Imagine the Opening Shot of a post-apocalyptic horror flick. Post rupture, a “$30 million Bahamas penthouse looks like a dorm after the students have left for winter break. The dishwasher is full. Towels are piled in the laundry room. Bat streamers from a Halloween party are still hanging from a doorway… And then there are the shoes—dozens of sneakers and heels piled in the foyer, ….” The camera pans back to reveal silhouette of our protagonist against the gorgeous setting sun. Alone, sitting cross-legged, “shoeless, in white gym socks, a red T-shirt and wrinkled khaki shorts.” His trademark mop of unruly hair falls reluctantly on the sides, he fidgets with his fingers, perhaps the effect of antidepressants and performance enhancers that he consumes almost as a survival mechanism.
The above is not a teaser from a documentary on human hubris running astray, but it could be. These are images one creates from a long profile of Sam Bankman-Fried, commonly referred to as SBF, by Zeke Faux in Bloomberg earlier this month.
In the same profile and elsewhere, SBF uses the expression “f**up” repeatedly. As in “It was just a f**kup. A huge f**kup.” Too frequently, as if trying to make a “f**kup” as ordinary as “sorry,” another word he is getting used to using these days. “I’m sorry. That’s the biggest thing.” “I f**ked up, and should have done better.” “I’m really f**king sorry.”
SBF founded a cryptocurrency exchange FTX that allowed customers to borrow to make bigger trades with margin trading, thus amplifying risk. Funds were supposed to come from a pool of other customers who signed up as lenders to borrowers, including Alameda Research, a crypto hedge fund SBF founded and continued to hold 90% stake. All of this sounds plain-vanilla if everybody stayed within the chalk, and they did not. Monies may have come from investors who did not sign up as lenders, a criminal violation. Alameda was allowed to play by different rules of risk mitigation by FTX – “There was more leeway,” says SBF – another potential criminal violation. Alameda, on its part, veered far beyond bread-and-butter lower-risk arbitrage trades. Most of its “assets” comprised of tokens SBF and his cronies may have coined themselves, potential ethical and criminal violations on many fronts. Further, Alameda apparently spent close to USD 8 Billion – “mis-counted” per SBF – of mostly borrowed money on largesse for SBF and his coterie, including a USD 30MM penthouse in the most-exclusive Albany resorts that was used as a “polycule” by senior members of his firms, ill-advised investments in other crypto companies, his USD 300 MM real estate portfolio on the islands, a USD 15MM+ house for his parents, numerous pet causes and donations to politicians in the US and in the Bahamas. All of these are potential criminal and civil infractions.
SBF’s USD 26 Billion net worth went poof within a week of first revelations. If you are starting to feel sorry for SBF, I strongly urge you to hold back your tears.
SBF’s replacement as CEO John J. Ray III came with more than four decades of restructuring experience, including at Enron – another epic story of human hubris. Surveying the ruins he commented, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here…From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals.” An “unprecedented” situation in his long career resulted in “substantial portion” of FTX customers’ assets “missing or stolen,” he continued.” As SBF tries to blame everything on a combination of “comically poor bookkeeping, wildly misjudged risks and complete ignorance of what his hedge fund was doing,” keep in mind that he is a Physics undergraduate of MIT and started out at an elite trading firm Jane Street; his partners in crime have similar high-pedigree background.
We are to believe they were dumb with numbers – “I was real lazy about this mental math” – and victims of circumstances but not trying to commit fraud consciously. Blimey!
SBF and his cohort are known for clever use of the media to create imagery that distracts from reality. Exhibit No. 1 is SBF himself – disheveled by choice, wearing frayed thrift-store quality rags in grand settings, mumbling fast through an avalanche of words and thoughts. His primary accomplice, and sometime lover, was Caroline Ellison – a child of two professors just like SBF, a Math undergrad from Stanford, a fellow alum of Jane Street, and, a stereotypical nerd glued on a Harry Potter billboard. In April 2022, FTX hosted a lavish coming out party of sorts in Nassau when SBF shared limelight with Tom Brady, Tony Blair and Bill Clinton, author Michael Lewis, and throngs of groupies. Sequoia Capital published a fawning portrait two months before collapse, saying, “After my interview with SBF, I was convinced: I was talking to a future trillionaire. Whatever mojo he worked on the partners at Sequoia—who fell for him after one Zoom—had worked on me, too.” To be noted that SBF pitched his company to Sequoia while playing League of Legends the whole time, per Sequoia; Sequoia committed USD 200 MM at the meeting, and millions more later.
If storytelling was their secret sauce, their repertoire was also replete with miscues that allude to what they really were up to. “The way to really make money is figure out when the market is going to go up and get balls long before that,” Ellison wrote, a mantra also found in an iconic market-manipulation memoir, Reminiscences of a Stock Operator. “If we named our company like, Shitcoin Day traders Inc., they’d probably just reject us,” SBF commented in a podcast in 2021. “But, I mean, no one doesn’t like research.” According to the Wall Street Journal, Ellison told Alameda employees in a video call that she knew FTX was sending customer funds to Alameda which was then used to cover liabilities and that SBF and other senior employees in the ecosystem were in on it.
If a carefully careless mien, and, buying favors, failed to get them everything, SBF used another calling card known as “Effective Altruism”, or EA. EA is touted as “a philosophical movement that encourages people to use logic and reasoning to figure out how to do the most good.” Their website says “The EA community is focused on finding ways of doing good that actually work.” SBF and others openly conflated EA with everything they did, saying, “All the employees, all the funding—everything was EA to start with.” For these Bahama bros – all four senior members came together as followers of the philosophy – it meant, paraphrasing, earning as much money as possible, the soonest possible, and give away most of it “for the common good.” So much so that the Sequoia bootlicking piece carried the title, “Sam Bankman-Fried Has a Savior Complex – And Maybe You Should Too.” EA did not come cheap in this world. Missing billions of FTX/Alameda did buy some people some worldly things, none of that was a common good. Looks like the savior saved his own skin thus far, he is free a full month after these dominos came falling down. For comparison, Bernie Madoff was hauled off the streets within 24 hours, and rightly so.
More than a century ago, German thinker Max Weber studied the Spirit of Capitalism. His key finding was that in capitalistic societies business – especially accumulation of wealth – is a moral calling, a way to justify one’s time on the planet. Which explains why, unlike hereditary noblemen of the yore, the “bourgeois businessman” needed to be “within the bounds of formal correctness,” insure “his moral conduct was spotless.” Fall from grace was no longer preordained as impossible because of an accident at birth. The “heroic entrepreneur,” even when risking livelihood, reputation and every comfort known, cannot be careless about the boundaries of morality. They are tattooed with painful memories of failures and false starts, even if they are unable to stop expeditions into the unknowns; these failures hurt. In Weber’s construct, one failure they are least equipped to accept and move on is the paucity of scruples. That creates a spine of righteousness for the business community.
SBF had none.
SBF will get a vigorous defense if he can afford it, and that is his due. It is telling that he hired the attorney who defended El Chapo, a Mexican drug overlord, the same attorney also defended Ghislaine Maxwell in her sex-trafficking trial. In his series of media appearances since the fall of FTX he creates a web of denials even as he admits, he “wasn’t even trying to manage risk.” It could be that in his mind the universe conspired against him, that somebody so smart, somebody with so perfect a pedigree, somebody brought up so right, somebody who cracked the code of effortless infatuation, somebody who was doing everything in the name of altruism…. could never fall so hard on his face. It is entirely possible that he may have fooled himself as much as he did others.
Methinks not. He built a kingdom of nothing upon coins of no consequence, preying the gullible and the greedy, marked by favor and fawning, politicians and plebeians alike. In the end it was too much for even him to keep up appearances. I bet he savored the show all along. I bet he knew.
That galls me. Echoing Carly Simon may I say to SBF, “You’re so vain. I bet you knew this was about you all along. Don’t you, don’t you?”