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Sam Bankman-Fried, who founded and led FTX until a liquidity crunch forced the cryptocurrency exchange to declare bankruptcy, is escorted out of the Magistrate Court building in Nassau, Bahamas on December 13, 2022.DANTE CARRER/Reuters

Kevin O’Leary was in Miami having lunch with the business team of Circle Internet Financial LLC, a Boston-based technology company that had come up with USDC, the so-called stablecoin cryptocurrency pegged to the value of the U.S. dollar. It was the Bitcoin 2021 Conference held in early June that year, a sold-out event charging US$1,499 for a standard pass and about US$21,000 for an exclusive “Whale Pass,” which provided attendees with access to extra speakers, parties, private areas and bars.

As he broke bread with Circle CEO Jeremy Allaire, a senior representative from what was then the world’s second-largest crypto exchange approached Mr. O’Leary: “Have you met Sam Bankman-Fried yet?”

“No, I haven’t,” Mr. O’Leary replied.

“Well, have you heard about FTX?” the company official asked him, Mr. O’Leary said.

“Of course, I have. Obviously, I know you guys are raising money.”

Two hours later, Mr. O’Leary met Mr. Bankman-Fried, founder and CEO of FTX Trading Ltd., for the first time.

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They didn’t have too long to talk, so they scheduled a half-hour lunch the following day. That lunch turned into a three-hour-long conversation about the direction of the crypto sector, the FTX platform and exchange, its business in the U.S. and international plans for expansion. Mr. O’Leary thought Mr. Bankman-Fried was charming, articulate and his ideas were interesting.

Conversations like this were happening at several other tables in several other high-end restaurants in Miami at the time. And if it wasn’t at a restaurant, it was in a yacht or a nightclub or a hotel taproom at an after-party, such as the extravaganza hosted by FTX in two different venues until the wee hours of the morning after the second day of the conference on June 5, 2021.

Among the nearly 12,000 people who attended the event at the Mana Wynwood Convention Center, big-name institutional investors – such as New York-based Tiger Global Management, Singapore state investment fund Temasek Holdings Ltd., and California-based Sequoia Capital – mingled with crypto executives and began talking about deals they would later sign. The Ontario Teachers’ Pension Plan, one of the world’s largest institutional investors, would attend the next iteration of the conference and join in the action as an investor in FTX, too.

The next day after their lunch, an FTX executive called Mr. O’Leary and told him they were looking for a brand ambassador. The Bahamas-based company wanted someone with an institutional following and who understood how to work with legal compliance and regulatory officials; it also didn’t hurt that Mr. O’Leary was a television star on Shark Tank.

“They dropped huge names like Tom Brady, Gisele Bundchen and many others that were also going to be ambassadors, and told me I’d be in good company,” Mr. O’Leary said.

A deal was announced after weeks of discussion. “It’s exciting to have a true icon in our corner and we’re thrilled to have a partner like Kevin that shares our views on the importance of compliance,” Mr. Bankman-Fried said in a news release at the time. As part of the multi-year deal, Mr. O’Leary would hold US$1-million of equity in FTX and be paid nearly US$15-million for his services. He would make appearances on behalf of the crypto company at events, conferences and in the media.

“It was a new gold rush,” Mr. O’Leary recalled, in an interview. “Everyone wanted in.”

But now, Mr. O’Leary is facing staunch criticism for all of that, as he boosted FTX and failed to spot any irregularities from the many that would come to light just over a year later.

The recently bankrupted crypto firm’s startling collapse began in November. This week, police in the Bahamas arrested Mr. Bankman-Fried in his Albany apartment complex. Mr. Bankman-Fried faces U.S. charges of criminal fraud and conspiracy, and said in court on Tuesday he will fight an extradition.

Still, global institutional investors poured more than a billion dollars into FTX, helping seal its leading position in the sector and Mr. Bankman-Fried as the golden boy of crypto. The glitzy hoopla surrounding FTX created a fear of missing out (FOMO), pulling big investor and celebrity money into the frenzy, successively providing it with legitimacy, only to see a stunning meltdown.

FTX’s charm offensive and the appeal of a white-hot sector portrayed the platform as the next big thing. The eccentric, shaggy-haired, soft-spoken, millennial Mr. Bankman-Fried was labelled a savant, earning cover-page splashes in business magazines and endorsements on popular broadcast shows.

He was hailed as an altruistic figurehead for a burgeoning, alternative financial space that was peddling the promise of being widely accepted across North America and in the European Union in a matter of months, playing friendly with regulatory bodies and agencies of all stripes.

FTX’s collapse has certainly raised many questions: How did nobody see this coming? Did anyone raise any red flags? But Erica Pimentel, a professor at the Smith School of Business at Queen’s University, said the “seduction of multiplying wealth and a deep, evident sense of FOMO ensured people weren’t asking enough questions” about FTX last year.

“Nobody was asking anything, let alone perform proper due diligence. We weren’t even seeing the bare minimum happen because of all the excitement. I mean, people were genuinely mesmerized,” said Prof. Pimentel, who teaches financial accounting and researches cryptocurrency and blockchain technology in recent years.

“You didn’t want to be that guy or girl in the room asking the cool crypto kids for their financial statements,” she said.

A few weeks after the Miami conference, in July, FTX announced a US$900-million funding round, with the participation of Sino Global Capital, Third Point Ventures, Hudson River Trading and Circle.

Then, in October, 2021, another major funding round increased the value of FTX to US$25-billion. More than US$420-million was raised from 69 investors, including Teachers, Temasek Holdings Ltd., Sequoia Capital, Sea Capital, Tiger Global and Lightspeed Venture Partners.

Teachers invested US$75-million in the October round through the Teachers’ Venture Growth (TVG) arm, and another US$20-million in January, 2022.

Teachers had already missed out on other crypto deals, notably Coinbase Global Inc., which soared in value after it went public in early 2021. That contributed to a sense that Teachers should participate when the next opportunity came along, which arose with FTX, according to two people familiar with the matter, who The Globe and Mail is not naming because they are not authorized to speak publicly.

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The Bitcoin 2021 Convention at the Mana Wynwood Convention Center in Miami, Fla., on June 4, 2021.ALFONSO DURAN/The New York Times News Service

Teachers was looking at moves by other Canadian institutional investors before it funded FTX, the sources said, and held informal discussions with them at some conferences and gatherings. These institutions included the giant Caisse de dépôt et placement du Québec, which invested US$150-million in New Jersey-based Celsius Network LLC as part of a US$400-million funding round in October, 2021. (Celsius would eventually halt transactions and withdrawals for its nearly two million customers, and declare bankruptcy in July, 2022. Shortly after that, the Caisse would write off its entire investment in the company.)

But as Teachers conducted its due diligence of FTX, the crypto company was less than forthcoming with financial details, according to the two sources. Teachers asked a long list of questions related to FTX’s financial affairs, but only received answers to a small fraction of them, one of the sources said.

Teachers insists it completed thorough due diligence on FTX. Prior to investing, it spent years tracking digital asset markets, and concluded that investing in crypto exchanges, such as FTX, rather than digital assets themselves, could help reduce risk, Teachers spokesman Dan Madge said in a statement.

“TVG spent many months on diligence of FTX, in partnership with experienced external advisors, to allow us to assess the risks associated with the investment,” Mr. Madge wrote. “Information provided by FTX suggested that the company was growing rapidly and performing well.”

After its first two investments in FTX, Teachers had earmarked about another US$50-million for follow-up investments, the sources said. “We had the opportunity to invest in follow-on rounds but chose not to participate,” said Mr. Madge.

After FTX collapsed last month, it said it owed its 50 biggest creditors nearly US$3.1-billion. It is a spectacular scandal that is reverberating in many countries, where Mr. Bankman-Fried is being investigated for allegedly funnelling customer assets – worth at least US$5-billion – into risky bets made through Alameda Research, an affiliated trading firm he also owned. A spokesperson for FTX declined The Globe’s requests for comment.

John Ray, the restructuring expert who took over as CEO of FTX, said in bankruptcy court he has never in his 40-year career seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information.” Mr. Ray said in filings that FTX used “software to conceal the misuse of customer funds” as well as a secret exemption of the Alameda hedge fund from certain protocols.

“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” Mr. Ray said.

The implosion has impacted crypto as a whole. Cryptocurrency prices, including for bitcoin and ether, continue to fall to multiyear lows.

Many other firms in the tech sector with exposure to FTX and its in-house token, FTT, have had to either shutter services or declare bankruptcy, too, such as New Jersey-based BlockFi Inc. and New York-based Gemini Trust Co. LLC.

Circle, the company Mr. O’Leary was having lunch with just last year in Miami, has also seen its US$9-billion deal to go public fall apart. Mr. O’Leary himself has seen his FTX equity rendered worthless by the bankruptcy protection process, losing at least US$10-million out of his deal with the company.

Teachers, Sequioa, Temasek and Tiger are writing down their investments in FTX to zero. It is not clear if other investors are doing the same.

FTX did at times encounter friction from regulatory agencies, notably in Ontario.

FTX was in talks with the Ontario Securities Commission in the summer of 2021. The commission looked at the company’s communications and management strategy, but not its finances or its internal state of affairs, said an OSC official, who The Globe isn’t naming because they aren’t authorized to discuss details publicly.

The OSC told FTX that if it wanted to function in Ontario, it must properly register and obtain restricted dealer status to do so, the source said. But the crypto company decided to walk away from the province.

Soon afterward, FTX noted on its website (and kept the note up online before it was taken down) that there were restrictions in the province for the platform. “Registration on FTX from Ontario is not currently available,” it said. “FTX also does not onboard any users from Ontario.” For the rest of Canada, however, FTX did not face restrictions.

FTX tried its luck again in Canada this past summer through a different method. In June, FTX was on track to acquire Bitvo Inc., a Calgary-based crypto exchange regulated by all 13 provincial and territorial securities commissions. FTX wanted a “real Canadian footprint,” Mr. Bankman-Fried had told The Globe in an interview back then.

That deal “thankfully” fell apart last month, said Bitvo CEO Pamela Draper in an interview, who is grateful her company “narrowly escaped” the situation at FTX, “which would’ve tied us up with everything in bankruptcy court, potentially freezing all our customers’ funds.”

Canadian regulators were probing into FTX as part of their due diligence in order to approve the deal, Ms. Draper said.

“Like most global platforms, they did have a presence in Canada. They were curtailed a little bit by the regulators, particularly in Ontario, before the Bitvo acquisition was proposed, but Canadian users were still able to access FTX right up until the point of bankruptcy,” Ms. Draper said. Retail investors could hold digital wallets on FTX’s platform to store their crypto, with many using VPN technology, which anonymized their Canadian location and created a private network from a public internet connection.

The senior OSC official said the regulator had not seen FTX’s finances as part of its due diligence from the Bitvo deal; OSC spokesperson JP Vesci said it would likely be the purview of the Alberta Securities Commission. The ASC did not respond to questions about Bitvo, at first referring The Globe back to the company for comment, then to an unrelated news release from the Canadian Securities Administrators, the umbrella group for provincial and territorial securities commissions.

“Regulators were asking a lot of questions of FTX and the management team about how they operate their existing business and what their intentions were for the Canadian market and what their plan was as they purchased Bitvo, and integrating those two businesses,” Ms. Draper said. “But the regulators never communicated any specific issues to us.”

With reports from David Milstead and Josh O’Kane

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The Decibel podcast

Temur Durrani spoke with The Globe and Mail’s daily news podcast about how FTX built up a lot of hype and how the fear of missing out got so many to buy in. Subscribe for more episodes.

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