The Binance CEO compares Sam Bankman-Fried to Holmes and Madoff

Binance’s chief strategy officer said it took his company two hours of due diligence on FTX to determine that Sam Bankman-Fried’s cryptocurrency exchange was outselling savings.

“It was like a bomb went off in that place,” Patrick Hellman, Binance CSO, told CNBC on Thursday. “You know, we’re getting calls, people crying… It was pandemonium there,” Heilman said, adding that when Sam “completely fell silent about them, the whole organization went down.”

FTX’s stunning collapse last week was first evident when Binance, the world’s largest cryptocurrency exchange, said on November 8 that it had signed a non-binding agreement to acquire its smaller rival for an undisclosed amount. FTX was in the midst of a liquidity crisis, with clients demanding billions of dollars in withdrawals daily. It was money that FTX didn’t have, because it was using customer deposits for other purposes.

Binance technically had 30 days to scout a deal, but the next day backed out of the bailout, saying in a statement that FTX’s issues were “beyond our control or ability to help.” As one of the first investors in FTX, Binance knows the company well.

“Somehow they were always spending more and more and more money,” Heilmann said. “We never understood where the money was coming from. It just didn’t make sense to us.”

FTX’s exorbitant expenses included a $135 million deal for the naming rights to the NBA’s Miami Heat arena, a Super Bowl ad featuring comedian Larry David and a Formula One sponsorship.

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“For us, if there is smoke, there is likely to be a fire,” Hillman said. “I don’t think we’re any closer to realizing how hot the fire is inside.”

Hillman said lawmakers and venture capitalists seem drawn to Bankman-Fried’s character and perceived credibility. He said the founder of FTX was either like Elizabeth Holmes of Theranos, who Hellman said was “totally fake,” or Bernie Madoff, who was “manipulative” and created a “cult of personality.”

“There’s no middle ground,” Hillman said. “It’s one of the two.”

CNBC has reached out to FTX, which has not responded to Binance’s accusations. Bankman-Fried, who resigned from the company and was replaced as CEO by restructuring expert John Ray III, says he is still trying to work out a financing deal in a way that could help depositors.

Ray, who was in charge of restructuring Enron, blasted FTX Thursday morning in a filing with the US bankruptcy court for the District of Delaware, saying that in his 40 years at the company he had never seen “such a complete failure of corporate controls.” FTX said Bankman-Fried will no longer speak for the company.

Early on, Hillman said, there were some concerns about FTX and its unsavory relationship with Alameda Research, Bankman-Fried’s hedge fund. Nevertheless, the company raised $32 billion in funds from high-profile investors, and Bankman-Fried made multiple trips to Washington, D.C. to testify before lawmakers. He has also been a major contributor to Democratic political campaigns, while another executive, Ryan Salameh, has been a major Republican donor.

“We just assume that given the scope and level of their interactions with some of the most powerful people on the planet, those checks and balances must be naturally in place for those individuals to agree to be a part of their work,” Heilmann said.

Watch: Binance decided that FTX was beyond saving after a two-hour review of the balance sheet

Binance decided FTX was beyond saving after a two-hour review of the company's balance sheet

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