# FTX Collapse (November 2022) The collapse of [[FTX]] — the cryptocurrency exchange founded by [[Sam Bankman-Fried]] (SBF) — was the most spectacular corporate fraud since Enron and a case study in how unregulated capital buys political protection. In the span of six days in November 2022, a $32 billion company evaporated, $8 billion in customer funds went missing, and the second-largest individual donor to [[Democratic Party]] causes in the [[2022 Midterm Elections]] was revealed to be running a massive fraud. The FTX collapse matters for this KB because it sits at the intersection of nearly every structural vulnerability the knowledge base tracks: [[Dark Money]] flowing through [[Cryptocurrency]] channels, [[Regulatory Capture]] purchased with campaign donations, the [[Revolving Door]] between industry and government, and the [[Effective Altruism]] movement's philosophical architecture providing moral cover for unconstrained risk-taking. --- ## Background: SBF's Rise [[Sam Bankman-Fried]] founded [[FTX]] in 2019 after running a crypto trading firm called Alameda Research (founded 2017). By 2021, FTX was valued at $32 billion and SBF was on the cover of Forbes and Fortune, courted by politicians, and testifying before [[Congress]] on crypto regulation — while actively committing fraud. SBF presented himself as the embodiment of [[Effective Altruism]]'s "earning to give" philosophy — the argument, championed by [[William MacAskill]], that the most ethical career path for certain individuals is to maximize income and donate the proceeds. SBF claimed he built [[FTX]] not for personal wealth but to generate philanthropic capital. At his peak, his wealth represented roughly 35% of all available funding in the [[Effective Altruism]] ecosystem. Alameda Research — SBF's crypto trading firm, nominally independent from [[FTX]] — was secretly using FTX customer deposits to cover trading losses, fund political donations, and purchase real estate. The two entities were supposed to be separate; in reality, they operated as a single fraud. --- ## The Collapse: Six Days in November **November 2, 2022:** CoinDesk published an article revealing that Alameda Research's balance sheet was overwhelmingly composed of FTT — [[FTX]]'s own internally created token. The trading firm supposedly independent from [[FTX]] was propped up almost entirely by FTX's own invented money. **November 6:** Changpeng Zhao (CZ), CEO of Binance (the largest crypto exchange), announced that Binance would liquidate its substantial FTT holdings. This was the equivalent of a major bank announcing it no longer trusted a competitor's IOUs. **November 7-8:** A bank run followed. [[FTX]] customers attempted to withdraw $6 billion in 72 hours. [[FTX]] halted withdrawals on November 8. **November 8:** Binance announced a tentative deal to acquire [[FTX]], then backed out within 24 hours after reviewing FTX's books. **November 11:** [[FTX]] filed for bankruptcy. John Ray III — the restructuring expert who had previously overseen the liquidation of Enron — was appointed CEO. Ray stated that FTX represented "a complete failure of corporate controls and such a complete absence of trustworthy financial information" that it was worse than any case he had encountered, including Enron. --- ## The Fraud The bankruptcy revealed that [[Sam Bankman-Fried]] had misappropriated approximately $8 billion in customer deposits. The money had been used to: - Cover billions in trading losses at Alameda Research - Fund approximately $40 million in political donations to [[Democratic Party]] candidates in the [[2022 Midterm Elections]], making SBF the second-largest individual donor - Channel approximately $24 million to [[Republican Party]] candidates through FTX co-founder Ryan Salame — creating bipartisan political protection - Purchase real estate including a luxury penthouse compound in the Bahamas - Support [[Effective Altruism]] organizations through the FTX Future Fund The fraud was not a side effect of the business. The business was the fraud. [[FTX]] was designed with a secret backdoor — an "allow negative" flag in the code — that permitted Alameda Research to withdraw unlimited customer funds without triggering risk alerts. --- ## Political Donations and Regulatory Capture SBF's political spending is the most instructive dimension of the collapse for this KB's purposes. His donation strategy was a textbook example of how [[Dark Money]] and [[Campaign Finance]] systems enable [[Regulatory Capture]]: SBF donated ~$40 million to [[Democratic Party]] candidates and causes during the [[2022 Midterm Elections]], making him the party's second-largest individual donor. Simultaneously, Ryan Salame donated ~$24 million to [[Republican Party]] candidates. This bipartisan coverage strategy ensured that regardless of which party controlled [[Congress]], [[FTX]] had allies who would shape [[Cryptocurrency]] regulation favorably — or block it entirely. SBF testified before [[Congress]] on crypto regulation while actively committing fraud. He cultivated a public image as the "responsible" crypto executive who wanted sensible regulation — regulation he helped design to advantage [[FTX]] over competitors while leaving the core fraud mechanisms untouched. This is [[Regulatory Capture]] in its purest form: using stolen money to buy the politicians who write the rules that govern your industry, while simultaneously building a public persona as the industry's most responsible actor. The [[Crypto-Political Machine]] that SBF helped build survived his collapse. The infrastructure of [[Stand With Crypto]], [[Crypto Super PACs]], and crypto-funded lobbying campaigns continued to grow, spending over $130 million in the [[2024 Presidential Election]] cycle. SBF built the playbook; others refined it. --- ## The Effective Altruism Connection SBF's fraud devastated the [[Effective Altruism]] movement and exposed its structural vulnerabilities. The connection was not incidental — it was foundational: [[William MacAskill]]'s "earning to give" philosophy provided the moral framework for SBF's career. The [[Longtermism]] branch of [[TESCREAL]] provided the expected-value calculus that justified unlimited risk: if the stakes are literally the future of humanity, then any bet with positive expected value is justified, including betting with other people's money. SBF publicly argued against the Kelly criterion — the mathematical formula for limiting bet sizes to prevent catastrophic loss — contending that [[Longtermism]] justified larger bets than standard risk management allowed. He was not hiding his reasoning. He was applying [[Effective Altruism]]'s logic to its conclusion. The FTX Future Fund, which distributed hundreds of millions to [[Effective Altruism]] causes, was shut down immediately after the collapse. [[Open Philanthropy]] later rebranded as Coefficient Giving in November 2025, partly to distance itself from the association. --- ## Legal Aftermath **December 2022:** SBF arrested in the Bahamas and extradited to the United States. **October-November 2023:** Trial in the Southern District of New York. Three former associates — Caroline Ellison (Alameda CEO), Gary Wang (FTX CTO), and Nishad Singh (engineering director) — testified against SBF after cooperating with prosecutors. **November 3, 2023:** SBF convicted on all seven counts: wire fraud, conspiracy to commit wire fraud, securities fraud, conspiracy to commit securities fraud, commodities fraud, conspiracy to commit commodities fraud, and money laundering. **March 28, 2024:** Sentenced to 25 years in federal prison. Ordered to forfeit $11 billion. Caroline Ellison was sentenced to 2 years. Ryan Salame received 7.5 years, partly for campaign finance violations — he had made illegal straw-donor contributions to [[Republican Party]] candidates at SBF's direction. --- ## Why It Matters The FTX collapse is a through-line event for this KB because it demonstrates how the systems documented across the knowledge base interact: **[[Regulatory Capture]] + [[Campaign Finance]]:** SBF purchased political protection from both parties using stolen money, then used that access to shape the regulatory environment governing his own industry. This is the same mechanism documented in [[Citizens United v. FEC]], [[Dark Money Ecosystem]], and the [[Lobbying]] system — just executed through [[Cryptocurrency]] rather than traditional corporate channels. **[[Revolving Door]]:** FTX hired former regulators and cultivated relationships with sitting members of [[Congress]]. The company's strategy of embedding itself in Washington while operating a fraud mirrors the broader [[Revolving Door]] dynamics tracked throughout this KB. **[[TESCREAL]] as moral cover:** [[Effective Altruism]] and [[Longtermism]] provided SBF with a philosophical framework that justified any action in service of sufficiently large future payoffs. The movement's concentration of funding in a single donor — and its failure to act on early warnings about SBF — demonstrates how ideological communities can enable rather than constrain bad actors. **Bipartisan corruption:** SBF's donation strategy explicitly targeted both parties. The distinction between the ~$40M to Democrats and ~$24M to Republicans was one of transparency, not intent. Both streams purchased the same thing: protection from regulation. This underscores a core KB theme — that [[Dark Money]] and [[Campaign Finance]] corruption are structural features, not partisan phenomena. --- ## See Also - [[Sam Bankman-Fried]] - [[FTX]] - [[Cryptocurrency]] - [[Crypto-Political Machine]] - [[Effective Altruism]] - [[TESCREAL]] - [[Longtermism]] - [[Regulatory Capture]] - [[Dark Money]] - [[Campaign Finance]] - [[Casino Capitalism]] - [[2022 Midterm Elections]] - [[Stand With Crypto]] - [[Crypto Super PACs]]