The wild rise and abrupt crash of Sam Bankman-Fried
There comes a point in the development of a new technology when the hype is so widespread that it passes for common sense. Lawyers, accountants and regulators are nowhere to be found. Investors insist on entrepreneurs taking their money. The world is trembling on the edge of change.
For dotcoms the moment was 1999. For artificial intelligence it was just over nine months ago. It was 2017 for cryptocurrency.
Six years ago, Sam Bankman-Fried knew little about alternative currencies. But he rightly gambled that there were huge opportunities in grabbing a small piece of the millions of crypto transactions. In the blink of an eye, he was hailed as being worth $23 billion. Only Mark Zuckerberg had amassed so much wealth so young.
The Facebook co-founder has his critics, but he looks like Thomas Edison next to Mr. Bankman-Fried. After a speedy trial in Manhattan federal court, the former crypto king, now 31, was convicted Thursday of seven counts of fraud and conspiracy involving his companies FTX and Alameda Research.
Mr Bankman-Fried once partied with stars and bigwigs, handed out fortunes in looted funds to politicians and himself, and was hailed as the next Warren Buffett, he hired his friends and made them rich for a while, was courted by the news media who published his most banal comments. For a while, everyone loved Sam Bankman-Fried – except Sam Bankman-Fried.
“I am, and have been for most of my adult life, sad.” This plaintive statement comes at the end of testimony that Mr. Bankman-Fried hoped to give to Congress last winter before his arrest derailed his plans. He was onto something.
In photos from his heyday, Mr. Bankman-Fried always looked uncomfortable and embarrassed, as if he’d rather be playing a video game. even when Gisele Bündchen had an arm around him. Everyone insisted that he was extraordinarily brilliant, the entrepreneur who would create the future. Maybe he knew better.
As journalists – and now prosecutors – have made clear, FTX and Alameda were led by a group of hapless young people who lacked the requisite skills, maturity or patience. Those who actually had a moral compass and sensed something was wrong quickly let go, leaving a core crew that ran into trouble – or perhaps dove.
“When I started working at Alameda, I don’t think I would have believed you if you told me I would be sending fake balances to our lenders or taking money from customers, but over time I felt more comfortable with that my comfort,” Caroline Ellison, Mr. Bankman-Fried’s colleague and sometimes girlfriend, testified at the trial.
When Ms. Ellison started working at Alameda, something called the blockchain was going to transform everything in some way. Silicon Valley poured billions into crypto, looking for people like Mr. Bankman-Fried who got in early and looked smart.
Sequoia Capital, a top firm that has funded Apple, Airbnb, Instagram and WhatsApp, all but begged Mr. Bankman-Fried to take his money during the frenzy when crypto was shiny and new. The founder of FTX did that. Sequoia then commissioned a very long celebration of Mr. Bankman-Fried by Adam Fisher, a longtime Silicon Valley writer who fell in love with the man whose fans called him SBF.
“After my interview with SBF, I was convinced: I was talking to a future trillionaire,” Mr. Fisher wrote. He added: “FTX’s competitive advantage? Ethical behavior.”
Less than two months after the interview was published, FTX collapsed. Sequoia posted a note at the top of the story saying this was an “unexpected turn of events.” Later, the story was removed and the $214 million investment in the stock market was written off. Sequoia and Mr. Fisher declined to comment.
The central myth of Silicon Valley is that techies are here to save the world. If they become insanely rich in the process, that just proves how great their idea was in the first place.
This was the call from Elizabeth Holmes and her blood testing company Theranos. She was young, feminine and attractive, which looked good on magazine covers. But the idea that really propelled her to fame and fortune was that she was a kind of high-tech Florence Nightingale, working all night to refine medical technology that would improve people’s health. (The truth was that her technology didn’t work and put customers at risk by giving them unreliable results.)
FTX allowed people to bet on cryptocurrencies. It was essentially a casino. It is difficult for even the most sympathetic journalist to portray a casino as a savior of humanity, so the focus of the stories has always been on Mr Bankman-Fried himself.
He calculated the odds on everything: he thought there was a five percent chance that he would become president of the United States. He thought he would help humanity by making a fortune and then giving it all away, a philosophy known as effective altruism. The details didn’t matter. Like a fawn Forbes Profile to put it in 2021: “He is a mercenary, dedicated to making as much money as possible (he doesn’t really care how), just so he can give it away (he doesn’t really know to whom or when). ”
During the trial it emerged that Mr Bankman-Fried had spent $15 million on private plane travel. He never did much to disguise the fact that he lived in a $35 million penthouse with some of his FTX friends. The question of whether these young people would have to sleep on the beach instead of living a life of luxury if they truly followed the doctrine of effective altruism seemed never to have been asked.
Mr. Bankman-Fried was happiest playing video games, which he did as often as he could. Even when he spoke to Sequoia via Zoom about his grand plans to create a financial super app within FTX and thereby destroy every bank in the world, he was playing League of Legends.
Time and time again, he expressed disdain for what he was doing and appeared to beg authorities to investigate his businesses further. Take this statement for example he made in August 2021 in one of his many interviews: “If we do something that a regulator doesn’t want, you don’t have to sue us. Just contact us and tell us what you want.”
The magic of starting a business right when the boom begins is that the bar is set low. When Sequoia was looking for a crypto exchange to invest in, FTX was “Goldilocks perfect.” according to his profile. One key reason: “There was no concerted effort to circumvent the law.” Hard to find a bar much lower than that.
Mr Bankman-Fried tried to warn everyone.
“In terms of the number of Ponzi schemes, there are many more in crypto, roughly per capita, than in other places,” he told The Financial Times in May 2022.
It didn’t matter. Investors, customers and journalists all saw the genius they were told was there. And if they had the slightest doubt, Mr. Bankman-Fried had an ace in the hole: His parents were law professors at Stanford.
“He has two parents who are compliance attorneys,” said the “Shark Tank” star Kevin O’Leary, who was both a promotional spokesperson for FTX and an investor in it. “If there’s ever a place I can be and not get in trouble, it’s at FTX.”
Mr. O’Leary may not have known that Joseph Bankman, a tax law specialist and clinical psychologist, and Barbara Fried, a professor emeritus at Stanford Law School, had their attentions elsewhere. According to a lawsuit filed by bankrupt FTX, their son, through FTX, gave them a $16 million house in the Bahamas, $10 million in cash and many other things. Lawyers for the couple called the claims “completely untrue.”
In that beaming Sequoia profile, Mr. Bankman-Fried said, “I’m very skeptical of books. I’m not saying that no book is ever worth reading, but I actually think something comes close.” He didn’t like movies either.
It is impossible to read Mr. Bankman-Fried’s sad saga without thinking that he, and many of the people around him, would have been better off if they had spent less time at math camp and more time in English class seated. Sometimes the characters find their moral compass in books; in the best books the reader does too.
Reading about Mr. Bankman-Fried, I kept thinking of the historical drama “A Man for All Seasons,” once a staple for high school students. It’s about a man who can tell right from wrong, and a man who doesn’t. Richard Rich is a bit like Mr. Bankman-Fried: a young man with enormous ambitions and no scruples. He begs Thomas More for a place at court. More tells Rich that he would make a good teacher.
Who would know if I was a good teacher? Rich asks dismissively.
“You, your students, your friends, God,” More answers. “Not a bad crowd, that.”
Rich rejects the quiet life, betrays More and is rewarded with a post in Wales. Viewers are told that he is losing his soul. Mr Bankman-Fried rejected the quiet life, betrayed almost everyone he knew – and ended up with neither wealth nor Wales.