Sam Bankman-Fried's FTX

Abstract

In a span of 11 months, FTX. a crypto exchange co-founded by Sam Bankman-Fried (SBF), went from being valued at $32 billion in January 2022 to filing for bankruptcy, wiping out billions in investor money by November. Those called in to clean up the mess soon discovered that up to $9 billion in customer deposits were missing. SBF and a couple of his associates, one of whom was the CEO of Alameda, a trading firm SBF co-founded and FTX’s largest customer, were criminally charged with multiple counts of fraud. SBF plead not guilty while his associates plead guilty.

This case details the business decisions SBF made and complex web of investments he oversaw, which eventually led to FTX’s downfall. The meteoric descent of the much-celebrated crypto company has led observers to cast blame in many directions: on FTX employees, regulators, company investors, its auditors, and even FTX’s customers. Students are asked to discuss the rise and fall of FTX, as well as the incentives of the different economic agents (SBF, FTX employees, investors, regulators, customers, etc.) that allowed for such a stunning collapse.

Learning Objectives

To help students understand the mindset of individuals that engage in fraud, and avoid making the same mistakes. The case is particularly relevant for understanding the incentives that lead to fraud in private companies.

Appropriate for the following course(s)

financial accounting, ethics

Sam Bankman-Fried's FTX

Teaching Note*

*TEACHING NOTES AND SUPPLEMENTAL MATERIALS ARE ONLY AVAILABLE TO EDUCATORS WHO HOLD TEACHING POSITIONS AT ACADEMIC INSTITUTIONS.