FTX, Alameda Research, and over 100 affiliated entities filed for Chapter 11 bankruptcy protection. Bankman-Fried resigned as CEO and was replaced by John J. Ray III, a bankruptcy specialist best known for overseeing the liquidation of Enron.

Ray's assessment of FTX was damning. Ray stated: "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information."

Criminal Charges and Conviction

On November 2, 2023, Bankman-Fried was found guilty on seven federal counts including wire fraud conspiracy, wire fraud, conspiracy to commit money laundering, conspiracy to commit commodities fraud, and conspiracy to commit securities fraud.

On March 28, 2024, Bankman-Fried was sentenced to 25 years in prison and ordered to pay $11 billion in forfeiture. Key executives including Caroline Ellison and Gary Wang also pleaded guilty to their roles in defrauding customers.

The Scope of the Fraud

The scale of FTX's collapse was staggering. The collapse exposed an $8 billion hole in FTX's accounts, with FTX owing about $11.2 billion to its creditors and holding an estimated $14.5 to $16.3 billion in assets for distribution.

Additionally, approximately $473 million in funds were later taken from FTX in an "unauthorized transaction" as the platform's security was breached.

Market-Wide Impact

The collapse of FTX sent ripples throughout the crypto ecosystem and beyond. Other cryptocurrency lending platforms like BlockFi, Celsius Network, and Voyager Digital also filed for bankruptcy, directly related to their exposure to FTX and affiliated entities.

As news of FTX's collapse emerged in early November 2022, cryptocurrencies experienced significant declines in value. Tether dropped below its $1.00 peg to $0.97, and Bitcoin sank to its lowest price in two years, triggering institutional skepticism about cryptocurrencies as an asset class.

The Recovery Effort

Despite the massive fraud, there has been good news for affected customers. FTX is planning to send out about $1.6 billion to creditors starting on September 30, 2025, as part of its bankruptcy plan. The FTX repayment process relies on over $15 billion in recovered assets, including sales of stakes in companies like Anthropic and Robinhood.

A Delaware bankruptcy judge approved FTX's reorganization plan in October 2024, which will give 98% of FTX's creditors 119% of their allowed claims as of November 2022—meaning many customers will actually recover more than they originally lost.

Lessons for the Industry

The FTX collapse revealed critical vulnerabilities in cryptocurrency regulation and corporate governance. FTX operated in the Bahamas and sidestepped many regulatory requirements imposed by U.S. authorities. As an offshore company, FTX avoided rigorous financial reporting standards and investor protections that likely would have exposed its commingling of funds earlier.

The scandal has prompted calls for stronger regulation. U.S. Senator Elizabeth Warren noted that the FTX collapse "shows crypto may be more integrated into the banking system than regulators are aware," pushing for regulators to examine links between cryptocurrency firms and banks.

Conclusion

The FTX collapse stands as a watershed moment for the cryptocurrency industry. What began as a platform promising innovation and disruption of traditional finance ended in one of the largest financial frauds in history. Federal prosecutors described it as "one of the biggest financial frauds in American history," comparable to the Enron scandal and Bernie Madoff investment scheme.

While the recovery effort offers hope for affected customers, the FTX collapse has left lasting scars on the crypto industry's reputation and highlighted the urgent need for better regulation, corporate governance, and investor protections. As the industry moves forward, the lessons learned from FTX will likely shape cryptocurrency regulation for years to come.

Article Date: February 10, 2026

Based on: Public filings, court documents, and news reports through late 2025

@CZ
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