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Saturday, February 4, 2023

Sam Bankman-Fried’s Bahamas arrest is a result of his unchecked arrogance


Sam Bankman-Fried, the disgraced founder of the now-bankrupt crypto exchange FTX, perhaps could have spent less time doing media interviews while playing video games over the past few weeks and instead spent more time Googling extradition treaties. At the very least, he could have spent less time doing media interviews where he said he didn’t think he would be placed under arrest.

In a Twitter Spaces during the day on Monday, Bankman-Fried said, “I don’t think I will be arrested,” referring to the scandal that has engulfed his business dealings since November, leaving FTX bankrupt and its customers unable to withdraw funds. Hours later, authorities in the Bahamas, where Bankman-Fried lives and FTX is based, arrested him following criminal charges filed by the US Attorney’s Office of the Southern District of New York. The SEC and CFTC are going after Bankman-Fried, often referred to as SBF, as well.

In the multitude of interviews and Twitter chats Bankman-Fried has done with the media in recent weeks, he’s been cagey but casual in discussing his liabilities in the situation. “What happens happens. That’s not up to me,” he told Puck’s Teddy Schleifer in an early December interview, when asked whether he thought someone should go to jail over the FTX debacle. When the New York Times’s Andrew Ross Sorkin asked him days earlier whether he was concerned about potential criminal culpability, he replied, after some bumbling, “It sounds weird to say it, but I think the real answer is it’s not what I’m focusing on.”

The hubris is impossible to ignore.

The 30-year-old MIT graduate has squandered the funds of hundreds of thousands of his customers, most of whom are unlikely to see much, if any, of their money back. He’s continually said he’s sorry and that he “fucked up,” but an oops doesn’t excuse or explain billions of missing dollars, misused funds, or the serious charges of fraud against him. His apologies are also in conflict with many of his actions, before FTX’s collapse and after, as he has continued to cast blame elsewhere for what happened.

FTX looks to have been quite the opposite of the safe, upright crypto institution Bankman-Fried said it was. His refusal to take full responsibility, even now, speaks to the size of his ego.

Bankman-Fried’s words don’t reflect his actions throughout his time at Alameda and FTX

Bankman-Fried spent enormous amounts of money and personal capital to build up his profile and his brand. He slapped FTX’s name on anything he could, including the Miami Heat’s arena, and put his face in ads. He cast himself as a super do-gooder, making money hand over fist in crypto in order to direct it to the philanthropic endeavors he and others in his inner circle preferred. (Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s Future Perfect a grant for a 2023 reporting project. That project is now on pause.)

All the while, he was, allegedly, committing serious crimes, including wire fraud, securities fraud, and money laundering, and mixing funds of his cryptocurrency exchange, FTX, with those of the trading firm he founded, Alameda Research. According to the SEC’s complaint against Bankman-Fried, “From the inception of FTX, Bankman-Fried diverted FTX customer funds to Alameda, and he continued to do so until FTX’s collapse in November 2022.”

In other words, Bankman-Fried’s assertions that he wasn’t aware of what was going on with FTX and Alameda mixing funds and that the exchange went under because he was asleep at the wheel are, if the allegations against him are to be believed, a lie. “While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried’s house of cards began to crumble,” the complaint reads.

After positioning himself as the serious and safe face of crypto on Capitol Hill and among regulators, Bankman-Fried has also been charged with campaign finance violations and allegations that he made excess donations than the permitted amount, including by using other people’s names. It’s an image of a guy who was well aware of the rules and guardrails around him — he’s quite fluent in regulatory speak — and seemed to believe they didn’t or shouldn’t apply to him.

In an interview with Vox’s Kelsey Piper in November conducted via Twitter direct message, he declared, “Fuck regulators. They make everything worse.” Those are words he might come to regret as the regulators are now coming after him. Then again, given his cavalier attitude, who knows?

The blame game continues

In testimony he was set to deliver before a House Financial Services Committee hearing prior to his arrest that was published by Forbes, Bankman-Fried purports to accept responsibility for FTX’s collapse but repeatedly casts blame elsewhere. It begins with the line that’s become typical for Bankman-Fried — “I fucked up” — and then goes on a winding path that swings between accepting fault and abdicating responsibility.

Bankman-Fried repeats his regret that FTX filed for Chapter 11 bankruptcy and laments that the company, which is now being run by John J. Ray III, who helped manage Enron after its 2001 collapse, has rebuffed his offers to help fix the disaster he created. He claims he would have been able to “easily collect some pieces of the data” FTX has been unable to find. In a Trump-esque fashion, he at times reflects an “I alone can fix it” attitude — even though in other moments of this saga, when convenient, he’s been very careful to note that on certain items he wasn’t paying attention.

Bankman-Fried says that he’s still aware of “billions of dollars of serious offers for financing” to make customers “substantially whole,” but that would require the company be restarted as an exchange. It’s not clear who those offers are supposedly from. And then, his testimony yet again places blame elsewhere for those magic, mysterious new funds not appearing. “I admit I am not optimistic about some parts of the process,” he says. “I have not myself witnessed any progress by Mr. Ray’s team toward raising substantial funds or restarting the exchange.”

Ray has been cutting and candid in his analysis of what happened with FTX as he learns more details. In his testimony before the House Financial Services Committee on Tuesday, December 13 (the hearing Bankman-Fried was also supposed to appear at), Ray said that FTX went on a $5 billion “spending binge” in late 2021 through 2022, and that loans and other payments over $1 billion were made to insiders. He said that FTX’s collapse stemmed from the “absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or the controls that are necessary for a company that is entrusted with other people’s money or assets.” Ray also said at the House hearing that FTX used QuickBooks for accounting. There was, he says, “no sophistication” and an “absence of any management” at FTX.

Many of Bankman-Fried’s words and actions in recent weeks have been at the very least petty and often borderline delusional. He’s taken swipes at Binance, the competitor that partly spurred FTX’s collapse, accusing its CEO of lying and claiming the company, which briefly entertained buying FTX, never intended to go ahead with the deal. (Bankman-Fried aside, Binance is facing troubles of its own.)

In his prepared testimony, he says FTX’s new leadership is “destructive.” He seems to cast Ray and others as racist, declaring their move to seize assets from FTX out of the Bahamas and to the United States equates “malign intent and incompetence on the part of other races, cultures, and governments” that would be “considered deeply offensive if directed at American minorities.”

Maybe he thought he could get away with this because that’s often how things work

In retrospect, it’s hard not to look at Bankman-Fried now and wonder how he was able to pull all of this off. The answer is simply that he was allowed to.

He managed to raise $2 billion from investors, including big names like Sequoia, Tiger Global, and SoftBank, who it would appear failed to look very closely under the hood. He was the subject of multiple largely flattering profiles that marveled at his schlubby appearance and apparent commitment to the effective altruism philosophy and philanthropic causes. Media outlets continue to note that his parents are Stanford law professors and that he grew up in smart, wealthy, liberal circles, as though that upbringing has some sort of important meaning.

Given all of this, it makes sense why Bankman-Fried certainly before and even now has displayed such audacity in his business decisions and personal actions. If you tell everybody you’re awesome and have totally got this, and everybody around you is constantly reinforcing that you’re awesome and have totally got this, you might very well be inclined to go along with it. If the rules have never applied to you, why would they start now? You achieve wunderkind status, and you notice nobody around you is really kicking the tires on how you got there, so you roll with it — even if that maybe involves doing some alleged big crimes.

What lies ahead for Bankman-Fried is unclear. He appears to be in a lot of trouble, and he’ll have a team of probably very good lawyers to defend him in court (though how much he’ll heed their advice is an open question). At the very least, he’ll probably have to chill on the media interviews and tweeting for a while. Though given his love for speaking with the press — and the press’s love for speaking with him — this will likely not be the last time we’ll hear from him.

Perhaps the bigger question to ask beyond Bankman-Fried himself is how he was able to achieve such status in the first place, to display such arrogance without ever worrying it would come before a fall. Maybe the scarier thing is that guys like this get away with stuff like this all the time. There might be an SBF 2.0 lurking around the corner, but more likely, there are a few hiding in plain sight right now.



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