This episode is part of Financial Forensics Labs — two shows, one forensic methodology: The Due Diligence Files traces how institutions collapse, The Signal Files traces how the good calls get made. Built from primary-record research by a 15-year capital markets professional.
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Financial Forensics Labs — Forensic Finance Intelligence
One line of code, buried among millions of others, let a single trading account do something no other account on the exchange was ever allowed to do. This is the financial autopsy of FTX and Alameda Research — how an exchange, its founder's own trading firm, and a token created out of nothing combined to lose roughly $8 billion of customer money in about ten days.
Sam Bankman-Fried built FTX into one of the largest crypto exchanges in the world while publicly insisting that Alameda Research, the trading firm he also founded, received no special treatment on the platform. Internally, the opposite was true. In mid-2020, FTX's own code was quietly rewritten to exempt Alameda's account from the automatic liquidation engine every other customer was subject to — allowing Alameda to run a negative balance, drawing on customer deposits without adequate collateral, up to a figure later testified in court to have reached $65 billion.
We trace the mechanism from the beginning: the 2019 launch of FTT, FTX's self-issued token with no underlying business behind it; the coded exemption that let Alameda borrow customer funds indefinitely; the engineers at LedgerX who discovered the exemption in 2022 and were ignored; and the ten days in November 2022 that ended it all, starting with a leaked balance sheet showing Alameda's FTT holdings were worth more on paper than the entire circulating supply of the token itself.
We cover the full timeline — the November 2nd CoinDesk report, Binance's decision to dump its FTT holdings, Caroline Ellison's public denial, the collapsed Binance acquisition, the November 11th bankruptcy filing, and what John Ray — the same executive who oversaw Enron's wind-down — found when he took over: expense approvals made by emoji reaction, company real estate registered in employees' personal names, and financial controls he called the worst he'd seen in over forty years of restructuring work.
Sam Bankman-Fried was convicted on seven counts of fraud and conspiracy in November 2023 and sentenced to 25 years in prison in March 2024, with over $11 billion ordered in forfeiture.
This episode is part of Financial Forensics Labs: The Due Diligence Files, a case-by-case forensic breakdown of the collapses, frauds, and governance failures that reshaped markets — built for investors, deal teams, and anyone who wants to understand how these things actually happen, mechanism by mechanism.
What you'll learn in this episode:
— How a company can create its own asset and use it as circular collateral for related-party lending
— Why an insider exemption from a platform's own risk controls is a red flag independent of any specific dollar figure
— How a balance sheet can be internally consistent and still be almost entirely fictional
— What happened inside FTX in the ten days between a leaked balance sheet and a bankruptcy filing
— Why basic corporate governance failures are themselves a diligence signal, separate from the headline numbers
Part 2 goes deeper — the GP/LP institutional analysis of the FTT collateral architecture, the three signals that were verifiable before the collapse, and the due diligence framework for evaluating any exchange with an affiliated market maker. Same feed, same case.
Financial Forensics Labs: The Due Diligence Files. Every collapse has a pattern. We dissect it. Layer by layer.
