Crypto insiders paint a picture of a charismatic tech founder who became the darling of high-powered investors, even as he was brazen about his cryptocurrency exchange’s shaky business model and kept the books closed to all but a few confidants.
Well before the catastrophic collapse of his FTX cryptocurrency exchange, Sam Bankman-Fried told everyone what he was doing. He told them about his appetite for risk. He told them some crypto exchanges were “secretly insolvent.” Last year, when declaring his net worth to be an estimated $10 billion, he said it was in “mostly illiquid” assets. Even when Bloomberg’s Matt Levine suggested he was in the “Ponzi business” during an interview in April, Bankman-Fried didn’t disagree. “I think that’s a pretty reasonable response,” he said.
That he was headed for calamity was inevitable. But with the ecosystem of hype and awe built around him, few heard what he was really saying. Employees, customers, and investors alike all saw the dollar signs being minted from his crypto market makers, including FTX, leaving few reasons to believe what Bankman-Fried had been saying all along. Prominent FTX backer Sequoia Capital was also caught in the gravitational pull, publishing a now-deleted 14,000 word paean to Bankman-Fried that likened him to fictional protagonist Jay Gatsby. (“Is crypto the new jazz?” the author wondered, apparently not considering that the titular Gatsby earned his fortune through crime.) This week, Sequoia wrote down its $213 million FTX investment to $0.
“Sam Bankman-Fried was the devil in nerd’s clothes,” said a BlockFi director whose future is now uncertain thanks to a now defunct deal with FTX that could have soothed the crypto lender’s liquidity woes after filing for bankruptcy itself in October.
After a week that saw FTX admitting to a liquidity crunch on Monday and filing for Chapter 11 bankruptcy protection by Friday, the unfolding catastrophe has sent a tsunami barreling through the crypto market, triggering the collapse of more than 100 affiliated companies, lending platforms and exchanges once seen as unshakeable infrastructure providers to the industry.
“Sam ran the shop, Sam ran everything, we all trusted him, and believed him. It was a dictatorship, in a good way, a benevolent dictatorship.”
This is not how it was supposed to go, according to the legend that had been built around Bankman-Fried by legions of crypto fans–including big-name Silicon Valley venture capitalists, who heaped praise on him even as they failed to make sure his business was legit. According to the myth, before the age of thirty, Bankman-Fried made himself one of the world’s richest people by building the second largest cryptocurrency exchange, FTX, as well as its American arm, FTX.US, while simultaneously running Alameda Research, his ostensibly lucrative trading firm.
His mystique was bolstered by his embrace of philosophies like effective altruism, which added a moral heft to his ruthless money making. The rare facade of a do-gooder billionaire was maintained by lavish spending on marketing with professional sports teams and donations to charities—under the guise of effective altruism—and an unusually warm embrace of Washington lawmakers, with large sums of political donations and calls for more regulation of an industry he helped build. Along the way, he raised more than $2 billion from investors like Sequoia, NEA and Lightspeed Venture Partners–several of whom are now carving nine-figure losses into their balance sheets.
But behind the curtain was a man who oversaw a workforce that believed (or at least pretended to) in Bankman-Fried’s mission to pile up money in order to give it away, but knew little of the high-level machinations that led to the downfall of his empire this week. While the crypto leader told Congress that the industry needed “disclosure and transparency,” his secrets were held closely within a circle of friends who reportedly partied together and dated one another–leaving even the company’s high-level executives in the dark on FTX’s financials.
In the meantime, FTX employees and customers reeling from the exchange’s abrupt and utter collapse are demanding answers. “All of our life’s work has evaporated,” one current FTX employee told Forbes. “A lot of people are trying to understand how this happened.”
Bankman-Fried, FTX, and Alameda Research did not respond to requests for comment.
This YouTube is a perfect encapsulation of Bankman-Fried’s image in Silicon Valley as a benevolent billionaire.
It was 2017 when Bankman-Fried first began dabbling in cryptocurrency trading. With an untamed mop of hair completing his disheveled gamer look, he’d just quit his job as a quant-trader at Jane Street, and saw an opportunity in his new hobby: the price of Bitcoin was valued differently in exchanges across the globe. If he could buy low then sell high in another region of the world, he realized that he could build a trading floor around Bitcoin arbitrage.
He launched Alameda Research with around 15 employees and traders, bringing in colleagues from Jane Street, like Caroline Ellison, and others like Nishad Singh, whom he had met through the Center for Effective Altruism, a group of thinkers and luminaries that vow to donate much of their wealth and with whom Bankman-Fried had become enmeshed with. “When we joined, his goal was to make a billion dollars,” one of the first Alameda employees told Forbes. “Alameda traders really were beholden to what SBF was doing: he was the head trader, they were the foot soldiers.”
From the start, “Sam wanted to take riskier decisions than the others wanted to take,” said another early Alameda employee. Specifically, he pushed back against efforts by some to slow down risky trading efforts, and overlooked the challenges of extracting capital from shady exchanges. “Sam ran the shop, Sam ran everything, we all trusted him, and believed him,” said an early employee of Alameda who worked with Sam and his close circle. “It was a dictatorship, in a good way, a benevolent dictatorship.”
Bankman-Fried was looking beyond Bitcoin arbitrage when he approached Binance in 2019 with an idea to launch a futures trading desk, according to former Alameda employees. Binance wasn’t interested, but the company’s CEO Changpeng “CZ” Zhao did agree to join an initial funding round for Bankman-Fried to launch his own exchange, FTX. “From that moment on, it was like, well hold on, are we an exchange or a trading firm,” a former Alameda employee told Forbes. “They couldn’t split the baby: FTX’s reliance on Alameda was always the core.”
“People at FTX had no understanding of what was happening at Alameda.”
Bankman-Fried may have kept his friends close, but he kept his management team and investors clueless. Even high level executives at FTX and FTX.US lacked access to crucial financial information about the companies, save for a small group of founders and insiders. “In terms of financials – I acknowledge I have very little transparency and more is not possible without full cooperation from the founders,” Ryne Miller, FTX’s general counsel posted to Slack on Thursday before his message was deleted and the company’s Slack went private. Miller did not respond to a comment request. But others echoed his comments.
“People at FTX had no understanding of what was happening at Alameda,” one former FTX employee told Forbes, describing this privileged group as “kind of a little clique. Just a bunch of degenerate kids at the end of the day.”
The collapse has also underscored the lack of diligence performed by investors like Temasek and Tiger Global to ensure appropriate financial controls: none were on FTX’s board. One investor told Forbes that they only had access to FTX’s balance sheets as part of due diligence, which “looked fine.” The investor said they had no visibility into Alameda’s operations, but saw no red flags because they saw large sums of tokens moving between the two firms “all the time.”
Now, as U.S. government agencies descend on Bankman-Fried and his companies, a retinue of associated investors and executives have begun scrubbing themselves from the internet. In the past week, FTX cofounder and CTO Gary Wang, chief regulatory officer Dan Friedberg, and COO Constance Wang all deleted their LinkedIn pages for reasons unstated. Kyle Samani, once a vocal supporter of Bankman-Fried and current managing partner at Multicoin Capital, which had 10% of its fund’s assets under management caught up in the exchange, quietly removed tweets about the CEO following his undoing.
“He used money that doesn’t exist to buy things. It’s just awful.”
FTX seemed to be a runaway success, an image that built alongside Bankman-Fried’s own, with magazine covers, including Forbes, espousing his rise. In less than two years, he raised $2 billion. During one pitch meeting over Zoom with Sequoia, the firm’s partners fawned over Bankman-Fried. “I LOVE THIS FOUNDER,” one wrote in a chat box during the meeting. In July 2021, Sequoia joined Softbank and other investors in FTX’s $900 million series B funding round. Months later, after another funding round, investors valued FTX at $32 billion. According to a report from The Information, Sequoia also engaged in the unusual arrangement of accepting hundreds of millions of dollars from Bankman-Fried, as an LP in one of their funds.
Lavish donations to charities, not-for-profits, and sports sponsorships further crystalised the myth around Bankman-Fried. For one deal, he promised $17.5 million to UC Berkeley in cryptocurrency for the naming rights of their stadium. He gave a reported $10 million toward a partnership with the Golden State Warriors, plastering FTX signage throughout the team’s San Francisco arena. He then signed a 19-year deal to rename the Miami Heat’s home court FTX Arena. (UC Berkeley called FTX “a great partner for Cal Athletics,” but said it’s monitoring the situation and will “determine any next steps if they become warranted.” The Golden State Warriors said they have “no news to share” regarding the FTX partnership. The Miami Heat said Friday they are finding a new naming rights partner.)
Bankman-Fried also emerged as a major player in Washington, fronting lawmakers, and becoming a major donor. Along with two of his deputies, he gave nearly $69 million to politicians and PACs ahead of the midterm elections, rubbed shoulders with lawmakers like Rep. Maxine Waters, and was a vocal supporter of a bill introduced by senators Cynthia Lummis, of Wyoming, and Kirsten Gilibrand, of New York. “My giving has been bipartisan, and my goal is to help support great policy makers,” he told Forbes last month.
Along the way, Bankman-Fried’s initial Alameda crew stayed close. In July 2021, when Fried stepped back as CEO of Alameda to focus on FTX, his alleged on-again off-again romantic partner and coworker Ellison was appointed co-CEO of Alameda alongside Sam Trabucco. As they set up headquarters in the Bahamas, they seemed to be having fun, too. “I’m trying to think of a trade where I’ve lost a ton of money,” she said, before breaking out into a giggle. “Well I don’t know, I probably don’t want to go into specifics too much with that.”
“You’re just like, well, I’m in the Ponzi business and it’s pretty good.”
Perhaps the most inexplicable thing about the gross lack of diligence was that Bankman-Fried wasn’t shy about what he was doing. In an April interview with Bloomberg’s Matt Levine, Bankman-Fried, then worth $20 billion and “the world’s richest 29-year-old,” was asked to explain the concept of yield farming: a strategy for earning massive windfalls that Bankman-Fried had reportedly mastered at his homegrown trading firm, Alameda Research. In his answer, he chaotically described how crypto yields could be squeezed from a metaphorical black box that “does literally nothing.”
That should tell you all you need to know. If it doesn’t, consider Levine’s reply: “I think of myself as a fairly cynical person. And that was so much more cynical than how I would’ve described farming. You’re just like, well, I’m in the Ponzi business and it’s pretty good.”
Bankman-Fried didn’t disagree, and it didn’t matter. In fact, he almost seemed to think there wasn’t a problem with what he was doing as long as the money kept flowing. “This is a pretty cool box, right?” He told Levine. “Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they’re wrong about that? Like, you know, this is, I mean boxes can be great.”
This brazenness also extended to the inner operations of FTX. “If you had a good idea, he’d say, ‘Here’s $5 million.’ But it’s not in dollars — it’s in FTT,” said a former FTX employee. “He used money that doesn’t exist to buy things. It’s just awful.”
But as the fairy tale of Bankman-Fried grew more fantastical, his trading firm was still making increasingly risky bets. Then, in June, Alameda found itself in a bind after crypto hedge fund Three Arrows Capital went under, rocking much of the industry and leading the firm to cover its losses with FTX customer assets. Around that time, FTX also announced the aforementioned bailouts of BlockFi and Voyager.
In September, FTX announced a $1.4 billion bid to buy out Voyager’s assets. But behind the sizable figure was a much smaller cash payout—roughly $50 million. (The bulk of the value focused on Voyager’s crypto holdings). Some Voyager staffers were disappointed by the offer, thinking the cash payment was too low, a Voyager employee told Forbes.
On Friday, Voyager CEO Steve Ehrlich held a town hall, discussing FTX’s tweet announcing bankruptcy and telling staff the company is reopening the bidding process, the employee said. “I feel like we dodged a bullet,” the employee said. “If that deal had gone through, then Voyager customers would’ve probably received 0% of their funds given the current FTX situation.”
There was also another troubled financial firm that FTX was issuing lifelines to: Alameda, which had been facing insolvency, according to people familiar with the matter. In September, a few weeks before FTX imploded this week, more than $4 billion worth of tokens was transferred from the exchange to a digital wallet in a single day, only to be sent back to the exchange hours later — a move that unnerved some crypto-watchers.
“Heads up: rotating a few FTX wallets today (mostly non-circulating); we do this periodically,” FTX founder and CEO Sam Bankman-Fried tweeted about the transfer. “Might be a few more coming, won’t have any effect.”
But Bankman-Fried’s assertion grossly misrepresented what was happening. The transfer was far from a “periodic” rotation of wallets; it was the largest transfer of tokens on the exchange ever, according to blockchain analysis by Coin Metrics. And the recipient wallet was not one controlled by FTX, but by Alameda. “The two things he said in that tweet,” said Lucas Nuzzi, Coin Metrics’ head of research and development, “were lies.”
Most of the risky bets at Alameda were allegedly fueled by FTX’s customer deposits, which its executives, including Bankman-Fried and Ellison, have reportedly admitted knowing about. “The original issue was trying to have it both ways,” a former Alameda employee told Forbes, “thinking you could run FTX properly and running Alameda properly, and trusting yourself to own them properly.”
“I don’t know which emotion is stronger: my utter rage at Sam (and others?) for causing such harm to so many people, or my sadness and self-hatred for falling for this deception.”
Former admirers of Bankman-Fried are now reckoning with this new, less shiny image. But some have realized, in retrospect, that he never did add up. “Sam hides behind altruism,” said one former FTX employee, claiming the CEO’s benevolent persona was a carefully calculated mirage. “He’s quite aware of the front that he puts on.”
Others have simply thrown up their hands and admitted they don’t know what’s happening. One question that remains is what will happen to Bankman-Fried’s charitable ventures. On Thursday, citing a lack of clarity around the “legitimacy and integrity of the business operations” supporting their work, the entire team at FTX Future Fund publicly resigned. The philanthropic collective, which claims to have issued dozens of grants, was largely funded by Bankman-Fried, Caroline Ellison, Gary Wang, and Nishad Singh.
In October, somewhat portentously, Bankman-Fried also reversed a vow to donate $1 billion to political causes by 2024, simply reducing the pledge to a “dumb quote.”
William MacAskill, who cofounded the Centre For Effective Altruism where Bankman-Fried briefly served as a director before he launched Alameda Research and that he financially backed afterwards, expressed his own feelings about FTX’s collapse in a Twitter thread on Friday. “If there was deception and misuse of funds, I am outraged,” he wrote. “and I don’t know which emotion is stronger: my utter rage at Sam (and others?) for causing such harm to so many people, or my sadness and self-hatred for falling for this deception.”
On Friday, Bankman-Fried resigned as CEO of FTX, and the company, along with FTX.US and Alameda Research, each filed for Chapter 11 bankruptcy in Delaware. Court documents show that on Thursday, the same day Bankman-Fried tweeted that “FTX USERS ARE FINE!” he also signed a document declaring that more than 130 affiliated entities, including FTX.US, would be petitioning for bankruptcy.
Filings from Alameda Research and West Realm Shires Services (FTX.US) each disclosed more than 100,000 creditors and liabilities ranging from $10 billion to $50 billion. More concerning–a Reuters report published Saturday suggests that at least $1 billion transferred from FTX to Alameda is unaccounted for. FTX is now being represented by John J. Ray III, the Chicago-based attorney who oversaw the liquidation of Enron and assumed the role of CEO on Friday.
The problems continued after business hours on Friday as alarmed customers began chattering on social media that cryptocurrency was disappearing from both their FTX and FTX.US wallets. By midnight on the west coast, at least $400 million in cryptocurrency had been suspiciously drained from the exchange by unknown parties, prompting admins of FTX’s Telegram channel to warn: “FTX has been hacked. FTX apps are malware. Delete them.” FTX.US general counsel Ryne Miller has since clarified that some of those assets were moved by the company into cold storage as part of its bankruptcy process, but the actors behind the other missing funds remain at large.
Earlier this week, as his empire collapsed around him, Bankman-Fried had tweeted “Everything is fine. FTX is fine.” A few days later, that tweet was gone too.
With reporting from Rich Nieva, Kenrick Cai and Steve Ehrlich
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