Abstract

This case is set in early November 2023. FTX incorporated in Hong Kong, including FTX Trading Ltd. and FTX.US, was one of the leading global cryptocurrency (crypto) exchange platforms. On 11 November 2022, FTX filed for bankruptcy after USD8.9bn in customers’ funds were found to be missing and had been transferred to its related company, Alameda Research. Its co-founder and former CEO, Sam Bankman-Fried (SBF), had been recognized for his innovative and unconventional leadership style and had successfully portrayed himself as a wunderkind genius and a billionaire philanthropist, thus shocking the world.

FTX was established in April of 2019, following SBF’s relocation from California to Hong Kong. The company invested significant resources in advertising and celebrity endorsements to bring FTX and crypto to the mainstream investor community. Between 2020 and 2021, FTX experienced rapid growth, supported by multiple global venture capital and private equity funds, as well as customers that seemed to be blindly buying into a dream of riches due to the rising prices of crypto. In January 2022, the company reached a valuation of USD32bn. 

SBF assembled a management team consisting primarily of his former schoolmates and coworkers. The majority of the management team lacked the necessary business experience and education to handle a multi-billion-dollar business. They took reckless risks in the name of doing good. In September 2021, SBF and his team relocated to the Bahamas, indulging in a lavish lifestyle using customers’ funds.

SBF was arrested in December 2022 by the US government. SBF and his management team faced charges of commodities and securities fraud, money laundering, and defrauding FTX investors. On 2 November 2023, SBF was convicted of all seven charges by the jury.

In the aftermath of FTX’s collapse, many questioned how SBF managed to ascend to such financial heights without encountering regulatory intervention. Did SBF’s leadership contribute to FTX’s success, or was he merely riding the wave of market frenzy, crypto enthusiasm, and hero worship? Did SBF engage in fraudulent activities, or was his defense of innocence due to his poor risk management and lack of experience valid, as he claimed in court?

Learning Objectives

1.   Highlight a leader’s integrity and accountability to all stakeholders of the company

2.   Learn about the rise and fall of a highly valued crypto exchange platform, including customers pursuit of financial gain and the “market failings” in an unregulated market

3.   Understand the process of successfully presenting oneself as a future leader and entrepreneur and explore how such leaders can deceive their own customers and investors

4.   Learn the governance, risk management, and internal control in the crypto industry where self-governance and decentralization from government control are emphasized