Sam Bankman-Fried Used FTX as His Personal Piggy Bank

In Brief

• Michael Saylor addresses the leveraged borrowing between FTX and Alameda Research.
• The Bitcoin bull says that Sam Bankman-Fried lured investors to FTX through promises of low fees while manipulating the price of FTT.
• He emphasized that many of SBF's activities would be considered illegal under U.S. law.

MicroStrategy Executive Chairman Michael Saylor has accused former FTX CEO Sam Bankman-Fried of “diabolical” front-running and using FTX as his personal piggy bank.

The former MicroStrategy CEO came out guns blazing in a recent interview, where he essentially broke down FTX’s complex web of borrowing that had been collateralized by its own unregistered securities, whose prices Bankman-Fried allegedly manipulated.

Saylor Accuses SBF of Manipulating FTT
According to Saylor, a famous Bitcoin bull and head of MicroStrategy’s Bitcoin acquisition strategy, Bankman-Fried essentially borrowed money from himself since no traditional bank would lend him money at the loan-to-value ratio permitted under U.S. law.

Suppose you go to a traditional bank to borrow money using a security as collateral. The bank could grant you a 50% loan on 5% of the security’s trading volume on a regulated exchange. This means you could get a maximum loan of $25 million if the security’s trading volume is around $1 billion. Realistically, though, you would likely be able to borrow less if the bank offers a lower loan-to-value ratio.

Since no regulated bank was willing to offer loans at more than 50% of the loan-to-value ratio, Bankman-Fried posted the FTX’s native token FTT, Serum, and Solana tokens as collateral to borrow money from himself at a significantly higher ratio. According to Saylor, Bankman-Fried pledged $10 million worth of these tokens to borrow substantial money from Alameda Research.

He then used FTX customer deposits to amp up the $10 million bet to $200 million using 20x leverage. Specific derivative trading platforms allow you to borrow a certain multiple of a minimum deposit to supercharge your trading investment. The multiple is called leverage.

Bankman-Fried then used the leveraged position to buy FTX’s native token FTT, Serum, and Solana to raise their prices and increase their collateral value for borrowing.

He then withdrew $1 billion in customer funds from FTX, combined with the increase in the price of $500 million from the tokens, and placed the money in FTX’s former sister trading firm Alameda. Alameda then granted him a roughly $3 billion loan.

SBF Lured Investors With Low Fees
Saylor had no kind words for Bankman-Fried and accused the bereft former CEO of luring customers and investors with cheap and highly-leveraged trading while manipulating the price of FTX’s native FTT token, Serum and Solana.

According to Saylor, the price of SOL rose from roughly $3 to a peak of $50 under Bankman-Fried’s three-year stint at the Bahamian exchange, while FTT also increased to around $50.

Rather than making money from trading fees like other exchanges, Sam Bankman-Fried tried to get customers to deposit their assets, which he then treated as a pool of his own funds.

Saylor said that using FTX equity to loan BlockFi $400 million and buy Voyager Digital’s assets was fraudulent since Alameda had owed both companies money. By investing equity, SBF effectively tried to silence claims against Alameda. A New York bankruptcy court has since ordered Alameda to repay its loan to Voyager.

Both BlockFi and Voyager Digital have filed for bankruptcy.

Saylor’s breakdown of the FTX debacle drew praise on social media, with one Reddit poster admitting they enjoyed his explanation:
Another user said it was probably the most straightforward explanation to understand, while another commended Saylor for pointing out that SBF was granting himself FTT-collateralized loans.