How Sam Bankman-Fried Lost All His Money
Sam Bankman-Fried, a billionaire in the cryptocurrency sector, went from being the industry's leader to its villain in less than a week, lost the majority of his wealth, watched his $32 billion company go bankrupt, and was the subject of investigations by the Securities and Exchange Commission and the Justice Department.
But he sounded unusually composed in a lengthy interview with NYTimes that went well into midnight. "You would've assumed that I wouldn't be sleeping at all right now, but I actually am", he added. "It might get worse."
A run on deposits left Mr. Bankman-crypto Fried's exchange, FTX, with a $8 billion shortfall, prompting the company to file for bankruptcy. The empire he had constructed, once compared to financial heavyweights like John Pierpont Morgan and Warren Buffett, came crashing down last week. The harm has extended throughout the sector, bringing down other cryptocurrency businesses and fueling broad skepticism of the technology.
Mr. Bankman-Fried, 30, hasn't said much in public during the past weeks except from a few tweets, emails to staff, and sporadic texts to reporters. He expressed a lot of regrets for the demise of FTX in the interview.
However, he would only provide scant information about the main issues that were circling him, such as whether FTX had inappropriately utilized billions of dollars in client funds to support Alameda Research, a trading company that he also created. The SEC and Justice Department are investigating this connection.
According to Mr. Bankman-Fried, Alameda had built up a sizable "margin position" on FTX, which essentially meant it had borrowed money from the exchange. It was significantly bigger than I had anticipated, he remarked. In fact, there was a huge downside risk. The position's size, he claimed, was in the billions of dollars, but he would not go into greater detail.
However, Mr. Bankman-Fried agreed with detractors in the cryptocurrency community who claimed he had widened his business interests across a large portion of the sector too soon. He said that because of his other obligations, he had missed warning signs that FTX was in peril.
He admitted, "I could have been more thorough if I had been a little more focused on what I was doing. "That would have given me the opportunity to notice what was happening on the danger side."
Based in the Bahamas, Mr. Bankman-Fried refrained from commenting on his present whereabouts out of worry for his safety. Requests for comment from the legal representatives of FTX and Mr. Bankman-Fried went unanswered.
The crypto community is in disbelief at Mr. Bankman-fall. Fried's But according to interviews with nine of his business partners and associates as well as internal messages obtained by The New York Times, there had been warning signs for some time that his economic empire was in danger and that his objectives were out of reach.
He didn't share information with important workers as he went on a buying binge this year, investing in struggling crypto businesses. He was advised to hire more employees after being informed that he was overworked, but he opposed the advice. Additionally, he was criticizing Changpeng Zhao, the CEO of the competing exchange Binance, while advancing an aggressive regulatory agenda in Washington. Changpeng Zhao eventually rallied his sizable Twitter following to start the run on FTX.
FTX has no outside investors on its board despite the billions that venture capital companies invested in the company. According to four people with knowledge of the situation, Mr. Bankman-Fried led a somewhat reclusive life in the Bahamas, surrounded by a small group of coworkers, some of whom were dating other FTX employees. He shared a penthouse with his top lieutenants at Albany, a 600-acre oceanfront resort on the Bahamas' island of New Providence.
When asked if he was unduly reliant on that tiny group, Mr. Bankman-Fried said that there were perhaps 15 people in his inner circle of coworkers. I don't think someone can keep tight contact and close communication with more than 15 people, realistically speaking, he remarked.
The connection between FTX and Alameda was the cause of Mr. Bankman-demise. Fried's As the son of Stanford Law professors, he established the trading company in 2017 and rented offices in Berkeley, California, not far from where he had grown up. The business quickly made millions of dollars by taking advantage of Bitcoin's market inefficiencies.
Mr. Bankman-Fried moved the business to Hong Kong in 2019, where the regulatory climate is friendlier. He relocated with a small group of traders, including Caroline Ellison, a former trader at Jane Street, and launched FTX, a platform for cryptocurrency investors to purchase, sell, and store digital assets.
Alameda and FTX have a tight relationship. Alameda conducted substantial trading on the FTX platform, which caused it to occasionally profit when FTX's other clients lost money. Critics referred to this situation as a conflict of interest. Mr. Bankman-Fried has previously defended the arrangement, asserting that Alameda provided essential liquidity — capital injections that allowed other customers to complete transactions on the exchange.
According to a person acquainted with the inner workings of the company, Ms. Ellison managed Alameda, but Mr. Bankman-Fried was also involved and contributed to the decision-making on significant trades. There occasionally didn't seem to be much of a firewall between the companies. Alameda was meant to operate out of a separate office, but a visitor who recently stopped by the FTX facility claimed that Ms. Ellison was seated next to computers that showed the exchange's trade data.
Along with Mr. Bankman-Fried and Ms. Ellison, the group of executives in charge of the cryptocurrency business in the Bahamas also comprised Ramnik Arora, the head of product, Gary Wang, the exchange's chief technology officer, and Nishad Singh, the director of engineering at FTX.
In 2021, Mr. Bankman-Fried relocated FTX to the Bahamas because of the country's regulatory framework, which permitted him to provide riskier trading options that were illegal in the US. Investors might borrow funds on the exchange to place significant wagers on the potential worth of cryptocurrencies.
In the Orchid building of the Albany resort, he shared a five-bedroom penthouse with Ms. Ellison, Mr. Singh, Mr. Wang, and six other people. Two sources said that Mr. Bankman-Fried and Ms. Ellison occasionally had romantic relationships.
Mr. Bankman-Fried declared that he and Ms. Ellison were no longer dating but he would not elaborate. In response to a request for comment, Ms. Ellison remained silent. Numerous specifics on the connections between FTX's executive staff were previously published on Coinbase.
A shared belief in effective altruism, a benevolent movement that exhorts followers to donate their riches in rational and effective ways, united Mr. Bankman-circle Fried's of associates. A person with knowledge of the situation claimed that it was occasionally challenging for coworkers outside of the clique to schedule time to speak with Mr. Bankman Fried. And Mr. Bankman-Fried took great delight in the fact that FTX had a significantly smaller staff than its biggest competitors, Binance and Coinbase, with only roughly 300 people working there.
While cutting back on hiring, Mr. Bankman-Fried built a sizable philanthropic organization, made investments in dozens of other cryptocurrency businesses, purchased shares of the trading platform Robinhood, contributed to political campaigns, participated in media appearances, and even offered Elon Musk billions of dollars to help fund the billionaire's takeover of Twitter.
Mr. Bankman-Fried said he wished “we’d bitten off a lot less.”
“The venture stuff was probably not really worth it given the attention that it took,” he said, referring to his investments in other companies.
The most ambitious goal of Mr. Bankman-Fried, who testified before Congress and interacted with regulators, was probably to influence crypto policy in Washington. In private meetings, he also criticized Mr. Zhao, his strongest opponent, using his rising clout in the capital, according to several with knowledge of the situation.
Mr. Bankman-Fried declared on Sunday that attacking Mr. Zhao "was not a good strategic move on my behalf." "I was quite irritated by a lot of what I witnessed happening, but I should've realized that expressing that wasn't a good idea on my part."
Mr. Zhao, a former FTX investor, still held a significant quantity of FTT, a cryptocurrency that FTX created to enable trade on its platform. Customers scrambled to withdraw their FTX deposits after Mr. Zhao's tweet on November 6 informing followers that he was selling the FTT frightened them.
Mr. Zhao first consented to purchase the exchange in what would have amounted to a bailout when FTX crashed. However, the deal quickly collapsed because Binance discovered issues with the business's finances. According to two persons with knowledge of the situation, Mr. Zhao posted a brusque message in a Signal group chat that Mr. Bankman-Fried and other FTX representatives were a part of.
According to a person familiar with the situation, Ms. Ellison provided an explanation of what led to the collapse during a meeting with Alameda staff members on Wednesday. She apologized, stating she had let the group down, her voice quivering. She claimed that Alameda had just taken out loans and had utilized the funds, among other things, to invest in venture capital.
According to the individual familiar with the conversation, lenders attempted to recall those loans around the time the cryptocurrency market fell this spring, as Ms. Ellison explained. However, Alameda's funds were no longer readily accessible, therefore the business had to make the payments using FTX customer funds. She said that in addition to her and Mr. Bankman-Fried, two other people were aware of the arrangement: Mr. Singh and Mr. Wang.
The Wall Street Journal had already reported on the meeting. A request for response from Mr. Singh went unanswered, and Mr. Wang was not reachable. A individual acquainted with FTX's financial situation said that the exchange loaned Alameda as much as $10 billion.
Mr. Bankman-Fried said on Sunday that he has been "working constructively with regulators, bankruptcy officials, and the corporation to try to do what's best for consumers" while FTX has fallen apart.
According to a person familiar with the situation, federal prosecutors in New York are currently looking into his management of FTX and have started reaching out to potential witnesses. Others connected to FTX have reportedly begun contacting attorneys about possible counsel, according to several persons briefed on the situation. Sullivan & Cromwell, a law firm, is representing FTX in the inquiries and the bankruptcy, and Paul Weiss attorneys are defending Mr. Bankman-Fried.