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:
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.
The first recording from Tiffany Fong’s phone call with SBF, released on YouTube Nov. 29.
The New York Times Dealbook Summit, Nov. 30.
Good Morning America, Dec. 1.
New York Magazine interview on its Intelligencer site, Dec. 1.
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:
Launch a trading desk. Make piles.
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.
Lend retail money to trading desk in hopes of quadrupling all gains.
Trading desk loses borrowed money.
[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.
“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.