Sam Bankman-Fried admits he thought FTX would fail

Sam Bankman-Fried, founder of collapsed cryptocurrency exchange FTX, testified Friday that he believed his company would fail.

Bankman-Fried testified in the U.S. District Court for the Southern District of New York that FTX was founded on the premise of offering a seamless solution to crypto investors. They could trade from one platform instead of relying on hundreds of wallets, he told jurors. But when the company struggled to get customers in the door, Bankman-Fried’s strategy shifted to selling to competitor Binance. That plan backfired when Binance created its own exchange platform.

“I thought there was maybe a 20 percent chance of success,” Bankman-Fried testified, giving the company an 80 percent chance of shutting down within a few months.

Bankman-Fried also testified Friday that he knew “basically nothing” about cryptocurrency before founding the exchange in 2019.

The 31-year-old has pleaded not guilty to seven counts of fraud and conspiracy charges. Prosecutors allege that Bankman-Fried and others involved in FTX’s operations defrauded customers out of billions of dollars to cover losses and pay back loans owed by sister fund Alameda Research. Caroline Ellison, Bankman-Fried’s one-time girlfriend, testified against him earlier this month.

Bankman-Fried’s Former Girlfriend Testified Against Him

As Newsweek previously reported, Caroline Ellison, 28, Bankman-Fried’s former girlfriend and the one-time chief executive officer of Alameda Research, FTX’s sister exchange, testified against Bankman-Fried in mid-October. Ellison said that she worked with Bankman-Fried to steal billions of dollars from customers to cover losses and debt owed by Alameda.

During her testimony, prosecutors accused Bankman-Fried of bullying Ellison by scoffing, laughing and shaking his head.

FTX’s downfall

FTX fell apart in November 2022.

First, industry news outlet CoinDesk published an article that said Alameda held a significant amount of FTX’s cryptocurrency token, FTT. This caused FTX competitor Binance to announce its plans to sell its FTT, sending the market price of FTT into a spiral. Customers then sought out withdrawals as the price crashed, causing FTX to scramble to keep up with withdrawal requests.

Binance, which had signed an offer to buy FTX, quickly withdrew it, and before long, anonymous sources were telling outlets like The Wall Street Journal and The New York Times that as much as $8 billion in customer funds were unaccounted for.

FTX, Alameda Research and about 100 affiliated entities filed for bankruptcy on November 11, 2022. Around that time, anonymous sources told The Wall Street Journal that FTX siphoned $10 billion in customer funds to Alameda Research, stating Bankman-Fried, Ellison and others knew about this.

Right after FTX’s bankruptcy, Bankman-Fried resigned. And then, about $473 million of FTX’s crypto assets were wiped out in what FTX characterized as “unauthorized transactions.” The price of Bitcoin tumbled to its lowest level since 2020.

In mid-December of 2022, Bankman-Fried was arrested in the Bahamas after prosecutors filed criminal charges against him. Shortly after Bankman-Fried’s arrest, Ellison and FTX chief technology officer Gary Wang pleaded guilty to fraud charges.