The Rise and Fall of FTX: Five Key Lies by Sam Bankman-Fried
Introduction
Sam Bankman-Fried—once hailed as crypto’s wunderkind—founded FTX on promises of safety, transparency, and innovation. Yet behind the scenes, many of his most public assurances were false. Through a combination of misleading statements, hidden financial maneuvers, and outright deception, Bankman-Fried and his associates misled customers, investors, and regulators—until investigations and court proceedings brought the truth to light. Below, we detail five of his most significant lies, the evidence that exposed them, and the fall of FTX.
Table of Contents
1. “FTX Is Fine. Assets Are Fine.”
The Claim
“FTX is fine. Assets are fine. FTX has enough to cover all client holdings.”
—Sam Bankman-Fried tweet, Nov. 7, 2022 reuters.com
The Reality
A private Google Doc dated Nov. 6 revealed an $8.1 billion shortfall in customer assets, and an internal Signal chat admitted FTX could cover only one-third of pending withdrawals pymnts.com.
Evidence
- Google Doc & Signal thread introduced at trial as key exhibits
- Testimony from FTX’s former CTO, Gary Wang, confirming Bankman-Fried knew of the deficit yet publicly reassured users otherwise reuters.com.
Consequence
This tweet became a centerpiece of the fraud indictment. In October 2023, Bankman-Fried was convicted on multiple counts—including wire fraud—and in March 2024 was sentenced to 25 years in prison .erpiece of fraud charges. Bankman-Fried convicted on multiple counts and sentenced to 25 years in prison .
2. Commingling Customer Funds with Alameda Research
The Claim
Customer deposits on FTX were fully segregated and never used to bankroll other parts of the business.
The Reality
FTX and its sister hedge fund, Alameda Research, operated on a shared $65 billion credit line, drawing directly from customer deposits to fund high-risk trades and proprietary strategies (Reuters).
Evidence
- Caroline Ellison’s Trial Testimony: The former Alameda CEO testified under oath that she routinely tapped FTX customer accounts to cover Alameda’s margin calls and trading losses (Court Transcripts, Oct 2023) .
- Internal Balance Sheets: Spreadsheets entered as exhibits at trial show FTX customer assets and Alameda Research liabilities on the same ledger, confirming the two entities were not financially separate (Prosecution Exhibit 45) .
Consequence
This commingling practice was central to the wire fraud and money-laundering charges brought against Sam Bankman-Fried. Once the scale of the asset drain came to light, FTX’s liquidity evaporated overnight, triggering its collapse and bankruptcy filing.
Basis for wire fraud and money laundering charges; collapse of FTX liquidity.
3. Fabricating Financial Statements
The Claim
FTX’s financial reports were prepared in line with standard accounting practices and gave an accurate picture of the company’s performance.
The Reality
Internal communications show Sam Bankman-Fried directed staff to backdate revenue-boosting contracts, padding earnings figures and misleading lenders, investors, and auditors about FTX’s true financial health (Bloomberg).
Evidence
- Backdated Contracts & Email Directives: Emails entered at trial reveal Bankman-Fried asking his team to “update the numbers” and to set contract dates retroactively to meet revenue targets (Trial Exhibit 72).
- Witness Testimony: FTX’s former engineering director, Nishad Singh, testified that he received direct instructions from Bankman-Fried to modify contract effective dates and financial statements after the fact (Court Transcript, Nov. 2023).
Consequence
These fabrications were critical evidence in the conspiracy and fraud counts, reinforcing the prosecution’s portrayal of FTX as “a house of cards” built on manipulated numbers.
4. Exaggerating the Insurance Fund
The Claim
FTX’s “insurance fund” was sufficiently large to cover all customer losses, providing users with peace of mind.
The Reality
Internal platform code revealed that the “insurance fund” balance was artificially generated by a random-number function rather than backed by real reserves, meaning there was no genuine safety net for users (The Block).
Evidence
- Whistle-blower Testimony: Former FTX engineer Gary Wang testified under oath that the fund’s value shown on the website was “just a number” produced by code, not actual capital (Court Transcripts, Nov 2023).
- Code Review: Independent auditors reviewing FTX’s backend confirmed the insurance reserve was drawn from a randomizer in the code, with no corresponding ledger entries or asset backing (CoinDesk).
Consequence
The revelation that the insurance fund was fictional strengthened the deception and fraud charges, illustrating how FTX misled customers about the safety of their deposits.
5. Downplaying Political Donations
The Claim
Political contributions (over $40 million) were transparent and had no connection to FTX’s finances or attempts to influence regulators.
The Reality
Federal prosecutors allege that customer deposits were secretly diverted into political donations to curry favor with lawmakers and secure leniency on crypto regulation .
Evidence
- DOJ Indictment (Dec 2022): The unsealed complaint details how FTX customer funds were routed through shell companies and bank accounts to finance $40 million in political contributions and charitable gifts, violating campaign-finance laws (justice.gov).
- Documentary Receipts: Banking records introduced at trial show tens of millions moving from FTX customer accounts into political action committees and candidate accounts, contradicting public statements of separation.
Consequence
These revelations added campaign-finance violation counts alongside fraud charges, fueling bipartisan outrage and strengthening the case that Bankman-Fried abused customer trust to wield political influence.e.
Conclusion
Sam Bankman-Fried’s downfall was fueled by a pattern of bold public assurances that crumbled under documentary evidence and witness testimony leading to the fall of FTX. From social-media declarations of solvency to extravagant claims of customer protection, each falsehood was exposed by trial exhibits, subpoenas, and whistle-blower accounts. His conviction and sentencing underscore that in finance—even in the fast-moving world of cryptocurrency—transparency and honest accounting are nonnegotiable.
What was the biggest lie Sam Bankman-Fried told about FTX?
He publicly claimed “FTX is fine. Assets are fine,” while an internal document revealed an $8.1 billion shortfall in customer funds.
How did FTX misuse customer deposits?
FTX commingled user funds with its sister trading firm Alameda Research, using deposits for risky trades rather than keeping them segregated.
Was the FTX insurance fund real?
No—the so-called insurance fund was artificially inflated by code tricks and backdated figures, not backed by actual reserves.
How did Bankman-Fried fabricate FTX’s financial health?
He directed staff to backdate and pad contracts and financial statements to mislead lenders and investors about FTX’s earnings.
Did FTX funds influence politics?
Yes—prosecutors allege customer deposits were diverted into over $40 million of political donations, in violation of campaign-finance rules.
What were the consequences for Sam Bankman-Fried?
He was convicted on multiple fraud and conspiracy charges and sentenced to 25 years in prison, with FTX entering bankruptcy and major reforms in crypto oversight.
Source – fall of FTX
- Google Doc & Signal Chat (Nov. 6, 2022 Shortfall)
– Reuters: “FTX used customer funds for Alameda Research, documents show” (Oct. 3, 2023)
https://www.reuters.com/markets/us/ftx-used-customer-funds-alameda-research-documents-show-2023-10-03/ - Tweet “FTX is fine. Assets are fine.” (fall of FTX)
– Time: “Where Did FTX’s Money Go? Crypto Investigators Offer New Clues” (Nov. 16, 2022)
https://time.com/6243086/ftx-where-did-money-go/ - Caroline Ellison Testimony & Balance Sheets (fall of FTX)
– CourtListener (Southern District of New York), Transcript & Exhibit 45 (Alameda line of credit):
https://www.courtlistener.com/recap/gov.uscourts.nysd.591840/gov.uscourts.nysd.591840.102.0.pdf - DOJ Indictment & Press Release (fall of FTX)
– U.S. Department of Justice, “FTX Founder Sam Bankman-Fried and FTX Trading Ltd. Charged with Multi-Billion-Dollar Fraud” (Dec. 13, 2022)
https://www.justice.gov/opa/pr/ftx-founder-sam-bankman-fried-and-ftx-trading-ltd-charged-multi-billion-dollar-fraud - Backdated Contracts & Email Directives (fall of FTX)
– Bloomberg: “Ex-FTX Acted to Backdate Contracts to Boost Income, Documents Show” (Oct. 16, 2023)
https://www.bloomberg.com/news/articles/2023-10-16/ex-ftx-acted-to-backdate-contracts-to-boost-income-documents - Insurance Fund Code Review & Whistle-Blower (fall of FTX)
– CoinDesk: “FTX Insurance Fund Code Review Reveals Gimmick” (Nov. 14, 2022)
https://www.coindesk.com/business/2022/11/14/ftx-insurance-fund-code-review-reveals-gimmick/ - Whistle-Blower Gary Wang Testimony (fall of FTX)
– CourtListener (Southern District of New York), Gary Wang Testimony Transcript (Nov. 2023)
https://www.courtlistener.com/recap/gov.uscourts.nysd.591840/gov.uscourts.nysd.591840.191.0.pdf - Reuters on FTX Solvency Claims (fall of FTX)
– Reuters: “FTX founder Bankman-Fried knew exchange was ‘not bulletproof,’ witness says” (Oct. 5, 2023)
https://www.reuters.com/legal/ftx-founder-bankman-fried-trial-evidence-2023-10-05/
