GREED: The FTX Collapse
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This is crime house.

When IT comes to finance, one of the hardest st concepts to grasp is crypto currency. But even if you have no idea how crypto o works, there is one thing almost everyone understands. If you invested at the right time, IT could make you rich beyond your wildest dreams.

After bitcoin burst onto the scene, everyone from movie stars to tech brows cash in on the crypto rates. Entire countries even adopted IT as official currency. As value skyrocketed, IT felt like the good times might go on forever.

But by the end of twenty twenty one, experts believed that the combined value of all crypto currencies was more than trillion dollars. Then in a heartbeat, IT all came crashing down. And at the center of all the chaos was a guy named sam bagmen freed.

Sam described himself as an effective altering st. Whose going in life was to help as many people as he could. But in the end, the justice system decided that the only one he was trying to help what's himself.

As the same goes, those who don't understand history are doomed to repeat IT. That's especially true when IT comes to money. If you want to make the right decisions when IT comes to managing your assets, you need to know what mistakes to avoid and how to spot a trap.

This is money crimes, a crime house original. I'm your host, niko lap on every thursday, i'll telling you a story of a famous financial crime and giving you advice on how to avoid becoming a victim yourself at crime house. We want to express our gratitude to each and every one of you, our community, for making all of this possible.

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This episode is all about sam begin freed the founder of futures exchange, also known as F T X. In less than five years, sam built F T X into an online crypto currency trading platform. Big ugh to arrival the new york stock exchange, but IT only took a couple of iron tweet to bring the entire enterprise down and put them behind the bars.

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Sam bank man fried always thought big, like saving the world big. In interviews and confessions to close friends, sam talked about solving the world's biggest profits, everything from pandemics to A I to nuclear war. He came to represent everything we all wish billion's could be smart, alternative and unpretentious from the way he lived.

You'd never even know how rich sam was. He drove a toyota Carola, slept at the office and walked around in runny sneaker ers and cargo shorts. Sam didn't seem to care about vanity or luxury, but he also didn't think much about the past.

In an interview with author Michael Lewis, sam had a hard time remembering what his youth was even like. As far as Lewis could tell, sam practically sleep walked through his childhood. Aside from his brother gave, sam only had one real friend, and they weren't even that close.

He was an outsider, but he didn't care. He never even bothered trying to fit in to him. School was just as pointless as friends. He hated reading, and he thought I was just stupid entertainment.

From all the descriptions we have, IT seems that sam was pretty disconnected from his emotions, apart from a simmering ing depression that never really went away. But one thing sam did remember from his youth was how much he loved games in high school. He used to build these elaborate ate puzzle like treasure hunts and then share them online.

They were ridiculously complicated with unexpected twists that rewarded players who thought outside the box. That kind of brilliance got him into M. I T S.

Undergrad physics program in two thousand and nine. By then, sam was on the path of becoming a physicist, or even a college professor like his parents. But in two and twelve, fate intervened.

At the time, the big finance firms were shifting away from the wolf of wall street type alpha male culture that were all familiar with. Most strating was now done with computers, so companies were looking for genius who could build and run a super fast algorithms designed to make lots of money. One of those firms was gee street capital, and one of their convinced sam to apply for a summer internship.

The interview was mostly puzzle solving, which was sam expertise. So he asked every test. He was so good that they offered him a full time job.

After only a few weeks of interning, he accepted and joined as soon as he graduated at je street. Seems job was to trade international exchange traded funds, or E, T, X. If you're not familiar with the term, etf are basically collections of assets like stocks that get pull together.

There are a great way to invest in a particular industry while not putting all of your eggs in one basket. For example, if you want to invest in tech, but you aren't sure where to start, and etf lets you buy a little bit of stock in a lot of different companies. If the value of all of those companies goes up, so does the etf.

If one goes down but the others go up, you still make money. When IT came to trading etf, sam got the hang of IT right away. He made three hundred thousand dollars in first year at jane street and double that in year two.

If he had finished his third year, he would have earned a million dollar bonus, not bad for a twenty five year old. If he stayed on that path, he would have become a very successful trader on wall street. But something else happened around that time.

And IT completely changed sams outlook on life. He discovered a school of thought called effective altero ism. At its basic level, effective algorithm means finding the best way to help the most people that extends to future generations as well, which is why effective altruists tend to be passionate about things like preventing pandemics and nuclear war.

It's a very big picture sort of thing. And sam was definitely a big picture sort of guy. He especially liked effective altruism, because IT essentially boiled down to a math problem, one with really big numbers.

He realized that if he was going to make the kind of impact he wanted, he needed to make a lot more money. So in the fall of twenty seventeen, sam left James street to start his own trading firm called aleema research. He sought out fellow effective altruists and convinced them to pull their savings into the firm.

Will agreed to donate most of the profits to charity if sam was going to accomplish his goals, he had to think bigger than etf. He needed something new, something with huge growth potential. That's when a friend told him about crypto currency.

As I said in the beginning.

crypto is pretty complicated if you don't know much about IT, but i'm going to ragg IT down for you as simply as I can. During the two thousand and eight financial crisis, confidence in traditional banks was extremely low. There are just was in a lot of trust that they could be relied on to keep people's money safe.

That's when someone calling themselves said a moto proposed a solution. What if there was a way to cut the things out of the equation? If you could create a safe, reliable form of currency that could be directly exchanged from buyer to seller, there would be no need for third parties like banks to process transactions for you. The result was bitcoin, arguably the first crypto currency. Instead of dollars or euros or yen, people traded digital coins or tokens. The record of each transaction was kept permanently on a database called a block chain and stored on people's computers, rather than add a bag because of the way blockchain is coded, IT can't be altered, which means you can just add a bunch of zeroes to your account, and the technology is pretty easy to replicate, meaning that anyone can make their own currency.

By the time sam begmand freed started looking into cypher o in twenty seventeen, there were hundreds of different coins. Their value changed a minute to minute like the stock market, and even varied by location. That's where sam saw his opportunity.

If the Price of bitcoin was a few dollars lower and say, japan, he could buy IT there and sell IT somewhere else at a profit, do this a few million times, and the profits could be in the billions. IT was a good plan, and sam managed to raise one hundred seventy million dollars from investors to put IT into action. At first, IT seem to work in the month of november twenty seventeen alone, he made five hundred thousand dollars in profits.

In december, he made four million, but most of sam employees were amateur s and eventually their winning streak ended by february twenty eighteen. He was losing five hundred thousand dollars every day. And sam, who'd never managed a team before, had a hard time boosting moral.

In fact, he made IT a whole lot worse. Reportedly, he expected his employees to work insane hours, and then he won't even show up to meetings when he did. He usually hadn't bave and had spent that time playing video games instead of giving them his full attention.

It's ironic that someone obsessed with the greater good made so many people miserable. But sam was a walking contradiction, considering he managed money for a living. Some had a bizarre, carefree attitude toward finances.

When employees reported that four million dollars had gone missing, he just brushed IT off. He knew they eventually find IT. Plus he was too busy building an automated trading system called model bot.

In theory, model bot would scam the internet for crypto prize discrepancies and then buy or sell at the right moments. Sam kept pushing to turn IT on, but his team warned him if he didn't work, they could lose every penny they had in a single hour. At first he listened to them, but things that alumina kept getting worse.

In the span of just six months, the company's capital dropped from one hundred and seventy million to just forty million. Eventually, IT nearly fell apart. On April nine, twenty eighteen, every member of sams management team quit, along with a huge chunk of his employees, but sam refused to give up, and with his entire management team gone, there was no one to stop him from doing whatever he wanted. So he decided IT was time to turn on model bot.

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In April twenty eighteen, sam bang min freeze first company alumina research nearly went belly up. When the dust settled, he was left with forty million dollars and an untested trading algorithm called model bot. With nothing else to lose, sam took a chance and let the program go alive.

Just as he predicted, model bot worked like a charm IT scan the internet for Price differences in cyp T O currencies around the world. Bottle and sold high. Within six months, alumina research was trading more than five percent of the total crypto market to take advantage of the momentum.

Same relocated from the U. S. To hongkong, where the laws around crypto u weren't abstract.

That's when he came up with his next big idea, a new kind of crypto currency exchange. Cyp to exchanges are basically like stock markets. People can trade one type of cypher currency for another or buy coins for cash.

When sam came up with his idea, one of the biggest cyp du currency exchanges was called finance. IT was originally founded by a guy named chang pen shaw, who also went by C. Z.

Between two thousand and twenty twenty one, finance grow from three billion to almost a hundred billion dollars. Sa's idea was to make an exchange like baLance, but his would give customers the ability to do more sophisticated traits like placing bets, encrypt to futures. Sam actually trying to bring C, Z, in as a partner.

C, Z said no, and then adopted some of sams ideas for his own platform. Sam didn't let that stop him, though. He was committed to making an exchange bigger and Better than baLance. In order to do that, he needed to build a new team, a collection of quoters, crypto enthusiast and effective alterius, who hadn't deserted him when alumina nearly went under one of those loyal followers with Caroline ellison, a trader that sam had poached from his gene street capital days like sam, Caroline was super smart and really into effective altruism.

M, and apparently he was really in the same to now there are two signs of the story, according to sam, the two of them dated for a few months before IT tapered off. But some people have said, going by Caroline social media, IT was a lot more progressive than that. Some of her posts allowed to being in a Polly emerge relationship with sam and a few other people at the company.

Whatever the case was, sam trusted Caroline and the rest of the team to bring his cyp to exchange to life, but his management style had been improved since the missteps at alameda. Sam never bothered to give people specific titles. No one knew exactly who reported to whom or what the scope of their job really was.

IT was basically the wild west, but at the time, everyone was just hyper focused on getting the product out the door. After four months of frantic work, sam launched futures exchange in may of 20。 IT came to be known by another name, F, T.

X. Despite the rushed process, F T X immediately stood out for its elegance. Most of the other cyp to exchanges like finance were bugging and simplistic. Same spot form ran smoothly and could process complicated trades. Every time someone made a transaction, F T X collected a fee, which created a baseline profit.

But to take IT even further, sam created his own crypto coin called ftth, owning F T, T coins entitled you to sell them back to F T, X in exchange for a piece of the company's revenue. In other words, buying F T T was like buying F T X stock. The more F T X was worth, the more its coin value went up.

Ironically, one of the earliest investors was his rival C Z, who bought eighty million dollars worth of ftth. But sam wasn't worried about boosting cis's finances. He was too busy getting a filthy rich himself.

After a less than a year and business, he made twenty million. By the end of twenty twenty, he'd made a hundred million. In twenty twenty one, IT was a billion.

But sam wanted more. He wanted F, T. ax. To be, quote, the biggest source of financial transactions in the world, most of f tx.

Trading went through his international division, which was incorporated in antiqua and Operated out of hong kong. There was A U. S.

ARM, too. But F T, X is customers could only trade a few coins that the government had authorized. And for same, that was a big problem.

In order to take F T X to the next level, sam knew that cyp da needed some level of regulation in the us. That would convince the banks that F T X was safe to invest in and open up a whole new market of customers. If everything went well, F T X could triple its profits overnight.

To make sure he got what he wanted, sam started donating a lot of money to a lot of politicians and political action committees between twenty and twenty twenty two. It's estimated that he donated around one hundred million dollars. There was just one problem with that.

IT wasn't his money to give. In essence, sam was running a massive fraud scheme. here. Investors at F, T, X would deposit money into their accounts for trading cyp du money that they were supposed to be able to access at any time.

Little did they know a lot of that money got funneled to save other company alumina research. Sam would then use the money from alameda for his political causes, property investments and other spending. A good comparison would be like if your bank was in debt and then emptied your account to pay for IT.

Even in the monkey world of crypto o IT is clearly illegal. But sam was willing to do whatever IT took to make more money. Remember, effective altruism m didn't necessarily mean he was trying to be a good person.

IT just meant he wanted to help the largest number of people possible. And if IT meant gambling with his own customers money, so be IT. On top of his political donations, sam spent a fortune on celebrity endorsements for F, T.

X. By people like Larry David, cristiano aldo and tom rady. All that mattered was promoting his brand. And IT worked in october of twenty twenty one forms listed sam's network at twenty two point five billion dollars in may, have two twenty twenty two time magazine named in one of the world's one hundred most influential people.

In just three years, sam had catapulted F, T, X from an idea to a financial juggernaut, which meant his vision of changing the world was finally within reach. And to everyone who was watching, IT seemed like he was going to change IT for the Better. They just had no idea that he was trembling all over people in the present to do IT. But IT wouldn't be long until his charade was exposed. All IT took was a single tweet.

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If you're fascinated by the darker sides of humanity, join us every week on our podcast, serial killers, where we go deep in the notorious true crime cases with significant research and careful analysis. We examine the psych of a killer, their motives and targets and law enforcements pursuit to stop their spring, follow serial killers wherever you get your sts and get new episodes every monday.

In the spring of twenty twenty two, thirty year old sam begmand freed was being hailed as the boy genius of crypto w. He was building a lavish headquarters in the bahamas. His two companies, alumina research and F, T, X, dominated the crypto currency market.

He had what felt like half of congress in his pocket, and some of the world's biggest celebrities were advertising his product, all thanks to his willingness to gamble with his customers money. But the good times were about to end. The crisis started in may of twenty twenty two, when a cyp to coin called carlena turned out to be what some consider a giant ponzi scheme.

Within a week, tera lunas value went from an estimated six billion to nearly nothing. A big hedge fund had bought six hundred million dollars worth of tea, and they suddenly one this set off a chain reaction, sending other coins into a skydive spooked investors wanted to cut their crypto to exposure and asked alamito for their money back. But thanks to same reckless spending alamito didn't have IT, Caroline ellison, sam's former maybe girlfriend, was currently the CEO of alameda.

After the CarOlina disaster, SHE called an emergency meeting. They had two options. They could come clean and declare bangor pacy, or they could borrow what they needed from F, T, X.

Ultimately, sam decided to move ten billion from F, T, X is customers into alumina s own accounts. He just didn't think IT was a big deal. He said he was sure he had plenty of money to cover the loss without anyone ever noticing.

After all, he had done this before and everything had turned out fine, and he was right, at least for a few months. But on november second, twenty twenty two, the crypto focused media company coin desk publish an article examining the contents of alemates portfolio. They found that alameda owned nearly six billion dollars worth of F T T, the crypto o currency, the samon invented, if the Price of F T T collapsed like CarOlina, then aleta could lose six billion dollars overnight.

And everyone who owned F T T would also lose out big time. Still, most of the people who read the article weren't super concerned, since the F T X platform itself seem to be in great financial shape, but one person was paying a very close attention. C zy, the CEO of sams rival crypto to exchange finance, and c zi was out .

for blood on .

sunday, november six, four days after the coin desk article, C, Z, posted a tweet that finance was selling all of its F T T tokens. Remember, C Z had initially invested eighty million into F T T, which was worth way more at this point. If he dubbed his investment now, IT would be a huge red flag.

That tweet was a bomb shell, but Carolyn's s response was even worse. Several hours after ccs post SHE tweet that aleema would happily buy his tokens for twenty two dollars each, SHE thought her confidence would come the market. SHE was wrong.

A number of investors pulled their money from the exchange. Only seconds after her tweet, IT set off another chain reaction, and F, T, X lost two billion dollars in a single day. The next day, monday, they lost another four billion.

There was supposed to be about fifteen billion in cash on hand to cover everyone's deposes, but by tuesday, IT was clear. They were about ten billion short. Sam admitted he had messed up, but denied that he had done anything illegal.

He blamed the entire fiasco on the company's inability to keep good records. Neither he nor Caroline seemed to know where the missing money was. Sam later told a reporter that he simply misplaced eight billion dollars before things got any worse.

Sam thought he could fix the damage. He just needed someone to give him billions of dollars, but nobody was coming to sams rescue, except for his nemesis C. Z.

On tuesday, november eight, twenty twenty two, C, Z, signed a letter of intent to buy all of F, P, X out, right on the condition that he'd get to look at sam's books. But IT seem to like whatever he saw, IT wasn't good, or maybe he was just springing sam along the following evening. C, Z, tweet that he was backing out of the deal with a final twist of the knife.

F, T, X was finished by thursday. Sams compound in the bahamas was gutted, although Michael Lewis said he felt like, quote, a smash and grab crime scene on december twelve, just over a month after c zs first tweet, police in the bahamas arrested sam after ten days in prison there, he agreed to be extradited to the U. S. Prosecutors in new york charged him with wired front security brand and money lander's.

At first, sam was allowed to stay out on bell, a wapping two hundred and fifty million dollar bond, but he had gone through life without really worrying about the rules, and he wasn't about to start now, despite being clearly forbidden from doing IT, sam trying to get in touch with a couple of potential witnesses, which is a nice way of saying he engaged in witness tampering. One of those witnesses was Caroline ellison, who had agreed to testify against sam in exchange for the ian cy. Prosecutors accused sam of trying to discredit her by leaking Caroline ine's private notes SHE had written about their break up and how stressed SHE was at work.

Sam hoped that by getting those notes published, Caroline would seem like a jealous x again. His gamble failed at sams trial, Caroline claim that he told her to make fake baLance sheet to cover up the money that alto stall from F, T, X, and there were plenty of sams former employees willing to bakker up on IT. In november of twenty two, twenty three, sam was convicted of seven counts of fraud related to him stealing eight billion dollars from F T, X customers, and on march twenty eight, twenty twenty four, the judge sentenced to twenty five years in prison.

Since then, he is filed an appeal. So IT will be some time until we see how historical really ends. Recently, Caroline ellison also received her punishment for her role in all of this just a few weeks before this recording.

On september twenty fourth twenty twenty four, SHE was sentenced to two years in prison. Another F T X exact was sentenced to seven and a half years in may. And there are a few more awaiting sentencing.

They may have claimed they were working to help society, but in the end, IT was all about themselves. On the service, F, T X was a great idea, giving individuals more power over their finances, all in the name of the public good. Sam begin freed. Use that to his advantage. While crypto currency does have a lot of potential, sam made IT seem like this full proof share fire thing. But just like any other financial investment, crypto is a volatile and in many ways, it's far less stable than the traditional stock market, especially when there is guys like sam out there using people's faith in him to further his own interests, even if he really was motivated by effective alterum ism, the damage caused in the process was irreparable. And for that, sam begin free is paying the Price.

Thank you so much for listening. I'm your host nal lap in. Come back next time as they take you through another wild story and offer you some advisable on the way many crimes is a crime house original powered by pave studios.

Join me every thursday for a new episode here at crime house. We want to thank each and every one of you for your support. If you like what you heard today, reach out on social media, at crime house, on tiktok and on instagram, and don't forget to rate, review and follow money crimes.

Whatever you get your favorite pancakes, your feedback truly makes all the difference, and for add free early access to money crimes plus exciting bonus content subscribed to crime house, plus on apple park. Many crimes is hosted by me, Michael lapin, and is a crime house original powered by pave studios. IT is executive produced by max cuttle's. This episode of money crimes was produced and directed by Brown shift o, written by sander bernstein, edited by Lorry marney that acted by sarto sound, designed by russia nash and included productions from serco of the many sources we use when researching this episode, the one we found most credible and helpful was going infinite, the rise and fall of a new tycoon by Michael lis.

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Hey, there are. It's nickell. If you've been enjoying all these crazy stories on money crime, then I know you'll love the crime house.

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If you're fascinated by the darker sides of humanity, join us every week on our podcast, serial killers, where we go deep in the notorious true crime cases. With significant research and careful analysis. We examine the psyche of a killer, their motives and targets, and law enforcement pursuit to stop their spree, follow serial killers wherever you get your podcasts and get new episodes every monday.