Let's talk about the disgraced founder of cryptocurrency platform FTX


Sam Bankman-Fried faced the music, at least a little bit, in the form of a contentious interview with the New York Times’ Andrew Ross Sorkin at the DealBook Summit yesterday. The answers from the disgraced founder of the cryptocurrency platform FTX range from complicated jargon to utterly implausible excuses to dodges to what smells like straight-up BS. 

Right now, Bankman-Fried looks like the worst form of a capitalist, one who knew exactly how to seduce and win over progressives and socialists. He’s a walking, talking demonstration that a lot of powerful movers and shakers in this world are a lot more gullible than they will ever admit.

Sam Bankman-Fried’s Disgrace

The collapse of FTX is much more intriguing, multilayered, and consequential than your average giant financial scandal. There’s an unexpected, disheveled, larger-than-life, ready-for-the-Hollywood-dramatization figure at the center of it. There’s a spectacularly fast rise and a nearly overnight descent. There’s a mountain of donations to political figures, particularly Democrats and progressive causes (although today on the Washington Post op-ed page, I point out that the donations to Republicans shouldn’t be overlooked, either). And there’s a bipartisan effort by eight members of the House to get the Securities and Exchange Commission to stop nagging cryptocurrency firms for more information about their internal finances. Whoops.

And it’s that overlap between the business philosophy (“Crypto is the wave of the future! If it doesn’t make sense to you, you’re an old fogey who doesn’t get it!”) and the political philosophy (“Through effective altruism, we can save the world and/or keep progressive Democrats in control forever!”) that ought to spur the biggest reckoning.

Right now, Bankman-Fried looks like the worst caricature of a capitalist — greedy, reckless, dishonest, creating little of tangible or lasting value but eager to ride a speculative bubble to the top — who knew exactly how to sweet-talk progressives and socialists and convince them that he was one of them. As one interviewer described him, “He got into crypto so that he could make as much money as possible and then give almost all of it away.” The title of that episode was, “Sam Bankman-Fried wants to save the world.”

I recall that former Theranos CEO Elizabeth Holmes kept telling us that she and her company were going to “revolutionize health care,” and that she, too, had a plan to “save the world.” Maybe the first sign that someone is out to screw the world is that they feel the need to keep telling us how much they want to save the world. I notice Elon Musk, Peter Thiel, Bill Nye, Will Smith, and Black Lives Matter have also enjoyed “is going to save the world” headlines in the past.

(I’ll bet you’re a pretty decent person. You probably get up every morning, go to work, work hard, try to take care of your family, maybe give to those in need or volunteer to help your community in some way. Nobody ever runs around giving you credit for trying to “save the world,” even though you’re probably one of the people who helps keep it running.)

Bankman-Fried’s laid back, unkempt, drives-a-Toyota Corolla, sleeps-on-a-beanbag-chair persona was apparently all image management. When one colleague urged him to get a haircut, he reportedly responded, “I honestly think it’s negative EV for me to cut my hair. I think it’s important for people to think I look crazy.” (EV is short for enterprise value.)

The real Bankman-Fried spent lavishly outside of the public eye. He really lived “in a guarded island compound, every need closely catered to, the world’s elite at his beck and call,” hanging around with celebrities like Katy Perry.

Yesterday, Bankman-Fried appeared by video at the DealBook Summit and was interviewed by Andrew Ross Sorkin of the New York Times.

“Clearly, I made a lot of mistakes,” Bankman-Fried admitted, serving up a strong contender for understatement of the century. “There are things I would give anything to be able to do over again. I did not ever try to commit fraud on anyone. I was excited about the prospects of FTX a month ago. I saw it as a thriving, growing business. I was shocked by what happened this month. And reconstructing it, were there things I wish I had done differently.”

The transcript of the interview can be found here. Your mileage may vary, but from where I sit, a lot of Bankman-Fried’s answers retreat into jargon and complicated, confusing explations. When he uses the pronoun “we,” it’s often unclear if he’s referring to his trading platform FTX or his hedge fund Alameda Research, which I suppose illustrates the problem in a nutshell.

Also, a lot of answers from Bankman-Fried likely set off a lot of people’s BS detectors:

“I didn’t knowingly commingle funds.”

“I have limited access to data.”

“Look, I wasn’t running Alameda. I didn’t know exactly what was going on. . . . I was a large owner of it. That is true. I had a lot of exposure on that side. But I wasn’t running it.”

“I don’t know the details of the house for my parents.”

“Lawmakers were not ruling on FTX. FTX did not have an application before Congress for anything. My donations were mostly for pandemic prevention.”

“Media matters a lot, and I wanted to support good media ventures. That was the whole thesis there. I don’t have governance over any of these. I was not looking for governance over them. I was looking to support journalists doing great work because I think what they do is really important.”

And then there’s this exchange:

SORKIN: Sam, help me with this. On Nov. 7, you tweeted, and then deleted a tweet, that said: “FTX has enough to cover all client holdings, we don’t invest client assets, even treasuries. We have been processing all withdrawals and will continue to be.” You then deleted that tweet and literally just moments ago, you told me that it was on Nov. 7 that things took a turn.

BANKMAN-FRIED: Yep.

SORKIN: Were you telling the truth?

BANKMAN-FRIED: Things were changing fast.

Yeah, I’m just going to mark that one down as a “No, I was not telling the truth.”

David Z. Morris at CoinDesk contends that the con is still ongoing, and that there are still people who are falling for it, fundamentally misunderstanding and mischaracterizing what happened, helping Bankman-Fried evade moral responsibility. Morris’s whole assessment is worth reading, but here’s the gist:

It is now clear that what happened at the FTX crypto exchange, and the hedge fund Alameda Research involved a variety of conscious and intentional fraud intended to steal money from both users and investors. That’s why a recent New York Times interview was widely derided for seeming to frame FTX’s collapse as the result of mismanagement rather than malfeasance. A Wall Street Journal article bemoaned the loss of charitable donationsfrom FTX, arguably propping up Bankman-Fried’s strategic philanthropic pose. Vox co-founder Matthew Yglesias, court chronicler of the neoliberal status quo, seemed to whitewash his own entanglements by crediting Bankman-Fried’s money with helping Democrats in the 2020 elections — sidestepping the likelihood that the money was effectively embezzled.

Perhaps most perniciously, many outlets have described what happened to FTX as a “bank run” or a “run on deposits,” while Bankman-Fried has repeatedly insisted the company was simply overleveraged and disorganized. Both of these attempts to frame the fallout obfuscate the core issue: the misuse of customer funds.

Banks can be hit by “bank runs” because they are explicitly in the business of lending customer funds out to generate returns. They can experience a short-term cash crunch if everyone withdraws at the same time, without there being any long-term problem.

But FTX and other crypto exchanges are not banks. They do not (or should not) do bank-style lending, so even a very acute surge of withdrawals should not create a liquidity strain. FTX had specifically promised customers it would never lend out or otherwise use the crypto they entrusted to the exchange.

In reality, the funds were sent to the intimately linked trading firm Alameda Research, where they were, it seems, simply gambled away. This is, in the simplest terms, theft at a nearly unprecedented scale. While the total losses have yet to be quantified, up to one million customers could be impacted, according to a bankruptcy document.

It is just about impossible to believe that a series of unfortunate misjudgments and innocent mistakes led to this grand financial debacle.

Bankman-Fried also did an interview with George Stephanopoulos on Good Morning America yesterday; some contended that the tone of the interview was too gentle. I think Mary Katharine Ham has a good argument that, “The media is more hostile to [Elon] Musk for spending his own money than to SBF for losing a couple billion in people’s life savings.”

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