By Gareth Vaughan
Sam Bankman-Fried was a nerdy billionaire and rockstar of the crypto industry, living a lavish lifestyle in the Bahamas, with celebrities advertising his cryptocurrency exchange FTX as he gained influence in Washington DC.
Then it all went wrong. FTX collapsed, leaving an US$8 billion hole and lots of angry customers. FTX was placed in Chapter 11 bankruptcy protection. Worse for Bankman-Fried, he was charged with fraud and extradited to the United States.
He's alleged to have used billions of dollars of FTX customer funds for his personal use, to make investments and millions of dollars of political contributions to federal political candidates and committees, and to repay billions of dollars in loans owed by Alameda Research, a cryptocurrency trading company he also founded.
After being released on a US$250 million bond and placed under house arrest, Bankman-Fried, who has proclaimed his innocence, is now living at his parents' house in California ahead of a trial.
Speaking in the Of Interest podcast, San Francisco-based Bloomberg crypto, venture capital and startups reporter Hannah Miller, says if you wanted to make a technology company founder as a science experiment, it would be Bankman-Fried.
Miller hosts, writes and reports on a six-part podcast from Bloomberg and Wondery called Spellcaster: The Fall of Sam Bankman-Fried.
"He [Bankman-Fried] basically grew up on the campus of Stanford University. The big joke is that if you wanted to create the perfect tech founder, he's it. He grew up in Silicon Valley. He grew up in the heart of the tech industry, he was right down the road from some of the people who would actually go on to invest in FTX as venture capitalists," Miller says.
In the Of Interest podcast she talks about how Bankman-Fried embraced effective altruism in his student days at the Massachusetts Institute of Technology, early working experience at Wall Street trading firm Jane Street Capital, and launch of Alameda Research and arbitrage trading of bitcoin between the US and Japan.
Then in 2019 FTX was founded and questions emerged over whether it and Alameda Research were really the separate companies Bankman-Fried claimed they were.
Miller talks about encountering Caroline Ellison, Alameda Research's co-CEO, who had been in a romantic relationship with Bankman-Fried at a mutual friend's bachelorette weekend. She also talks about how influential and high profile FTX was at its height, how Bankman-Fried sought to be seen as "the good guy of crypto" in Washington DC, and the company's demise.
"I try to focus on the fact that there are people who trusted their life savings with FTX and now have no idea if they're ever going to get that money back. I think you have to look at the consequences here," Miller says.
"This is someone who really got a lot of people to trust him. And the fact of the matter is FTX is bankrupt and there are people with way more questions than answers."
*You can find all episodes of the Of Interest podcast here.
12 Comments
He was hardly a spellcaster. He was picked through political connections and given the place of being the establishment crypto guy. At least one of his parents was a Stanford Law Professor, Caroline Ellison's father was a college head at MIT. They were not even seen as a big player in the crypto space by most crypto people until ~2021.
His firm was founded late by comparison with most exchanges which dominate today. He founded in 2019 with tons of nepotism money, then came out of the blue to be a huge player because he was aiming to be the champion of "responsible regulation" in crypto, so he received immense PR, tops of venture capital and all sorts of funny money at the time.
The whole place blew up because he was fraudulently trading against his own customers to make money, while his incompetent girlfriend (caroline ellison) was taking huge losses on Alameda research, 'borrowed' against unsecured customer deposits, lost that and had 50% of its holdings in its own FTT cryptocurrency. CZ of Binance became aware of these issues and effectively outed them for their corruption.
Don't defend this guy, he deserves the rope.
Don't defend this guy, he deserves the rope.
You won't read about in Bloomie, NYT, or WSJ but the idea of SBF as the 'useful idiot' is an interesting one. Yes, it might sound like conspiracy, but it makes a lot of sense to have let FTX/Alameda blow up the crypto space. The ruling elite and Wall Street have been too complacent in capturing the space for themselves. So why not create a massive bubble and let the degens blow themselves up and take down the market? When it's over then the likes of Jamie Dimon can scoop up what they want (and likely as much rat poison as possible).
So while I have no sympathy for SBF, I also think there's too many known unknowns about the whole design of the FTX fiasco. Remember, FTX Japan did not blow up because it had to operate under Japanese regulations. Therefore, all FTX customers in Japan got their assets back and the FTT coin was not available on the Japan exchange. If Japanese degens wanted to blow themselves up on the international platform, that's up to them.
And then the relationship between SBF and the SEC and Gary Gensler. Murky as fk.
https://nypost.com/2023/06/22/sec-boss-gary-gensler-faces-ethics-scruti…
And now look from today's WSJ. Former SEC Chairman Jay Clayton (who looks as corrupt as they come) and the former CFTC Chairman announce a path forward for regulating crypto - “…enforcement actions, in themselves, are unlikely to bring about a significant improvement in investor protection and market integrity quickly.”
“…the SEC and CFTC should jointly develop basic investor and market protection standards for trading platforms..the agencies could act directly or through a self-regulatory organization, shifting funding responsibility to the industry.”
SBF looks more the 'useful idiot' now this is all happening.
https://www.wsj.com/articles/regulating-crypto-markets-1e5ec5c5
Apparently, SBF was the Democratic Party's biggest donor the whole time he was stealing the money. He will be protected by the same people who will look after the White House residence library cocaine debacle.
Yes. But he did donate to the wingnuts as well. From memory, donations from SBF have largely not been forfeited. BTW, the SEC looks to be influenced by Pocahontas Warren. Gary Gensler has political ambitions with the Democrats who are controlled by Wall Street.. Pocahontas is a disgrace and shouldn't be trusted.
Crypto was in a mania, there was something like 15,000 types of 'coins' which were mostly reaching for the sky.
Internet chat rooms were full of how much participants were making and how much they were worth...until the chickens came home to roost. Entirely predictable.
I'm a mania watcher, I've done it for decades - reminds me of the crowds at the stock exchange in Auckland whoopin' and hollerin' as worthless shares spiked ever higher...until October 87.
From its height in 1999 to its trough in 2001, Amazon's stock price dropped 93%, but has since pumped 400x. Most people cannot hold tightly through the valley of darkness. Better to avoid the first explosion of bullish pathos and feed at the bottom.
Getting in "at the bottom" sometimes means going to zero.
Getting in "at the bottom" sometimes means going to zero.
Correct. Like Pets dot com. Received a 54% stake from Bezos in its first round of venture funding.
It's also a really good attribute to know when your time and resources have a better return elsewhere, cut your losses, and move on.
Many (most) people will fall prey to sunk cost fallacy and throw good money after bad for far longer than they should.
Crypto has cycles. I was there in the mania in 2013, 2017 and 2021. Got out last year with a fairly life changing amount of money.
Put around 12% of the proceeds back in last year and now up around 85%. Bitcoin has basically doubled since the FTX collapse.
The question is will there be another bubble year in 2025? History never repeats but it rhymes right?
Well done making money out of it. In manias most will have lost and some will have lost the lot. I did the same in '87. I had a floating mortgage which I ran up to the max and bought shares.
I sold after my visit to the stock exchange and paid off the mortgage completely. You are right about history repeating.
They were exciting times alright...all everyone could talk about was how much money they were making. They were partying in downtown Auckland, buying new cars and selling them for more than they paid for them and property prices were going through the roof.
I was a pilot and there was one guy who was regarded as an 'expert' by the others when it came to making money out of shares. He was a captain and the junior pilots would pay him some respect. He was giving a lecture in the crew room one day about shares, and one pilot wasn't paying attention. The 'expert' called out to him, "hey you, don't you want to be rich"?
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