Jeff John Roberts on the role of Sam Bankman-Fried's parents in the FTX scandal

A question that has come up repeatedly in the FTX scandal has been the role of Sam Bankman-Fried's parents. Namely, how could such respectable people—Stanford law professors famous for their sense of ethics—have raised a sociopath who stole billions of dollars under the guise of altruism? As it turns out, they were Bankman-Fried's primary accomplices. 

As a scorching cover story in BusinessWeek reveals, Barbara Fried and Joseph Bankman didn't just raise a criminal, but actively took part in running FTX and enjoying the spoils of the fraud. They regularly turned up in the company's offices and were included on important emails, and, most critically, flexed their prestige to open doors in Silicon Valley and Democratic power circles for their son. Meanwhile, these two advocates for the poor helped themselves to a $16 million luxury villa in the Bahamas and $10 million in cash—paid for by FTX customers.

~ Jeff John Roberts, "How Sam Bankman-Fried's parents enabled his criminal empire," Yahoo Finance, September 15, 2023

September 14, 2023

Orlando Bravo on his firm's $100 million investment in FTX

Q: Finally, I have to ask about your investment in FTX. 

A: It was obviously a mistake.  And we have personally apologized to investors in our growth fund.  It wasn’t a large investment—$100 million—but it was a big mistake and an embarrassing one.  It wasn’t a diligence mistake.  Diligence mistakes are when you miss a lawsuit, or you miss a trendline.  This was a judgment mistake.  I said even before the issues at FTX that we’re not going to make any more crypto investments, because I was not loving the business practices we’re seeing in crypto. 

~ Orlando Bravo, co-founder of private equity firm Thoma Bravo (over $120 billion AUM), "He Might Be Tech’s Last Bull. Here’s Why the Founder of Thoma Bravo Is Still Buying.," Barron's, January 21, 2023

WSJ on the virtue signaling of Sam Bankman-Fried

Mr. Bankman-Fried virtue-signaled by committing to make FTX “carbon neutral” and donating generously to fashionable progressive causes such as a foundation working to provide solar energy in the Amazon River basin.  “We’re giving millions each year to launch sustainability related initiatives,” he said in an April Forbes magazine interview with—you can’t make this up—Brazilian super-model Gisele Bündchen.

~ WSJ Editorial Board, "Sam Bankman-Fried Becomes an ESG Truth-Teller," The Wall Street Journal, November 17, 2022

Luc Olinga on effective altruism's omnipresence in Silicon Valley and prestigious universities

Bankman-Fried had adopted a posture, nourished by the current philosophy of Effective Altruism, omnipresent within Silicon Valley and the prestigious universities.  The EA ideology boils down to "the most good can be done by choosing to make the most money possible in order to give it all away."  Earn-to-give is the community’s leitmotif. 

The FTX debacle shows that those who sign the checks are inspired by those who look like them, who have been to the same schools as them, who come from the same socioeconomic backgrounds as them, who share their realities.  If you're different, you're almost out of luck.

~ Luc Olinga, "Crypto Is Full of FTX's Bankman-Fried," TheStreet.com, November 24, 2022

Sequoia Capital on its initial investment in FTX

Alameda was not immune to the exchange-level shenanigans that gave crypto as a whole its sleazy reputation.  But FTX had an ambition to change that.  It was built to be the exchange traders could count on. SBF needed to get the word out.  He wanted FTX to be known as the respectable face of crypto.  This required ad campaigns, sponsorship deals, a charitable wing—and a war chest to pay for it all. 

FTX did need money, after all.  And it needed that money from credible sources so it could continue to distinguish itself from the bottom-feeders who came to crypto to fleece the suckers.  So, in the summer of 2021, when FTX started to raise its Series B from a who’s who of Silicon Valley VCs, [Sequoia partners Michelle] Bailhe and [Alfred] Lin hit the “Don’t Panic” button.  “Embarrassingly, we had never tried to reach out to Sam, because we figured he didn’t need us,” Bailhe admits.  “I thought they were just minting money and had absolutely no need for investors.”  Learning otherwise, they quickly contacted SBF and organized a last-minute Zoom call between him and the partners at Sequoia—at four California time on a hot July Friday afternoon.  Bailhe was adamant, putting her reputation with the other partners on the line: “I’m like, ‘No, it’s worth it. Cancel your afternoon.’”

~ Sequoia Capital, "Sam Bankman-Fried Has a Savior Complex - And Maybe You Should Too," September 22, 2022

(The account is based on an article by journalist Adam Fisher, commissioned by Sequoia.  The article, published last September, was posted on the firm's website under "We help the daring build legendary companies.”  It has since been removed.)

Jeff John Roberts on being duped by Sam Bankman-Fried

It’s not a good feeling.  In July, I sat down with Sam Bankman-Fried for over an hour at a hotel overlooking Central Park, a meeting that would be the basis for a Fortune cover story.  I was charmed by his nerdy affect as SBF, unkempt in a T-shirt and bushy hair, as he twirled a fidget spinner and rattled off tidbits about everything from M&A strategy to the macroeconomy to the importance of trust in business deals.  It was all bullshit, of course, and I didn’t see through it.

[...]

[L]ike any good con man, SBF told us a story we wanted to hear and were eager to believe.  He styled himself as a trading genius who outgrew the elite quant firm Jane Street Capital, and who appeared to run circles around everyone else in the industry.  His pedigree was immaculate with a degree from MIT, parents who both teach at Stanford Law School, and personal connections to top power brokers in Washington, D.C.  SBF also discussed philosophy and poetry and took thoughtful positions on current issues like climate change and animal welfare—offering a more likable, human alternative to other crypto CEOs, whose libertarian views can come across as stark and unsettling.

~ Jeff John Roberts, "How SBF fooled everyone - including me," Fortune, November 14, 2022

(Roberts wrote the Fortune cover story, "The Next Warren Buffett?".)

Michael Saylor on how Sam Bankman-Fried lost $10 billion of customer money

Here's the diabolical twist: I [SBF] didn't just generate $10 billion of an unregistered security to dump it on the unsuspecting retail.  That would take me 500 trading days, dumping $20 million a day, right?  He didn't do that.  What he did is he generated $10 billion in unregistered security and then just borrowed $10 billion dollars secretly from his depositors and then went and gambled it, traded it, spent it, lost it.  And that is particularly impressive.

[...]

This is also diabolical: FTX said, "we're built by traders for traders" and Sam bragged that they only charged 3 basis points trading fee and he was 30 times cheaper than CoinBase or much cheaper than Binance.  So he's stealing customers off of the other crypto exchanges by, in essence, offering near-free trading.  He's not trying to make money off the trading.  He's trying to get the assets on his platform because once he had the assets on his platform, he basically used FTX as his personal piggybank.

[...]

So Sam basically scraped billions from unsuspecting investors in Silicon Valley.  They should've know better.  He took billions from crypto hedge funds and crypto banks like BlockFi and Voyager.  They should've known better.  And then he took probably $10 billion or more from depositors on his exchange.  They have the best argument.  It's like they were staring at terms and conditions that said he's not going to rehypothecate or use their assets.  He lured them with the promise of cheap trading, high leverage.

~ Michael Saylor, interview with Valuetainment, 5:30, 11:20 mark, December 5, 2022

Michael Novogratz on the criminal behavior of Sam Bankman-Fried

Sam is delusional about what happened and his culpability in it.  We could all be dime store psychiatrists.  There's a lot of narcissism there.  There's a lot of grandiosity, but being psychiatrists isn't going to really help.  He needs to be prosecuted.  He will spend time in jail.  They perpetuated a large fraud and it wasn't just Sam.  You don't pull this off with one person...  I'm not saying he even planned this all like a criminal mastermind.  What they did was criminal and they need to be prosecuted for it...  Stanford [SBF's alma mater] is one of the best universities in America and he worked at Jane Street and those guys are fiercely good.  Traders don't forget how they lose money.  It's kind of the DNA of anybody who spends time in this field.  So it's just kind of a pile of malarkey to say, "oh, I didn't understand how much risk we had.  These were huge bets, and they were huge bets made with my money and other depositors' money...  It's "I stole your money and I should've risk managed the money better."  It was the theater of the absurd to some degree...  Some people start off going down the path, they get in trouble and start breaking the law thinking they can get it back.  It's a tale as old as time, right?  And so you might not have started the plan of, "oh, I'm going to go rob everybody," but the moment there was one mistake you start cheating.  And then you start cheating more and then you start cheating more and next thing you know, you've got a $10 billion cheat going on.

~ Michael Novogratz, CNBC interview, December 1, 2022

Rep. Ritchie Torres on the SEC's failure to prevent the FTX collapse

If the SEC has the authority Mr. Gensler claims, why did he fail to uncover the largest crypto Ponzi scheme in US history?  One cannot have it both ways, asserting authority while avoiding accountability.

~ Rep. Ritchie Torres (D-NY), "Congressman Calls for Investigation Into Gensler, SEC’s Role in FTX Collapse," Yahoo!Finance, December 7, 2022

Derek Van Shaik on the psychological drivers of Sam Bankman-Fried

Many automatically assume crooked rich people want to get rich to be flashy, driving Lamborghinis and be covered in diamonds.  However, there's psychologically more to wealth than merely just the physical objects, such as the associated power of having wealth.  Since the crooked rich usually feel insecure, they are attracted to the power money brings to make themselves feel less insecure.

[...]

For Sam to think he would never get caught and he can outrade everyone stems from hubris and arrogance, which is his elevated sense of self worth.  However, if you look at his body language and behavior, he's quite insecure, constantly looking down in conversation, nervous jitters that test the structural rigidity of chairs, self-comforting hand holds and what appears to be constant nervous stuping smirks...  If you're thinking, "How could Sam be both insecure and arrogant?," it's the opposite side of the same coin.  Extremely arrogant people are extremely insecure.  Their arrogance is a coping mechanism to feel less insecure.  The most secure people are those who can admit when they're wrong, willing to learn and don't feel that they're unbeatable.

[...]

Is Sam a narcissist sociopath?  Possibly, to have that much arrogance, insecurity and apparent disregard for other people.  Sam talks a lot about giving his money away to charity, however constantly speaking of charity is common of a naricissistic sociopath because they are using charity to gain fame, publicity, the appearance of altruism and to hide the truth of who they really are, all the while getting tax breaks.

~ Derek Van Shaik, "How Sam Bankman-Fried LIED Non-Stop to Steal Billions,"  YouTube, 2:30, 5:25, 8:00 mark, 

Kevin O'Leary on his investment in FTX

So much due diligence had already occurred.   If you look at the cap table of who was investors in this company, it's a Who's Who of financial services.  I'm one of them.  We're all embarrassed.  We feel foolish.  But luckily, when I look at the long-term, thank goodness I make more good investments than bad ones.

~ Kevin O'Leary, "Kevin O’Leary Gets Candid on SBF, FTX Crisis," The Daniela Cambone Show, 4:00 mark, December 1, 2022

Jeffrey Tucker on Sam Bankman-Fried marketing FTX with social justice causes

He was a physics major who got a lot of social justice in his head and began to realize that he was looking for a new angle on how to market cryptocurrency.  And the anti-government philosophy of the usual crypto crowd of "buy bitcoin to get away from the government and secede from the Fed and have your own private money and change the world toward freedom," he went the opposite direction and realized that he could market his little business with some version of ESG and DEI and all the fashionable social justice causes.  So he came up with this idea of effective altruism.  And so he wasn't in it to make money for himself.  He was in it to support good causes and to give all of his money away.  And he drives an inexpensive car and he dresses in a shabby way, and it was all virtue signaling within the crypto space.  And this was new, actually, for the crypto world which had usually been about kind of a cowboy anarchism: "let's get away from the government to do our own thing."  He went the opposite way.  So he developed very tight relations with the left basically.

~ Jeffrey Tucker, "FTX cryptocurrency scandal is just the beginning," Will Cain Podcast, 0:15 mark, November 15, 2022

Jeffrey Tucker on the FTX scam to "play nice with regulators"

This has really introduced a complication in the culture of crypto because up to now it's been assumed that if you don't want to play ball with regulators you might be up to no good.  Now, we have every reason to think that the more willing you are to play ball with regulators, the more you might be trying to cover up what you're up to that's actually unsustainable or up to no good.

~ Jeffrey Tucker, "FTX cryptocurrency scandal is just the beginning," Will Cain Podcast, 18:15 mark, November 15, 2022

Jeffrey Tucker on Sam Bankman-Fried and effective altruism

Will Cain: It reminds me of a company that was founded well over a decade ago and people might remember: Vice.  And Vice had a very charismatic leader who had a flashy lifestyle and said he understood Gen Z, or Gen X, or millennials, or whatever it may have been.  And because of that, he attracted investment from legacy media organizations, hundreds of millions of dollars in increasing rounds of capital raise that continued to push up the valuation of Vice.  And I hear what you're describing now with SBF is he did something similar, although instead of Lamborghinis the way that he got - I think he got - Silicon Valley to give him a ton of money to investing in FTX, or to buy FTT [FTX's token] was through the flashy mechanism of virtue signaling.  That I'm going to give it all away, that I'm altruistic.  And so that sucked in the sophisticated investor?

Jeffrey Tucker: Yeah, that was his value-added to the ongoing cons in this space, and there are many.  But his particular sort of spin on it was to be the innovator of effective altruism, which he describes as a religious conversion.  He realized it was wrong just to make a lot of money, but rather you should make a lot of money and then give it all away.  So just a nice bit of flim flam perfectly constructed for 2019 and 2020.

~ Jeffrey Tucker, "FTX cryptocurrency scandal is just the beginning," Will Cain Podcast, 12:40 mark, November 15, 2022

Brian Chesky on cryptocurrencies post FTX collapse

Now as far as crypto, I think that generally the analogy I'd make is like we're all in a nightclub and the lights just came on.  So suddenly I feel that we have to take a really cold hard look, have a reality check.  The technology's really interesting.  I think we have to be very careful, though, about this frenetic get-in-on-any-technology trend before it's over.  I think we ought to be very very careful about that because that's when discipline goes down.  I think people will regret decisions they make when they have this mentality that "someone else is making money, I'm not."  You really gotta always focus on fundamentals.  You always have to focus on building things for other people of value.  And if the more you learn about somthing, the less you understand it, you just gotta slow down and make sure you really know what you're doing.

~ Brian Chesky, CEO of Airbnb, interview, Bloomberg TV, November 18, 2022

Charles Hugh Smith on counterparty risk and the dominos from the FTX collapse

The full exposure to the risks inherent in extreme leverage and illiquidity can be cloaked, buried in off-balance sheet assets and liabilities, etc., while pages of mind-numbing disclosures were duly signed by blinded-by-greed marks. 

These quasi-legal versions are just as prone to unraveling and collapse as the blatantly fraudulent varieties. Properly disclosed leverage and illiquidity are just as prone to unraveling as undisclosed leverage and illiquidity. 

Mismatches of duration, liquidity and risk are just as toxic to full-disclosure firms as they are to fraudulent firms. 

This is why we can predict the dominoes of FTX's financial fraud have yet to fall.  When there are mismatches in counterparty asset durations and liquidity, assets that theoretically cover loans that are called can't be sold or can only be sold at ruinous discounts.

~ Charles Hugh Smith, "FTX: The Dominoes of Financial Fraud Have Yet to Fall," OfTwoMinds.com, November 16, 2022

Jesse Felder on the cryptocurrency craze and FTX collapse

It’s no secret how Warren Buffett has been so successful over the course of his career. In fact, he has made it priority to share all of his “secrets” with anyone willing to take the time to simply read them. The trouble is his philosophy is intolerably dry and the process of investing as he does is infinitely boring to the vast majority of people in the world. The truth is that most don’t want to succeed in the markets as much as they want to be both thrilled and agonized by them. 

The latest example of this is the cryptocurrency craze. As an investment, cryptocurrencies make very little (if any) rational sense; in fact, there’s little reason to believe they are anything more than elaborate ponzi schemes. What they do offer, however, is a strong sense of community, a feeling of intellectual superiority, hope of an easy path to financial freedom and, perhaps most importantly, the thrill and agony of wild volatility.

~ Jesse Felder, "Crypto Bros Are Getting Exactly What They Want Out Of The Market," The Felder Report, November 16, 2022

Joseph Ayoub on how the FTX cryptocurrency crash is contained

We think Bitcoin and ETH remain a too small part of the market to cause broader financial market contagion, with a total crypto market cap size of $890 billion vs $41 trillion for U.S. equities.  The FTX shortfall is still relatively small in comparison to other crypto events, such as Luna ($40 billion lost) or market cap losses in public tech names.

~ Joseph Ayoub, Citigroup digital asset analyst, "FTX's bust and crypto crash come with two silver linings," Yahoo!Finance, November 14, 2022