When BIG Went Wrong: FTX
Share:
By Mark Moses
The sixth article in a 25-part series on history’s greatest business collapses—and the decisions that sealed their fate.
Part 6: FTX — The Thirty-Two Billion Dollar Hallucination
On November 11, 2022, FTX filed for bankruptcy. Four days earlier, it had been valued at $32 billion. Sam Bankman-Fried had been on magazine covers, testifying before Congress, and positioning himself as the responsible face of cryptocurrency.
Then it was gone. All of it. In 96 hours.
More than $8 billion in customer funds had vanished. Not lost to market conditions. Not stolen by hackers. According to bankruptcy filings and trial testimony, customer funds were moved from FTX accounts to a sister company to cover bad bets and fund a lifestyle of Bahamas penthouses and political donations.
FTX is a story about what happens when everyone wants to believe in a genius so badly that they forget to ask basic questions.
This analysis is based on publicly available reporting, bankruptcy filings, and trial testimony.
The Company at Its Peak
Sam Bankman-Fried—SBF, as he was universally known—was 29 years old when FTX reached its peak valuation. He’d graduated from MIT, worked at the quantitative trading firm Jane Street, and launched Alameda Research, a crypto trading firm, in 2017. FTX, the exchange, came two years later.
The growth was staggering. FTX went from launch to a $32 billion valuation in just three years. SBF’s personal net worth was estimated at $26 billion. He became the second-largest donor to Democratic political causes in the 2022 election cycle, behind only George Soros.
The narrative was irresistible. Here was a young genius who slept on a beanbag at the office, played video games during interviews, and talked openly about “effective altruism”—the philosophy of making as much money as possible in order to give it away. He wasn’t in crypto to get rich. He was in crypto to save the world.
Sequoia Capital invested. So did BlackRock, Tiger Global, the Ontario Teachers’ Pension Plan, and dozens of other sophisticated institutions. FTX’s Super Bowl ad featured Larry David. Tom Brady and Gisele Bündchen were equity holders and spokespersons.
The world’s most sophisticated investors lined up for access to the boy genius.
Many later acknowledged that real due diligence didn’t keep pace with the speed, complexity, and hype.
The Decision Point
The fundamental fraud at FTX was simple: customer money was not where it was supposed to be.
When customers deposited funds on FTX, those funds were supposed to stay in FTX accounts, available for withdrawal at any time. That’s the basic promise of an exchange.
Instead, according to prosecutors and trial evidence, billions of dollars in customer deposits were quietly transferred to Alameda Research—SBF’s trading firm—to cover Alameda’s losses and fund its increasingly wild bets.
Decision 1: Commingle everything. From the earliest days, FTX and Alameda were intertwined in ways that made proper accounting nearly impossible. They shared employees, offices, and—critically—funds. The line between customer money and company money was blurry at best, nonexistent at worst.
Decision 2: No adults in the room. FTX had no board of directors. No independent oversight. No Chief Financial Officer for most of its existence—and when they finally hired one, he’d been in the role for less than a year before the collapse. The company was run by a small group of friends, several of whom were romantically involved with each other, living together in a Bahamas penthouse.
Decision 3: Create a magic token. FTX created its own cryptocurrency called FTT. The company held billions of dollars worth of FTT on its balance sheet as an asset—but FTT’s value depended entirely on confidence in FTX itself. When that confidence evaporated, so did the “asset.” It was circular: FTX was solvent because FTT was valuable; FTT was valuable because FTX was solvent.
Decision 4: Hide the hole with more customer money. As Alameda’s losses mounted in 2022—driven by the collapse of other crypto projects—FTX allegedly transferred more and more customer funds to fill the gap. By the end, prosecutors and bankruptcy filings estimated that roughly $8-10 billion in customer deposits were missing or misused.
Decision 5: Publicly deny the crisis until the end. Even as the walls were closing in, SBF tweeted reassurances. “FTX is fine. Assets are fine.” Posted November 7, 2022. Four days later, bankruptcy.
The Unraveling
The end came fast.
On November 2, 2022, CoinDesk published an article revealing that Alameda’s balance sheet was heavily dependent on FTT—the token FTX had created. This raised obvious questions about the actual solvency of both companies.
On November 6, Changpeng Zhao—the CEO of Binance, FTX’s largest competitor—announced that Binance would sell its holdings of FTT. The token’s price began to crater.
Customers rushed to withdraw funds. In 72 hours, FTX faced $6 billion in withdrawal requests.
On November 8, Binance announced a tentative deal to acquire FTX. Within 24 hours, after a brief look at the books, Binance walked away. The hole was too big.
On November 11, FTX filed for bankruptcy. SBF resigned. John Ray III—the restructuring specialist who had unwound Enron—was brought in to clean up the mess.
Ray’s assessment was damning: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information.”
This from the man who cleaned up Enron.
Why They Got It Wrong
My firm has coached more than 2,000 CEOs. FTX is a reminder that the most dangerous frauds often come wrapped in the most compelling narratives.
The genius myth. Everyone wanted SBF to be a genius. The investors, the media, the politicians, the regulators. A 29-year-old who’d figured out crypto and wanted to give away his billions to save the world—it was too good a story to question. So people didn’t question it. They accepted complexity they didn’t understand and trusted credentials that didn’t exist.
Speed as a smokescreen. FTX moved so fast that due diligence couldn’t keep up. New products launched weekly. Valuations doubled in months. Investors who asked too many questions risked being left out of the next round. The velocity itself became a way to avoid scrutiny.
The absence of governance. No board. No CFO. No independent audit. The most basic structures of corporate accountability simply didn’t exist. This should have been disqualifying for any institutional investor. Instead, it was waved away as the quirks of a fast-moving startup.
Believing the mission excuses the methods. SBF talked constantly about effective altruism—about making money to give it away. This framing made skeptics feel like they were questioning charity itself. How could you doubt someone who just wanted to end malaria and prevent pandemics? The noble mission became cover for ignoble behavior.
Crypto’s regulatory vacuum. FTX operated in a space with minimal regulatory oversight. The controls that would have caught this fraud in traditional finance—segregation of customer funds, regular audits, capital requirements—simply didn’t apply. FTX operated within that gap until the business collapsed.
What a Great CEO Would Have Done
This is a case where “what a great CEO would have done” is almost beside the point. SBF was not simply a CEO who made bad decisions. Prosecutors argued—and the jury ultimately agreed—that the core of what was happening at FTX was fraudulent.
But the story has lessons for everyone else.
If you’re an investor: due diligence is not optional, no matter how compelling the narrative. A company without a board, without a CFO, without audited financials is not an investment—it’s a gamble on a personality. The more someone is positioned as a genius, the more you should demand to see the books.
If you’re a board member: your job is to protect the company from the CEO, not just to support them. The structures of governance exist precisely for moments when charismatic leaders go off the rails. If those structures don’t exist, you don’t have governance.
If you’re a CEO who’s growing fast: build the controls before you need them. It’s tempting to defer the “boring stuff”—the boards, the audits, the segregation of responsibilities—while you’re sprinting. But those structures are the difference between a company and a house of cards. Build them early, or someone will wish you had.
The Lesson for Today’s Growth CEO
FTX is a story about belief. About how badly people wanted to believe in SBF, in crypto, in the idea that a kid in shorts could reinvent finance. The wanting made them blind.
A few things to sit with:
- Narrative is not evidence. A great story can explain anything. The question is whether the story matches the facts. When someone’s narrative is exceptionally compelling, that’s when you should be most rigorous about verification. Charisma is not a control.
- Complexity you don’t understand is risk you can’t measure. Many FTX investors admitted they didn’t fully understand the crypto mechanics. They trusted that someone did. In business, if you can’t explain how the money is made and where it sits, you’re not investing—you’re hoping.
- Governance is not bureaucracy. Boards, audits, CFOs—these aren’t obstacles to growth. They’re the infrastructure that makes growth sustainable. The sexiest startups are often the most allergic to these structures. That allergy should be a red flag, not a feature.
- Watch for missions that excuse behavior. When someone’s stated purpose is noble enough, it can become a shield against scrutiny. “We’re trying to save the world” is not an answer to “where is the money?” Be especially skeptical of those who wrap self-interest in altruism.
- Speed kills (due diligence). The faster something moves, the less time there is to examine it. FTX used velocity as a strategy—keep everyone so excited about the next thing that no one looks closely at the current thing. In your own business, if you’re moving too fast to understand what you’re doing, slow down.
The Final Count
Customer losses at FTX are still being calculated but appear to exceed $8 billion. The bankruptcy estate has recovered substantial assets—enough to potentially repay customers in full, largely because crypto prices recovered after the collapse—but the process will take years.
Sam Bankman-Fried was convicted in November 2023 of fraud, conspiracy, and money laundering. In March 2024, he was sentenced to 25 years in federal prison. He is appealing.
Caroline Ellison, the CEO of Alameda Research (and SBF’s sometime girlfriend), pleaded guilty and cooperated with prosecutors. She was sentenced to two years.
The effective altruism movement has spent the years since trying to distance itself from SBF. The millions he donated to politicians have become a source of embarrassment. The magazine covers have been memory-holed.
Here’s what stays with me: hundreds of sophisticated investors—people whose entire job is evaluating companies—looked at a business with no board, no real CFO, no audited financials, and no clear separation between customer funds and company funds, and wrote checks anyway.
They didn’t want to see the problems. They wanted to believe in the genius.
That’s the real lesson. The fraud was SBF’s. But the willingness to suspend disbelief was widespread.
Next week in Part 7: Theranos—The Valley of Fake Blood
Mark Moses is the Founding Partner and Chairman of CEO Coaching International and author of Make BIG Happen. His firm has coached more than 2,000 CEOs and helped facilitate over 100 client exits totaling more than $25 billion.
Claim your Complimentary 1:1 Coaching Call
History is full of leaders who were right until they weren’t.
A free 1:1 coaching call gives you an outside perspective to challenge assumptions and sharpen decisions.
Share: