Sam Bankman-Fried's money pit
"Sam, if I said I need a million dollars to cure world hunger, could you get it in an hour?"
- That's a question I asked Sam Bankman-Fried last October, after having read that the "billionaire" FTX founder had relatively little cash in his personal bank account.
- His reply, after a pause: "I could. What I would be doing is I would basically be withdrawing it from companies. So, you know, you could dividend it out from FTX."
Why it matters: This exchange has been ringing in my head for days, as FTX and its U.S. affiliate both filed for Chapter 11 bankruptcy protection and everyone has sought to understand what went so wrong so fast.
- Yes, he was replying to a hypothetical and what he said wasn't necessarily illegal. He was majority owner and CEO of FTX, a company that had raised $2 billion in venture capital without even the most basic financial or corporate governance controls. Plus, there's a moral case to be made that almost any means would justify ending world hunger.
- But his mind went first to pulling money from FTX. Not to asking a wealthy friend to wire the money. Not to digging into his Alameda Trading account, which everyone at the time believed to be flush. No, he would take it from FTX.
State of play: At the moment, FTX is looking like a full employment act for forensic accountants.
- One thorny question they'll be charged with answering is how Bankman-Fried got so liquid.
- Remember, he donated more than $40 million to political campaigns during the most recent election cycle. He also personally bankrolled FTX Ventures, which put big money into dozens of startups, and also committed hundreds of millions of his own money to actual venture capital funds (some managed by firms that also invested in FTX).
- None of this is normal for the CEO of a young, venture-backed company, even one valued at $32 billion.
- FTX investors still have never seen a balance sheet, even though the company used to send large quarterly performance packages that included all sorts of other financial data.
Due diligence: Some FTX investors, speaking on the condition of anonymity, say they assumed Bankman-Fried was using money he earned via Alameda earnings.
- But they also admit that they didn't dig deeper into the relationship between Alameda and FTX; now realizing that even if Bankman-Fried's cash came from Alameda, that likely means that at least some of it originated with FTX and, quite possibly, FTX customer funds.
- There also are questions if there was a bank on the other side of Bankman-Fried's personal giving, perhaps using his stake in FTX as collateral.
The bottom line: We're just one week into this debacle, and still months away from untangling the money web of FTX, Alameda and Bankman-Fried.