Greg Sanders is doing fine. He’s not a guy who needs sympathy, he told me. He’s in his 30s and college-educated, with a secure corporate job. He has enough money to pay his bills. His wife is not mad at him. His friends are still his friends. He knew that investing was risky and investing in crypto especially so. But Sam Bankman-Fried stole just shy of $10,000 from him, he told me. And he wants his money back.
Sanders was one of an estimated 9 million customers who kept some or all of their crypto holdings with Bankman-Fried’s Bahamas-based exchange group, FTX. Last fall, rumors that the firm had become insolvent spread on social media, spurring customers to pull their funds and leading to the company’s collapse. Since then, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the U.S. Attorney’s Office for the Southern District of New York have charged Bankman-Fried with a long list of crimes, arguing that FTX was an uncomplicated, Ponzi-like fraud: Its executives were misappropriating customer funds and using the money to finance trades at a failing hedge fund as well as their luxurious lifestyle, Bankman-Fried’s penchant for sleeping on a bean bag in the office notwithstanding.
In the press, at least, these alleged crimes sometimes come off as victimless. Despite thousands of people losing an estimated total of $8 billion in the debacle, just a handful of stories about those who have been defrauded have surfaced in the press. And Bankman-Fried, commonly known as SBF, continues to get a sympathetic and remarkably thorough hearing. He contends that what seems like theft was merely messy accounting and poor risk management. This enrages Sanders. “If this happened in any other sector, it would be a national emergency,” he told me.
But it happened in crypto. And although the federal government managed to protect the American and global financial systems from contagion, they did not stop tens of thousands of people from getting ripped off. Indeed, the regulatory environment that kept crypto on the fringes of American finance was what left so many individual investors vulnerable—and, in Sanders’s case, cheated out of thousands of dollars, which he tried to transfer from FTX to his bank account in November. Some of the money showed up. Some did not.
Sanders, who lives in northwest Arkansas, began stock-picking when he was in college. “I had a bit of savings and started picking up Tesla shares,” he told me. He bought bitcoin for the first time in 2017, during its first major run-up in price. He did well, he told me, but he’d always been a buy-and-hold kind of investor. He focused on the long term and knew the risks of holding hyper-volatile financial instruments.
He was also well aware that bitcoin and ether were not regulated in the same way that stocks and bonds were, and required a special degree of vigilance. “I was diversified. I had assets in Coinbase and Robinhood”—two other trading platforms—“and I even had some in cold storage,” he told me. “I had traded long enough to understand the risk of not your keys, not your coins”—a popular expression among crypto investors, warning them against leaving the currency they buy in exchange accounts and urging them to instead take absolute control of their digital assets.
He worried about his crypto getting stolen. It just never occurred to him that the culprit would be the company ostensibly safeguarding it for him. “FTX was legitimized in the public eye,” he told me. “I saw the Tom Brady commercials. I saw the Major League Baseball umpires. Its name was on the Miami Heat arena. There was so much legitimization from the public, and it lent credence to this idea that it was a safe place.”
FTX itself certainly tried to convince people that it was a safe place. According to government filings, the company said that “direct deposits” were “stored in individually FDIC-insured bank accounts” and that stocks were held in “SIPC-insured brokerage accounts.” (FTX has denied misleading customers.) Its terms of service promised that customer funds would never be used as collateral for trades: “You control the Digital Assets held in your Account,” the firm said. “Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading.” Moreover, Sanders knew FTX was based in the Bahamas but believed it was subject to American financial regulations, because it was doing business in the United States. “They specifically had an FTX U.S. version,” he told me. “That’s what led me to think, Hey, I’m doing this the right way. I’m following the laws and following the rules.”
He watched the value of his crypto assets balloon during COVID, then watched their value collapse early last year. “I started to get pretty concerned when I saw the feud” in November between Bankman-Fried and Changpeng Zhao, the head of FTX’s rival, Binance, he said. “That’s when I knew I needed to withdraw my funds.” He converted his crypto into dollars and began making withdrawals. Sanders supplied me with financial records showing that a few of those transactions went through. The biggest one did not. He is still waiting on nearly $10,000 to arrive, and probably will be forever.
As it turned out, his crypto was not FDIC- or SIPC-insured, because the government does not insure digital currencies. Plus, FTX was not abiding by American financial regulations or corporate accounting standards. Nor was it safeguarding customer funds, evidently. It was using them to buy real estate, finance SBF’s nonprofits, and donate to political candidates, prosecutors allege. And it was margin trading with the funds—which is to say, buying financial assets using borrowed money—leaving a multibillion-dollar chasm in its books.
Sanders blames himself. He blames SBF. And he blames American regulators. “I am pretty disappointed with the government response,” he told me. “I know they’re investigating, but they let it get to this point. A lot of ordinary people had their money stolen, and it seems like the administration should be restoring the funds for impacted American citizens.” He said he felt particularly frustrated with American civil servants and elected officials who had met with SBF, whom he called the “crypto Chapo.” “It was never Tom Brady’s job to protect me,” he said. “It is the job that Gary Gensler, Caroline Pham, and Maxine Waters all signed up for,” referring to the head of the SEC, the CFTC commissioner, and the Democrat who chaired the House Financial Services Committee in the last Congress.
Why have the victims received so little attention? Perhaps because many of them lost more money from the crypto-price collapse than they did from corporate malfeasance. Perhaps because crypto is such a fringe, scammy, volatile, and lawless part of the financial sector. Indeed, what kept FTX from damaging the broader American financial system is precisely what let FTX fleece investors such as Greg Sanders. American lawmakers and rulemakers never created a regulatory infrastructure that would have let Wall Street or Main Street financial firms engage in extensive crypto trading; many of the largest American banks have negligible crypto holdings on their books and offer few, if any, crypto products to customers. Yet that also means individual crypto investors had little protection. And studies show that many did not fully understand crypto’s risks.
Sanders understands those risks better in hindsight, he told me. He’s going to be fine, even if FTX’s bankruptcy administrators never recover his funds. But he’s still furious. As for SBF: He is awaiting trial and faces up to 115 years in prison.