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The failures of Sam Bankman-Fried

Nov 30, 2022
Photo illustration of Sam Bankman-Fried with downward arrows and abstract shapes.

Photo illustration: Gabriella Turrisi/Axios. Photo: Lam Yik/Bloomberg via Getty Images

In his scathing review of FTX's business, John Ray III, the company's new CEO and the person in charge of its restructuring, said founder Sam Bankman-Fried ran the business as his "personal fiefdom."

In an interview with Axios, Bankman-Fried didn't disagree.

Why it matters: The interview that Bankman-Fried gave shed light on the failings that led to the company's implosion.

Of note: Bankman-Fried is the founder of FTX, a company worth $40 billion not so long ago. He now faces allegations of fraud and mismanagement and says he wishes he had put in place a third party between his trading firm, Alameda Research, and FTX.

  • "There's certainly an extent to which that I wish there had been someone who wasn't me who was in charge of managing conflicts of interest," he said over the phone. "I wish that I had more reporting and transparency to outside parties."
  • He said that he was responsible for not putting someone in that position.

The intrigue: Bankman-Fried said he has not been in contact with Ray, though he has reached out to people managing the bankruptcy process. Ray notably has also sought to distance FTX from Bankman-Fried.

  • “I offered up my services, my help, to any of the global regulators, administrators who are working to try and do what they can," Bankman-Fried said. "As of now, there has not been much contact coming from the U.S. team.”

Details: While FTX did have audits, the legitimacy of the work done by those external firms has been called into question as leaked FTX figures have been shown to be unreliable.

  • Bankman-Fried's heavy risk-taking and conflicts of interest had also come into question very early on, even among his co-workers. Alameda's co-founder, Tara MacAulay, said this month on Twitter that she quit in April 2018 in part due to concerns over "risk management and business ethics."
  • The overarching company did not give any of its investors a board seat, nor did it hire a CFO, a lack of corporate governance that investors overlooked when the company was booming.
  • “In terms of boards? I think it's a little more complicated than that. we actually had a lot of boards," he said. "There's a board of directors of FTX Japan, there's a board of directors of FTX Australia, board of directors of, you know, in Europe. A board of directors of U.S. derivatives. We had dozens.”

The lack of barriers between Bankman-Fried's various companies and equity stakes magnified the damage to the crypto economy earlier this year — something the fallen CEO says he regrets.

  • When FTX failed, it also meant that assets associated with FTX, like the Solana ecosystem, suffered more than ethereum or bitcoin.
  • "I was frequently building and running reports around the volume distribution on FTX. I should have been doing the same thing around distribution, position distribution, assets balances," he said. "I screwed it up in underestimating what happens in a hyper-correlated market premise."

Of note: Bankman-Fried's parents are the named owners of a $16.4 million vacation home in the Bahamas, according to Reuters, raising the question of self-dealing.

  • "I don't know the details of how they became listed there. But those are always intended to be company properties," he said, regarding his parents and the Bahamas real estate.

Zoom in: Bankman-Fried says he knows nothing of an alleged backdoor that allowed Alameda to bypass FTX's liquidation protocols, for example.

  • This matters, because prosecutors must prove beyond a reasonable doubt that Bankman-Fried had knowledge of or intent to commit fraud, Axios' Matt Phillips reports, may well be a legal strategy.

Zoom out: Many have pointed to the parallels between Bankman-Fried's story and that of Elizabeth Holmes, the former CEO of Theranos who was sentenced to 11 years in jail. Both were media darlings who, at their height, graced the covers of business magazines and were lauded as young — though quirky — geniuses.

  • And, like Holmes, Bankman-Fried is now facing potential criminal fraud charges and innumerable lawsuits. No charges have been brought against FTX or Bankman-Fried yet, though many speculate he may also face jail time.
  • "I have not, no," he said, when asked if he had followed the Holmes trial.
  • When asked if he's considered the possibility that he may one day be facing jail time, he answered: "I have conversations with legal. But I'm trying to focus on what I can do now. There's a time and a place for I thinking more about my own personal future."
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