Sam Bankman-Fried knew little about alternative currencies. But he correctly bet there were huge opportunities in grabbing a tiny piece of millions of crypto trades.
Credit: The New York Times
San Francisco: There comes a moment in the development of a new technology when the hype is so common it passes for common sense. Lawyers, accountants and regulators are nowhere to be found. Investors insist entrepreneurs take their money. The world trembles on the brink of change.
For dot-coms, the moment was 1999. For artificial intelligence, it was just over nine months ago. For cryptocurrency, it was 2017.
Six years ago, Sam Bankman-Fried knew little about alternative currencies. But he correctly bet there were huge opportunities in grabbing a tiny piece of millions of crypto trades. In the blink of an eye, he was lauded as being worth $23 billion. Only Mark Zuckerberg had accumulated so much wealth so young.
The Facebook co-founder has his critics, but he looks like Thomas Edison next to Bankman-Fried. After a speedy trial in Manhattan federal court, the onetime crypto king, now 31, was convicted on Thursday of seven counts of fraud and conspiracy involving his companies FTX and Alameda Research.
Bankman-Fried once partied with stars and big shots, doled out fortunes in looted funds to politicians and himself, was acclaimed as the next Warren Buffett, employed his friends and made them rich for a while, was courted by the news media that printed his most banal comments. For a time, everyone loved Sam Bankman-Fried -- with the apparent exception of Sam Bankman-Fried.
"I am, and for most of my adult life have been, sad." That plaintive statement appears at the end of testimony Bankman-Fried had hoped to give Congress last winter before his arrest scuttled his plans. He was onto something.
In photographs from his heyday, Bankman-Fried always looked awkward, embarrassed and as if he would rather be playing a video game, even when Gisele Bündchen had an arm around him. Everyone kept insisting he was off-the-charts brilliant, the entrepreneur who would create the future. Maybe he knew better.
As journalists -- and now prosecutors -- have made clear, FTX and Alameda were run by a group of hapless young people who did not have the required skills, maturity or patience. Those who actually had a moral compass and sensed something was wrong soon peeled off, leaving a core crew who drifted -- or perhaps dived -- into trouble.
"When I started working at Alameda, I don't think I would have believed you if you told me I would be sending false balance sheets to our lenders or taking customer money, but over time it was something I became more comfortable with," Caroline Ellison, Bankman-Fried's colleague and sometime girlfriend, testified during the trial.
When Ellison started working at Alameda, something called the blockchain was going to transform everything, somehow. Silicon Valley poured billions into crypto, seeking out those like Bankman-Fried who got in early and appeared smart.
Sequoia Capital, a top venture firm that has funded Apple, Airbnb, Instagram and WhatsApp, all but begged Bankman-Fried to take its money during the mad rush when crypto was shiny and new. The FTX founder did. Sequoia then commissioned a very long celebration of Bankman-Fried by Adam Fisher, a longtime Silicon Valley writer who fell hard for the man whose fans called him SBF.
"After my interview with S.B.F., I was convinced: I was talking to a future trillionaire," Fisher wrote. He added: "The FTX competitive advantage? Ethical behavior."
Less than two months after the interview was published, FTX collapsed. Sequoia put a note at the top of the story saying this was an "unexpected turn of events." It later took the story down and wrote off its $214 million investment in the exchange. Sequoia and Fisher declined to comment.
The central myth of Silicon Valley is that techies are here to save the world. If they get insanely rich in the process, well, that only proves how great their idea was in the first place.
This was the appeal of Elizabeth Holmes and her blood-testing company, Theranos. She was young, female and attractive, which looked good on the covers of magazines. But the notion that really propelled her to fame and fortune was that she was a sort 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 placed customers at risk by giving them unreliable results.)
FTX allowed people to bet on cryptocurrencies. It was, in essence, 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 was always on Bankman-Fried himself.
He calculated the odds on everything -- he thought there was a 5% chance he would become president of the United States. He figured 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. As a fawning Forbes profile put it in 2021: "He's a mercenary, dedicated to making as much money as possible (he doesn't really care how) solely so he can give it away (he doesn't really know to whom, or when)."
During the trial, it emerged that Bankman-Fried had spent $15 million on private plane travel. He never did much to disguise the fact that he lived with some of his FTX pals in a $35 million penthouse. The question of whether these young people should be sleeping on the beach instead of living the high life if they were truly following the doctrine of effective altruism never seemed to get asked.
Bankman-Fried was happiest when playing video games, which he did as often as he could. Even as he talked to Sequoia over Zoom about his grand plans to make a financial super-app inside FTX and therefore obliterate every bank in the world, he was playing League of Legends.
Again and again, he conveyed his contempt for what he was doing, and he seemed to implore the authorities to take a closer look at his companies. Take, for instance, this statement he made in August 2021 in one of his many interviews: "If there's anything we're doing that a regulator doesn't want, you don't have to sue us. Just reach out and tell us what you want."
The magic of starting a company just as a boom is beginning is that the bar is low. When Sequoia was looking for a crypto exchange to invest in, FTX was "Goldilocks-perfect," according to its profile. One big reason: "There was no concerted effort to skirt the law." Hard to find a bar much lower than that.
Bankman-Fried tried to warn everyone.
"By number of Ponzi schemes, there are way more in crypto, kinda per capita, than in other places," he told The Financial Times in May 2022.
It didn't matter. Investors, customers, journalists all saw the genius they were told was there. And if they had the slightest doubt, Bankman-Fried had an ace: His parents were Stanford law professors.
"He has two parents that are compliance lawyers," said "Shark Tank" star Kevin O'Leary, who was both a promotional spokesperson for FTX and an investor in it. "If there is ever a place I can be and I am not going to get in trouble, it is going to be at FTX."
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 attention elsewhere. According to a lawsuit filed by the bankrupt FTX, their son gave them, through FTX, a $16 million home in the Bahamas, $10 million in cash and many other things. Lawyers for the couple called the claims "completely false."
In that glowing Sequoia profile, Bankman-Fried said: "I'm very skeptical of books. I don't want to say no book is ever worth reading, but I actually do believe something pretty close to that." He didn't like movies either.
It's impossible to read the sad saga of Bankman-Fried without thinking he, and many of those around him, would have been better off if they had spent less time at math camp and more time in English class. Sometimes in books, the characters find their moral compass; in the best books, the reader does too.
As I read about Bankman-Fried, the historical drama "A Man for All Seasons," once a staple for high school students, kept coming to mind. It's about a man who knows right from wrong and a man who doesn't. Richard Rich is a little like Bankman-Fried: a young man with huge ambitions and no scruples. He begs Thomas More for a place at court. More tells Rich he would be a teacher.
Who would know if I were a good teacher? Rich asks scornfully.
"You, your pupils, your friends, God," More replies. "Not a bad public, that."
Rich rejects the quiet life, betrays More and is rewarded with a post in Wales. Viewers are given to understand that he loses his soul. Bankman-Fried rejected the quiet life, betrayed nearly everyone he knew -- and ended up with neither wealth nor Wales.