SBF Attributes FTX Collapse to Ceding Control, Alleges Missed Rescue Investment

Executive Summary

Sam Bankman-Fried (SBF), the founder of the now-bankrupt cryptocurrency exchange FTX, recently claimed his gravest error during the platform's $8 billion collapse was relinquishing control to new management, which he asserts thwarted a potential last-minute rescue investment. This statement comes as FTX continues its arduous process of repaying billions to affected creditors, with its current CEO, John Ray III, strongly refuting SBF's narrative.

The Event in Detail

Sam Bankman-Fried, currently serving a 25-year prison sentence for seven felony charges related to the FTX and Alameda Research collapse in November 2022, stated in an interview that his primary mistake was handing over leadership of FTX to John J. Ray III on November 11, 2022. Bankman-Fried claims that minutes after signing over control, he received a call regarding a potential external investment that could have saved the company, but it was too late to revoke his signature. Andrew Dietderich, an attorney with Sullivan & Cromwell (S&C), had proposed appointing Ray as Chief Restructuring Officer two days prior to FTX's November 9 bankruptcy filing. Ray subsequently filed for Chapter 11 bankruptcy on November 11, 2022, and engaged S&C for legal assistance in the proceedings.

Financial Mechanics & Business Strategy

Sullivan & Cromwell recommended John Ray III for the restructuring role, with internal communications indicating he was considered "S&C's guy." Ray's position quickly evolved from Chief Restructuring Officer to CEO, effectively supplanting SBF. The shift in title occurred as S&C attorneys began to comprehend the "depth of the problem" at FTX. John Ray III has since rigorously deconstructed SBF's claims regarding the exchange's solvency. Ray revealed that at the time of bankruptcy, FTX held only 105 Bitcoin (BTC) against customer entitlements of nearly 100,000 BTC. He attributed this massive deficit to SBF's misappropriation of user funds, which were diverted to cover trading losses at sister company Alameda Research—a situation referred to as the "Alameda gap." These customer funds were also allegedly used for luxury items, speculative ventures, and other inappropriate expenditures, forming part of what Ray described as a "sprawling criminal enterprise."

Market Implications

The collapse of FTX triggered a cascade of bankruptcies across the crypto industry, contributing to one of the sector's longest bear markets, with Bitcoin prices falling to as low as $16,000. Despite the initial turmoil, the FTX estate has made significant progress in recovering assets and repaying creditors. The estate has distributed $7.8 billion through three sets of repayments, with the latest in September totaling $1.6 billion. Creditors still await over $4.2 billion, as FTX is estimated to have recovered up to $16.5 billion in assets. The plan is to repay at least 98% of customers 118% of the value in their accounts as of November 2022. This ongoing repayment process is crucial for restoring investor confidence in centralized exchanges and the broader Web3 ecosystem, demonstrating that even in the aftermath of major failures, asset recovery and compensation are possible.

Expert Commentary

John Ray III has directly countered SBF's narrative, calling his statements "categorically, callously, and demonstrably false." Ray emphasized that FTX users would "never be in the same position they would have been had they not crossed paths" with Bankman-Fried. He explicitly questioned the missing Bitcoin and asserted that SBF's theft of these assets prevented the in-kind return of crypto to customers. Ray has credited the dedication of the professionals working under him for transforming what he termed a "dumpster fire" into a process nearing a reorganization plan that promises significant returns. He highlighted that assets stolen and converted into other forms, such as investments in Bahamian real estate or other cryptocurrencies, were successfully recovered due to these efforts.

Broader Context

SBF's claims, made from prison, represent an attempt to reshape the narrative surrounding FTX's downfall, suggesting he could have prevented the bankruptcy if he had retained control. However, these assertions clash sharply with the official findings and ongoing efforts by the current management. The focus remains on the meticulous work of asset recovery and the eventual full repayment to affected customers, underscoring the severe consequences of the original misappropriation of funds and the importance of robust oversight in the digital asset space.