Everyone got duped by Sam Bankman-Fried's big gamble
The picture was obtained from Getty Images.
Rewrite: Authored by Holly Honderich, Natalie Sherman, and Erin Delmore
Sam Bankman-Fried has been found guilty of taking billions of dollars from customers who trusted him with their cryptocurrencies on FTX. This is a huge collapse for the young and unkempt genius of Silicon Valley, who had previously mingled with famous individuals such as Gisele and Tom Brady.
It was on November 7, 2022 that Bankman-Fried found himself facing the inevitable collapse of his empire. Despite the looming disaster, he did what he always did: assessed the probabilities.
Earlier that day, a competitor in the crypto market had shared worries on social media regarding Bankman-Fried's exchange's financial wellbeing. This caused fear among customers, leading to a bank run worth several billion dollars.
During an online chat, Bankman-Fried sought the opinions of two of his high-ranking colleagues. He asked them, "Just to confirm, do you both believe that the tweet has an overall negative effect?"
They thought about what they could do. Was it possible that his opponent would take back their negative comments? Was it likely to stop any negative consequences? "Not very probable," Bankman-Fried stated.
Bankman-Fried had been making these types of calculations in calculus for years, using quick equations that his friends said he applied to almost any situation. These situations could include contemplating a breakup or evaluating a risky financial deal.
For some time, that method appeared to be successful. As the prodigy of cryptocurrency, Bankman-Fried became wealthy at an unprecedented pace, accumulating a reported $26 billion in personal riches, gracing numerous magazine covers, and exerting substantial political power. However, his downfall came about just as quickly.
As previously mentioned, the Twitter post had a negative impact. It caused a significant amount of money to leave the platform in under five days. Ultimately, over $8 billion of customer funds went missing and the company was left with no money. After five weeks, Bankman-Fried, who had already stepped down from his position, was accused of various financial crimes including wire fraud, securities fraud, commodities fraud, and money laundering by prosecutors in Manhattan.
During a span of four weeks in court, there were two opposing narratives put forth. One portrayed the ex-magnate as a talented yet unfortunate individual whose errors in judgment while being the CEO made it possible for enormous deceitful activities to happen under his watch. The other viewpoint, which was backed up by former close associates, suggests that Bankman-Fried illicitly extracted billions of dollars from clients and depended on the chances of never getting caught.
Both accounts demonstrate how closely FTX's success was linked to the public perception of its founder, whose unique charisma attracted former heads of state, famous personalities, and influential business leaders to his inner circle and massive financial risk-taking.
In a tweet, Mr. Bankman-Fried revealed that he mostly dozes off on a type of seating furniture called a beanbag.
Bankman-Fried was open about his desire to become wealthy. However, according to him, his ultimate goal was to use his riches for philanthropic purposes.
Bankman-Fried was born to parents who were both high achievers. He and his younger brother were introduced to utilitarianism, which is the belief that the best decision is the one that benefits the greatest number of people, at a young age.
When Bankman-Fried was studying at MIT, he attended a lecture given by Will MacAskill. MacAskill was a 25-year-old doctoral student at Oxford who founded a philosophy called effective altruism. This philosophy combines utilitarianism and mathematics to determine how individuals can achieve the greatest possible philanthropic outcome.
Mr. MacAskill suggested to Bankman-Fried that he could use his great intelligence to work on profitable Wall Street and contribute most of his earnings to significant charitable causes in order to have the greatest impact.
Bankman-Fried was bought. Back in 2014, he went directly to Jane Street, a company that specializes in high-frequency trading. According to reports, he donated around half of his earnings to charitable causes.
After a duration of three years, Bankman-Fried discovered an economic sector that possessed the potential to bestow upon him wealth greater than traditional trading: cryptocurrency.
He established Alameda Research, a firm that invests in cryptocurrency, when he was 25 years old. He became aware that the prices of Bitcoin differed significantly depending on the country and began using arbitrage trading, which resulted in Alameda earning an estimated $20 million in a mere three weeks.
He established FTX in 2019, which was a cryptocurrency exchange for global investors situated in Hong Kong. Similar to Elizabeth Holmes, who was a billionaire in Silicon Valley but lost her reputation, he was able to convince prominent investors to not only provide financial support but also enhance the company's image.
FTX saw its daily trading volume soar to $300 million in just a matter of months. Fast forward to 2021, and the company's founder had made his debut on Forbes' prestigious list of the wealthiest Americans - the Forbes 400, with an impressive net worth of $22.5 billion.
Many people believe his exceptional achievement can be attributed to a unique ability to handle high levels of risk, being open to the possibility of negative outcomes in order to receive a greater reward.
According to Caroline Ellison, the former CEO of Alameda Research and the speaker at the trial, the person referred to would feel content with the outcome of a flipped coin. If it showed tails and caused the destruction of the world, it would not bother him. However, if it came up heads, the enhancement of the world's condition by more than twice its current state would make him happy.
Bankman Fried took to the stage at a conference alongside Tony Blair, the former leader of the UK, and Bill Clinton, the former President of the United States.
Supermodel Gisele and him were featured in a FTX advertisement in Vogue.
Based on insider reports, working at FTX could often feel like an adult math retreat, populated by a group of exceptionally skilled individuals who don't quite fit in with mainstream society, all under the guidance of the constantly disheveled Bankman-Fried.
According to a previous worker of FTX who spoke to BBC, the individual in question possessed an extremely disorganized nature. Their attire also usually consisted of cargo shorts and they maintained an overall sloppy appearance. Additionally, it was reported that the person would freely walk around the workplace without footwear.
According to an employee, the higher-ups formed a closely connected clique, which occasionally followed Sam's guidance without question. The situation appeared to mimic a cult.
According to Natalie Tien, who was responsible for public relations and managing Bankman-Fried's schedule at FTX for over two years, the CEO's charm was so overpowering that it made the company feel unpleasant at times.
She informed BBC that they had complete faith in him, without any doubts. They were so dependent on him that they hesitated to stand up for themselves.
Not only those within the organization were fascinated.
He joined well-known figures like Bill Clinton, Tony Blair, Gisele Bundchen, and Katy Perry in loose-fitting T-shirts and shorts, representing the entire crypto industry as it grew even more popular.
Bankman-Fried had an allure about him because he didn't flaunt his wealth like many others with similar incomes do. During his trial, his lawyers stated that he didn't possess a yacht and drove an old Toyota Corolla. Alongside this, he spoke in front of Congress and pushed for more rules to be put in place surrounding the crypto market. This distinguished him from many of his colleagues.
Zeke Faux, who wrote Money Go Up: Inside Crypto's Wild Rise and Staggering Fall, described him as the adult in the world of cryptocurrency in an unusual manner.
Naturally, he had a clear and definite end goal: Bankman-Fried aimed to donate all of his wealth to charity.
According to Mr. Faux, the story was fantastic and had gained a lot of popularity among different groups of people. Congress members, venture capitalists, and bankers all enjoyed the story.
He mentioned that his tale was not genuine.
During September 2022, the investment firm Sequoia Capital published an enthusiastic feature about Bankman-Fried in their publication. At that point, FTX had an appraisal of $32 billion.
Adam Fisher once wrote an article called FTX's SBF Has a Savior Complex, and Maybe You Should Too, which has since been removed. In this article, Fisher talked about how Bankman-Fried was trying to increase his wealth to make a bigger impact on the world. He took a chance, but Fisher believed that the benefits outweighed the risks, based on the calculations.
He stated that in order to make the greatest positive impact on the world, SBF had to take a risky path where there was a high chance of failure.
After six weeks, CoinDesk, a website that reports on industry news, released a shocking report claiming that Alameda had invested more than 50% of its $15 billion portfolio in FTT, which is a cryptocurrency token created by FTX. This revelation led to concerns about how much Alameda's assets were truly worth, as well as the potential conflict of interest between Alameda and FTX, which are supposed to be separate entities.
On the 6th of November, CZ, the CEO of Binance, a competitor in the industry, made an announcement that he would be selling off a significant amount of his owned FTT.
FTX, once a rising star in the world of cryptocurrency, met its demise on November 11th through a complete implosion. The tale of this crypto prodigy has now come to an end.
Some people who have been following the cryptocurrency trend and Bankman-Fried's quick rise to success predicted that a decline was inevitable.
An article that has been taken down by Sequoia Capital once stated that Sam Bankman-Fried possesses both remarkable and daunting intellectual abilities.
As FTX gained popularity, the famous actor Ben McKenzie, who is recognized for his appearance in the TV series the OC, became one of the most outspoken individuals in the country to doubt cryptocurrencies.
Bankman-Fried agreed to have an interview with Mr. McKenzie for his upcoming book titled "Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud" in July 2022.
In a tiny hotel room in Manhattan, Mr. McKenzie had an incredibly bizarre experience when Bankman-Fried attempted to convince him on the potential of crypto and the positive impact it could have on global issues. Bankman-Fried himself was also the subject of the pitch.
According to Mr McKenzie, he believes that the person presented to him was a portrayal of their public image, specifically the image of a maverick from California who is both successful in business and generously gives back to society.
Mr. McKenzie had been influenced by an image, but soon changed his mind during their conversation. According to the actor, Mr. McKenzie struggled to provide clear responses to simple inquiries, such as the purpose of crypto currency.
Throughout a period of four weeks, the lawyers representing Bankman-Fried in Manhattan portrayed their client as a highly skilled mathematician who struggled to manage his ever-growing business.
Bankman-Fried was present on the stand, clad in formal attire and sporting a shorter haircut. He placed some of the responsibility on Ms Ellison, who had admitted to committing fraud, for her inability to properly "hedge" bets and provide greater safeguards for Alameda in the event of market downturns, despite his instructions.
On the other hand, the accusers depicted Bankman-Fried as an individual whose eagerness was coupled with arrogance, causing him to take risks with his business.
According to Nicolas Roos, the prosecutor, the accused person was wagering using funds belonging to clients.
Bankman-Fried's downfall in court was supported by people who were once close to him, such as Ms Ellison, who served as the head of Alameda. In addition to her, there were also Adam Yedida and Gary Wang, who were his former roommates in college, and Nishad Singh, a childhood friend of Bankman-Fried's younger brother.
Source of picture utilized, Getty Images.
During the trial, Caroline Ellison, who used to be his girlfriend, played an important role as a witness on the side of the prosecution.
They declared that Bankman-Fried asked them to engage in fraudulent activity, despite his promises to protect customer funds and improve the industry. This involved creating a secret connection between Alameda and FTX for Bankman-Fried's personal benefit. He used the money obtained through this illicit activity to fund his extravagant lifestyle, which included purchasing property, making huge investments, donating around $100m in politics and settling Alameda's huge debts.
According to Ms. Ellison's testimony, he deliberately created his physical appearance. He purposely messed up his hair and drove a cheap car to enhance his image. This was done specifically to make him look more authentic and different from other traders. However, despite this down-to-earth image, he had a strong longing for public recognition.
During the trial, Ms Ellison revealed that the individual in question believed that he had a slim probability of about 5% to eventually hold the prestigious title of the President of the United States.
While many people have seen the trial as a way of getting back at someone for their actions, Natalie Tien, a previous worker at FTX, has viewed it as a way to find emotional resolution. As a result, she is one of the only ex-employees who attends the trial on a regular basis.
At the same time, it was comforting to discover that her concerns and uncertainties about certain topics, such as excessive monetary investments made on celebrity endorsements, had been proven correct.
However, the individual who is 33 years old also experienced that certain aspects of the narrative - particularly regarding his timetable and his utilization of chartered planes - were being misrepresented without considering the complete situation.
She remarked that he had indeed made false statements and taken the money, however she felt it wasn't because he was avaricious. This was because she had seen him regularly sporting shabby and worn-out T-shirts, not wearing any shoes and operating a poor quality car on a daily basis.
She stated that it wasn't a performance.
Bankman-Fried could potentially receive a prison sentence that could last up to 110 years, and will forever be known as one of the most prominent swindlers in American history. Legal professionals handling the bankruptcy matter have reported that they have retrieved over $7 billion in funds that went missing.
In my opinion, what Mr. McKenzie stated indicates that the way we perceive something reflects more about ourselves rather than the subject being evaluated.
I believe he achieved a lot due to his background, being the offspring of Stanford professors, graduating from MIT, and having worked on Wall Street. The legend of Sam Bankman-Fried expanded alongside the legend of cryptocurrency, don't you agree?
Crypto King's Demise
James Clayton contributed further coverage to the blog.
