FTX Cryptocurrency Exchange Collapses in $32 Billion Fraud, Exposing Crypto Regulation Failure

FTX cryptocurrency exchange, Alameda Research, and over 100 affiliated entities file for bankruptcy following the exposure of systematic fraud by founder Sam Bankman-Fried. The collapse was triggered on November 2 when CoinDesk revealed that Alameda Research—FTX’s affiliated trading firm owned by Bankman-Fried—held massive amounts of FTX’s exchange token (FTT), creating an inherent conflict of interest. Binance CEO Changpeng Zhao’s November 6 announcement that Binance would sell its FTT holdings triggered a bank run, exposing that FTX had misappropriated customer funds. Bankman-Fried resigns as CEO and is replaced by John J. Ray III, who previously steered Enron through bankruptcy and later testified that FTX represented the worst corporate controls failure he had ever seen.

The FTX collapse exemplifies regulatory capture and the failure of financial oversight in the cryptocurrency industry. Despite obvious red flags—including lack of proper accounting, co-mingling of customer funds with proprietary trading, and absence of board oversight—regulators including the SEC and CFTC failed to investigate FTX’s operations. Bankman-Fried cultivated political protection by becoming the second-largest Democratic donor in 2022 (after George Soros) with over $40 million in disclosed donations, plus undisclosed ‘dark money’ Republican donations he claimed made him a top GOP donor. These political contributions bought regulatory forbearance, with Bankman-Fried lobbying to shape cryptocurrency regulation favorable to FTX. The case demonstrates how crypto industry actors exploited regulatory gaps, purchased political influence, and operated with impunity while defrauding customers of billions.