It is a bit more of a challenge to find a historical analogy for the very recent FTX collapse. MF Global is not a bad comparison, with risky bets and a shortfall of customer funds.

The FTT token is another curiosity. Among other things, it allowed holders to access discounts on trading fees and OTC rebates. Its issuance has some similarities to a debt versus equity structure, which was a common contributing factor in the failure of several banks in the 2008 Financial Crisis.

A better example though, is the collapse of Refco in 2005, which showcased weaknesses in basic corporate governance controls as well as a failure to segregate client assets.

Refco was a New York-based financial services company that was mainly focused on commodities broking. It boasted over $75bn in assets, thousands of customer accounts and was the largest broker on the CME. In August 2005 it had an IPO that, somewhat ironically, had a sale price of $22 a share. This was the same price that Alameda offered to Binance for its FTT tokens.

In October 2005 the CEO, Phil Bennett, announced he was taking a leave of absence after he had been found to be in control of an entity that owed Refco $430m. He had been using this unregulated offshore entity, which was based in Bermuda (FTX is based in the Bahamas, so the similarity is not far off), to conceal millions in bad debts, The cause of the losses was immediately unclear, although leaks since the bankruptcy have pointed to losses by large clients as well as an offshore entity with $525m in fake bonds. What was clear was that at the end of each quarter the CEO had arranged for Refco to lend to a hedge fund called Liberty Corner Capital Strategy, which in turn lent to the Bermudan company Bennett controlled, Refco Group Holdings, which then paid the money back to Refco.

According to Reuters articles, a similar move took place between FTX and Alameda. In May and June Alameda suffered losses, so Sam Bankman-Fried sought to prop them up with a $4bn transfer of FTX funds secured by assets including FTT and shares in Robinhood. He did not tell FTX executives about the move, as was the case with Bennett.

In the bankruptcy proceedings, Refco’s large creditors managed to convince the court that its customers were unsecured creditors because of Refco’s failure to segregate the customer accounts from their general funds. This left Refco’s thousands of trading account customers with roughly 30 cents on the dollar. Reports indicate that FTX’s customer funds were similarly not segregated.

Refco made it into the top 20 bankruptcies in US history by size and Bennett was imprisoned for eight years. He was released from prison on health grounds in 2020 at the age of 71. The FTX story has some way to go.