Failure 10 · Business failures
The crypto exchange that spent its customers' money
FTX was one of the world's biggest crypto exchanges, but customer deposits had been secretly moved to a sister trading firm, and the company collapsed within days in November 2022.
- FTX
- The Bahamas and the United States
- 2022
- 3 min read
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Before you readWhat would you do?
Your small business lets one finance person approve and send all payments. A new AI bookkeeping tool makes the books look tidy every month. A friend asks who checks the payments. What is the best reply?
Pick an answer now. The file tells you whether you were right.
01The file in one minute
1Fast fame
FTX grew into one of the world's biggest crypto exchanges, valued at about $32 billion in early 2022.
2The hidden link
Customer deposits had been moved to Alameda Research, a trading firm owned by the same founder.
3The fall
After a run on withdrawals FTX filed for bankruptcy on 11 November 2022. Its founder later got 25 years.
4The lesson for AI
Confident numbers are only as good as the data under them, so make sure someone independent checks them.
02Timeline
2019
Sam Bankman-Fried launches the FTX exchange.
2 November 2022
CoinDesk reports Alameda's balance sheet is heavy with FTX's own token.
11 November 2022
FTX files for bankruptcy in the United States.
November 2023
A New York jury convicts Bankman-Fried of fraud and conspiracy.
March 2024
He is sentenced to 25 years in prison.
03What happened
Sam Bankman-Fried founded the crypto trading firm Alameda Research in 2017 and the exchange FTX in 2019. FTX grew fast, sponsored sports arenas and ran celebrity adverts, and in early 2022 investors valued it at about $32 billion.
On 2 November 2022 the news site CoinDesk reported that much of Alameda's balance sheet was made of FTT, a token FTX itself had created. Days later, the head of the rival exchange Binance said it would sell its FTT. Customers rushed to withdraw their money, and FTX could not pay them. On 11 November FTX filed for bankruptcy in the United States.
The new chief executive brought in to wind it down, John J. Ray III, said he had never seen such a complete failure of corporate controls. In November 2023 a jury in New York convicted Bankman-Fried of fraud and conspiracy, and in March 2024 he was sentenced to 25 years in prison. Prosecutors said customer money had been used for Alameda's trading, loans, property and political donations.
04Why it failed
FTX had almost none of the checks a normal financial company uses. There was no independent board watching the money, record-keeping was poor, and a few people could move customer funds without anyone else signing off. A token the company printed itself was counted as if it were solid value, so the numbers looked healthy right up until people asked for their money back.
The AI angle: a dashboard full of confident figures is only as good as the data underneath it. When an AI tool or a spreadsheet shows you a number, ask where it came from and whether anyone outside the team has checked it.
The idea behind this caseLesson: Review AI like a manager →
05Lessons for anyone deploying AI
- Keep customer money separate from company money, and have someone independent check it.
- Make sure no single person can move large sums or change key systems without a second approval.
- Ask what a reported value is really made of, especially when the company created the asset itself.
- Be wary of fame, sponsorships and fast growth standing in for audited accounts.
- If you hold savings on any app or exchange, only use licensed services and never keep more there than you can afford to lose.
07 — Sources
- Samuel Bankman-Fried Sentenced To 25 Years For His Orchestration Of Multiple Fraudulent Schemes · US Attorney's Office, Southern District of New York · 2024-03-28
- SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX · US Securities and Exchange Commission · 2022-12-13