FTX

FTX, the Bahamas-based crypto exchange founded in 2019, collapsed in November 2022 when customers rushed to withdraw their money and the exchange could not pay them. The deposits were not there. Much of the money had moved to Alameda Research, a trading firm also controlled by founder Sam Bankman-Fried, and had been spent on trading losses, investments, real estate and political and charitable donations. The run started with a November 2 news report on Alameda’s balance sheet. Within nine days FTX had filed for Chapter 11 bankruptcy. Bankman-Fried was later convicted of fraud and sentenced to 25 years in prison. Customers have since been repaid through the bankruptcy process, but only at the dollar value their holdings had on the day FTX filed.

Key Takeaways

• FTX, an exchange and derivatives platform headquartered in Nassau, was valued at more than $32 billion at its peak and went bankrupt in November 2022.
• The trigger was a report that Alameda Research’s assets consisted largely of FTT, a token FTX created and controlled. A run on deposits followed, and FTX could not meet withdrawals.
• Prosecutors and regulators said at least $8 billion in customer deposits had been misappropriated. The new CEO appointed in bankruptcy described “old-fashioned embezzlement.”
• Bankman-Fried was convicted on all seven counts at trial in November 2023, sentenced in March 2024 to 25 years, and ordered to forfeit $11 billion.
• The reorganization plan took effect on January 3, 2025, and the first distributions to customers began on February 18, 2025.

What FTX Was

FTX Trading Ltd. ran FTX.com, an international exchange offering spot crypto trading and derivatives such as futures. A separate U.S. platform served American customers. The company grew quickly after its 2019 launch. It bought naming rights to a Miami sports arena, signed athletes and celebrities as promoters, and raised venture money at a valuation above $32 billion. Bankman-Fried became one of the best-known figures in crypto and a major political donor in Washington.

Two related pieces of the group explain most of what went wrong:

• Alameda Research, a quantitative trading firm Bankman-Fried founded before FTX. When he launched the exchange, Caroline Ellison became Alameda’s CEO, but the two companies stayed under common control.
• FTT, FTX’s native exchange token. FTX created it and held most of the supply, along with Alameda and insiders. Holders got trading fee discounts and other perks on the exchange.

On paper, FTX was a marketplace that held customer assets and Alameda was one of many traders using it. In practice the line between the two had broken down, and that is the core of the FTX scandal.

Why FTX Collapsed

Put simply, FTX failed because customer money that should have been sitting at the exchange had been handed to Alameda, and when customers asked for it back, it was gone. The details explain why the hole was so large and why it stayed hidden until the run.

Customer deposits went to Alameda

Customers who deposited dollars or crypto on FTX expected the exchange to hold those assets for them. According to the Department of Justice, the SEC and the CFTC, Bankman-Fried and other executives instead diverted customer deposits to Alameda. The money covered Alameda’s heavy trading losses and also paid for venture investments, luxury real estate in the Bahamas, political contributions and charitable giving. The agencies said at least $8 billion of customer deposits were misappropriated.

Investors, lenders and customers were told a different story. The charging documents allege that executives lied about FTX’s financial health and its relationship with Alameda. They also allege that executives covered a multibillion-dollar hole with false financial statements, inflated valuations of tokens like FTT, and crypto borrowed from lenders. At trial, former executives testified that Bankman-Fried directed employees to spend customer deposits for non-business purposes and to misstate FTX’s solvency.

When the run came, Bankman-Fried blamed “poor internal labeling” of bank accounts for FTX misjudging its own leverage and liquidity. A jury did not accept that account.

FTT made the balance sheet look stronger than it was

The November 2 report from crypto news outlet CoinDesk showed that much of Alameda’s balance sheet consisted of FTT and other tokens created and controlled by FTX and its insiders. It did not consist of cash or established cryptocurrencies with deep, independent markets.

A token the company issues itself is weak collateral for that company’s own obligations. Its price depends on confidence in the issuer, and very little of the supply trades openly. A large holding can be marked at the last trade price, but it cannot be sold at that price in size, least of all during a crisis.

Hypothetical example (for mechanics only): a firm holds 100 million units of its own token, which last traded at $20. On paper that is $2 billion. If daily trading in the token amounts to only a few million dollars, any serious attempt to sell would push the price sharply lower. If lenders accepted the token as collateral, the falling price would also trigger margin calls at the same moment the firm needs cash. The asset loses value exactly when it is needed.

That is roughly what happened. Once people saw that Alameda’s strength rested on FTT, and that FTX’s strength rested on Alameda, the two became a single bet on confidence.

Almost no controls

John J. Ray III, who became CEO after the bankruptcy filing, had previously overseen Enron’s liquidation after its accounting fraud. In a November 17, 2022 court filing, he wrote that he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information.” Testifying to Congress in December 2022, he described the practices as “no bookkeeping” and “old-fashioned embezzlement.” A large international exchange without reliable records meant no outside party could tell what customers were owed against what was actually held, until withdrawals forced the question.

FTX Collapse Timeline

The week of the crash: November 2 to 11, 2022

The FTX crash played out over a little more than a week:

• Nov. 2: CoinDesk reports that Alameda’s balance sheet is made up largely of FTT.
• Nov. 6: Binance, the world’s largest crypto exchange and a direct competitor, announces it will sell its entire FTT position. Withdrawals from FTX surge.
• Nov. 7: FTX is in a liquidity crisis. Bankman-Fried publicly says assets are fine while seeking emergency money from venture investors.
• Nov. 8: Binance announces a non-binding agreement to buy FTX’s non-U.S. business.
• Nov. 9: Binance walks away after due diligence. More customers withdraw.
• Nov. 10: The Securities Commission of The Bahamas freezes the assets of FTX Digital Markets, the local subsidiary. California’s financial regulator opens an investigation. Bankman-Fried admits the non-U.S. exchange lacks enough funds and says Alameda will wind down.
• Nov. 11: Bankman-Fried resigns. John J. Ray III takes over, and FTX and roughly 130 affiliated companies file for Chapter 11.

Binance sells its FTT

Binance said it would liquidate about 23 million FTT, worth roughly $529 million at the time. CEO Changpeng Zhao framed the sale as risk management after the Terra (LUNA) collapse earlier in 2022, when a large token ecosystem lost most of its value in days. Coming from FTX’s largest rival, the announcement told the market that a major insider did not trust FTT. Selling pressure followed, and the token lost more than 80% of its value within two days.

The run on deposits

FTX customers asked to withdraw about $6 billion in the 72 hours after the report. An exchange that holds every customer asset one-for-one can survive a run like that, because the assets are there to send out. FTX could not, which confirmed the worst reading of the CoinDesk report. Bankman-Fried was reported to be seeking up to $8 billion to fill the gap.

The rescue that failed

Binance’s offer to buy the non-U.S. business briefly looked like a bailout. A day later Binance canceled, saying its review had turned up concerns about mishandled customer funds and other problems. No other buyer stepped in, and the bankruptcy filing followed two days later.

The aftermath: late 2022 to 2025

• Nov. 12, 2022: FTX reports “unauthorized transactions.” Outside analysts estimate about $477 million was taken.
• Nov. 16, 2022: A class action in Florida federal court accuses FTX and its celebrity promoters.
• Nov. 18, 2022: Bahamian regulators take control of FTX’s digital assets in the Bahamas.
• Dec. 12, 2022: Bahamian police arrest Bankman-Fried at the request of the U.S.
• Dec. 13, 2022: The DOJ, SEC and CFTC announce criminal and civil charges.
• Dec. 21 to 22, 2022: Bankman-Fried is extradited, arraigned in Manhattan and released on a $250 million bond.
• Jan. 3, 2023: He pleads not guilty.
• Feb. 23 and Mar. 28, 2023: Prosecutors add charges, including foreign bribery. He pleads not guilty on Mar. 30.
• July 20 to 26, 2023: Prosecutors raise witness tampering. A judge imposes a gag order, and prosecutors drop the campaign finance charge.
• Aug. 11 to 14, 2023: Bail is revoked and he is sent to jail.
• Oct. 2 to Nov. 2, 2023: Trial and conviction on all counts.
• Mar. 28, 2024: Sentenced to 25 years.
• May 2024: The first reorganization plan and disclosure statement are filed. Amended versions follow in August and September.
• Sep. 13, 2024: Bankman-Fried files his appeal.
• Oct. 7, 2024: The bankruptcy court confirms the plan.
• Jan. 3, 2025: The plan takes effect.
• Feb. 18, 2025: First distributions to eligible customers and creditors.

A federal appeals court later upheld the conviction and the 25-year sentence.

The Hack, Cold Wallets and Asset Control

Within hours of the bankruptcy filing, FTX said it had been hit by unauthorized transactions. It said it would move remaining digital assets into cold storage, meaning wallets whose private keys are kept offline and are harder to drain remotely. Blockchain analysts put the outflow at about $477 million.

Exchanges usually split assets between hot wallets, which are connected and used to process withdrawals, and cold wallets, which are offline reserves. The FTX case shows the limits of that safeguard. Cold storage protects assets from outside attackers, but it does nothing for a customer whose deposits were never in the exchange’s wallets because they had already been moved elsewhere. Wallet security and honest accounting are separate protections, and FTX lacked the second.

Control of the remaining assets was also contested across borders. The Securities Commission of The Bahamas froze FTX Digital Markets’ assets on November 10. On November 18 it said it had directed that crypto be moved into the regulator’s possession to protect creditors from suspected cyberattacks. That put Bahamian liquidation proceedings alongside the U.S. Chapter 11 case, so the location of an exchange’s entities affected who controlled customer assets after the failure.

The FTX Bankruptcy

FTX and about 130 affiliated companies filed for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. The initial petitions listed assets and liabilities each in the broad range of $10 billion to $50 billion, which reflected how little reliable information existed.

Ray’s team spent the next 18 months tracing assets, recovering money from investments and transfers, and building a claims process. By the first plan in May 2024, the estate estimated it owed customers and creditors about $11.2 billion and expected to have between $14.5 billion and $16.3 billion available. The surplus came largely from recoveries and from investments the group had made before the collapse.

How customer claims were valued

The plan valued customer claims at the dollar price of each asset on the petition date, November 11, 2022, and added interest. It did not return crypto in kind. Customers and other website users were given priority over several other groups of claimants. Projected recoveries differed by claim class. Filings cited figures as high as 142% of claim value for some customers, while some other classes stood to receive far less, in certain cases nothing.

The petition-date rule explains why repayments above 100% did not leave every customer whole in their own terms.

Hypothetical example (for mechanics only): a customer held 1 BTC on FTX on the filing date, when bitcoin traded at an assumed $17,000. The claim is fixed at $17,000. If the estate pays 120% of claim value, the customer receives $20,400. If bitcoin later trades at, say, $60,000, the customer who would have held the coin is worse off by the difference, even though the bankruptcy paid more than 100%. The same arithmetic runs the other way for any asset that fell after the filing.

Anyone holding an old FTX claim, or comparing FTX’s outcome with other exchange failures, should keep that in mind. “Full repayment” was measured in dollars at November 2022 prices.

What Happened to the FTX CEO

Arrest and charges

Bankman-Fried was arrested in the Bahamas on December 12, 2022. The next day, the U.S. Attorney’s Office for the Southern District of New York unsealed an eight-count indictment covering wire fraud, securities fraud, commodities fraud, money laundering and campaign finance violations. The SEC and CFTC filed parallel civil cases. He was extradited on December 21.

$250 million bail and house arrest

On December 22, a federal judge released him on a $250 million bond, described as the largest bail amount on record in the U.S. He lived under house arrest at his parents’ home in Palo Alto, California, with an electronic monitor, and pleaded not guilty on January 3, 2023.

Superseding indictments

In February 2023 prosecutors added charges, including operating an unlicensed money transmitting business and further fraud counts. In March they added a Foreign Corrupt Practices Act charge, alleging he authorized a $40 million bribe to one or more Chinese officials to unfreeze Alameda trading accounts. He pleaded not guilty again on March 30.

Bail revoked

In July 2023 prosecutors told the judge Bankman-Fried had shared parts of Caroline Ellison’s private writings with the New York Times. Ellison was the former Alameda CEO and a key government witness, and prosecutors treated the leak as attempted witness tampering. The judge imposed a gag order on July 26. On August 11 bail was revoked, and on August 14 he was moved to the Metropolitan Detention Center in Brooklyn.

The same month, prosecutors dropped the campaign finance count. Under the extradition treaty with the Bahamas, a defendant may be tried only on charges the extraditing country agreed to, and that charge had not been part of the original extradition.

Trial, conviction and sentence

The trial on the seven remaining pre-extradition counts ran from October 2 to November 1, 2023. Ellison, former FTX chief technology officer Gary Wang and former engineering head Nishad Singh had pleaded guilty and testified for the government. Another executive, Ryan Salame, also pleaded guilty to separate charges. The jury convicted Bankman-Fried on all seven counts on November 2. U.S. Attorney Damian Williams called it one of the biggest financial frauds in American history.

On March 28, 2024, Bankman-Fried was sentenced to 25 years in prison and ordered to forfeit $11 billion. His appeal, filed in September 2024, failed when the appeals court upheld both the conviction and the sentence.

Did People Lose Money in the FTX Collapse?

Yes, and in several ways. Customers lost access to their funds for more than two years and were then repaid in dollars at November 2022 prices. Some had kept their savings on the exchange. Equity investors, including venture funds that had valued FTX at $32 billion, saw those stakes wiped out. Employees and business partners owed money lost income, and some counterparties failed outright.

As for how much FTX took, the agencies’ figure was at least $8 billion in misappropriated customer deposits, and the forfeiture order in the criminal case was $11 billion. Those are different measures: one is the size of the deposit shortfall the agencies described, and the other is the amount the court ordered forfeited.

Contagion Across the Crypto Industry

FTX was the largest exchange failure in crypto’s short history, and its collapse spread to firms that had lent to or depended on it.

• BlockFi, a crypto lender with heavy exposure to FTX and Alameda, halted services in November 2022 and filed for bankruptcy. Its web platform was shut down on May 31, 2024.
• Genesis Global, a lender that had made large loans to Alameda, froze withdrawals and later went through bankruptcy. Gemini, the exchange founded by the Winklevoss twins, had placed customer assets with Genesis through its Earn product. Gemini sued Genesis’s parent, Digital Currency Group, over the defaults.
• Voyager Digital and Celsius had already filed for bankruptcy earlier in 2022, after the Terra collapse. FTX’s U.S. arm had agreed to buy Voyager’s assets, and that deal fell apart when FTX failed.
• Crypto.com and other exchanges cut staff as customers pulled funds from centralized platforms generally.

The Florida class action filed on November 16, 2022 targeted FTX’s promoters as well as its executives. It named athletes and celebrities including Stephen Curry, Shaquille O’Neal, Shohei Ohtani, Naomi Osaka, Larry David and Kevin O’Leary, alleging that they bore liability for promoting the platform.

Regulatory Fallout

The collapse pushed regulators and lawmakers toward tighter rules. U.S. agencies stepped up enforcement against crypto firms and tried to limit links between crypto and traditional finance. Members of Congress said they were more willing to legislate protections for digital tokens and exchanges, including rules on how platforms hold customer assets and how they deal with affiliated trading firms. State regulators, starting with California’s on November 10, 2022, opened their own inquiries.

The case also showed that offshore registration does not stop U.S. prosecutors. FTX.com was run from the Bahamas, yet U.S. authorities brought the criminal case, the Bahamas extradited the founder, and the main bankruptcy ran in Delaware.

Lessons for Crypto Users

An exchange balance is a claim, not a coin in your name. Crypto held on a centralized exchange is a promise by that company to deliver it. If the company fails, you become a creditor, and you may be repaid at a fixed dollar value set on the filing date, as FTX customers were. Self-custody in a wallet you control removes that counterparty risk but adds the responsibility of securing your own keys.

Ask who else uses the money. FTX’s sister firm traded with customer deposits. A platform with an affiliated trading arm, a market-making unit or a lending program carries risks that don’t show up in its trading fees. When you compare platforms, the custody arrangements matter as much as the fee schedule; comparisons of crypto exchanges are more useful once you know what to look for.

Be wary of balance sheets built on a platform’s own token. A token the company issues and mostly holds can make the books look strong while being nearly impossible to sell in size. The FTT example above shows how such an asset loses value at the moment it is needed. This applies to any company, fund or protocol whose reserves are concentrated in its own token.

Reserves without liabilities prove little. After FTX, many exchanges began publishing proof of reserves. Showing that assets exist is only half the picture. Without an honest count of what is owed to customers, a reserve figure cannot show solvency, and FTX’s problem was precisely that nobody had a reliable count.

Celebrity backing and a high valuation are not due diligence. FTX had famous promoters, top-tier venture investors and a $32 billion price tag, and it still lacked basic bookkeeping. For a grounding in how crypto assets work and where their risks sit, a beginner’s guide to crypto investing covers the basics, and the question of where crypto’s value comes from helps separate a network asset like bitcoin from a company-issued token like FTT.

Jurisdiction decides who controls your assets after a failure. FTX customers’ recoveries ran through a U.S. Chapter 11 case and parallel Bahamian proceedings, with regulators in each country taking control of different assets. The legal home of the entity holding your account determines which courts and insolvency rules apply if it fails.