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How Sam Bankman-Fried duped the crypto world and maybe himself

An inkling of doom started to permeate throughout Sam Bankman-complicated Fried’s crypto empire before the world started to realize the truth about him, leading to fear, inquiries, and, eventually, the horrific collapse. One query arose repeatedly: Where is SBF? Across FTX, the exchange that had elevated his simple initials to the status of a sign of brand-new wealth and power. Current and former employees claim that Bankman-Fried looked to have vanished. Then, without warning, a department came dangerously close to missing the October payroll. There was a problem.

Only now is how glaringly incorrect it all was. His digital-asset empire, which consisted of over 130 organizations in total, entered bankruptcy on Friday following one of the most terrifying weeks in the brand-new, erratic world of cryptocurrencies. The controversy has left cryptocurrency players scrambling for analogies after they gleefully hailed Bankman-Fried as the J.P. Morgan of their day.

How Sam Bankman-Fried fooled the crypto world and maybe even himself | Business Standard News

Is this story of unchecked risk the crypto equivalent of Lehman Brothers? Or is it something more sinister, a scandal like Enron that may suddenly reveal corruption and wrongdoing? Federal investigators are looking into this. There were several inquiries as soon as the Chapter 11 files were made public on Friday morning, including the crucial one: Will the roughly 1 million FTX customers ever receive their money back? Before everyone else, several merchants fled the scene after sensing violence. Big figures in Silicon Valley who supported Bankman-Fried are probably going to lose embarrassingly.

Many of the broad strokes are already well-known. Bankman-debt Fried’s black hole, muddled business interests, and inquiries into whether he misappropriated client cash. The shaky assurance and the frantic fundraising effort. The conflict with Binance and Changpeng Zhao, who gave FTX a lifeline before snatching it away the next day.

However, interviews with more than a dozen current and former employees, as well as individuals with firsthand knowledge of FTX and its sister companies, paint an even more ominous picture than was previously believed. Venture capital royalty, politicians, and media figures were all duped by Bankman-Fried’s perpetual bedhead, tube socks, and promise to donate his fortune. Two months or so before his breakdown, Bankman-Fried was having problems answering a question that most people would find easy to answer: Where do you live?

He seemed to be referring to his beanbag chair when he said, “I, uh, so, sorry, I – I’m hesitating because I mostly sleep on a bag.” On a Zoom call, Bankman-Fried was answering inquiries from a group of journalists regarding the distinctions between FTX and Alameda Research, the cryptocurrency trading company that served as his family office.

“I live, but I’m clueless. Even though I technically live alone, I don’t. Most of the time, I sleep on couches and beanbags,” he said. He was well known for living in a house in the Bahamas with other people, including top Alameda officials. There were few distinctions between the two firms back then, and it was unspoken. According to those acquainted with the situation, Bankman-Fried occasionally dated Alameda CEO Caroline Ellison, 27, the crypto news website CoinDesk said this week. No one from FTX could be reached for comment.

Bankman-Fried’s demise was largely caused by the connections between FTX and Alameda. The degree of interdependence between his businesses and whether FTX improperly handled customer funds are both under investigation by the US Securities and Exchange Commission. The two businesses had distinct functions: FTX was used for trading, letting users deposit money and purchase more than 300 tokens while leveraging massive loans to place bigger, riskier bets.

It was also a trademark of Bankman-Fried. The FTX emblem was painted on a Miami arena and sewn into MLB umpires’ jerseys. Gisele Bundchen and Tom Brady, who plays for the New England Patriots, both owned ownership holdings in the company and participated in its Super Bowl commercial, which challenged a cast of personalities to join the world of digital assets with a two-word query.

Risky business

Contrarily, Alameda functioned primarily in the shadows. It only had roughly 30 workers, yet it made $1 billion in profit the previous year. After leaving quant trading firm Jane Street, where he worked as a trader who peers regarded as smart but unspectacular, Bankman-Fried founded Alameda First. The following two years saw the creation of FTX. It is dangerous to combine a trading company and an exchange. In more regulated markets, these functions are segregated to protect customer funds—rules that don’t apply in cryptocurrencies.

FTX crypto: Six feet under: Who is Sam Bankman-Fried and why should you know him? - The Economic Times

The fact that the two companies had complicated financial ties was known to some people. A person who obtained funding from Alameda Ventures, its venture capital division, claimed to have acquired it from FTX instead. In the end, worries about Alameda were what brought Bankman-empire Fried’s to an end. By the end of the previous week, investors had grown wary following reports that an Alameda financial sheet revealed unpaid payments to FTX through its FTT tokens. When Binance CEO Zhao, popularly known by his initials CZ, announced on Sunday that his exchange was dumping its holdings of FTT, valued at more than $500 million, panic finally broke out.

On Tuesday, Zhao volunteered to take over FTX, but he soon withdrew his offer. Binance stated on Wednesday that “the difficulties are beyond our control or capacity to solve.” It was a “sad day,” CZ said, and a crying emoji was added. While FTX’s problems just recently became public knowledge, Bankman-actions Fried’s had been raising concerns among direct reports for weeks. According to people with knowledge of the situation, Bankman-Fried vanished from top deputies inside FTX for at least a month. According to one of the people, one department had trouble making payroll weeks ago with little justification.

It didn’t happen the first time. Pay problems began in the spring after incentives were postponed. Around that time, a few cryptocurrency ventures and investors, including the algorithmic stablecoin TerraUSD, hedge fund Three Arrows Capital, and lender Celsius, began to falter. The company persisted in pushing for pay packages to include FTX equity, which is now worth virtually nothing.

At the first sign of a liquidity problem, if not even before, the smart money left. Numerous well-known market makers and hedge fund traders have begun taking millions of dollars out of FTX, according to persons with knowledge of the situation. One of the volunteers noted that withdrawals that sometimes took only a few seconds to complete frequently took many hours. However, the large stockholders were caught off guard. Many investors claimed that they were ignorant of FTX’s problems until Binance raised its offer on Tuesday.

According to documents reviewed by Bloomberg, some investors and employees were reluctant to sell their shares to potential buyers because they were so confident in FTX’s future, even as the drama between FTX and Binance first started to play out. According to the documents, there were prospective FTX buyers who, as of Monday, were unable to find willing sellers in the secondary market.

That euphoria swiftly faded as the FTT token saw a 24-hour freefall of 80%, sending VC companies scrambling to assess the damage. One of FTX’s most well-known sponsors, Sequoia Capital, reduced its holding to zero and tweeted about its losses. Customers and FTX staff both spoke of internal disarray as the problem worsened. One said that the balance sheet they had seen didn’t indicate any indicators of liquidity issues, which raised the suspicion that there was a second set of books.

Bankman-Fried has come to represent transparency and decentralisation, two core values of the crypto industry. Others working for the firm started to doubt their knowledge of FTX in light of the Twitter threads and assurances surrounding his status, though. According to Molly White, a 29-year-old software engineer and the blogger behind “Web3 is Going Just Great,” which for more than a year covered stories of fraud in the world of virtual assets, Sam Bankman-Fried attracted a cult of personality because he was a visionary, once-in-a-lifetime thinker.

Crypto Billionarie Sam Bankman-Fried Wants to Give Away His Fortune, Here's Why

People sometimes attribute genius to those who are just extremely affluent, and she suggested that this may have been the case in certain cases. The answer to the vexing query, “Where was SBF as his empire collapsed?” is still emerging. According to those with knowledge of the situation, Bankman-Fried spent time in the Middle East in late October meeting with Mubadala Investment Co. in Abu Dhabi and the sovereign wealth fund of Saudi Arabia to desperately raise capital. The spokespeople for PIF and Mubadala declined to comment.

The capital was raised with the aid of Anthony Scaramucci, who in September sold a portion of SkyBridge Capital to FTX Ventures. “We started by assisting him with fundraising. As good citizens, we were attempting to assist him globally because he had bought 30% of my company, he said in an interview with CNBC on Friday. After FTX started to rapidly implode, the negotiations came to an end. Some employees took matters into their own hands while the boss was away, looking for any way to raise money.

Everything was up for grabs, including the name rights to the Miami Heat’s arena and FTX US Derivatives, a pioneering platform for trading assets. According to a person acquainted with the situation, when Bankman-Fried helped Voyager avoid bankruptcy, the company made calls to investors to repurchase itself. According to people familiar with the situation, even though the businesses FTX.US approached believed they could offer cents on the dollar, several of them backed off and started ignoring the calls. They claimed that it appeared too risky to consider making a purchase, especially after the bankruptcy was raised this week.

When the crypto sector started to sputter earlier this year, Bankman-Fried may have been out of his element, but he didn’t show it. However, Alameda and FTX.US were made aware of the departure of two of his close friends earlier in the summer. In October 2021, Bankman-Fried, who had previously co-headed Alameda and FTX, handed the helm to Ellison and Sam Trabucco.

Trabucco, however, left the company in August with little explanation, tweeting that he had “significantly reduced” his role there for months, implying that he was leaving soon after taking on the position. He admitted that although he had purchased a boat, he was unsure of how he would spend his time. Shortly after, Brett Harrison, the owner of FTX.US, departed as well without immediately disclosing his whereabouts.

As his support dwindled by Thursday night, Bankman-Fried appeared to be accepting of his fate. He hadn’t gotten a funding plan despite tweeting earlier in the day about term sheets and letters of intent. Bankman-Fried postponed a teleconference with investors to send out one more brief message as a lifeline. If this method was to succeed, he said, “realistically we’d need to be able to have at least $4 billion committed by morning.” “And I don’t have much hope for that. Speaking with investors was, therefore, pointless unless someone had a billion ready to sign on short notice, he claimed.

Bankman-Fried was finally defeated on Friday. He let his empire go bankrupt before giving up his position as CEO of FTX Group. His major assets, which were estimated to be worth $15.6 billion at the beginning of the week, are now worthless, per the Bloomberg Billionaires Index. Charities relying on his funding are probably going to be left behind. The crypto industry has long sought to avoid regulation, but it now seems inevitable. Congressional leaders are debating when to issue subpoenas, a person with knowledge of the situation said.

“Many have linked this to the Lehman Brothers collapse. In an interview with Bloomberg TV, former Treasury Secretary Lawrence Summers remarked, “I would compare it to Enron. “The room’s smartest men. Not just financial error, but there are hints of fraud based on the reports. John J. Ray III, who was chosen to succeed Bankman-Fried as CEO, has extensive experience in turnaround and restructuring and has held key positions in numerous bankruptcies, including Enron’s.

The approximately 1 million clients who trusted the curly-haired boy genius to guide them into a new financial frontier will likely be left in limbo for the duration of this time, unsure of when, if ever, they will receive their money back. The fact that both investors and employees were conned will probably not comfort you. Despite everything that has happened, a small number of ardent supporters are still backing Bankman-Fried.

FTX's Sam Bankman-Fried Faces SEC Probe as His Empire Crumbles

Users on Polymarket, a cryptocurrency betting site for sporting event results, are placing bets on the scenario of “Will SBF be federally indicted by end of the year?” There is an 80% chance he will avoid being charged. In Bankman-Fried’s US exchange’s Miami offices, there seems to be less optimism.

Edited by Prakriti Arora



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