What Happened to FTX (and Alameda Research)?

FTX, founded by Sam Bankman-Fried in 2019, rapidly ascended to become one of the world's largest cryptocurrency exchanges, reaching a valuation of $32 billion by January 2022. Its downfall began in November 2022 when reports revealed that Alameda Research, Bankman-Fried's affiliated trading firm, was heavily reliant on FTX's native token, FTT, and that customer funds were being illicitly commingled and used to cover Alameda's debts and other ventures. This exposure triggered a massive wave of customer withdrawals, totaling approximately $5 billion in 72 hours, which FTX could not fulfill due to an $8 billion shortfall.

The fraud was characterized by a severe lack of financial controls, poor risk management, and fraudulent misrepresentation of FTX's solvency to investors and regulators. Bankman-Fried was arrested in December 2022 and subsequently indicted on multiple charges, including wire fraud, money laundering, and conspiracy. His criminal trial in late 2023 saw key former executives, including Alameda CEO Caroline Ellison, FTX co-founder Gary Wang, and engineering head Nishad Singh, plead guilty and testify against him, detailing how Bankman-Fried directed the diversion of customer deposits. Ellison, in particular, stated that Bankman-Fried instructed her to commit these crimes.

On March 28, 2024, Bankman-Fried was sentenced to 25 years in federal prison and ordered to pay an $11 billion forfeiture. He has consistently maintained his innocence, claiming FTX was not insolvent and that he intended to repay customers. However, his appeals have been rejected. In June 2026, a federal appeals court upheld his conviction and sentence, stating that the evidence against him was "robust" and he was the "main driver of one of the largest frauds on record." He also reportedly applied for a presidential pardon in June 2026, which was publicly rejected by Donald Trump.

Caroline Ellison, a central figure in the fraud, was sentenced to two years in prison in September 2024 but was released from federal custody in January 2026 after serving approximately 14 months, largely due to her substantial cooperation with prosecutors. She remains under supervised release and faces a 10-year ban from serving as an officer or director of any public company or cryptocurrency exchange. The FTX bankruptcy estate has made significant progress in asset recovery, amassing nearly $16 billion. The reorganization plan, approved in October 2024, aims to distribute between $14.7 billion and $16.5 billion to creditors, with 98% of creditors expected to receive 119% of their allowed claims based on November 2022 prices. Repayments began in May 2025, with further distributions in July and September 2025. As of June 2026, the FTX Recovery Trust announced that the next distribution to eligible claimants is set to commence on July 31, 2026, with a record date of June 16, 2026. The estate has also reduced its disputed claims reserve by $600 million, freeing up more cash for distribution. The collapse spurred increased regulatory scrutiny of the crypto industry globally, leading to new regulations like the EU's MiCA, and a push for greater transparency and proof of reserves among exchanges.