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Bankruptcy of FTX
Bankruptcy of FTX
Bankruptcy of FTX
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The bankruptcy of FTX, a Bahamas-based cryptocurrency exchange, began in November 2022. The collapse of FTX, caused by a spike in customer withdrawals that exposed an $8 billion hole in FTX's accounts,[1] served as the impetus for its bankruptcy. Prior to its collapse, FTX was the third-largest cryptocurrency exchange by volume and had over one million users.

On 2 November 2022, CoinDesk published an article stating that Alameda Research, a trading firm affiliated with FTX and owned by FTX chief executive Sam Bankman-Fried, held a significant amount of FTX's exchange token, FTT.[2][3] The article triggered a spike in withdrawals from FTX, but eventually, customers became unable to retrieve the money they had deposited in the exchange.[4] On 11 November, FTX, Alameda Research, and over 100 affiliated entities filed for bankruptcy. Bankman-Fried resigned as FTX CEO and was replaced by John J. Ray III.[5][6]

The collapse of FTX has had a wide impact on cryptocurrency markets, with comparisons made to the Enron scandal and Madoff investment scandal, and was described by federal prosecutors as "one of the biggest financial frauds in American history".[7][8] Following the bankruptcy, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries.[9] Bankman-Fried's net worth, estimated at $16 billion prior to the collapse, was reported as having been wiped out,[10] and several institutional investors of FTX wrote off their investment stakes in the company.[11][12] Some $473 million in funds were later taken from FTX in an "unauthorized transaction".[13] The collapse of FTX resulted in a ripple effect across cryptocurrency markets, with the price of Bitcoin falling to its lowest level in two years.[14]

In late 2022 and early 2023, key executives from FTX and Alameda, such as Caroline Ellison, Gary Wang, and Nishad Singh, pleaded guilty to defrauding FTX customers and related charges.[15] In October 2023, all three testified that it was Bankman-Fried who directed them to commit fraud.[16] On 2 November 2023, Sam Bankman-Fried was convicted of defrauding customers of FTX and lenders of Alameda Research.[17]

Sam Bankman-Fried took to X on February 10, 2026, to state that the now-defunct FTX exchange was never bankrupt. He claimed that it was the legal firm Sullivan & Cromwell’s lawyers who forced the bankruptcy filing—not him—in order to gain control of the assets.[18][19]

Following the statement, speculation quickly spread online that Sam Bankman-Fried is planning to launch “FTX 2.0” on the Solana blockchain. Sources claim the new platform would focus on transparency, on-chain proof of reserves, and a decentralized infrastructure built directly on Solana.

Rumors also suggest that he will follow a specific account on X shortly before the official announcement, signaling the launch of the new FTX.

Background

[edit]
See also: Alameda Research

Sam Bankman-Fried cofounded Alameda Research, a cryptocurrency trading firm, in 2017.[18] In 2019, Bankman-Fried had the idea of starting a cryptocurrency exchange to help bring in revenue to fund Alameda's activities and founded FTX.[19] Bankman-Fried was the CEO of both companies until he formally stepped down from his position at Alameda in October 2021, promoting traders Caroline Ellison and Sam Trabucco to co-CEOs.[20] Ellison was reported to have a romantic involvement with Bankman-Fried.[21] As of August 2021, Bankman-Fried still owned 90% of Alameda.[18]

The close relationship and potential conflicts of interest between Alameda and FTX drew scrutiny from the rest of the cryptocurrency industry.[22][19] Alameda was once the largest trader on FTX, bringing liquidity to the exchange.[22] Between 1 June 2022 and 22 July 2022, Alameda's known wallets were the largest stablecoin depositors and sources of liquidity to all of FTX's known wallet addresses, accounting for 10% of Tether transfers and 30% of USD Coin transfers on the exchange.[22] According to John J. Ray III, Alameda had a "secret exemption" from FTX's auto-liquidation protocol.[23][24]

Alameda Research suffered a series of losses in May and June 2022, which anonymous sources told the Wall Street Journal resulted in FTX lending the trading firm more than half of its customer funds, a decision that the sources said FTX CEO Sam Bankman-Fried described as a "poor judgment call".[25][26] This was explicitly forbidden by FTX's terms of service.[27] On 12 November 2022, the Wall Street Journal reported that anonymous sources had said that Alameda CEO Caroline Ellison said that she, Bankman-Fried, Gary Wang, and Nishad Singh were aware of that decision.[28] The same was reported in the New York Times on 14 November 2022.[29] FTX used software to conceal the misuse of customer funds.[23][24]

Timeline

[edit]

CoinDesk article

[edit]

Following months of arguments and disagreements between Changpeng Zhao, the CEO of Binance, and Bankman-Fried, tensions between the two had intensified days before the crisis.[30] Zhao's firm Binance had obtained $2.1 billion in Binance USD and FTT coins in 2021, following a deal in which FTX bought back an equity stake held by Binance in FTX, and in early November 2022, it had 23 million FTT tokens, worth about $529 million at the time.[31]

Binance divestment and proposed acquisition

[edit]
FTX Token
Denominations
CodeFTT
Development
White paper"FTT Whitepaper". Archived from the original on 9 November 2022.
Initial release5 May 2019 (6 years ago) (2019-05-05)
Ledger
Circulating supply134,454,978.27 FTT (est. August 2022)

On 7 November 2022, Zhao announced that Binance had intended to sell its holdings in FTT.[32][31] The sale of Binance's holdings in FTT, compounded with the low trading volume of FTT and the enmity between Zhao and Bankman-Fried, resulted in the price of the token plummeting.[33][34][35] Binance had received FTT from FTX in 2021 during a transaction in which FTX bought back Binance's equity stake in FTX.[36] Zhao cited "recent revelations that came to light" as the motivation for selling FTT.[36] Bloomberg and TechCrunch reported that any sale by Binance would likely have an outsized impact on FTT's price, given the token's low trading volume.[37][38] The announcement by Zhao of the pending sale and disputes between Zhao and Bankman-Fried on Twitter led to a decline in the price of FTT and other cryptocurrencies,[39] resulting in $6 billion of customer withdrawals from FTX.[40] FTX became unable to meet the demand for further withdrawals, and on 8 November, Bankman-Fried and Zhao jointly announced Binance had entered into a nonbinding agreement to purchase FTX to ensure that customers could recover their assets in a timely manner.[41][42] The deal did not include the sale of FTX.US.[41] Zhao announced on Twitter that the company would complete due diligence soon, adding that all crypto exchanges should avoid using tokens as collateral.[43][44] He also wrote that he expected FTT to be "highly volatile in the coming days as things develop". On the day of that announcement, FTT lost 80 percent of its value.[45]

Binance acquisition dropped

[edit]

On 9 November, Bloomberg called the acquisition of FTX by Binance "unlikely" due to the poor state of FTX's finances.[46] Bloomberg also reported that the United States Securities and Exchange Commission and Commodity Futures Trading Commission were investigating the nature of FTX's connections to Bankman-Fried's other holdings and its handling of client funds.[47] Later that day, the Wall Street Journal reported that Binance would not move forward with the deal to acquire FTX.[48] Binance cited FTX's reported mishandling of customer funds and pending investigations of FTX as the reasons for not pursuing the deal.[49] Bankman-Fried said in a Slack message that FTX had learned through the press about Binance's concerns and decision.[50]

Collapse and further rescue attempts

[edit]

On 9 November, FTX's website said that it was not processing withdrawals at that time.[40] Bankman-Fried said that although the firm's assets were worth more than its clients' deposits, it would need funds from outside to meet demand for withdrawals due to a lack of liquidity.[51][52] Bankman-Fried stated on 9 November that FTX.US, as a separate company, was "not currently impacted" by the crisis.[53]

On 10 November, Axios reported that FTX approached Kraken for a potential rescue deal.[54] Bankman-Fried made several statements on 10 November, taking responsibility for FTX's failure and indicating that FTX was attempting to raise $10 billion in emergency financing to remain solvent.[55][56][57] Bankman-Fried also announced that Alameda Research would cease trading and end operations.[58] FTX's in-house legal and compliance teams had, for the most part, resigned by 10 November.[59][60] Anonymous sources cited by the Wall Street Journal on 10 November said that Alameda Research owed FTX some $10 billion, as FTX had lent funds placed on the exchange for trading to Alameda so that Alameda could make investments with the money.[61]

Though Bankman-Fried said that FTX.US customers did not have reason to worry on Twitter on 10 November, employees began attempting to sell assets belonging to the firm on the same day.[62] These assets include stock-clearing company Embed Financial Technologies and the naming rights to FTX Arena.[62] Disagreements emerged between remaining executives, with Bankman-Fried and FTX COO Constance Wang resisting urges from Ryne Miller, a member of FTX US's legal team, to end trading on the exchanges.[63] Bankman-Fried continued to seek funding even as Miller informed other executives that he believed there was a "0%" chance of securing further investment.[63] Miller and other executives asked Bankman-Fried to cede control of FTX US to them, which he resisted.[63] On 11 November, Bankman-Fried announced that he had filed FTX US for bankruptcy along with FTX and Alameda.[64] Bankman-Fried continued to seek capital for FTX after the bankruptcy, and claimed without evidence that a potential backer had emerged soon after the filing.[63]

On 12 November, anonymous sources cited by the Wall Street Journal said Alameda CEO Caroline Ellison disclosed to other Alameda employees that she, Sam Bankman-Fried, Gary Wang, and Nishad Singh knew that client deposits were transferred from FTX to Alameda.[65] An anonymous source cited by the New York Times on 14 November said the same.[66] Anonymous sources cited by the Wall Street Journal said the funds were used in part to pay back loans Alameda had taken to make investments.[65] On 10 November, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries, FTX Digital Markets Ltd, "and related parties", and provisionally appointed an attorney as liquidator.[67][68] Japan's Financial Services Agency ordered FTX Japan to suspend some operations.[69][70] The company's Australian subsidiary was placed under administration.[69]

On the same day, a team running the FTX Future Fund, a charitable group bankrolled by Bankman-Fried, announced their collective resignations.[71] Future Fund had committed $160 million in charitable grants and investments by 1 September of that year.[72]

Bankruptcy

[edit]

On 11 November, FTX, FTX US, Alameda Research, and more than 100 affiliates filed for bankruptcy in Delaware.[73][71][74] Anonymous sources cited by the New York Times said that the exchange owes as much as $8 billion.[71] The crypto lender BlockFi, which was affiliated with FTX, announced on 10 November that it was suspending operations as a result of FTX's collapse.[71] Bankman-Fried resigned as CEO and was replaced by John J. Ray III, a corporate restructuring specialist who previously oversaw the liquidation of Enron.[73][74][75] As of 12 November, Bankman-Fried told Reuters that he was still in the Bahamas,[76] though other high-ranking FTX employees had begun leaving for Hong Kong, the location of the company's former headquarters, or other locations.[77] Authorities in the Bahamas, including the Royal Bahamas Police Force, questioned Bankman-Fried on 12 November.[78] Despite FTX's bankruptcy, Bankman-Fried continued to attempt to raise money for the firm during the weekend of 12 and 13 November.[79]

Unauthorized transactions

[edit]

Late on 11 November, some $473 million in funds were removed from FTX through what Ryne Miller, FTX US's general counsel, characterized as "unauthorized transactions".[80] Miller further announced that FTX and FTX US intended to move remaining funds denominated in cryptocurrency to offline "cold storage".[80] The funds taken from FTX were mostly stablecoins such as Tether, and were quickly exchanged for Ether, a method used by cryptocurrency thieves to thwart attempts to retrieve stolen funds.[81] A person speaking on behalf of FTX in a Telegram chat referred to the "unauthorized transactions" as a "hack" and encouraged users to delete FTX mobile apps as they were compromised.[77] Kraken has since announced its assistance in identifying the perpetrator.[82] On 14 November, Kraken's chief security officer said on Twitter that the firm knew "the identity" of a user who paid transaction fees associated with moving the stolen money through their Kraken account.[83] In an interview with Kelsey Piper published 16 November by Vox, Bankman-Fried blamed an "ex-employee" or malware on a device owned by an ex-employee for the theft.[84]

In January 2024, the U.S. Department of Justice indicted three individuals for running a SIM swap scam operation that allegedly stole “over $400 million in virtual currency” from an unspecified company between November 11–12, 2022.[85] Sources told Bloomberg that the company was FTX.[86]

Between $1 billion and $2 billion in customer funds reportedly could not be accounted for as of 12 November.[87] The Financial Times reported that FTX's balance sheet shortly before the bankruptcy showed $9 billion in liabilities against $900 million in liquid assets, $5 billion in "less liquid" assets, and $3.2 billion in illiquid private equity investments.[88] American columnist Matt Levine described that among its less liquid assets that "[FTX] relied on to be able to pay out customer balances" were two tokens that "it had just made up", referring to the FTX Token and Serum, a separate cryptocurrency accounted for in the balance sheet.[89]

Contagion fears and impact on cryptocurrency markets

[edit]

Cryptocurrencies experienced swings and declines in value as news of FTX's collapse first emerged in early November: Tether dropped below its peg price of $1.00 to $0.97[90] and Bitcoin sank to its lowest price in two years.[74] Share prices for publicly traded cryptocurrency companies declined.[91] The price of Solana, which was affiliated with Bankman-Fried, declined as well.[92] The crisis at FTX has inspired an increase in withdrawals from other exchanges.[93] A decline in the value of Cronos, the token of exchange Crypto.com, triggered fears of the potential for a collapse similar to that of FTX and spurred withdrawals from the platform.[94] CEO Kris Marszalek provided assurances that the firm was liquid and that it did not use Cronos in a manner similar to the way FTX used FTT.[94] Bloomberg reported that the collapse of FTX exacerbated institutional skepticism of cryptocurrencies as an asset class.[95]

BlockFi, a cryptocurrency lender, filed for Chapter 11 bankruptcy protection on 28 November; the firm had earlier begun preventing withdrawals.[96][97] The company disclosed "significant exposure" to FTX on 14 November.[97] Another cryptocurrency lender, Genesis, a subsidiary of Digital Currency Group, halted withdrawals on 16 November.[98] This halt caused Gemini, an exchange owned by the Winklevoss twins, to cease allowing redemptions for clients using a service provided through a partnership with Genesis.[99] Another Digital Currency Group subsidiary, Grayscale, saw the value of its flagship offering, the publicly traded Grayscale Bitcoin Trust, decline by 20% over the two weeks preceding 17 November.[100] Grayscale Bitcoin Trust was trading at a discounted price, 42% below the value of its Bitcoin, as of 14 November.[101]

Consequent bank failures

[edit]
See also: March 2023 United States bank failures

Silvergate Bank covered colossal losses on the bankruptcy of FTX. On 9 March 2023 Silvergate Bank announced it would wind down its operations and undergo liquidation, in turn creating a domino effect of chain insolvencies.[102][103] On 12 March 2023, Signature Bank, which catered to operators such as Binance and Celsius Network, collapsed after being closed by the New York State Department of Financial Services after being designated a systemic risk following a run.[104] After Silicon Valley Bank's collapse, Signature Bank's collapse was the third largest in United States history.[105]

Solana recovers, FTX to restitute customers with interest

[edit]

In 2023, Solana recovered, making it possible to pay people back. CEO John J. Ray III estimated that "customers and digital asset loan creditors will recover between 118% and 142% of their Petition Date claim values."[106]

Any left over money would normally go to stakeholders (of which SBF is the largest), but the IRS and the SEC also have "somewhat hazy claims", which take priority.[106]

Investigations

[edit]
[edit]

Following the collapse of FTX, the Royal Bahamas Police Force launched a criminal investigation into the company.[107][27]

Anonymous sources cited by Bloomberg said that the office of the United States Attorney for the Southern District of New York had begun an investigation into FTX's collapse as of 14 November.[28]

The United States House Committee on Financial Services plans to conduct hearings in December on the collapse of FTX, and committee leaders said they would seek testimony from Bankman-Fried.[108]

On 15 November 2022, a class-action lawsuit was filed in Miami against Bankman-Fried and several celebrities, including American football quarterback Tom Brady and comedian Larry David, alleging the company engaged in deceptive practices; they are seeking damages.[109] The lawsuit also named Gisele Bündchen, Steph Curry, Shaquille O'Neal, Udonis Haslem, David Ortiz, Trevor Lawrence, Shohei Ohtani, Naomi Osaka, and Kevin O'Leary.[110]

On 21 December 2022, both Caroline Ellison (former CEO of Alameda) and Gary Wang (former Chief Technology Officer of FTX) pled guilty to fraud and other charges and were cooperating with federal investigators in criminal case against Sam Bankman-Fried. In the signed agreements Ellison and Wang agreed to "cooperate fully" and "truthfully and completely disclose all information concerning all matters".[111] On 3 January 2023, Bankman-Fried pled not guilty to fraud and other charges. His trial began in October 2023.[112] On 2 November 2023, Bankman-Fried was found guilty of all charges.[17]

Impact

[edit]

Effects on other firms

[edit]

On 16 November 2022, the cryptocurrency brokerage service Genesis suspended withdrawals following FTX declaring bankruptcy, further affecting the industry. The cryptocurrency exchange company Gemini, owned by Cameron and Tyler Winklevoss, announced that it would be pausing withdrawals on its Earn program, which uses Genesis as a lending partner.[113]

The exchange token of Crypto.com, Cronos, lost approximately $1 billion in value in November.[114] On 14 November, Crypto.com's CEO assured users that the exchange was functioning as normal.[114] Commenters and customers remained fearful that Crypto.com could experience a collapse similar to FTX.[115]

Losses by FTX investors and customers

[edit]

Institutional investors that stand to lose money due to their stakes in FTX include Tiger Global Management, the Ontario Teachers' Pension Plan, SoftBank Group, BlackRock, Lightspeed Venture Partners, Temasek, and Sequoia Capital.[116][117][11][118][12] Sequoia Capital wrote down its equity in FTX to $0 on 9 November, losing some $214 million.[119] Sequoia released a notice to investors, also published on Twitter, assuring them the firm's stake in FTX represented a small amount of its overall portfolio,[120] and replaced a profile of Bankman-Fried published on the firm's website with a link to the same notice.[121][122][123] The Ontario Teachers' Pension Plan released a similar statement.[124]

BlockFi, a cryptocurrency lender, was reportedly taking steps to file for bankruptcy as of 15 November, having earlier halted withdrawals.[97] The company disclosed "significant exposure" to FTX on 14 November.[97] Another cryptocurrency lender, Genesis, a subsidiary of Digital Currency Group, halted withdrawals on 16 November.[125] This halt caused Gemini to cease allowing redemptions for clients using a service provided through a partnership with Genesis.[126] BlockFi confirmed speculation by filing for Chapter 11 bankruptcy protection in the United States on 28 November.[127]

Cryptocurrency investment firms with assets still held on FTX after its bankruptcy include Galois Capital and Galaxy Digital.[128] Several public figures also invested in FTX or received compensation for promoting the company.[129] These include former couple Tom Brady and Gisele Bündchen, as well as Shaquille O'Neal, Stephen Curry, and Kevin O'Leary.[129] According to anonymous sources cited by The Information, some venture capital firms are considering lawsuits against Bankman-Fried.[130]

Anthony Scaramucci, founder of SkyBridge Capital, announced the firm was attempting to buy back a 30% stake in the business owned by FTX.[131]

Commentary and reactions

[edit]

Jim Chanos predicted the collapse of FTX would lead to increased scrutiny and regulation of cryptocurrencies. Chanos further criticized the cryptocurrency sector as "designed to extract fees from really unsuspecting investors".[132] Richard Handler, CEO of American financial firm Jefferies Group, tweeted on 10 November that he had attempted to meet with Bankman-Fried in July and again in September as he perceived he was "in over his head".[133] Handler stated that Bankman-Fried did not respond to the emails sent from Jefferies staff sent on Handler's behalf.[133] The sudden collapse of FTX has been compared to the bankruptcy of Lehman Brothers by writers in publications including The New York Times and the Financial Times, with some deeming FTX's collapse as "crypto's Lehman moment".[134][135] Lawrence Summers acknowledged the comparisons to Lehman and further compared the collapse to the Enron scandal, caused by fraud perpetrated by Enron executives.[136] Rostin Behnam, the Chairman of the Commodity Futures Trading Commission, called for Congress to grant the organization more power to regulate cryptocurrencies.[137] Risk management firm Titan Grey published a primer on the commencement and early motions practice of the FTX chapter 11 case, analyzing issues such as creditor privacy, relief from the automatic stay, proposed differential treatment of customers from other creditors, and others.[138]

In July 2023, it was announced that T.J. Miller would star as “a character inspired by Bankman-Fried” in Fortun3, “an interactive series … inspired by the collapse of FTX.”[139]

Impact on effective altruism

[edit]
See also: Effective altruism § History

The FTX collapse resulted in scrutiny of and a loss of funding for the effective altruism movement, which Bankman-Fried had funded using profits from FTX.[140] Several leaders of the EA movement, including William MacAskill and Robert Wiblin,[141] have condemned FTX's actions.[142]

Prior to the collapse, Bankman-Fried and other senior leaders of FTX and Alameda were altogether worth approximately $16.5 billion, making them the second-largest group of benefactors to the EA movement after Open Philanthropy and Good Ventures.[143] On 10 November, the team running the FTX Future Fund, a charitable group bankrolled by Bankman-Fried, announced that they had resigned earlier that day.[71] Future Fund had committed $160 million in charitable grants and investments by 1 September of that year.[72]

References

[edit]
Revisions and contributorsEdit on WikipediaRead on Wikipedia

Bankruptcy of FTX

View on Grokipedia
from Grokipedia
The bankruptcy of FTX Trading Ltd. and its affiliated entities refers to the voluntary Chapter 11 petitions filed on November 11, 2022, in the United States Bankruptcy Court for the District of , triggered by an acute shortfall after customers withdrew over $6 billion in deposits within 72 hours amid disclosures of financial mismanagement. The proceedings encompassed entities with estimated assets and liabilities ranging from $10 billion to $50 billion, marking one of the largest corporate insolvencies by reported scale, though subsequent revelations indicated a stark imbalance with only about $900 million in readily liquid assets against approximately $9 billion in liabilities at the brink of collapse. The crisis stemmed principally from the unauthorized diversion of customer funds—totaling around $8 billion—to prop up the affiliated quantitative trading firm , which faced mounting losses from risky leveraged bets, including heavy exposure to FTX's native FTT token; this commingling violated core exchange principles of segregated client assets and exposed inherent conflicts in the integrated operations controlled by founder . Bankman-Fried, who had built FTX into a dominant centralized since its 2019 launch, was convicted in November 2023 on seven federal counts including wire fraud, , commodities fraud, and conspiracy for orchestrating the schemes, resulting in a 25-year prison sentence imposed in March 2024. The FTX downfall precipitated broader contagion in the ecosystem, eroding trust in centralized platforms and prompting regulatory scrutiny worldwide, while bankruptcy administrators pursued asset recoveries—including litigation against insiders and clawbacks of preferential transfers—aiming to distribute proceeds to creditors, with ongoing efforts as of 2025 projecting potential near-full repayment for non-governmental claims through liquidation of seized holdings and legal judgments.

Prelude and Causes

Operational Structure and Fund Misuse

FTX operated as a centralized founded in 2019 by , offering trading in derivatives and spot markets, while , a quantitative trading firm also established by Bankman-Fried in 2017, functioned as an affiliated entity providing market-making liquidity to the platform. Despite public representations of separation, the entities maintained deeply intertwined operations, with Bankman-Fried serving as CEO of both and Alameda receiving preferential treatment, including exemptions from standard risk controls that applied to other users. A critical element of this structure was a software "backdoor" implemented in 's code at Bankman-Fried's direction, enabling Alameda to borrow customer deposits without collateral requirements or limits, effectively granting it a $65 billion and permission for negative account balances that bypassed the exchange's automated liquidation engine. co-founder Gary Wang testified that this mechanism allowed Alameda unlimited withdrawals using FTX user funds, a privilege not extended to other traders and concealed from public view. Bankman-Fried assured investors and customers that FTX segregated client assets from , yet internal records showed Alameda routinely accessed and utilized these funds for its operations. Fund misuse escalated as Alameda employed the diverted assets—estimated at $10 billion in customer transfers—to finance high-risk trades, cover trading losses following events like the May 2022 Terra-Luna collapse, and fund expenditures including venture investments, purchases, and political donations. Prosecutors in Bankman-Fried's 2023 trial presented evidence that he directed these transfers, including altering systems to facilitate Alameda's access, leading to his on seven counts of and for defrauding customers of over $10 billion. This rendered FTX insolvent when Alameda's positions soured, as customer deposits were not ring-fenced but treated as an internal , contradicting the platform's assurances of asset safety.

Early Warning Signs and Alameda Dependencies

Alameda Research, founded by Sam Bankman-Fried in 2017 prior to FTX's establishment, served as the primary trading firm and liquidity provider for the exchange, creating inherent operational interdependencies from FTX's inception in May 2019. Alameda acted as a major market maker on FTX, executing a significant portion of trades and benefiting from non-public data advantages, which amplified risks of conflicts of interest and asymmetric information. Critically, FTX implemented a software "backdoor" exemption for Alameda, bypassing standard risk engine checks, margin requirements, and liquidation protocols, allowing unlimited borrowing against customer deposits without disclosure or oversight. This mechanism, coded by FTX co-founder Gary Wang at Bankman-Fried's instruction shortly after launch, exposed FTX to Alameda's trading volatility, as losses at the hedge fund could directly deplete exchange liquidity. The backdoor facilitated Alameda's access to approximately $65 billion in effective credit lines from FTX customer funds, used for and venture investments, without equivalent safeguards applied to other users. This arrangement fostered a causal dependency: Alameda's hinged on FTX's , while FTX's stability relied on concealing Alameda's deficits to maintain investor confidence. Alameda's was disproportionately concentrated in FTT, FTX's native exchange token, holding $14.6 billion worth (over 50 million tokens) as of late June 2022, introducing circular valuation risks where FTT's price propped up Alameda's assets but plummeted if FTX faltered. Such token collateralization, lacking diversification, amplified leverage vulnerabilities, as evidenced by Alameda's shift from market-neutral strategies to high-risk directional bets post-2021. Early indicators of strain emerged in May 2022 amid the Terra-Luna ecosystem collapse, which inflicted substantial losses on Alameda; FTX then transferred assets including 90,000 (valued at $211 million) and 6.8 million FTT ($224.7 million) to Alameda for onward routing to creditor Genesis Trading, signaling undisclosed bailouts using exchange resources. By June 2022, internal records showed Alameda had borrowed over $13 billion from , primarily customer funds, to cover trading deficits and loans, highlighting strains masked by inter-entity transfers. Structural red flags included 's absence of a despite managing billions in client assets, enabling unchecked commingling without independent audits or . Employees at FTX subsidiaries, such as LedgerX, flagged the backdoor's preferential treatment as early as 2020-2021, yet it persisted without remediation, underscoring failures. These dependencies, rooted in opaque code and unmonitored flows, rendered FTX vulnerable to Alameda's $3.7 billion in pre-2022 cumulative losses, which were propped up by undisclosed infusions rather than resolved through prudent .

Timeline of Collapse

CoinDesk Exposé and Initial Market Reaction

On November 2, 2022, CoinDesk published an investigative article authored by Ian Allison, disclosing a leaked balance sheet from Alameda Research, the quantitative trading firm closely affiliated with FTX. The document, purportedly from early 2022 and shared anonymously with CoinDesk, revealed Alameda held total assets of $14.6 billion, including approximately $5.8 billion in FTT tokens—FTX's native exchange token—alongside holdings in SOL ($1.6 billion), BTC ($436 million), and other illiquid or affiliated assets. This composition raised immediate questions about Alameda's liquidity and solvency, as FTT's value was intrinsically tied to FTX's fortunes, creating a circular dependency that blurred separations between the entities despite public claims of independence. The highlighted operational overlaps, such as Alameda's use of FTT as collateral for loans and its exemptions from FTX's standard controls, suggesting potential undisclosed to FTX users' funds. FTX founder initially downplayed the revelations in public statements, asserting that the balance sheet was outdated and that FTX remained solvent with ample reserves exceeding $8 billion in liquid assets. Alameda CEO similarly dismissed concerns, tweeting that the firm's positions were "diversified" and not overly concentrated in FTT, though without providing updated figures. Market participants reacted swiftly, with FTT's price dropping from about $22 on November 2 to around $14 by November 7, reflecting eroded confidence in the token's backing amid fears of over-leveraging. Trading volumes for FTT surged, and early withdrawal pressures emerged on , though not yet at crisis levels; and broader crypto indices dipped modestly by 2-5% in the following days, attributed partly to contagion concerns from the Alameda- ties. Analysts noted the article's timing amplified on unregulated crypto intermediaries, prompting initial sell-offs but stopping short of a full until subsequent developments.

Binance Divestment and Acquisition Talks

On November 6, 2022, CEO announced that the exchange would liquidate its remaining holdings of FTT, the native token of , valued at approximately $580 million at the time, citing "recent revelations" from a report exposing Alameda Research's heavy reliance on FTT for its . This divestment, which had partially held from a prior 2019 acquisition of equity stake that was later sold back, triggered a sharp decline in FTT's price, dropping over 70% that day and erasing billions in , further straining 's as customer withdrawals accelerated. The FTT sell-off intensified scrutiny on FTX's solvency, prompting . On November 8, 2022, amid reports of a severe crunch at —where customer withdrawal requests exceeded $6 billion in the prior 72 hours— CEO sought assistance from . responded by signing a non-binding (LOI) to acquire 's non-U.S. operations (FTX.com), with the stated goal of protecting users and addressing the shortfall through and potential full acquisition. Zhao emphasized the move as a liquidity backstop, not an endorsement of 's practices, while publicly confirmed the talks as a path to stabilize the exchange. The proposed acquisition unraveled swiftly during due diligence. On November 9, 2022, Binance terminated the LOI, stating that investigations revealed "mishandled customer funds," significant discrepancies beyond initial expectations, and other liabilities that made the deal unviable, including potential regulatory hurdles from U.S. authorities. This withdrawal, confirmed by Zhao as a result of corporate and emerging news on FTX's operations, precipitated a final collapse in FTT's value and halted any rescue prospects, leaving FTX without viable external support. The episode highlighted inter-exchange vulnerabilities in the crypto sector, with Binance's actions underscoring a shift from prior cooperative ties—stemming from the 2019 stake sale—to protective amid risks.

Failed Rescue Efforts and Bankruptcy Filing

Following the intensification of FTX's liquidity crisis, Binance CEO announced on November 8, 2022, that the exchange had signed a non-binding to acquire FTX and provide liquidity support, contingent on due diligence review of FTX's corporate finances, , and . FTX founder described the potential deal as a "user-centric development that benefits the entire industry," emphasizing customer protection. Binance conducted a 24-hour due diligence process, after which it terminated the agreement on , , stating that newly revealed information about FTX's — including mishandled customer funds, undisclosed liabilities exceeding assets, and other issues beyond its control—made the acquisition unviable. The withdrawal exacerbated FTX's collapse, as the platform had already faced approximately $6 billion in customer withdrawal requests over the prior 72 hours, which it could not fulfill due to insufficient reserves. Efforts to secure alternative emergency funding from venture capitalists and other investors, reportedly targeting up to $8 billion, also failed amid the rapid erosion of confidence. Unable to stabilize operations or obtain further bailouts, Trading Ltd., Ltd., and approximately 130 affiliated entities filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of on November 11, 2022. The filings listed assets and liabilities each estimated between $10 billion and $50 billion, with over 100,000 creditors affected. Bankman-Fried resigned as CEO, and , a veteran bankruptcy restructuring expert previously involved in the case, was appointed to lead the proceedings; Ray immediately highlighted an "unprecedented and complete failure of corporate controls" at .

Immediate Crisis Response

Unauthorized Transactions and Asset Protection

Following the FTX Trading Ltd. bankruptcy filing on November 11, 2022, the company reported unauthorized access to certain digital assets on November 12, 2022, prompting an immediate investigation into suspicious transfers totaling between $473 million and $659 million in from exchange wallets. analytics firms, including Elliptic, identified $477 million in such unauthorized outflows, executed through multiple transactions shortly after the petition date, with $372 million specifically attributed to transfers initiated on November 11. New CEO , appointed to oversee the restructuring, confirmed the breach and noted that the exchange's prior management had stored private keys insecurely, including on cloud services like , heightening vulnerability to such exploits. In response, FTX leadership directed the transfer of remaining accessible funds to offline "cold" storage to mitigate further risks of theft or additional unauthorized movements. By mid-December 2022, Ray's team had secured over $1 billion in digital assets against potential loss, including through enhanced controls on wallet access and the identification of recoverable holdings. On November 23, 2022, the debtors sought court approval to engage BitGo Trust Company as a qualified custodian for safeguarding residual cryptocurrency assets during proceedings, aiming to ensure segregated storage and prevent commingling with estate liabilities. Subsequent revealed that approximately $415 million of the unauthorized transfers constituted confirmed hacks, integrated into broader asset recovery efforts valuing $5.5 billion in identifiable digital holdings as of 2023. Ray emphasized in congressional that these measures addressed systemic deficiencies, such as the absence of robust access protocols, which had enabled the initial breaches amid the platform's . Investigations into the perpetrators continued, with no conclusive attribution to insiders or external actors beyond blockchain-traced wallet activities, underscoring the challenges of securing decentralized assets in a Chapter 11 context.

Liquidity Crunch and Customer Withdrawals Halt

In the days following the collapse of acquisition talks with on November 9, 2022, FTX experienced a severe liquidity crunch as customers rushed to withdraw funds amid growing concerns over the exchange's . Withdrawal requests flooded the platform, with reports indicating that FTX processed approximately $6 billion in such demands over a 72-hour period ending around November 8. This surge exposed the exchange's inability to meet obligations, as customer deposits had been extensively commingled and transferred to its affiliated , , leaving insufficient liquid assets on hand—estimated at under $1 billion against tens of billions in liabilities. On November 8, 2022, halted all non-fiat cryptocurrency withdrawals indefinitely, a move confirmed by a company support employee in its official Telegram group. The decision was attributed to a "sudden and acute" strain, with withdrawals also facing delays as the platform struggled to source funds from external markets or counterparties. CEO publicly acknowledged the crisis on (now X), stating that was facing " issues" and working to secure financing, though he initially downplayed the severity by claiming the exchange remained overall. This halt, intended as a temporary measure, instead amplified market panic, as it signaled deeper structural deficiencies in 's , including heavy reliance on its native FTT token and illiquid positions held by Alameda. The crunch underscored causal vulnerabilities in FTX's operational model, where customer funds were not fully segregated but instead used for undisclosed loans and investments, rendering the exchange unable to withstand a classic bank-run scenario in the volatile cryptocurrency sector. By November 10, 2022, FTX extended the suspension to include new client onboarding, further isolating the platform as it sought rescue capital that ultimately failed to materialize. Independent analyses later quantified the liquidity gap at over $8 billion, highlighting how pre-collapse asset transfers to Alameda—totaling around $10 billion—had depleted reserves without adequate collateral or repayment mechanisms.

Criminal Probes into Fraud and Embezzlement

Following the November 11, 2022, bankruptcy filing of Trading Ltd., the U.S. Department of (DOJ), through the U.S. Attorney's Office for the Southern District of New York (SDNY), initiated a into allegations of and involving the diversion of customer deposits. The probe, supported by the FBI's New York Field Office, focused on claims that founder Samuel Bankman-Fried (SBF) and associates systematically misused up to $10 billion in customer funds, transferring them to affiliated Alameda Research Ltd. for unauthorized purposes including speculative trading, venture investments, real estate purchases, and political donations. Prosecutors described the scheme as involving deliberate commingling of funds via software backdoors that allowed Alameda unrestricted access to 's exchange reserves, bypassing solvency checks and enabling "old-fashioned ." SBF was arrested in the Bahamas on December 12, 2022, pursuant to a U.S. provisional arrest warrant, and extradited to New York, where he was arraigned on December 21, 2022. An eight-count indictment unsealed on December 13, 2022, charged him with conspiracy to commit wire fraud on lenders and customers, wire fraud, conspiracy to commit securities and commodities fraud, securities fraud, commodities fraud, money laundering conspiracy, and campaign finance violations tied to over $100 million in illegal donations. The allegations centered on SBF's orchestration of transfers from FTX's wallet to Alameda starting as early as 2019, with peak misuse exceeding $8 billion by mid-2022, including directives to falsify account balances and delete records to conceal shortfalls. SBF initially pleaded not guilty to all counts on January 3, 2023. The investigation gained momentum through guilty pleas from key FTX and Alameda executives who agreed to cooperate as witnesses. On December 19, 2022, Alameda CEO pleaded guilty to seven counts, including conspiracy to commit wire fraud, securities fraud, and commodities fraud, admitting to directing billions in customer fund transfers under SBF's instructions while concealing Alameda's solvency risks from users. co-founder and CTO Gary Wang also pleaded guilty around the same time, providing evidence on code modifications that enabled unauthorized withdrawals. On February 28, 2023, FTX engineering director Nishad Singh followed with guilty pleas to six fraud-related counts, cooperating by detailing his role in implementing transfer mechanisms and political donation schemes funded by misappropriated assets. These pleas, which included forfeiture agreements for luxury assets and proceeds, underscored the probe's emphasis on a coordinated rather than isolated errors. Additional scrutiny extended to FTX director of engineering , who pleaded guilty in September 2023 to and unlicensed money transmission charges involving over $100 million in straw donations, though not directly tied to core claims. The DOJ's case relied on forensic analysis of transactions, internal communications, and audits revealing Alameda's exclusive access to a "backdoor" funded by FTX customers, with no repayment mechanism for the diverted $14.6 billion in loans by collapse. Superseding indictments in August 2023 added charges related to foreign bribery attempts, though these were later dropped as part of plea negotiations in other cases. The probes highlighted systemic failures in FTX's risk controls, where customer deposits were treated as unrestricted liquidity for Alameda's high-risk bets, leading to when correlated asset values plummeted in 2022.

Regulatory Scrutiny and Civil Suits

Following the collapse of in November 2022, the U.S. Securities and Exchange Commission (SEC) initiated civil enforcement actions, charging FTX founder Samuel Bankman-Fried on December 13, 2022, with orchestrating a scheme to defraud equity investors in FTX Trading Ltd. by diverting billions in customer funds to prop up , including misrepresentations about the separation of FTX and Alameda operations. The SEC's probe had begun months earlier, focusing on FTX's handling of customer funds and its crypto-lending activities through entities like . Similarly, the pursued civil claims against FTX and Alameda, culminating in a federal court judgment on August 8, 2024, requiring payment of $12.7 billion, comprising $8.7 billion in restitution and $4 billion in to compensate victims of fraudulent and misuse of customer deposits for Alameda's trading. In the Bahamas, where FTX's international affiliate was domiciled, the Securities Commission of (SCB) assumed regulatory oversight immediately after the November 10, 2022, , seizing control of FTX Digital Markets Ltd. assets and presenting a winding-up petition that day to initiate proceedings. By November 18, 2022, the SCB had secured valued at approximately $3.5 billion to protect creditor interests amid unauthorized post-collapse transfers. These actions complemented U.S. probes, with the SCB coordinating on asset recovery while scrutinizing FTX's compliance with local digital asset regulations, though tensions arose over jurisdictional asset control. Civil litigation proliferated, including customer class actions alleging FTX misled users about asset safety and commingled funds with Alameda, as in the Southern District of Florida case (No. 1:22-CV-23753) seeking recovery for losses tied to yield-bearing accounts and FTT token collapses. FTX's bankruptcy estate countersued to claw back over $9 billion in preferential transfers and fraudulent conveyances from investors, lenders, and celebrities, filing about a dozen actions by early 2023 to realize claims against entities like venture firms that received assets pre-collapse. By September 2024, plaintiff firms settled disputes with the estate, agreeing to drop certain class claims against third parties like law firm in exchange for coordinated distributions prioritizing bankruptcy recoveries over fragmented suits. The SEC also filed civil fraud charges against Alameda CEO and FTX co-founder Gary Wang on December 21, 2022, for their roles in diverting customer funds, further amplifying scrutiny on executive accountability.

Bankruptcy Administration

Asset Recovery and Valuation Efforts

Following the FTX Group's Chapter 11 bankruptcy filing on November 11, 2022, was appointed CEO of the debtors to oversee asset recovery, discovering that the exchange held only 105 —valued at approximately $2.8 million at the time—and faced an "unprecedented" absence of reliable records or internal controls. Recovery efforts focused on repossessing misappropriated funds from affiliated entities like , pursuing fraudulent transfer clawbacks under bankruptcy law, liquidating holdings in cryptocurrencies and real estate, and litigating against third parties including venture firms and exchanges. By September 2023, the estate had outlined $7 billion in recovered assets, including $3.4 billion in liquid Category A holdings such as and other digital assets, alongside illiquid items like Bahamian properties and equity stakes in startups. Valuation processes involved categorizing assets by liquidity and realizable value: Category A assets were appraised at current market prices through third-party custodians and exchanges, while Category B illiquid assets—such as private venture investments in firms like —underwent , models, and negotiations for settlements or sales to estimate amid volatile crypto conditions. The estate avoided premature of crypto holdings during market lows, benefiting from subsequent price recoveries, and resolved disputes like the June 2023 lawsuit against K5 Global, retaining stakes in venture funds originally invested with $700 million in funds rather than forcing a distressed sale. Ongoing litigation, including a November 2024 claim against for $1.8 billion in disputed funds from the failed acquisition, further bolstered projected recoveries. These initiatives yielded projections of $14.5 billion to $16.3 billion in distributable cash by mid-2024, enabling full repayment to customers plus interest exceeding 100% recovery rates for many claims, as confirmed in filings. Distributions commenced in 2024, with $5 billion disbursed in May 2025 and $1.6 billion in September 2025—bringing total payouts to approximately $7.8 billion—facilitated by custodians like and tied to verified creditor claims. Additional recoveries included $230 million for shareholders from U.S. government-seized assets in September 2024, though general unsecured creditors prioritized customer repayments under the confirmed reorganization plan approved October 7, 2024. The estate's approach emphasized maximizing value through strategic holds and legal actions over hasty dispositions, contrasting initial fears of substantial shortfalls given the $8.9 billion in identified liabilities.

Creditor Committee and Reorganization Plan

The Official of Unsecured Creditors for Trading Ltd. and its affiliates was appointed by the U.S. Trustee on December 15, 2022, to represent the interests of general unsecured creditors, including customer account holders, in the Chapter 11 bankruptcy proceedings. The comprised seven members, including individual creditor Zachary Bruch, Genesis Trading LLC, Wintermute Trading Ltd., and other entities holding significant unsecured claims, selected based on the size and diversity of claims to ensure broad representation without dominance by any single group. Retained by law firm LLP, the focused on investigating the debtors' affairs, negotiating asset recoveries, and maximizing distributions through settlements with third parties, such as exchanges and affiliates, yielding multibillion-dollar recoveries from causes of action like fraudulent transfers. The played a pivotal role in shaping the Second Amended Joint Chapter 11 Plan of Reorganization, advocating for priority treatment of claims as estate property and opposing provisions that could dilute recoveries, such as equity distributions to insiders. Confirmed by U.S. Bankruptcy Judge John T. Dorsey on October 8, 2024, over objections including those from the on certain aspects, the plan established the FTX Recovery Trust to administer ongoing litigation, clawbacks, and distributions post-confirmation. Key provisions included full repayment plus interest for approximately 98% of creditors with claims under $50,000, and projected recoveries of 118% to 142% for larger claims, funded by over $14.5 billion in cash and assets recovered by the estate, exceeding the $8.9 billion in net claims allowed. The plan became effective on January 3, 2025, triggering the initial distribution record date and dissolving the committee, except for limited retained powers related to wind-down matters. Distributions commenced shortly thereafter, prioritizing small claims via service providers like and , with over $5 billion disbursed starting May 30, 2025, and an additional $1.6 billion in the third tranche beginning September 30, 2025, reflecting the plan's emphasis on timely, verifiable payouts to mitigate further creditor losses from delays. The structure avoided a traditional equity reallocation to new investors, instead channeling recoveries directly to creditors while residual assets in the trust for potential excess distributions, a outcome the committee had pushed to prioritize over debtor-favored alternatives.

Distributions and Repayment Progress

The FTX Chapter 11 plan of reorganization, confirmed by the U.S. Bankruptcy Court for the District of on October 8, 2024, and effective January 3, 2025, established the Recovery Trust to oversee asset and creditor distributions. The plan projected total distributions exceeding $14 billion, enabling non-governmental creditors to recover approximately 119% of allowed claims, including post-petition interest, far surpassing initial estimates of substantial shortfalls due to recovered assets from sales of holdings, equity stakes, and litigation recoveries amid post-bankruptcy market appreciation. Distributions have proceeded in phases to eligible creditors who elected distribution service providers such as or , with 98% of creditors anticipated to receive funds within specified timelines, though prioritized for verified claims exceeding certain thresholds. The process prioritizes customer claims, with U.S.-based creditors reaching about 95% recovery post-third distribution, while international and cryptocurrency-denominated claims follow structured conversions and payouts.
Distribution RoundDateAmount DistributedKey Details
FirstFebruary 2025$1.2 billionInitial to select eligible creditors, focusing on verified high-value claims.
SecondMay 2025$5 billionExpanded payouts, advancing overall recovery toward full claim values plus interest.
ThirdSeptember 30, 2025$1.6 billionLatest round via providers like , with funds expected in 1-3 business days; total distributions exceed $7.8 billion as of this phase.
As of early 2026, the next distribution is scheduled to commence on March 31, 2026, for holders of allowed claims as of the February 14, 2026 record date. Distributions are limited to allowed claims that meet requirements such as KYC verification and tax forms; locked or disputed claims are not eligible until resolved and allowed. The estate has proposed reducing the disputed claims reserve by $2.2 billion to release funds for allowed claims. Remaining distributions are slated into 2026-2027, targeting the balance of claims including an additional recovery plus , contingent on final asset realizations and approvals. The elevated recoveries stem empirically from the estate's control of over $16 billion in assets at plan confirmation, bolstered by favorable price dynamics since the November 2022 collapse, though subject to market volatility and ongoing litigations. Creditors have faced ancillary risks, including intensified scams exploiting payout announcements.

Sam Bankman-Fried Trial and Conviction

Samuel Bankman-Fried, founder of and , faced federal criminal charges following the November 2022 collapse of his cryptocurrency exchange. He was arrested on December 12, 2022, in , on a U.S. warrant and extradited to New York on December 21, 2022, where he pleaded not guilty to initial counts including wire fraud, , commodities fraud, , and campaign finance violations. The U.S. Department of Justice alleged that Bankman-Fried orchestrated the misappropriation of approximately $8 billion in customer funds to cover 's trading losses, fund luxury purchases, make political donations exceeding $100 million, and pay bribes to foreign officials. The trial commenced in the U.S. District Court for the Southern District of New York on October 3, 2023, with , followed by opening statements on October 4. Prosecutors presented evidence of deliberate , including internal communications, software code modifications, and financial records showing Alameda Research's unrestricted access to FTX customer deposits via a custom "backdoor" in the exchange's codebase that bypassed risk limits. Key prosecution witnesses included former Alameda CEO , who testified that Bankman-Fried directed the diversion of customer funds to plug Alameda's $10 billion deficit from risky bets, including authorizing over $100 million in bribes to Chinese regulators to recover frozen assets. Other testimonies from FTX executives Gary Wang and Nishad Singh corroborated the scheme, detailing how billions were siphoned for personal use, such as celebrity endorsements and venture investments, while concealing Alameda's negative from FTX users. The defense argued that any fund transfers were legitimate loans or business decisions amid crypto market volatility, not , and portrayed Bankman-Fried as an overextended entrepreneur without intent to deceive. Bankman-Fried took the stand on October 26-27, 2023, claiming ignorance of certain risks and denying directives for illegal actions like bribes, though highlighted inconsistencies with prior evidence, such as private notes admitting the need to "borrow" customer funds without repayment plans. After closing arguments on November 1, the jury deliberated for roughly four hours before convicting Bankman-Fried on November 2, 2023, on all seven counts tried: two counts of wire fraud on FTX customers and lenders, to commit wire fraud on lenders, to commit securities and commodities , and to commit . On March 28, 2024, U.S. District Judge sentenced Bankman-Fried to 25 years in , followed by three years of supervised release, citing the "unprecedented" scale of the that eroded trust in the sector and caused massive losses. The also ordered forfeiture of over $11 billion in assets tied to the schemes, rejecting defense pleas for leniency based on partial asset recovery efforts and emphasizing Bankman-Fried's lack of remorse and during testimony. A separate trial on remaining charges, including foreign , was deferred pending appeal.

Executive Pleas and Sentencing

, CEO of (an affiliate of ), pleaded guilty on December 19, 2022, to seven counts including conspiracy to commit wire fraud, wire fraud, and conspiracy to commit commodities and , admitting to the diversion of customer funds to cover Alameda's losses. On September 24, 2024, U.S. District Judge sentenced her to two years in , followed by three years of supervised release and forfeiture of over $11 billion, citing her "extraordinary cooperation" as a star witness in the prosecution of founder , which included over 100 hours of assistance and that helped secure his . Prosecutors had recommended no time due to this cooperation, though the judge imposed a custodial sentence to reflect the gravity of the multi-billion-dollar fraud. Gary Wang, FTX co-founder and former chief technology officer, pleaded guilty on December 13, 2022, to four counts of fraud and conspiracy related to the commingling and misuse of customer deposits. He was sentenced on November 20, 2024, to no prison time but three years of supervised release, $6.675 million in forfeiture, and 300 hours of , with Judge Kaplan emphasizing Wang's immediate self-reporting to authorities post-collapse, provision of critical backend code access that enabled recovery efforts, and testimony aiding the case against Bankman-Fried. Wang's cooperation was described by prosecutors as pivotal in tracing the flow of misappropriated funds exceeding $8 billion. Nishad Singh, former director of engineering at FTX and , entered a guilty on October 10, 2023, to six felony counts including wire fraud conspiracy and violation of laws tied to the fraud. On October 30, 2024, he received a sentence of (no additional incarceration), three years of supervised release, and $1.15 billion in forfeiture, as Judge Kaplan credited Singh's early remorse, full cooperation starting months before charges, and contributions to asset recovery efforts amid the platform's $8 billion shortfall. Singh had donated over $7 million in political contributions funded by FTX customer money, later expressing regret in court . Ryan Salame, former co-CEO of FTX Digital Markets, pleaded guilty on September 28, 2023, to one count of conspiracy to operate an unlicensed money transmitting business and one count of conspiracy to make unlawful campaign contributions, involving over $100 million in illegal donations influenced by FTX activities. He was sentenced on May 28, 2024, to 90 months (7.5 years) in prison, three years of supervised release, and $6 million in forfeiture, with the harsher term reflecting his role in facilitating unreported political spending and money transmission without proper licensing, distinct from the core customer fund fraud but linked to FTX's operations. Unlike the others, Salame's cooperation was deemed less extensive by prosecutors. These pleas, all involving admissions of involvement in schemes that defrauded FTX customers of approximately $8 billion, facilitated substantial asset recoveries estimated at over $16 billion by bankruptcy administrators, though full creditor repayments remain ongoing as of late 2024. Sentencing leniency for Ellison, Wang, and stemmed directly from their post-collapse assistance, contrasting with Bankman-Fried's 25-year term after .

Ongoing Appeals and Challenges

Sam filed a notice of appeal on April 12, , challenging his November 2023 conviction on seven counts of , conspiracy, and money laundering related to the misuse of customer funds, as well as his sentence of 25 years imprisonment and $11 billion in forfeiture. The appeal, docketed in the U.S. Court of Appeals for the Second Circuit as case 24-961, centers on claims that remained at the time of its collapse and that trial evidence was improperly admitted, with oral arguments scheduled for November 4, 2025. 's defense maintains that the exchange's failure stemmed from a rather than outright , a narrative echoed in a October 2025 paper by his mother, , which attributes the downfall to market panic and regulatory overreach rather than . In the bankruptcy proceedings, the Recovery Trust continues to address disputed claims and jurisdictional appeals, including a $380 million claim from Chinese users contesting exclusion from distributions due to regulatory restrictions. On October 20, 2025, the trust revised procedures to bar payouts to creditors in over two dozen restricted countries, citing compliance with U.S. sanctions and anti-money laundering rules, which has prompted further challenges from affected international claimants. Although the Chapter 11 reorganization plan was confirmed by the U.S. Bankruptcy Court on October 8, 2024, and became effective January 3, 2025, ongoing litigation over claim validity has delayed full implementation, with the court reducing reserves for disputed claims from $4.3 billion while approving $1.9 billion in interim distributions set for September 30, 2025. Critics of the repayment strategy, including some creditors, argue that the plan's emphasis on U.S. dollar equivalents undervalues recovered assets amid Bitcoin's price surge above $100,000 in 2025, potentially shortchanging non-U.S. holders and fueling appeals for in-kind distributions. Professional fees in the case have exceeded $900 million by early 2025, drawing scrutiny for inflating administrative costs and complicating creditor recoveries. Bankman-Fried's parents, and , have joined his legal efforts, contributing to arguments that question the prosecution's fraud characterization and seek to mitigate forfeiture impacts on recovered assets. These proceedings highlight persistent tensions between criminal and bankruptcy maximization, with no resolutions anticipated before late 2025.

Economic and Market Impacts

Contagion Effects on Crypto Ecosystem

The announcement of FTX's impending collapse on , 2022, triggered sharp declines across major cryptocurrencies, with falling approximately 22% by November 13 to trade in the $15,000–$17,000 range, its lowest levels since early 2020. similarly dropped, reaching around $1,127 by late November amid heightened contagion fears. The FTX-native FTT token, used as collateral in related trading activities, plummeted 77% in a single session on and further to about $1.26 by November 22, erasing billions in perceived value tied to the exchange's . These movements reflected panic selling and loss of as investors withdrew funds en masse, with itself experiencing outflows of 37% of customer deposits in days. The FTX failure amplified risk spillovers to the broader crypto market, evidenced by econometric analyses showing significant negative correlations from FTT price shocks to assets like , , and between May 2020 and December 2022. Total market dipped below $800 billion shortly after the filing on November 11, approaching the year's nadir and contributing to an overall 2022 contraction from peaks near $3 trillion in late 2021. While earlier events like the Terra-Luna depeg in May 2022 initiated cascading losses, FTX's interconnected exposures—via its affiliate —intensified volatility, with studies confirming causal negative impacts on prices and reduced investor trust. Direct contagion manifested in subsequent failures among FTX-exposed firms, notably , which filed for Chapter 11 bankruptcy on November 28, 2022, citing a from $275 million owed to FTX and collapsed bailout arrangements. Other lenders like Genesis Global had already suspended withdrawals pre-FTX due to Terra-related losses but faced deepened scrutiny and delays in resolutions tied to shared ecosystem risks. These events prompted widespread platform outflows, with approximately 900,000 Bitcoins exiting exchanges since early 2020, accelerating post-FTX as users sought self-custody amid fears of further insolvencies. Despite intra-ecosystem shocks, contagion remained contained without spilling into traditional financial markets, as equity, , and sectors showed minimal responses per event-study . Bayesian structural models indicate the exerted targeted downward pressure on crypto valuations but did not precipitate systemic crises beyond the sector, underscoring the relative isolation of crypto platforms from broader —though highlighting vulnerabilities from unchecked interconnections and lapses. By late 2023, partial market recovery ensued, yet lingering scars included eroded confidence and slower institutional adoption.

Firm-Specific Losses and Bailouts

BlockFi, a lending platform, suffered substantial losses from its ties to and , FTX's affiliated trading firm. As of January 2023, BlockFi held $415.9 million in assets linked to FTX and $831.3 million in outstanding loans to Alameda, contributing to a total exposure exceeding $1.2 billion. In July 2022, prior to FTX's , FTX had provided BlockFi with a $400 million line to stabilize its operations amid earlier crypto market turmoil. However, following FTX's bankruptcy filing on November 11, 2022, BlockFi halted withdrawals and filed for Chapter 11 bankruptcy on November 28, 2022, citing "significant exposure" to FTX entities as a primary factor in its liquidity crisis. No further external materialized for BlockFi post-FTX collapse, leading to asset sales and creditor negotiations in its restructuring. Genesis Global Trading, a crypto prime brokerage and lending firm owned by Digital Currency Group, faced acute losses after the FTX downfall, including $175 million in frozen funds inaccessible on the FTX platform. The firm had already suspended withdrawals in November 2022 due to "abnormal" redemption requests triggered by FTX's unraveling, exacerbating prior strains from the Three Arrows Capital failure. Genesis filed for Chapter 11 on January 19, 2023, with over $3 billion in liabilities tied to lending exposures, including those amplified by FTX's insolvency. While Digital Currency Group injected capital earlier to support Genesis, no dedicated post-FTX bailout prevented the filing, resulting in ongoing disputes and partial asset liquidations. Signature Bank, a New York-based institution with heavy crypto client deposits, experienced deposit outflows and losses indirectly linked to FTX's collapse, as the exchange was among its major customers. Following FTX's November 2022 bankruptcy, Signature lost billions in deposits from crypto firms amid broader market panic, prompting it to curtail crypto-related services and sell $8 billion in digital assets to reduce risk. These pressures contributed to a bank run in March 2023, leading regulators to seize the bank on March 12, 2023—the second-largest U.S. bank failure since 2008—with the FDIC facilitating an orderly wind-down rather than a traditional bailout. Signature faced separate litigation alleging it enabled FTX's commingling of funds, though its collapse stemmed more from systemic crypto contagion than direct FTX loans. Other firms, such as , saw stalled recovery efforts after FTX's failed $1.4 billion asset bid in July 2022, compounding Voyager's pre-existing woes without subsequent relief. Across these cases, the absence of government-backed highlighted the unregulated nature of crypto lending, forcing affected entities into proceedings reliant on asset recovery rather than emergency funding.

Broader Repercussions

Implications for Effective Altruism

The bankruptcy of FTX on November 11, 2022, exposed deep ties between its founder and the (EA) movement, which he publicly championed as a framework for maximizing philanthropic impact through utilitarian principles. Bankman-Fried positioned himself as an "earner" within EA, amassing wealth via trading to donate billions, including through the FTX , which disbursed over $160 million to EA-aligned causes in the nine months prior to the collapse. However, revelations that customer funds were misappropriated—totaling approximately $8 billion—undermined claims of ethical earning, as the purported donations derived from fraudulent activities rather than legitimate profits. The immediate fallout included the resignation of the entire FTX Future Fund team on November 10, 2022, who stated they were unable to continue operations or process outstanding grants amid , effectively halting a key funding pipeline for EA projects focused on long-termism and existential risks. This loss amplified funding vulnerabilities in EA, which had relied heavily on Bankman-Fried's pledges—estimated at up to $1 billion annually—prompting clawback efforts by FTX's bankruptcy estate to recover post-collapse donations, further eroding trust in donor commitments. Critics argued that EA's emphasis on high-leverage, high-risk strategies to generate funds for altruism inadvertently justified corner-cutting behaviors, with Bankman-Fried's actions exemplifying how utilitarian ends might rationalize means like client assets with Alameda Research's operations. Reputational damage extended to EA's core institutions, including scrutiny of figures like , whose book influenced Bankman-Fried and who resigned from the board amid the . While EA proponents, such as philosopher , maintained that fraud contradicted the movement's integrity requirements and did not invalidate evidence-based giving, the association fueled broader skepticism about EA's vulnerability to charismatic, unchecked actors prioritizing speculative ventures over robust . Post-collapse analyses highlighted how EA's focus on earning-to-give via volatile sectors like crypto exposed the movement to systemic failures, prompting internal reckonings on governance and donor vetting to mitigate future dependencies on individual mega-donors. By 2023, EA funding had partially rebounded through diversified sources, but the FTX episode underscored causal risks in philosophies that incentivize aggressive wealth accumulation without equivalent safeguards against misuse.

Political and Regulatory Backlash

The collapse of in November 2022 prompted intense scrutiny of founder Sam Bankman-Fried's political donations, which totaled over $100 million in the lead-up to the 2022 U.S. midterm elections, funded in part by misappropriated customer assets from the exchange. Prosecutors alleged that Bankman-Fried directed these contributions through entities like Protect Our Future PAC, primarily benefiting Democratic candidates and causes aligned with principles, though dark money channels also funneled funds to Republicans. Federal investigations by the Department of Justice focused on potential violations, including straw donations and the use of undisclosed crypto executives as conduits, rather than partisan recipients. In response, the FTX bankruptcy estate initiated clawback lawsuits against political action committees and dark-money groups to recover approximately $38 million in contributions, targeting both Democratic and Republican recipients, with actions filed as late as 2024. Some suits were settled or dismissed by July 2025, reflecting the estate's efforts to prioritize creditor repayments over political entanglements. Critics, including lawmakers from both parties, highlighted how pre-collapse by crypto firms, including FTX, had influenced regulatory leniency, with donations securing access to policymakers who downplayed risks. Regulatory backlash manifested in U.S. congressional hearings, such as the Senate Banking Committee's December 2022 session titled "Crypto Crash: Why the Bubble Burst and the Harm to Consumers," which exposed gaps in oversight and called for enhanced consumer protections. A 2023 hearing, "Why Needs to Act: Lessons Learned from the Collapse," underscored bipartisan consensus on the need for legislation addressing exchange solvency, custody of assets, and anti-money laundering compliance, though comprehensive bills stalled amid debates over jurisdiction between the SEC and CFTC. Senators also criticized the role of law firms in 's proceedings, demanding an independent examiner to probe potential conflicts. Globally, the FTX failure accelerated regulatory tightening, with the IMF urging comprehensive policies in July 2023 to mitigate systemic risks from crypto intermediaries, and the highlighting vulnerabilities in multifunction platforms like FTX in November 2023. In the U.S., the episode fueled enforcement actions and proposals for oversight, though progress remained incremental by 2023, reflecting the industry's prior success in staving off stringent rules through bipartisan influence.

Industry Lessons and Recovery Evidence

The collapse of underscored the critical need for strict segregation of customer funds from activities, as the exchange's commingling of assets via led to an $8 billion shortfall that eroded trust across the sector. This failure highlighted vulnerabilities in centralized exchanges lacking robust internal controls, prompting industry calls for proof-of-reserves audits to verify asset backing in real time. Additionally, inadequate by investors and partners exposed the risks of over-reliance on charismatic without independent oversight, as FTX's rapid growth outpaced structures. Regulatory gaps were laid bare, with FTX's operations exploiting offshore jurisdictions like to evade U.S. scrutiny, fueling demands for clearer rules on custody, leverage, and disclosure to prevent future insolvencies. The scandal also revealed the perils of in crypto, where hype-driven valuations ignored fundamental risks like illiquid holdings and undisclosed loans, leading to broader contagion. Post-FTX, exchanges such as and implemented enhanced compliance measures, including mandatory KYC and segregated wallets, reflecting a shift toward institutional-grade standards. Evidence of recovery materialized through FTX's proceedings, where the estate achieved over 100% repayment for creditors by liquidating holdings and pursuing clawbacks, with distributions totaling billions by mid-2025. In September 2025, the FTX Recovery Trust disbursed approximately $1.6 billion in its third round, following earlier payouts in 2024 that returned funds to 98% of small claimants at about 118% of verified losses. This unexpectedly high recovery stemmed from favorable market rebounds in and other assets, which appreciated post-collapse, enabling the estate to exceed initial claims without taxpayer bailouts. The broader crypto ecosystem demonstrated resilience, with total surpassing $2 trillion by late 2024—recovering from a post- nadir of under $800 billion—and institutional inflows via ETFs signaling restored confidence. Despite lingering trust deficits, adoption metrics improved, as evidenced by increased on-chain transaction volumes and venture funding for compliant platforms, indicating that decentralized alternatives and regulatory maturation mitigated long-term damage. Ongoing lawsuits, such as the FTX Trust's $1.15 billion claim against Genesis Digital Assets in September 2025, continue to bolster recoveries by targeting misappropriated funds.

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  170. https://fortune.com/2022/11/10/ftx-crypto-collapse-binance-congress-regulation-sbf/
  171. https://www.congress.gov/event/117th-congress/senate-event/LC70831/text
  172. https://www.congress.gov/event/117th-congress/senate-event/LC72729/text
  173. https://www.thomsonreuters.com/en-us/posts/investigation-fraud-and-risk/ftx-hearing-crypto-regulation/
  174. https://www.theblock.co/post/200542/senators-voice-concerns-over-law-firms-role-in-ftx-bankruptcy
  175. https://www.imf.org/en/Blogs/Articles/2023/07/18/crypto-needs-comprehensive-policies-to-protect-economies-and-investors
  176. https://www.fsb.org/2023/11/the-financial-stability-implications-of-multifunction-crypto-asset-intermediaries/
  177. https://fedsoc.org/events/cryptocurrency-regulation-in-the-aftermath-of-ftx
  178. https://www.oysterllc.com/what-we-think/cryptocurrency-lessons-from-the-fall-of-ftx/
  179. https://simon.rochester.edu/blog/5-lessons-learn-collapse-ftx
  180. https://walton.uark.edu/insights/posts/culture-controls-and-corporate-governance-lessons-from-the-ftx-fiasco.php
  181. https://www.bdo.ca/insights/lessons-ftx-crypto-collapse
  182. https://www.desilvalawoffices.com/documents/1567000-1567043-cftc-commissioner-goldsmith-romero-crypto-s-crisis-of-trust-01.18.2023-final-as-delivered.002%29.pdf
  183. https://news.miami.edu/miamiherbert/stories/2024/06/crypto-is-bouncing-back.html
  184. https://www.coincover.com/blog/2-years-after-ftx-collapse-trust-confidence-are-more-important-than-ever
  185. https://coincentral.com/ftx-trust-sues-genesis-digital-assets-for-1-15-billion-customer-fund-recovery/
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