For a brief period FTX was the reassuring face of a chaotic industry: a slick, well-capitalised exchange whose young founder testified before lawmakers and bought naming rights and celebrity endorsements. When it collapsed in November 2022, the reassurance evaporated in days, and what remained was a hole in the customer accounts measured in billions. The trial that followed did not turn on whether the money was gone. It turned on why.
The collapse
The unravelling began with reporting that raised questions about the balance sheet of Alameda Research, the trading firm closely tied to FTX and its founder. Confidence in that relationship cracked, a wave of customer withdrawals followed, and the exchange could not meet them. Within a week FTX filed for bankruptcy, its founder resigned, and a restructuring team took over to find out what had happened to the money customers believed was sitting safely in their accounts.
The relationship at the centre
The heart of the case was the connection between the exchange and Alameda. Prosecutors alleged, and the trial evidence supported, that customer funds deposited with FTX had been directed to Alameda and used for purposes customers never authorised: trading, investments, and expenditures far removed from the safekeeping an exchange implies. The money was not simply lost to a market crash; it had been moved and used in ways that the people it belonged to did not know about and did not consent to.
Why the liquidity defence failed
The defence pressed a familiar framing: that this was a liquidity crisis, a fundamentally sound business caught by a bank run, mismanaged rather than criminal. The jury rejected it. The distinction that sank the argument is the one at the core of every fraud case: a liquidity crisis is being unable to return money you were holding honestly, while fraud is misusing money you were entrusted to hold. The evidence, including testimony from former close associates who had pleaded guilty, pointed to the latter. In November 2023 the founder was convicted on seven counts, and in 2024 he was sentenced to twenty five years in prison.
The recovery
One coda complicates the simple morality tale without changing the verdict. The bankruptcy estate, aided by the recovery of assets and the rebound in value of certain holdings over the following period, was able to return a substantial portion of what customers were owed. That recovery is real and matters to the victims, but it does not retrospectively make the conduct lawful. A theft followed by partial restitution is still a theft, and the criminal findings stand on the conduct, not on the eventual size of the shortfall.
Where it sits
FTX belongs, with Theranos, at the top of the ladder of certainty: charged, tried, convicted, sentenced. It is the modern reference point for founder fraud, and a useful corrective to the loose use of the word elsewhere. Not every collapse is an FTX, as our WeWork investigation shows, but this one earns every letter of the label.