When BlockFi’s marketing materials and sales agents said his investment was safe and redeemable at any time, he took them at their word.
The Aftermath of FTX’s Downfall
The sudden collapse of the crypto exchange has left the industry stunned.
- A Spectacular Rise and Fall: Who is Sam Bankman-Fried and how did he become the face of crypto? The Daily charted the spectacular rise and fall of the man behind FTX.
- Clinging to Power: Emails and text messages show how FTX lawyers and executives struggled to persuade Mr. Bankman-Fried to give up control of his collapsing company.
- Collateral Damage: BlockFi, a cryptocurrency lender that targeted ordinary investors eager for a piece of the crypto mania, filed for bankruptcy on Nov. 28, felled by its financial ties to FTX.
- A Symbiotic Relationship: Mr. Bankman-Fried’s built FTX partly to help the trading business of Alameda Research, his first company. The ties between the two entities are now coming under scrutiny.
“They sold it to me, that there was no risk,” Mr. Butkus said, adding that he was unaware that BlockFi, which had borrowed money from FTX, was so closely tied to the exchange.
Much of the money that Mr. Butkus, a self-employed businessman, invested came from the recent sale of his home in Plainfield, Ill. He was hoping to increase his savings with the interest on his BlockFi loan and then use the money to build a new home for his family. Now he wonders where his family, who are temporarily staying with his in-laws, will ultimately live.
Lawyers for FTX and BlockFi did not respond to requests for comment.
FTX, founded by Sam Bankman-Fried and once a behemoth of the crypto industry, imploded last month after some big trading firms withdrew their money amid allegations that the exchange had used billions of dollars in customer deposits to bail out Alameda Research, the crypto trading firm that he co-founded. The exchange’s fall was all the more stunning because FTX had acquired an air of legitimacy through a splashy advertising campaign showing off its product as safe, fun and easy to use.
The federal authorities in New York are now trying to determine whether criminal charges should be filed against Mr. Bankman-Fried and others over the company’s collapse and the potentially inappropriate use of customer deposits. Mr. Bankman-Fried, during a media blitz this past week, has insisted he never intended to defraud anyone and was not fully aware of how much customer money had been transferred to Alameda.
Frank Friemel, 39, is among the FTX customers wondering whether they will get back any of their money from the now-bankrupt exchange. When he opened an account with FTX in March, Mr. Friemel said he knew it was unregulated but wasn’t too concerned.
He figured that, as the second-biggest cryptocurrency trading platform in the world, with the financial backing of well-known professional investment firms like Sequoia and SoftBank, FTX was on solid footing.