FTX founder Sam Bankman-Fried spoke today from an unknown location in the Bahamas with journalist Andrew Ross Sorkin for a DealBook event, a discussion his legal team “didn’t approve of at all”, he told Sorkin with a childish smile.
Hedge fund billionaire Bill Ackman tweeted afterwards that he thought “SBF” was “tell the truth.” But we are not so sure. In fact, after watching the live stream, we’re still struggling with whether it was believable.
Throughout the back and forth, Bankman-Fried looked almost thoroughly amateurish, insisting he hadn’t knowingly mixed funds between FTX and the trading firm he controlled, Alameda Research, where he has since been discovered that the exchange funneled $10 billion in client assets to Alameda for use in trading, lending and investing activities.
Although between $1 billion and $2 billion appears to be missing, and although company executives have apparently set up an accounting “backdoor” to circumvent red flags, when Sorkin asked about the dependence of held to each other, Bankman-Fried said he was “frankly surprised by the magnitude of Alameda’s position, which indicates another oversight failure on my part and a failure to appoint someone to be primarily responsible for it.
Notably, Bankman-Fried ultimately used “surveillance” nine times, even as he appeared to blame others. When asked if he should have taken money from FTX users’ accounts, he pointed to Alameda saying, “I wasn’t running [it], I didn’t know exactly what was going on. I didn’t know the size of their position. A lot of these things are things I learned over the past month and learned as I frantically dug into this. Obviously, he added, “that’s a pretty big mistake. I mark this as a pretty big oversight that I wasn’t more aware of.
At many points in his back and forth with Sorkin, Bankman also came across as delusional. He said that before FTX filed for bankruptcy – a move he reluctantly allowed four days after his first proposal – “There had been a lot of interest in funding [FTX]. Lots of pretty strong interests, you know, multi-billion dollars.
It really didn’t look like that on the outside (!). There was no interest from Binance, as has been well documented. There was no interest from his burnt-out backers, which Bankman-Fried by the way spared today in the interview. (Asked by Sorkin if “Sequoia Capital, Paradigm, and some very large venture capitalists” who funded FTX ever asked Bankman-Fried what risk he was taking and “whether they bear any liability,” he said. replied, “I don’t. I don’t think they are responsible…most of what they were focusing on was…what FTX might become…”)
Indeed, in many ways, Bankman-Fried today behaved like someone who doesn’t understand that his future has changed dramatically and instead believes he can still steer FTX’s bottom line, despite the fact that he was forced to resign. (FTX’s new chief executive, a specialist in corporate turnarounds, called Bankman-Fried’s management “a complete failure of corporate control.”)
He spoke of “lots of assets that are at hand [still at FTX], although many of them are illiquid. They were worth a little more than new passives a month ago, or even a lot a year ago. Bankman-Fried also suggested he didn’t accept his clients losing everything.
He said towards the end of the interview, “I can’t promise anything to you and I can’t promise anyone out there, and it’s not really in my hands to a large extent. But I think it would make sense to explore [a pathway forward] because I think there’s a chance that the clients would end up a lot more whole – I don’t know, maybe even completely whole – if there was a really strong concerted effort.
It was such an odd display that we wondered why some of the most sophisticated investors in the world – assuming they were betting on Bankman-Fried in the absence of action – put it on a pedestal in the first place. .
True, he “had a bad month”, as he himself said, to the laughter of the public. Still, it’s just as likely that Bankman-Fried and his entourage argued that he was simply incompetent, in over his head, and never intentionally participated in the artifice.
It makes a big difference. US prosecutors can bring a civil action against someone accused of incompetence or negligence, and that person could face significant financial consequences. But if an individual is proven to have conspired to mislead others, then crimes of fraud are on the table, which also means jail time is on the table. It’s a much darker picture.
Already, the US Attorney’s office in Manhattan has reportedly launched an investigation; the SEC and the Department of Justice are also, understandably, snooping around and trying to determine whether the Bankman-Fried maneuvers were intended to deceive or were more of an astonishing series of blunders.
It is tempting to conclude that Bankman-Fried made his decisions knowingly. But it was quite a performance today if so.