Crypto insiders paint a picture of a charismatic tech founder who became the darling of high-powered investors, even as he was brazen about his cryptocurrency exchange’s shaky business model and kept the books closed to all but a few confidants.
Well before the catastrophic collapse of his FTX cryptocurrency exchange, Sam Bankman-Fried told everyone what he was doing. He told them about his appetite for risk. He told them some crypto exchanges were “secretly insolvent.” Last year, when declaring his net worth to be an estimated $10 billion, he said it was in “mostly illiquid” assets. Even when Bloomberg's Matt Levine suggested he was in the "Ponzi business" during an interview in April, Bankman-Fried didn't disagree. "I think that's a pretty reasonable response," he said.
That he was headed for calamity was inevitable. But with the ecosystem of hype and awe built around him, few heard what he was really saying. Employees, customers, and investors alike all saw the dollar signs being minted from his crypto market makers, including FTX, leaving few reasons to believe what Bankman-Fried had been saying all along. Prominent FTX backer Sequoia Capital was also caught in the gravitational pull, publishing a now-deleted 14,000 word paean to Bankman-Fried that likened him to fictional protagonist Jay Gatsby. (“Is crypto the new jazz?” the author wondered, apparently not considering that the titular Gatsby earned his fortune through crime.) This week, Sequoia wrote down its $213 million FTX investment to $0.
“Sam Bankman-Fried was the devil in nerd’s clothes,” said a BlockFi director whose future is now uncertain thanks to a now defunct deal with FTX that could have soothed the crypto lender’s liquidity woes after filing for bankruptcy itself in October.
After a week that saw FTX admitting to a liquidity crunch on Monday and filing for Chapter 11 bankruptcy protection by Friday, the unfolding catastrophe has sent a tsunami barreling through the crypto market, triggering the collapse of more than 100 affiliated companies, lending platforms and exchanges once seen as unshakeable infrastructure providers to the industry.
“Sam ran the shop, Sam ran everything, we all trusted him, and believed him. It was a dictatorship, in a good way, a benevolent dictatorship.”
This is not how it was supposed to go, according to the legend that had been built around Bankman-Fried by legions of crypto fans–including big-name Silicon Valley venture capitalists, who heaped praise on him even as they failed to make sure his business was legit. According to the myth, before the age of thirty, Bankman-Fried made himself one of the world’s richest people by building the second largest cryptocurrency exchange, FTX, as well as its American arm, FTX.US, while simultaneously running Alameda Research, his ostensibly lucrative trading firm.
His mystique was bolstered by his embrace of philosophies like effective altruism, which added a moral heft to his ruthless money making. The rare facade of a do-gooder billionaire was maintained by lavish spending on marketing with professional sports teams and donations to charities—under the guise of effective altruism—and an unusually warm embrace of Washington lawmakers, with large sums of political donations and calls for more regulation of an industry he helped build. Along the way, he raised more than $2 billion from investors like Sequoia, NEA and Lightspeed Venture Partners–several of whom are now carving nine-figure losses into their balance sheets.
But behind the curtain was a man who oversaw a workforce that believed (or at least pretended to) in Bankman-Fried’s mission to pile up money in order to give it away, but knew little of the high-level machinations that led to the downfall of his empire this week. While the crypto leader told Congress that the industry needed “disclosure and transparency,” his secrets were held closely within a circle of friends who reportedly partied together and dated one another–leaving even the company’s high-level executives in the dark on FTX’s financials.
In the meantime, FTX employees and customers reeling from the exchange’s abrupt and utter collapse are demanding answers. “All of our life's work has evaporated,” one current FTX employee told Forbes. “A lot of people are trying to understand how this happened.”
Bankman-Fried, FTX, and Alameda Research did not respond to requests for comment.
This YouTube is a perfect encapsulation of Bankman-Fried’s image in Silicon Valley as a benevolent billionaire.
It was 2017 when Bankman-Fried first began dabbling in cryptocurrency trading. With an untamed mop of hair completing his disheveled gamer look, he’d just quit his job as a quant-trader at Jane Street, and saw an opportunity in his new hobby: the price of Bitcoin was valued differently in exchanges across the globe. If he could buy low then sell high in another region of the world, he realized that he could build a trading floor around Bitcoin arbitrage.
He launched Alameda Research with around 15 employees and traders, bringing in colleagues from Jane Street, like Caroline Ellison, and others like Nishad Singh, whom he had met through the Center for Effective Altruism, a group of thinkers and luminaries that vow to donate much of their wealth and with whom Bankman-Fried had become enmeshed with.“When we joined, his goal was to make a billion dollars,” one of the first Alameda employees told Forbes. “Alameda traders really were beholden to what SBF was doing: he was the head trader, they were the foot soldiers.”
From the start, “Sam wanted to take riskier decisions than the others wanted to take,” said another early Alameda employee. Specifically, he pushed back against efforts by some to slow down risky trading efforts, and overlooked the challenges of extracting capital from shady exchanges. “Sam ran the shop, Sam ran everything, we all trusted him, and believed him,” said an early employee of Alameda who worked with Sam and his close circle. “It was a dictatorship, in a good way, a benevolent dictatorship.”
Bankman-Fried was looking beyond Bitcoin arbitrage when he approached Binance in 2019 with an idea to launch a futures trading desk, according to former Alameda employees. Binance wasn’t interested, but the company’s CEO Changpeng “CZ” Zhao did agree to join an initial funding round for Bankman-Fried to launch his own exchange, FTX. “From that moment on, it was like, well hold on, are we an exchange or a trading firm,” a former Alameda employee told Forbes. “They couldn’t split the baby: FTX’s reliance on Alameda was always the core.”
“People at FTX had no understanding of what was happening at Alameda.”
Bankman-Fried may have kept his friends close, but he kept his management team and investors clueless. Even high level executives at FTX and FTX.US lacked access to crucial financial information about the companies, save for a small group of founders and insiders. “In terms of financials - I acknowledge I have very little transparency and more is not possible without full cooperation from the founders,” Ryne Miller, FTX’s general counsel posted to Slack on Thursday before his message was deleted and the company’s Slack went private. Miller did not respond to a comment request. But others echoed his comments.
“People at FTX had no understanding of what was happening at Alameda,” one former FTX employee told Forbes, describing this privileged group as “kind of a little clique. Just a bunch of degenerate kids at the end of the day.”
The collapse has also underscored the lack of diligence performed by investors like Temasek and Tiger Global to ensure appropriate financial controls: none were on FTX’s board. One investor told Forbes that they only had access to FTX’s balance sheets as part of due diligence, which “looked fine.” The investor said they had no visibility into Alameda’s operations, but saw no red flags because they saw large sums of tokens moving between the two firms “all the time.”
Now, as U.S. government agencies descend on Bankman-Fried and his companies, a retinue of associated investors and executives have begun scrubbing themselves from the internet. In the past week, FTX cofounder and CTO Gary Wang, chief regulatory officer Dan Friedberg, and COO Constance Wang all deleted their LinkedIn pages for reasons unstated. Kyle Samani, once a vocal supporter of Bankman-Fried and current managing partner at Multicoin Capital, which had 10% of its fund's assets under management caught up in the exchange, quietly removed tweets about the CEO following his undoing.
“He used money that doesn't exist to buy things. It’s just awful.”
FTX seemed to be a runaway success, an image that built alongside Bankman-Fried’s own, with magazine covers, including Forbes, espousing his rise. In less than two years, he raised $2 billion. During one pitch meeting over Zoom with Sequoia, the firm’s partners fawned over Bankman-Fried. “I LOVE THIS FOUNDER,” one wrote in a chat box during the meeting. In July 2021, Sequoia joined Softbank and other investors in FTX’s $900 million series B funding round. Months later, after another funding round, investors valued FTX at $32 billion. According to a report from The Information, Sequoia also engaged in the unusual arrangement of accepting hundreds of millions of dollars from Bankman-Fried, as an LP in one of their funds.
Lavish donations to charities, not-for-profits, and sports sponsorships further crystalised the myth around Bankman-Fried. For one deal, he promised $17.5 million to UC Berkeley in cryptocurrency for the naming rights of their stadium. He gave a reported $10 million toward a partnership with the Golden State Warriors, plastering FTX signage throughout the team’s San Francisco arena. He then signed a 19-year deal to rename the Miami Heat’s home court FTX Arena. (UC Berkeley called FTX “a great partner for Cal Athletics,” but said it’s monitoring the situation and will “determine any next steps if they become warranted.” The Golden State Warriors said they have “no news to share” regarding the FTX partnership. The Miami Heat said Friday they are finding a new naming rights partner.)
Fallen 'Crypto King' Sam Bankman-Fried gets 25 years for fraud
Sam Bankman-Fried, co-founder of the failed crypto exchange FTX, has been sentenced to 25 years in prison for defrauding customers and investors of his now-bankrupt firm.
The ruling cements the downfall of the former billionaire, who emerged as a high profile champion of crypto before his firm's dramatic collapse in 2022.
He was found to have stolen billions from customers ahead of the failure.
Bankman-Fried's legal team will appeal against his conviction.
A message from his parents shared with the BBC by a representative for Bankman-Fried said: "We are heartbroken and will continue to fight for our son."
Earlier, the 32-year-old said in court he knew "a lot of people" felt "really let down".
"I'm sorry about that. I'm sorry about what happened at every stage," he said, speaking quietly and clearly ahead of his sentencing.
FTX was one of the world's largest crypto exchanges before its demise, turning Bankman-Fried into a business celebrity and attracting millions of customers who used the platform to buy and trade cryptocurrency.
Rumours of financial trouble sparked a run on deposits in 2022, precipitating the firm's implosion and exposing Bankman-Fried's crimes.
He was convicted by a New York jury last year on charges including wire fraud and conspiracy to commit money laundering, after a trial that detailed how he had taken more than $8bn (£6.3bn) from customers, and used the money to buy property, make political donations and put toward other investments.
Before reading the sentence on Thursday, Judge Lewis Kaplan provided a harsh assessment of Bankman-Fried's behaviour, saying he had lied during his testimony at trial when he claimed he was unaware until the last minute that his companies were taking money entrusted to them for safe-keeping by customers and using it for other purposes.
"He knew it was wrong. He knew it was criminal. He regrets that he made a very bad bet about the likelihood of getting caught but he's not going to admit a thing," the judge said.
Though Bankman-Fried had made "protestations of sorrow" about customer losses, he had uttered "never a word of remorse for the commission of terrible crimes", he added.
While 25 years constitutes a serious prison sentence, it is far less than the more than 100 years Bankman-Fried could have received under official government guidelines.
Federal prosecutors in New York this month told the judge such a long term was not necessary.
But they requested at least 40 years, arguing that Bankman-Fried had committed a massive fraud, while showing "brazen disrespect" for the law.
Bankman-Fried's team had argued for a lighter sentence of roughly five to 6.5 years.
They said that he was a non-violent, first-time offender, and pointed to mental health struggles and argued that customers were poised to recover significant sums under a plan currently working through bankruptcy court.
"The victims want their money back and they should get it," his lawyer, Marc Mukasey, argued in court on Thursday morning. "Sentence him to work hard and give it all away."
Former federal prosecutor Mitchell Epner, now a lawyer at Rottenberg Lipman Rich, said he was "very surprised" by the ruling, noting that Bankman-Fried could potentially be released from prison in about 13 years.
But Jennifer Taub, a law professor at Western New England University and expert on white-collar crime, said she thought the length of the sentence was appropriate.
"It is the right balance between how old he is and what is the purpose of deterrence," she said.
In his sentencing remarks, Judge Kaplan said what could amount to a life sentence was unnecessary but that Bankman-Fried must receive a punishment sufficient to prevent him from committing future crimes.
"There is a risk that this man will be in a position to do something very bad in the future and it's not a trivial risk, not a trivial risk at all," he said.
He also ordered Bankman-Fried to forfeit $11bn that can be used to compensate victims.
The government has already seized some of those assets, such as shares Bankman-Fried owned in Robinhood, the trading app which raised more than $600m when they were sold last year.
Bankman-Fried showed little visible reaction to the ruling.
More at https://www.bbc.com/news/business-68677487
Sam Bankman-Fried Is Facing 110 Years in Prison
Lock Him Up
FTX cofounder Sam Bankman-Fried was found guilty on all seven counts in the jaw-dropping conclusion to his fraud trial — and he's now facing a very real prison sentence.
Bankman-Fried is, as NBC News reports, staring down a statutory maximum of 110 years in prison in what district attorney Damian Williams called "one of the biggest financial frauds in American history, a multibillion-dollar scheme designed to make him the king of crypto."
To be fair, presiding Judge Lewis Kaplan did warn SBF ahead of trial that he was facing a "very long sentence" for defrauding all those investors out of $8 billion big ones.
That same judge, who demonstrated repeatedly during the trial that he wasn't putting up with any nonsense, went on to suggest that if he determines the ex-FTX CEO committed perjury on the witness stand, he may even go above the sentencing guidelines that affect the severity of sentencing, per CBS' reporting.
"Here's the thing: the cryptocurrency industry might be new. The players like Sam Bankman-Fried might be new. This kind of fraud, this kind of corruption, is as old as time, and we have no patience for it."
Coming Down Hard
As Cointelegraph explains, all seven of the charges against Bankman-Fried — which include wire fraud, conspiracy, and money laundering — carry sentencing guidelines between five and 20 years.
SBF's sentencing hearing is scheduled for March 28, 2024, so we'll have to wait a while to see how hard Kaplan comes down on him. But if he listens to prosecutors, whose recommendations are customarily taken into consideration, it's not outside the realm of possibility that he'll throw the book at him.
If so, it wouldn't be entirely unwarranted; SBF has now been found guilty of so many outlandish crimes that he's looking more like a Batman villain than the crypto whisperer he was once portrayed as.
Nevertheless, it has been stunning to see a crypto case be treated with such severity by the government — and it seems very much to signal that the digital currency industry is no longer the wild west it once was.
https://futurism.com/the-byte/sbf-guilty-110-years
FTX’s Gary Wang, Alameda’s Caroline Ellison plead guilty to federal charges, cooperating with prosecutors
FTX co-founder Gary Wang and former Alameda Research co-CEO Caroline Ellison both pleaded guilty to federal charges in the Southern District of New York, U.S. Attorney Damian Williams said in a message Wednesday.
Wang pleaded guilty to conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud and conspiracy to commit securities fraud. Ellison pleaded guilty to two counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering.
The charges were released the same night that former FTX CEO Sam Bankman-Fried was en route from the Bahamas to New York, where he faces eight federal criminal charges from the same prosecutors who accepted plea deals from Ellison and Wang. The duo’s plea agreements were signed on Monday, the day that Bankman-Fried was originally supposed to return to the U.S. before a court hearing in the Bahamas devolved into chaos.
“As I said last week, this investigation is very much ongoing,” Williams said in a prerecorded message.
“I also said that last’s week announcement would not be our last. And let me be clear, once again, neither is today’s,” the U.S. Attorney continued.
Bankman-Fried was arrested last week in the Bahamas following his indictment in the Southern District of New York. He’s spent the last few days embroiled in contentious court hearings over whether he would accept extradition to the U.S.
Simultaneously, both the Commodity Futures Trading Commission and Securities and Exchange Commission released civil complaints against them.
The SEC alleged that they were involved “in a multiyear scheme to defraud equity investors in FTX, the crypto trading platform co-founded by Samuel Bankman-Fried and Wang.”
The CFTC’s expanded complaint charges “Ellison with fraud and material misrepresentations in connection with the sale of digital asset commodities in interstate commerce, and charges Wang with fraud in connection with the sale of digital asset commodities in interstate commerce.”
Wang and Ellison accepted the claims made against them, the CFTC statement said. Ellison was singled out in the SEC complaint for engaging in artificial manipulation of FTT, FTX’s self-issued token, as part of a broader effort to boost Alameda Research’s available collateral for lending.
The SEC said that both Ellison and Wang are cooperating with the agency’s ongoing investigation.
Alameda Research was linked to multiple loans from major crypto firms that have now filed for bankruptcy protection, including Voyager Digital and BlockFi Lending.
Williams did not offer specific details on charges against Ellison or Wang. The SEC alleges that both Ellison and Wang, in their respective roles at Alameda and FTX, abetted Bankman-Fried in allegedly defrauding FTX customers.
The SEC alleges that Wang created a software backdoor in FTX’s platform which allowed Alameda to divert customer funds for its own trades. Alameda was led by Bankman-Fried until 2021, when Ellison assumed control alongside Sam Trabucco, who departed from Alameda in August 2022.
Trabucco did not immediately respond to CNBC’s request for comment.
Ellison, 28, and Wang, 29, become the second and third individuals to be charged in connection with FTX’s multibillion-dollar collapse. Bankman-Fried, 30, was indicted in federal court earlier this month.
“Bankman-Fried and Wang thus gave Alameda and Ellison carte blanche to use FTX customer assets for Alameda’s trading operations and for whatever other purposes Bankman-Fried and Ellison saw fit,” the SEC said. Trabucco, who joined Alameda “in or around 2019,” according to the SEC, was not mentioned in connection with any wrongdoing.
Wang’s attorney said in a statement, “Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”
Counsel for Ellison did not immediately respond to CNBC’s request for comment. A spokesperson within the Bankman-Fried camp declined to give comment.
https://www.cnbc.com/2022/12/22/ftxs-gary-wang-alamedas-caroline-ellison-plead-guilty-to-federal-charges-cooperating-with-prosecutors.html
Sam Bankman-Fried’s Bahamas jail infested by rats and maggots: ‘Not fit for humanity’
Fallen crypto billionaire Sam Bankman-Fried is being held in a Bahamian jail known to be overrun with rats and maggots — one so bad that a warden has called it “not fit for humanity.”
The accused fraudster, once estimated to be worth $32 billion, is being held in the island’s only correctional facility, Fox Hill Prison, until at least Feb. 8 after failing to get bail while fighting against extradition to the US.
The jail was the focus of a damning report last year by the US Department of State into possible human rights violations, including violence and abuse by staff.
“Inmates removed human waste by bucket,” the government report noted of the jail where often six inmates are crammed into tiny cells that are only 6 feet by 10 feet.
“Some inmates developed bedsores from lying on bare ground,” the report said of “harsh” conditions from “overcrowding, poor nutrition, inadequate sanitation, and inadequate medical care.”
“Sanitation was a general problem, and cells were infested with rats, maggots, and insects,” the State Department noted.
The Nassau Guardian newspaper said it saw the rodents firsthand during a 2019 tour, with a prison guard confirming “that rats run up and down all day, every day.”
“Dogs don’t deserve to live in the state that maximum security is in,” the officer told the paper on the condition of anonymity.
“Boy, you don’t even know. … It’s not fit for humanity,” the warden said.
Fox Hill Prison is so bad, in fact, some inmates have begged to be extradited to the US just to escape it.
In 2019, a pastor waived his right to fight extradition to Georgia — where he was ultimately sentenced to life in prison for rape and child molestation — because he feared being killed by gangs in the brutal Bahamian jail.
“Fox Hill ain’t no place for nobody to stay in … I am ready to go,” rapist Don Martin told the magistrate who approved his extradition, the Tribune reported at the time.
Many believe Bankman-Fried — who signaled he plans to fight extradition — should do the same, even though he faces a maximum of 115 years in prison if convicted of all eight federal charges he faces.
“There is no advantage to him staying, he’ll be sent to the US eventually anyway,” said Larry Levine, founder of Wall Street Prison Consultants, which advises those convicted of white-collar crimes on how to get into better prisons.
Bahamian Commissioner of Correctional Services Doan Cleare claimed that the hideous conditions have been improved by renovations, saying “we don’t have any issues with rodents.”
He said the disgraced 30-year-old FTX mogul will start his stay in the medical department in a sick bay that can hold about five people.
“He will be in sick bay for orientation purposes and then we will determine where best to place him,” Cleare said Tuesday.
Either way, it will be a stunning change of scenery for the former crypto wunderkind, who lived and worked in extravagant luxury in the Bahamas before his arrest late Monday.
That luxury, however, is part of the slew of charges against him, which include separate counts from the SEC, accusing him of using investors’ money as “his personal piggy bank to buy luxury condominiums.”
Bankman-Fried has apologized to customers and acknowledged failings at FTX, but said he does not personally think he has any criminal liability.
One of his lawyers, Mark S. Cohen, said Bankman-Fried “is reviewing the charges with his legal team and considering all of his legal options.”
https://nypost.com/2022/12/14/sam-bankman-frieds-jail-in-bahamas-not-fit-for-humanity
FTX founder Sam Bankman-Fried arrested in Bahamas
Bahamian authorities arrested former FTX founder and CEO Sam Bankman-Fried Monday evening.
The development comes one day before Bankman-Fried had agreed to testify before the U.S. House Financial Services Committee regarding the collapse of his Nassau-based exchange.
According to a statement shared by the Bahamian Office of the Attorney General & Ministry of Legal Affairs, the Royal Bahamas Police detained Bankman-Fried following receipt of formal notification from the United States it has filed criminal charges against the fallen crypto billionaire.
The Attorney General said it will hold Bankman-Fried in custody pursuant to the Bahamas' extradition treaty. The U.S government's extradition treaty with the Bahamas lets the U.S. extradite defendants for charges involving offenses that are crimes in both countries.
"Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the U.S. Government, based on a sealed indictment filed by the SDNY," Damian Williams, U.S. Attorney for the Souther District of New York said in a statement. "We expect to move to unseal the indictment in the morning and will have more to say at that time."
"The Bahamas and the United States have a shared interest in holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law," Bahamas Prime Minister Philip Davis said in a statement.
"While the United States is pursuing its own criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigations into the FTX collapse, with continued cooperations of its law enforcement and regulatory partners in the United States and elsewhere."
A spokesman for the U.S Attorney’s Office, Southern District of New York declined to comment further on the criminal investigation.
Separately, the U.S. Securities and Exchange Commission has authorized charges related to Bankman-Fried’s violation of securities laws set to be unsealed tomorrow, according to a statement from the SEC.
U.S. House Financial Services Committee Chairwoman Maxine Waters (D-CA) expressed mixed feelings on the arrest's timing, which came just hours before the Committee's chance to hear Bankman-Fried answer questions under oath.
"The public has been waiting eagerly to get these answers under oath before Congress, and the timing of this arrest denies the public this opportunity," Waters said in a statement. FTX's current CEO, John Ray III, will still testify before the Committee.
Since FTX filed for bankruptcy protection on November 11, Bankman-Fried’s public statements have painted his involvement in the crypto exchange's demise as mismanagement or negligence.
"I don’t have the answer in front of me. I wasn’t involved much in this process," he said during a Monday interview over Twitter when faced with a string of questions about how FTX valued customer collateral positions.
Bankman-Fried has also made numerous media appearances and continued to tweet regularly about FTX since being ousted from his position with the company last month. In his highest-profile media appearance since FTX's collapse last month, Bankman-Fried told The New York Times his public comments were being made against the advice of his legal counsel.
In prepared testimony published ahead of Tuesday's hearing, Ray outlined several "unacceptable management practices" the new CEO has uncovered so far at the bankrupt crypto exchange.
Ray, who led the liquidation of Enron, also verified at least five ways FTX had been spending its money, including commingling customer assets with its trading arm, Alameda Research. When FTX filed for bankruptcy, the company reported an $8 billion asset hole.
As Yahoo Finance reported, knowledge, or lack thereof, as to how the crypto platform handled its customers’ funds — as well as other funds — will ultimately determine whether Bankman-Fried, or other decision makers from the now bankrupt firm, will face civil claims or criminal accusations tied to the collapse.
https://sg.news.yahoo.com/ftx-founder-sam-bankman-fried-arrested-bahamas-001141970.html
Broke and down to one credit card: Former FTX CEO Sam Bankman-Fried claims he committed no fraud
Former FTX CEO Sam Bankman-Fried, in possibly the understatement of 2022, said Wednesday, “I’ve had a bad month.”
The former billionaire added that he “didn’t do a good job” at upholding his responsibilities to regulators, customers and investors in a hotly anticipated conversation with CNBC’s Andrew Ross Sorkin at the DealBook Summit.
Bankman-Fried’s FTX imploded in mid-November after Coindesk reported irregularities on the company’s balance sheets. FTX filed for Chapter 11 bankruptcy protection in Delaware on Nov. 11.
“I didn’t ever try to commit fraud on anyone,” Bankman-Fried said. “I saw it as a thriving business and I was shocked by what happened this month.”
The political megadonor said he was down to $100,000 and had one working credit card left.
“We completely failed on risk,” Bankman-Fried continued. “That feels pretty embarrassing, in retrospect.”
Bankman-Fried appeared by video feed from the Bahamas, Sorkin said. “I’ve been in the Bahamas for the last year,” Bankman-Fried said when asked about why he remained in the island nation.
Sorkin asked Bankman-Fried what motivated his acquisitions in the crypto industry, given the size of Alameda’s borrowing from companies Bankman-Fried intended to acquire.
Bankman-Fried claimed that he believed that by the middle of 2022, Alameda had repaid all lines of credit to various borrowing desks. But Alameda still owes BlockFi over $670 million, according to court filings. BlockFi filed for Chapter 11 bankruptcy protection in New Jersey on Monday.
“What are your lawyers telling you right now? Are they suggesting it’s a good idea for you to be speaking?” Sorkin asked the former billionaire.
“No, they’re very much not.”
“The time that I really knew there was a problem was Nov. 6,” Bankman-Fried said, after Alameda’s sizable FTT position was exposed by Coindesk. “When we looked at that, there was a potential serious problem.”
“Alameda had taken a huge hit” by that point. “We were seeing a run on the bank start,” Bankman-Fried said.
“I was nervous [when] the Alameda balance sheet” was exposed by Coindesk, Bankman-Fried said, but expected the damage was going to be limited to Alameda, not an “existential” crisis for FTX.
Sorkin asked Bankman-Fried why FTX and Bankman-Fried even had access to customer money.
“I wasn’t running Alameda, I didn’t know exactly what was going on, I didn’t know the size of their position,” Bankman-Fried said. “A lot of these are things I’ve learned over the last month [in the days leading up to bankruptcy.]”
New leadership at FTX said that Bankman-Fried exercised significant control over the entire empire.
Sorkin pressed Bankman-Fried on Alameda’s gambling on questionable cryptocurrencies, reading a letter out loud from an investor who lost his life savings of $2 million.
“The U.S. platform is fully solvent and funded,” Bankman-Fried claimed. “I believe withdrawals could be opened up today and be made whole.”
“Can I ask you about the drugs?” Sorkin said.
Bankman-Fried responded, “It’s funny hearing this. I have half a glass of alcohol a year.”
The FTX founder repudiated claims of wild partying and off-label drug use, saying FTX functions consisted of “board games,” or “dinner parties.”
Bankman-Fried claimed he was unaware of the Alameda exposure. In 2019, he said, 40% of FTX’s volume was from Alameda. By 2022, Bankman-Fried claimed, that number was down to 2%, which led him to believe FTX’s exposure was lessened.
Sorkin continued to press Bankman-Fried on the lending of customer assets. Bankman-Fried demurred.
“In 2018, FTX didn’t have bank accounts,” Bankman-Fried said as justification for why users were asked to wire funds to an account in Alameda’s name instead of directly to FTX.
Bankman-Fried has engaged with the media only sporadically. “F--- regulators,” he told a Vox reporter in a Twitter message.
“I f---ed up,” he wrote in another Tweet.
FTX was once hailed as the poster child of responsible crypto. Regulators and lawmakers looked to Bankman-Fried as the future of crypto regulation, a reputation that Bankman-Fried cultivated through appearances before Congress and deepened through generous political contributions.
Bankman-Fried was already known as one of the largest donors to Democratic candidates. He claimed in a recent interview that he gave equally generously to Republican causes, through so-called dark pool contributions.
Reporters, Bankman-Fried said, “freak the f--- out if you donate to Republicans.”
https://www.cnbc.com/2022/11/30/former-ftx-ceo-sam-bankman-fried-says-i-didnt-ever-try-to-commit-fraud.html
This really made my day LMFAO
What Kind of Mess Did SBF Leave Behind in the Bahamas? On the ground in Nassau, where FTX’s riches are up for grabs.
Everyone in Nassau is talking about it: At Café Matisse, an upscale restaurant near Parliament, two men loudly discuss the fallout from Sam Bankman-Fried’s leveled $32 billion business. At a small coffee shop in a mall across the street from the site where FTX planned to build a new headquarters, a local businessman approaches me to ask if I am “the FTX guy.” (I’m a white guy with dark curly hair, but come on.) Local radio stations report the news at the top of each broadcast.
Rumors are everywhere about who got super-sized donations, the blowout parties at Bankman-Fried’s apartment held before the crash, luxury condos bought for multiples over asking price. “The Realtors here never made so much money in their life,” one developer tells me. Gone, though, are most of the signs and advertisements. Not that there were that many, anyway. While the company spent big to brand the arena for the Miami Heat, one of the few visible remnants of FTX here was the digital billboard above Customs at the airport. Employees who would wear company swag out to bars and restaurants downtown have pretty much all skipped the island.
In the Bahamas, where FTX has been headquartered since September 2021, the biggest question is who will get a piece of what’s left.
Central to the drama is corporate lawyer Brian Simms, who these days is a fixture on the front pages of local newspapers. He’s been appointed by the courts here to liquidate FTX’s extensive — in some cases, outrageous — assets. The full catalogue of those assets is still unknown, but part of the picture is nearly $75 million in real estate bought with company funds, potentially including Bankman-Fried’s $40 million penthouse in the remote gated community of Albany Marina. (It’s the five-bedroom with a pool overlooking the Atlantic, and he reportedly shared living space, and perhaps romantic entanglements, there with some top FTX employees.) The assets ultimately have to belong to someone, so the possibility that the wealth could stay in the Bahamas has made the proceedings urgent news.
Anything that used to belong to FTX is now frozen. That includes the firm’s old office complex. When I tried to drive into the corporate park this week, a guard checked my ID and took pictures of me and my car. Then he told me to scram — only people designated by Simms (who did not return a request to talk) are allowed in.
Even though Bankman-Fried is telling reporters that he is trying to raise $8 billion to save the company, it is already crystal clear that there is going to be a bankruptcy process. An important early question is which nation will control it. The Bahamian government is working overtime to do so, rather than let the bankruptcy courts in Delaware get the upper hand.
Some of those hopes hang on Simms, a well-known litigator here who in the past represented financial institutions against Bernie Madoff. In an effort to wrangle the process out of Delaware, where Bankman-Fried filed for Chapter 11 relief (which would allow the company to recoup the money it owes customers and creditors over time), Simms is already making legal maneuvers that would shield FTX from lawsuits in the U.S. “The power to transfer the digital assets held by the FTX exchange is centralized in The Bahamas,” he wrote in a filing in New York bankruptcy court.
Simms is not working alone. On Thursday night, the Securities Commission of the Bahamas went further and assumed control over FTX’s assets, claiming that the company is not “a party to the US Chapter 11 bankruptcy proceedings” and transferring all of its digital assets into a government-controlled crypto wallet. In other words, it wouldn’t recognize U.S. law, and what happens from here on out is anyone’s guess. Bankman-Fried told Vox’s Kelsey Piper that he was hoping to “win a jurisdictional battle vs. Delaware”—which is to say, he wants the same outcome as the Bahamian government. (Why isn’t completely clear yet, but presumably he believes he would have a better hope of influencing the process here.)
More at https://nymag.com/intelligencer/2022/11/sbf-bahamas.html
Never seen ‘such a complete failure’ of corporate controls, says new FTX CEO who also oversaw Enron bankruptcy
Newly appointed FTX CEO John Ray III minced no words in a filing with the U.S. Bankruptcy Court for the District of Delaware, declaring that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
Ray formerly served as CEO of Enron after the implosion of the energy titan. He promised to work with regulators to investigate FTX founder Sam Bankman-Fried.
In the filing, Ray disclosed that he did “not have confidence” in the accuracy of the balance sheets for FTX and its sister company Alameda Research, writing that they were “unaudited and produced while the Debtors [FTX] were controlled by Mr. Bankman-Fried.”
The document is a declaration from Ray in his new role as CEO of FTX and associated entities, which filed for bankruptcy last week in an implosion that left the crypto world reeling and investors shaken.
Ray excoriated Bankman-Fried and his management team for what were described as lackadaisical controls on systems and regulatory compliance.
“The concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals” was unprecedented, the former Enron recovery boss said.
Ray said a “substantial portion” of assets held with FTX may be “missing or stolen,” following widespread reports on social media of the theft of hundreds of millions in cryptocurrencies.
Coordinating with regulators, Ray wrote, the Chapter 11 bankruptcy process would examine the actions of Bankman-Fried in connection with FTX’s collapse.
Alarmingly, Ray wrote that part of his remit would be to implement controls and basic corporate standards such as “accounting, audit, cash management, cybersecurity, human resources, risk management, data protection and other systems that did not exist, or did not exist to an appropriate degree, prior to my appointment.”
Bankman-Fried and FTX “management practices included the use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data for the FTX Group companies around the world, the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of customer funds.”
Bankman-Fried wasn’t immediately available for comment.
Sophisticated software was similarly used to conceal mismarked and fraudulent customer positions in the 2008 collapse of Bernie Madoff’s Ponzi scheme.
FTX is presently working to account for an accurate statement of cash and crypto assets. Ray said it would not be “appropriate for stakeholders or the Court to rely on the audited financial statements as a reliable indication of the financial circumstances” of FTX.
https://www.cnbc.com/2022/11/17/ftx-ceo-shreds-bankman-fried-never-seen-such-a-failure-of-controls-.html
An insightful albeit brief delve into how fucked up SBF's ponzi scheme was from the get-go, if anyone is interested.
The supposed "silver lining::
https://www.reuters.com/breakingviews/sam-bankman-fried-did-financial-system-favour-2022-11-15
Collapsed Crypto Exchange FTX Could Owe More Than 1 Million Creditors
The collapsed crypto exchange FTX and its related businesses could owe money to more than one million people and organizations, according to documents filed in bankruptcy court on Monday, illustrating the scope of a corporate meltdown that has drained traders’ accounts and plunged the crypto industry into crisis.
In FTX’s first substantive court filing since it filed for bankruptcy on Friday, the company’s lawyers offered few details about the state of the business. But they said FTX was in touch with “dozens” of federal, state and international regulators and law enforcement officials, including the Securities and Exchange Commission, the Justice Department and the Commodity Futures Trading Commission.
Those investigations began last week after a run on deposits left FTX with an $8 billion shortfall. In a stunning corporate drama, a company once regarded as among the safest and most reliable corners of the freewheeling crypto industry collapsed practically overnight.
The firm’s founder and chief executive, Sam Bankman-Fried, announced his resignation when the bankruptcy papers were filed on Friday in federal bankruptcy court in Delaware. Mr. Bankman-Fried had agreed to step aside at around 4:30 a.m. that day, the new filing said, after consulting with his own legal team.
He handed control to John J. Ray III, a veteran of corporate crises. Since then, Mr. Ray and other FTX officials have worked “around the clock” to get the company in order, according to the bankruptcy filing. The firm halted trading and responded to a “cyberattack” reported late on Friday night, the filing said.
https://www.nytimes.com/2022/11/15/technology/crypto-ftx-bankruptcy-creditors.html
To say it has been an extremely disastrous year for cryptocurrency would be a gross understatement
Is Crypto.com set to implode too?