Testimony and evidence presented last week in the New York fraud trial of Sam Bankman-Fried has shed new light on the sudden, chaotic decline of FTX, his crypto exchange.

Also revealed: New details of his fateful rivalry with Changpeng Zhao, CEO of FTX competitor Binance.

FTX and Binance were the pillars of the crypto sector a year ago and together held around 46 percent of the market share in spot trading. Bankman-Fried and Zhao were among the industry’s most prominent figures, with the former particularly successful in laying out his vision for digital assets through X, formerly known as Twitter, sponsorships and lobbying.

Then last November, FTX collapsed, sending shockwaves across crypto markets. Bankman-Fried is now facing fraud charges for allegedly stealing billions of dollars in his customers’ funds. He pleaded not guilty and maintains his innocence.

At trial, prosecutors showed private notes from Caroline Ellison, Bankman-Fried’s sometime girlfriend and CEO of his trading firm Alameda Research. Under the heading “Things Sam is freaking out about,” she wrote in the fall of 2022 that one of Bankman-Fried’s priorities was “getting regulators to take action against Binance.”

The jury heard how in November 2022 a leaked financial statement revealed Alameda’s dangerous reliance on FTT – a crypto token issued by FTX – as an asset and how a Twitter message from Zhao that he would liquidate millions in FTT triggered a spiral that this led to the destruction of the Bankman Fried empire.

In private documents prepared as part of a final fundraising effort to save FTX, Bankman-Fried penned messages accusing Zhao of carrying out a stunning corporate raid to take out a rival exchange.

“Over the past few months, Binance has been conducting a PR campaign against us. . . They leaked a balance sheet; blogged about it; forwarded it to Coindesk,” Bankman-Fried wrote, according to evidence presented in court. Coindesk is the crypto news portal that published Alameda’s balance sheet.

The source of the leak has been one of the most frequently asked questions in the crypto space. Bankman-Fried has previously suggested that Binance was targeting its companies, but refrained from making an explicit public accusation.

Evidence presented since the trial began this month traces the twists and turns of the relationship between the two high-profile executives in the $1.2 trillion cryptocurrency market, portraying Zhao first as an ally and investor, then a rival and finally an arch-enemy of Bankman. Fried.

As one of the first FTX investors, Zhao’s Binance was initially willing to work with the Bankman Fried exchange. Zhao’s view was: “Sam is a genius, let’s fund him, he can cover markets we can’t and take risks we don’t want to take,” according to a person familiar with Binance’s plans at the time.

But the relationship soured as Bankman-Fried began becoming the most politically influential crypto executive in the US, testifying before congressional committees, publicly supporting crypto legislation and donating to candidates.

Zhao has battled for years with regulators around the world targeting his sprawling, headquarterless exchange dealing with compliance and consumer protection concerns. Bankman-Fried’s emergence as a mainstream crypto leader brought with it suspicions that he was championing his company’s interests over those across the sector, including Binance.

“It was only when Sam started lobbying against Binance and gained significant traction that he was seen biting the hands that fed him,” the person familiar with Binance added. “He was no longer willing to kiss Lord Zhao’s ring.”

Ellison’s statement last week showed the extent to which FTX’s relationship with Binance was deteriorating.

“[Bankman-Fried] said that in the event of a regulatory action against Binance, many Binance customers could switch to FTX and that he had been hoping that this would happen for some time and that various regulators had promised him that this would happen for some time. but it never happened,” she told the court.

Former FTX executives suspect that this campaign provoked Zhao. The Binance boss alluded to this, without mentioning Bankman-Fried by name, in a Twitter message last November: “We will not support people who lobby against other industry players behind their backs.”

On the same day, November 6, 2022, Zhao tweeted that Binance would sell hundreds of millions of dollars worth of FTT, which Binance had accepted as payment when it sold its stake in FTX back to Bankman-Fried the year before.

Ellison said during her testimony that Bankman-Fried described the decision to buy out Binance’s $2 billion stake in FTX as “really important because if we didn’t buy it out…”. . Binance would do things to mess up FTX.”

Zhao’s November tweet capitalized on crypto market concerns sparked by the leaked balance sheet, which led to an inexorable price decline on FTT and a rush of customer withdrawals on FTX. The panic revealed a shortage of FTX customer funds.

After Bankman-Fried failed to raise capital to save the exchange, Zhao agreed to purchase FTX. But a day later he withdrew from the deal, saying due diligence revealed that customer funds had been mishandled. FTX had no choice but to file for bankruptcy.

Binance did not respond to a request for comment.

In her statement, Ellison said Zhao’s “true target…” . It wasn’t about selling his FTT, it was about hurting FTX and Alameda.”

Zhao has denied attacking FTX. Last December he wrote: “No healthy business can be destroyed by a tweet.”

Video: FTX: The Legend of Sam Bankman-Fried | FT film

Source : www.ft.com

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