January 27, 2023

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Was Sam Bankman-Fried’s performance a performance? • Eureka News Now

FTX founder Sam Bankman-Fried spoke today from an undisclosed location in the Bahamas with reporter Andrew Ross Sorkin for a DealBook event, a discussion his legal team would “very” disapprove of, he told Sorkin with a boyish grin.

Hedge fund billionaire Bill Ackman later tweeted that he thought “SBF” was “tell the truth.” But we’re not so sure. In fact, after watching the live stream, we’re still wrestling with whether it was believable.

Sounding almost studiously amateurish throughout the back-and-forth, Bankman-Fried insisted he did not knowingly mix funds between FTX and trading firm he controls, Alameda Research, which has since been discovered that the exchange had funneled $10 billion in client assets Alameda to use for trade, credit and investment activities.

Though between $1 billion and $2 billion appears to be missing, and though company executives have reportedly set up an accounting “backdoor” to bypass red flags, when Sorkin asked about the outfits’ interdependence, Bankman-Fried said he was “honest.” said surprised at how large Alameda’s position was, indicating a further failure of oversight on my part and a failure to appoint someone with primary responsibility for it.”

Notably, Bankman-Fried ended up using “supervision” nine times, although he appeared to blame others. When asked if he should have taken any money from FTX users’ accounts at all, he pointed the finger at Alameda and said, “I didn’t run away [it], I didn’t know exactly what was going on. I didn’t know the magnitude of her position. I’ve learned a lot of this over the past month, kind of frantically doing it.” Apparently, he added, “That’s a pretty big mistake. I call that a pretty big oversight that I wasn’t more aware of.”

At many points during his back-and-forth with Sorkin, Bankman also appeared delusional. He said before FTX filed for bankruptcy – a move he reluctantly approved four days after his initial proposal – “it had a keen interest in funding [FTX]. A lot of pretty strong interest, you know, worth many billions of dollars.”

It really didn’t look like it from the outside (!). As was well documented, there was no interest from Binance. There was no interest from his scorched venture capitalists, whom Bankman-Fried incidentally spared in today’s interview. (When asked by Sorkin if “Sequoia Capital, Paradigm, and some very large venture capital firms” who funded FTX ever asked Bankman-Fried how much risk he was taking and “if they have any responsibility,” he replied, “I do don’t know I don’t think they are responsible for this… most of what they focused on was… what could become of FTX…”)

Indeed, today Bankman-Fried has in many ways acted like someone who doesn’t realize his life has just changed dramatically, and who instead believes he can still control FTX’s results despite being forced to retire became. (FTX’s new chief executive, a corporate recovery specialist, has described Bankman-Fried’s responsibility as a “complete failure of corporate governance.”)

He spoke of “many assets that are there [still at FTX], although many of them are not liquid. They were worth quite a bit more than the new debt a month ago, many even a year ago.” Bankman-Fried hinted that he didn’t accept that his clients would lose everything.

He said towards the end of the interview: “I can’t promise you anything and I can’t promise anyone there and it’s not really in my hands to a large extent. But I would think it would be worth exploring [a pathway forward] because I think there’s a possibility that clients could end up being a lot more complete – I don’t know, maybe even completely complete – if there was a really strong, concerted effort.”

It was such an odd notion that we wondered why some of the world’s most experienced investors put it on a pedestal in the first place.

Sure, he had “a bad month,” as he told Sorkin to laughter from the audience. However, it’s just as likely that Bankman-Fried and his circle would eagerly argue that he was simply inept — overwhelmed — and never intentionally engaged in feats.

It makes a big difference. US prosecutors can bring a civil action against anyone accused of incompetence or negligence, and that person may face significant financial consequences. But if a person is proven to have plotted to mislead others, then fraud offenses are on the table, which means jail time is also on the table. For Bankman-Fried, that could spell a far bleaker future.

According to reports, the US Attorney’s Office in Manhattan has already opened an investigation into FTX; the SEC and DOJ are also, of course, poking around, trying to determine whether Bankman-Fried’s maneuvers were intended to deceive or were instead a staggering series of errors.

It’s tempting to conclude the former, that Bankman-Fried made his decisions knowingly. Given his status as a “crypto genius” until recently, it’s hard to imagine him groping in the dark. But it was quite an achievement today if that is the case.