Tag: bankman-fried:
Hitting the Books: The abrupt and ignoble downfall of Sam Bankman-Fried
Seemingly overnight, Sam Bankman-Fried, the founder of FTX, went from cryptocurrency wunderkind to wanted for questioning by the FBI. After years of unfettered success, the walls of SBF’s blockchain empire came crumbling down around him as his tricky financial feats failed and his generalized lack of accounting brought increasing scrutiny by regulators. In SBF: How the FTX Bankruptcy Unwound Crypto’s Very Bad Good Guy, veteran crypto reporter Brady Dale provides a scintillating and clarifying narrative of the entire FTX/Alameda Ventures saga. In the excerpt below, we glimpse in at the immediate aftermath of FTX’s sudden insolvency.
Excerpted with permission from the publisher, Wiley, from SBF: How the FTX Bankruptcy Unwound Crypto’s Very Bad Good Guy by Brady Dale. Copyright © 2023 by John Wiley & Sons, Inc. All rights reserved. This book is available wherever books and eBooks are sold.
A Flood of Pure SBF
When I wrote in Chapter 1, “I am drowning in Sam,” I was here, at this point in the story. I was then. I still am, but the tide is going out. I’m not back on land yet, but I know if I rest and I don’t fight it, the land will find me. I don’t need to find the land. Unlike SBF after CoinDesk’s Ian Allison released his post about Alameda’s balance sheet, I can see the shore from where I am.
In late November and early December SBF would not leave the public eye. He was in magazines. He was in the New York Times. He was doing interviews on YouTube. He was on Twitter Spaces.
YouTube gadfly Coffeezilla was chasing him.
NFT influencers were chasing him. TV reporters were chasing him.
A goofy token shill I will not dignify by naming chased him.
Everyone thought if they could just get one more interview from him, it would make sense.
They were all playing into Sam’s hands. Many who felt betrayed believed that his media tour was working to his benefit, that he might actually get away with losing $8 billion (or was it $10 billion?) in customer money. They saw large media companies as complicit in helping to burnish his image.
But then he was arrested, and as I write this, he’s sitting in the sick-bay of an overcrowded prison in the island nation his company had recently made his home.
Looking back on it, there is not a lot of value to say about all these many appearances. We were all just tea bags soaking in the flavors of a collective stew we had boiled up together, a swirling potion of shifting sadness, outrage, intrigue, schadenfreude, and mockery.
SBF appeared in many places, but to my mind, these were the key media appearances:
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Axios interview on Nov. 29. A few pieces were published with different parts of the interview. Where he first said he was down to $100,000.
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The first recording from Tiffany Fong’s phone call with SBF, released on YouTube Nov. 29.
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The New York Times Dealbook Summit, Nov. 30.
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Good Morning America, Dec. 1.
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New York Magazine interview on its Intelligencer site, Dec. 1.
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The Scoop podcast, Dec. 5.
There were others. People really like the grilling scam vigilante Coffeezilla gave him, too. Eventually, though, listening to these things was like watching one of those YouTube videos of skateboarding accidents: it was a lot of the same thing over and over.
He was sorry, there was an accounting artifact, he should have had better risk management, he shouldn’t have given up his company, etc., etc., etc.
Were anyone to go through the above accounts and more from that month in a two-day marathon session like I did, I think they would eventually discern a strategy. What appeared to be a series of open conversations had become, to my ears, talking points.
I wrote the same for Axios at the time, but I don’t actually think the talking points are all that interesting anymore now that he’s been arrested. At the end of December 2022, he would be back in his family home, under house arrest, his passport taken, and wearing an ankle monitor. Once those handcuffs went on, the public relations campaign became irrelevant because it was something designed to prepare himself if his lawyers succeeded in keeping him out of jail.
As I wrote in the beginning, as new facts and circumstances arise, the set of possible explanations and futures shrink. Before the handcuffs, it seemed almost likely he might get away with the company’s failure. Once he went to jail, it’s hard to imagine how we ever even saw that possibility.
Because they failed to keep him out of jail, the talking points matter very little.
Except one point, which I think is worth highlighting.The fact that Alameda was drawing customer funds from FTX to cover losses on investments hasn’t been verified by a court yet, but it has been alleged in multiple accounts by different government organizations who seem to have had a look at the books.
That cash (in cryptocurrency form) had moved from FTX to Alameda to meet margin calls, make loans, make investments, and even to make political donations. This is, in my estimation, considerably more nefarious than the way SBF described the hole’s origins in his media tour.
In all of his appearances, he described Alameda as having an excessive margin position. For example, in New York Mag, he said:
A client on FTX put on a very large margin position. FTX fucked up in allowing that position to be put on and in underestimating, in fact, the size of the position itself.That margin position blew out during the extreme events over the last few weeks. I feel really bad about that. And it was a large fuckup of risk analysis and risk attention and, you know, it was with an account that was given too much trust, and not enough skepticism.
In other words, FTX let Alameda’s bets on FTX get too big.We were to imagine Alameda was, I don’t know, 12X long $500 million on bitcoin and 20X long $200 million in ether or something.
All secured by the ftt token. And ftt went bad, and now they were out a bunch of money.
When FTX first fell apart, I went into Slack and explained my understanding of the whole debacle to one of my coworkers this way:
Step 1.
Launch a trading desk. Make piles.
Step 2.
Decide you want to make more piles, so open an exchange that prints money off retail trades and use that money to lend to trading desk.
Step 3.
Lend retail money to trading desk in hopes of quadrupling all gains.
Step 4.
Trading desk loses borrowed money.
Step 5.
[Surprised face emoji]
But SBF was trying to spin it as if it had all stayed inside the house. It was just big bets, but funds hadn’t left FTX.This is still bad, but more negligent, less outright theft.
Jason Choi had been with Spartan Capital when FTX was raising money, and he’d declined to invest because he didn’t like the Alameda/ FTX relationship. He explained all this on Twitter after the exchange collapsed.We spoke before complaints had been made against SBF, and I asked him whether he thought it mattered if Alameda had an outsized margin position or had taken customer funds out of the exchange.
“I think functionally they are the same,” he said. “It implies that Alameda is able to run things into seriously negative positions.”
In other words, in terms of what people have lost, each outcome arrives at the same place.
But it does matter in terms of how to understand the decisions made. If funds were taken out and handed to Alameda to use elsewhere, people had to green-light those moves, knowing that they were against the terms of service and against the many assurances that the company had made to the public and their users.
It’s not negligent. It’s willful. Legality aside, it just feels different ethically.
However, for what it’s worth, when SBF and I last spoke he stuck by this explanation: the hole in FTX’s balance sheet was from a margin position Alameda took out. It had failed to adequately hedge, and it had gotten much too long on the wrong collateral.
Before he was arrested, that’s how he described the problem. That’s still how he describes it. He agreed, when we spoke, that it would be different if FTX had been sending actual customer assets to Alameda to use in other ways, but he says that wasn’t happening.
The government is claiming that it did happen, and to do so it’s drawing attention to loans made to SBF and other cofounders, loans they used to make venture investments, to buy stock in Robinhood, political donations, and to purchase real estate.
This points to a part of the story that I didn’t really understand until the complaints started coming out.
When it’s said that someone is a “billionaire,” that doesn’t mean that they have billions of dollars in cash. It doesn’t mean, necessarily, that they can even spend that much money.That doesn’t even mean that they can access billions of dollars in cash, or even many millions.
If someone’s billionaire status is tied up in a stake in a private company, it can be very difficult to turn that value into spendable money. If their status is tied up largely in thinly traded, extremely new crypto tokens, it might be even harder.
In the complaints by the SEC and the CFTC and the DoJ, they allege loans from the Samglomerate, using customer funds, to enable investments, property purchases, political donations, and more. All of these things take actual cash. SBF and his cadre had very high net worth, but it hadn’t occurred to me that they wouldn’t really have access to that much cash until those complaints came out.
Of course SBF, Wang, Singh, and others could borrow money somewhere, and maybe more sophisticated readers than me presumed it was borrowed from banks. Or maybe it was borrowed from some of the new crypto lenders (many of which fell into dire straits). But these various agencies allege something else: the funds were borrowed from FTX customers. And the customers didn’t know. Further, they had no upside. Only downside.
And the downside is here now.
“I thought at the time and still do think that, the size of those loans was substantially less than the profit, than like the liquid trading profit that Alameda had made,” he told me in December. In other words, he denies that the loans were made using FTX user funds.
The whole story of what happened is confusing and dripping in finance jargon and involves a level of mathematics few of us have contemplated recently. It may be that SBF’s story here has been a bet that he was smart enough to cast a spell and convince us all that all the mistakes were only made inside the casino.
And if he had done that well enough, the sting of the error might fade, and if he evaded an arrest and conviction, he might be able to rehabilitate himself in the public eye and apply his considerable gifts, once again.
He might still have won, but then he was arrested.
So in that case, these appearances might really have just been about enjoying that last moment in the spotlight. For some, it’s better to be hated than ignored. But it’s also worth noting that he hasn’t given up on this story.
As I wrote in the prologue: he doesn’t believe the evidence of crimes is there. He seems as eager to reopen the books at FTX and Alameda. He wants everyone to get from 20 percent of the story to 80 or 90 percent. And maybe we will. And maybe the fact that he seems to want that as much as anyone will prove to be a sign that he was right.
But trust me, if you haven’t seen the many media appearances of November and December 2022, you don’t need to. This chapter gives more than you need to know about what he had to say before they put him in a Bahamas jail.
Sources Referenced
“Exclusive: Sam Bankman-Fried says he’s down to $100,000,” Shen, Lucinda, Axios, Nov. 29, 2022.
“Sam Bankman-Fried Interviewed Live About the Collapse of FTX,” New York Times Events,YouTube, Nov. 30, 2022.
“FTX founder Sam Bankman-Fried denies ‘improper use’ of customer funds,” Stephanopoulos, George, Good Morning America, Dec. 1, 2022.
“Sam Bankman-Fried’s First Interview After FTX Collapse,” Fong, Tiffany,
YouTube, posted Nov. 29, 2022
“What Does Sam Bankman-Fried Have to Say for Himself? An interview with the disgraced CEO,”Wieczner, Jen, New York Magazine, Dec. 1, 2022.
“2-hour sit-down with Sam Bankman-Fried on the FTX scandal,” Quinton, Davis, and Frank, Chaparro, The Scoop podcast,The Block, Dec. 5, 2022.
Jason Choi, interview, mobile, Dec. 11, 2022.
“The SBF media blitz’s key messages,” Dale, Brady, Axios, Dec. 8, 2022.
Interview, Sam Bankman-Fried, phone call with spokesperson, Dec. 30, 2022.
This article originally appeared on Engadget at https://www.engadget.com/hitting-the-books-sbf-brady-dale-wiley-ftx-143033761.html?src=rss
Crypto: FTX founder Sam Bankman-Fried charged with bribing Chinese government officials
Sam Bankman-Fried is Under House Arrest – at Stanford. Students are Fascinated
“Surrounded by student co-ops, fraternity houses and other faculty homes, he’s the talk of the neighborhood.”
Bankman-Fried, the son of two Stanford law professors, was released on a $250 million bond secured by the Craftsman-style house. While awaiting his fraud trial later this year, Bankman-Fried wears an ankle bracelet to track his movements and plays with his new dog, Sandor, according to a Puck News report…. It remains to be seen what consequences Bankman-Fried, who pleaded “not guilty,” might face. So far, his ability to be detained at home, instead of held in prison, is an exception to how most federal defendants are treated. The quiet, traffic-light Stanford neighborhood is quite the upgrade from Fox Hill, a notoriously rough prison in the Bahamas where Bankman-Fried was briefly held before being extradited.
If Bankman-Fried violates the terms of his bail agreement, his parents could lose their house, which they’ve owned since 1991 and is worth over $3.5 million, according to public property records….
The U.S. government has tried to restrict his access to virtual private networks and certain apps where messages disappear, but a final ruling has not been made. The judge presiding over his case asked in a hearing last month, “Why am I being asked to turn him loose in this garden of electronic devices?,” highlighting that despite any restrictions the court might place on Bankman-Fried’s use of technology, he remains in a home with his parents who also have a plethora of ways to be wired. On Friday, prosecutors proposed limiting Bankman-Fried to a flip-phone or “non-smartphone” that cannot access the internet, and that he be issued a new laptop “with limited functionalities.” Prosecutors also want to place strict limits and monitoring tools on his parents’ devices.
But meanwhile, among the student population, “There are party fliers with his likeness. He’s a punchline in campus comedy sketches. Students ride their bikes by on dates…. When asked whether they could confirm a rumor that a nearby student co-op had attacked the Bankman-Fried home with eggs, Stanford campus police did not respond.”
And one freshman/cryptocurrency enthusiast even stole a sign from in front of Bankman-Fried’s house, then “paraded it around for selfies at a cryptocurrency networking event. The sign is currently growing mold in his dorm-room closet.”
Bankman-Fried, who grew up on campus, “certainly fits into what I regard as the kind of culture of Stanford,” says Richard White, a retired Stanford history professor — even if the 30-year-old former billionaire left Silicon Valley to attend MIT. White and others characterize Stanford’s culture as a place where faculty and students are emboldened to take big risks in conceiving the next hot start-up or breakthrough innovation, often with easy access to capital, the conviction that they’re changing the world — and few consequences if things go south.
“Through his spokesman Mark Botnick, Bankman-Fried declined to comment for this article….”
Read more of this story at Slashdot.
Justice Department wants Sam Bankman-Fried to use a flip phone for the rest of his bail
FTX founder and former CEO Sam Bankman-Fried may be stuck using a dumb phone for the foreseeable future. In a letter seen by Bloomberg, prosecutors involved in his criminal case said Friday that Bankman-Fried’s lawyers had agreed to modify the terms of his bail agreement. Provided the judge overseeing the case agrees to the changes, SBF will be restricted to using a “non-smartphone” without internet connectivity. Unless a lawyer is present, he will also be forbidden from contacting current or former FTX and Alameda Research employees. Additionally, SBF won’t be able to use encrypted messaging apps, including Signal.
The proposed restrictions come after Bankman-Fried allegedly attempted to contact the general counsel of FTX’s US subsidiary over Signal at the start of the year. “I would really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other,” he said in one message, according to the Justice Department.
Earlier in the week, Nishad Singh, FTX’s former director of engineering, pleaded guilty to federal fraud and conspiracy charges. Singh is the third of Bankman-Fried’s inner circle to cooperate with prosecutors in the case against him. At the end of last year, former Alameda Research CEO Caroline Ellison and FTX co-founder Zixiao “Gary” Wang pleaded guilty to fraud charges and said they would cooperate with investigators.
According to Bloomberg, District Judge Lewis Kaplan threatened to revoke Bankman-Fried’s bail and send him to jail before the start of his trial after learning that the disgraced entrepreneur may have influenced potential witnesses. Last month, Kaplan also banned Bankman-Fried from using a virtual private network (VPN) after his lawyers said he used one to watch a football game. According to Reuters, Kaplan said he did not want SBF “loose in this garden of electronic devices.”
Under the modified bail agreement, SBF would be allowed to use a laptop to surf the web, but his access would be filtered through a VPN that would limit him to two categories of websites. One category would include resources his defense team says are critical to his case. The other features a list of 23 websites SBF could use to order food, read the news and watch streaming content. No word yet if the proposed restrictions would limit him from playing League of Legends.
This article originally appeared on Engadget at https://www.engadget.com/justice-department-wants-sam-bankman-fried-to-use-a-flip-phone-for-the-rest-of-his-bail-201356652.html?src=rss
FTX Founder Sam Bankman-Fried Hit With Four New Criminal Charges
The document refers to one such example, in 2022, when Bankman-Fried and “others agreed that he and his co-conspirators should contribute at least a million dollars to a super PAC that was supporting a candidate running for a United States Congressional seat and appeared to be affiliated with pro-LGBTQ issues.” The group of conspirators, according to the document, selected an individual only identified in the document as “CC-1” or co-conspirator 1, to be the donor. However, in 2022, then-FTX Director of Engineering Nishad Singh contributed $1.1 million to the LGBTQ Victory Fund Federal PAC, according to Federal Election Commission filings.
SBF’s alleged campaign finance scheme included efforts to keep his contributions to Republicans “dark,” according to the new indictment. And, the alleged straw donor scheme was coordinated, at least in part, “through an encrypted, auto-deleting Signal chat called ‘Donation Processing,'” according to the indictment. The document says another unnamed co-conspirator “who publicly aligned himself with conservatives, made contributions to Republican candidates that were directed by Bankman-Fried and funded by Alameda,” the crypto tycoon’s hedge fund. Again, the document does do not name the alleged second FTX co-conspirator who contributed to Republican candidates.
The indictment alleges that Bankman-Fried and his allies allegedly tried to “further conceal the scheme” by recording “the outgoing wire transfers from Alameda to individuals’ bank accounts for purposes of making contributions as Alameda ‘loans’ or ‘expenses.'” The document says that “while employees at Alameda generally tracked loans to executives, the transfers to Bankman-Fried, CC-1, and CC-2 in the months before the 2022 midterm elections were not recorded on internal Alameda tracking spreadsheets.” The internal Alameda spreadsheets, however, “noted over $100 million in political contributions, even though FEC records reflect no political contributions by Alameda for the 2022 midterm elections to candidates or PACs.”
Read more of this story at Slashdot.
Sam Bankman-Fried hit with four new criminal charges
Federal prosecutors ask court to bar Sam Bankman-Fried from using Signal
US prosecutors have asked a federal court to tighten Sam Bankman-Fried’s bail conditions to prevent the disgraced entrepreneur from contacting his former colleagues. According to court documents seen by The New York Times, lawyers from the Department of Justice allege Bankman-Fried tried messaging the general counsel of FTX’s US arm over Signal and email earlier this month. The communication was “suggestive of an effort to influence Witness-1’s potential testimony,” the filing states.
“I would really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other,” says one message Bankman-Fried sent, according to the Justice Department. The DOJ has asked the judge overseeing Bankman-Fried’s criminal case to bar him from contacting current and former FTX employees, as well as using Signal or any other encrypted or ephemeral messaging app. Following the request, SBF’s legal team accused federal prosecutors of trying to paint their client in the “worst possible light.” They claim Bankman-Fried tried contacting the general counsel of FTX US and CEO John Ray to offer “assistance,” not to interfere with his criminal case. His lawyers also claim a Signal ban isn’t necessary since Bankman-Fried is not using the app’s auto-delete feature.
Prosecutors allege SBF’s use of Signal is consistent with “a history” of using the app to hide his dealings at FTX. Prior to FTX’s implosion in November, Bankman-Fried and former Alameda Research CEO Caroline Ellison were reportedly part of a secret “Wirefraud” group chat on Signal. During his tenure at the exchange, SBF also allegedly directed employees to enable Signal’s disappearing messages feature.
Sam Bankman-Fried launches a Substack to defend himself over FTX’s collapse
Move over, Twitter Spaces, Sam Bankman-Fried has a new platform to opine on about the collapse of his cryptocurrency empire.
The founder and former CEO of failed crypto exchange FTX, Sam Bankman-Fried, also known as SBF, launched a newsletter via Substack on Thursday. The first and only post at this time, titled FTX Pre-Mortem Overview, is a rundown of SBF’s version of events that led to the demise of his company.
This post marks the first time Bankman-Fried has spoken out since his arrest in the Bahamas on Dec. 12. SBF is facing multiple criminal charges, ranging from wire fraud to money laundering.
For those who have listened to the multiple audio interviews that Sam Bankman-Fried gave to crypto influencers on Twitter Spaces prior to his arrest, the details in this post will sound quite familiar. SBF continues to claim that he’s unaware of what was going on at his crypto hedge fund, Alameda Research, and the improper transfer and use of customer funds from FTX to Alameda.
The head of Alameda Research at the time was SBF’s ex-girlfriend Caroline Ellison, who accepted a plea deal and has agreed to cooperate with prosecutors in the case against Bankman-Fried.
SBF claims that Alameda Research was a victim of downturns in the market and eventually “Alameda’s contagion spread to FTX.” SBF cites other recently failed crypto firms, like Celsius and Voyager, in an attempt to show that this was an industry-wide issue and not unique to FTX.
Bankman-Fried also continued to criticize FTX’s legal counsel, Sullivan & Cromwell. SBF has maintained that he could have continued to raise liquidity which would have saved FTX from failure and made its customers whole. However, according to the former FTX CEO, Sullivan & Cromwell pressured him to file for Chapter 11 bankruptcy instead.
FTX was once one of the largest crypto exchanges in the world. Shortly before its collapse, FTX was valued at $32 billion. In November, reports from Coindesk and independent crypto investigator Mike Burgersburg revealed that FTX’s hedge fund, Alameda Research, appeared to be insolvent. As a result of this news, competing crypto exchange Binance sold off its holdings of FTX’s own crypto token, FTT. FTX customers followed, with billions of dollars being withdrawn from the exchange.
According to the stock website, Unusual Whales, SBF initially launched his Substack with a paid subscription, asking readers for either $8 a month, $80 a year, or $150 for a “founding” yearly subscription. The payment plans have since been removed entirely from SBF’s Substack.
Bankman-Fried is currently out on a $250 million bond, awaiting trial at his parents’ home per the condition of bail.
Sam Bankman-Fried Pleads Not Guilty To Federal Fraud Charges In New York
Regulators in the Bahamas and FTX’s U.S. lawyers have been fighting for weeks in Delaware bankruptcy court over hundreds of millions, if not billions, of dollars worth of cryptocurrency. FTX’s attorneys insist that Bahamian regulators have illicitly transferred hundreds of millions of dollars, and that Bankman-Fried assisted them. Bahamian regulators say that local laws give them jurisdiction over those assets, and dispute the validity of the U.S. Chapter 11 proceedings. Federal prosecutors appear to agree with FTX’s U.S. attorneys. Sassoon asked Kaplan to impose a new restriction barring Bankman-Fried from transferring or accessing FTX customer assets. The judge approved that motion as well.
The U.S. attorney’s office for the SDNY had argued that Bankman-Fried used $8 billion worth of customer assets for extravagant real estate purchases and vanity projects, including stadium naming rights and millions in political donations. Federal prosecutors built the indictment against Bankman-Fried with unusual speed, packaging together the criminal charges against the 30-year-old in a matter of weeks. The federal charges came alongside complaints from the Commodity Futures Trading Commission and the Securities and Exchange Commission.
Read more of this story at Slashdot.