Crypto firm FTX raised red flags long before collapse: experts

Hindsight makes clear the faulty foundation that preceded the collapse of crypto giant FTX in the past couple of weeks. Across finance, however, major players were taken by the meteoric rise of the exchange platform and the wunderkind image of its founder, Sam Bankman-Fried. 

The collapse of FTX saw billions of dollars of customer funds vanish and the net worth of Bankman-Fried drop from nearly $16 billion to zero in days. 

Following the stunning shutdown, potential bailout deals with other firms fell through, forcing FTX to file for bankruptcy under new CEO John Ray III, an executive who guided failed energy trader Enron through its historic collapse. 


Crypto firm FTX raised red flags long before collapse: experts

The FTX logo displayed on a smartphone screen. (Pavlo Gonchar/SOPA Images/LightRocket via Getty Images / Getty Images)

Some, though, were wary of the growth and overnight success of the platform. Marty Bent, a venture partner at Ten31, a bitcoin-focused venture fund, has long been critical of FTX and the ways it multiplied its growth and value over the past four years. 

“It’s pretty obvious that they were breaking many laws at the same time,” Bent told FOX Business. “Co-mingling funds between Alameda and FTX, trading against their users, FTX sharing information about their order book with Alameda. … I mean, these are all activities that are blatantly criminal activities.”

Bent said that, beyond the shady business practices which tied Alameda Research, a quantitative trading firm founded by Bankman-Fried, to FTX through a tangled array of financial and personal relationships, there was a striking lack of fundamental good business practices that should be present in any business — especially one the size and value of FTX. 

Bent: FTX wasn’t running things above board

Sam Bankman-Fried

Sam Bankman-Fried, founder and former CEO of FTX Cryptocurrency Derivatives Exchange, speaks during the Institute of International Finance annual membership meeting in Washington, D.C., on Oct. 13, 2022. (Ting Shen/Bloomberg via Getty Images / Getty Images)


FTX snatched up dozens of businesses over the years, but one that should have laid bare its dysfunction was the crypto exchange’s acquisition of Ledger X, a digital currency futures and options exchange and clearinghouse regulated by the Commodity Futures Trading Commission. According to Bent, these types of acquisitions normally require immense amounts of due diligence from both companies to complete. 

“I come from a managed futures background and understand the due diligence that goes into brokerages and clearinghouses and commodity trading advisors,” Bent said. “One would have to imagine that if they were able to buy this clearinghouse, you would expect there to be some form of rigorous due diligence. And if that rigorous due diligence was actually conducted, it should have been trivial to discover that FTX wasn’t running things above board.”

Sam Bankman-Fried, CEO of FTX US Derivatives, testifies on Capitol Hill in May 2022

From right, Terrence A. Duffy, CEO of the Chicago Mercantile Exchange; Sam Bankman-Fried, CEO of FTX US Derivatives; Christopher Edmonds, chief development officer of the Intercontinental Exchange; and Christopher Perkins, president of CoinFund, test (Tom Williams/CQ-Roll Call, Inc via Getty Images / Getty Images)

This lack of business fundamentals has since been laid bare in bankruptcy filings written by new FTX CEO Ray.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” he wrote in the bankruptcy filing. 


Ray’s filing highlighted myriad issues in Bankman-Fried’s empire. Among the most egregious was the failure to keep thorough financial books, records or security controls to protect customers’ money. Ray wrote that the exchange lacked “an accurate list” of its own bank accounts and employees and failed to keep records about decision-making. To top it off, Alameda loaned FTX $4.1 billion, over $3 billion of which was loaned to Bankman-Fried directly.

Red flags


A representation of cryptocurrencies in a Jan. 24, 2022, illustration. (REUTERS/Dado Ruvic/Illustration / Reuters)

‘I’m under the impression that a lot of these altcoins are overt scams’

– Marty Bent, venture partner at Ten31

Bent said the use of exchange tokens and near total lack of professional oversight should’ve raised red flags across the industry. 

“In the cryptocurrency space, there’s a lot of scams. So I’m under the impression that a lot of these altcoins are overt scams, people just using open-source code to set up their own tokens and profit and sort of leverage bitcoin’s brand awareness and brand name to piggyback and affinity scam people,” Bent told FOX Business. “This always sends alarm bells off for me, particularly because the mechanics of these exchange tokens are extremely scammy.” 

Lost among the fervor of FTX’s collapse and subsequent bankruptcy filing are the retail investors, who Bent said are unlikely to ever recover their money. He likened the collapse to that of Mt. Gox, another crypto exchange that collapsed in 2013, leaving customers in the cold. They still have yet to receive anything nearly a decade later. 

‘Retail investors are most likely wiped out’

Attendees pose for photos in front of The Miami Bull during the Bitcoin Conference

Attendees pose for photos in front of the Miami Bull during the Bitcoin 2022 Conference. (Marco Bello/Getty Images / Getty Images)

“Retail investors are most likely wiped out,” Bent said. “Obviously, FTX is going through a bankruptcy proceeding, but it seems like they don’t really have many of the bitcoins that they were telling their users that they had. I highly doubt there will be any assets to give back to these creditors, these unsecured creditors. But even if there is, it’s going to be a process that takes probably a decade.” 

Bent says the foundation of non-bitcoin cryptocurrency exchanges and coins is faulty and ripe for scammers to take advantage of both retail and institutional investors. Altcoins, which exchanges like FTX put out as their own cryptocurrency, provide no real value, according to Bent. 


“These crypto altcoins, again, they’re marketed like they’re better than bitcoin or they’ll bring a different utility than bitcoin,” he said. “But, at the end of the day, they’re really penny stocks that have a very, very slim likelihood of ever becoming valuable investments in the long run.” 

Bent said that FTX’s altcoin, FTT, was what led to the downfall of the crypto exchange and enabled Bankman-Fried and his cohorts to use investors’ funds to enrich themselves and make risky financial bets.

‘Once it unraveled, the world has become aware of the massive con…’


“It failed in many ways. What unraveled them was this FTT token,” Bent told FOX Business. “They were essentially using a very poor form of money, a very poor asset, as collateral. It was trivial for a big player in the space to collapse the price of that token, FTT, which really led to the inevitable unwinding of FTX or their ability to keep the con going. 

“Once it unraveled, the world has become aware of the massive con, which is way beyond the FTT token and the shady mechanics of that token specifically. Overt fraud, wire fraud, mishandling of funds, co-mingling of funds, using user deposits to take risky bets, using user deposits to pay themselves. It’s pretty easy.”