Sam Bankman-Fried, founder of the now defunct and infamous FTX cryptocurrency exchange, admitted publicly in a New York Times interview that the collapse of his $32 billion crypto empire was the result of “huge management failures” but said he had not committed fraud.
“I didn’t know exactly what was going on,” Bankman-Fried said, a plausible admission from a man who was known to play video games during investor calls that raised billions for FTX.
Bankman-Fried’s admission of managerial neglect simply confirmed what has already been documented in court filings by John Ray IIIthe current FTX CEO by appointment of the bankruptcy court. Ray called the implosion of FTX the result of the worst corporate managerial failure he has ever seen, which is a telling estimate from the man who was similarly navigated Enron through bankruptcy after fraud resulted in its epic meltdown. Ray wrote in a court filing that he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred” at FTX in his 40 year career.
Bankman-Fried admitted to not paying attention when asked about allegations that FTX customer funds had been illegally co-mingled with funds used by Alameda Research, a crypto trading funding closely aligned with FTX which was run by his reputed girlfriend, Caroline has Ellison. It been widely reported that Ellison told Alameda Research staff that the trading firm had used FTX customer funds to finance its own trading activity.
Bankman-Fried told The Times that he was “nervous about a conflict of interest” with Alameda, but rather than investigate and take action, he distanced himself from its operations. The Justice Department and the Securities and Exchange Commission are investigating FTX’s transfer of funds to Alameda. It remains to be seen if he, or anyone, will face criminal charges.
“I didn’t knowingly commingle funds,” Bankman-Fried said of the Alameda allegations, saying that FTX customers borrowed from each other. “You have, you know, customers borrowing from each other. Alameda is one of those. I was frankly surprised by how big Alameda’s position was, which points to another failure of oversight on my part. And a failure to appoint someone to be chiefly in charge of that. But I wasn’t trying to commingle funds.”
FTX went from the darling of Silicon Valley venture capitalists to bankruptcy with stunning speed. Crypto is seen by some, though perhaps fewer than earlier this year, as the future of money, but FTX disintegrated because of the same sort of “run on the bank ” triggered by loss of confidence hat nearly ruined the savings-and-loan in the 1946 movie It’s a Wonderful Life. Frank Baily was able to restore confidence but Bankman-Fried could not. FTX was unable to cover $8 billion in funds demanded by customers, and quickly filed for bankruptcy protection.
Bankman-Fried and the case for crypto regulation
FTX thrived while it did because it was an easy way for the general public, urged on by various celebritiesto invest in cryptocurrency. What few knew, or perhaps cared to know, is that cryptocurrencies are almost entirely unregulated. Many people doubtless saw that as a feature, not a bug, though calls for regulating crypto have been made by many. Bankman- Fried was actually an advocate for regulating cryptocurrencies. Ironically, the collapse of FTX is his strongest argument for regulation.
A high ranking US Treasure official, Deputy Treasury Secretary Wally Adeyemo, said in a Reuters interview that crypto regulation is essential protect consumers and track criminal transactions. A top federal regulator who would have a role overseeing crypto, if and when regulations are enacted, echoed that call. Rostin Behnam, chairman of the Commodity Futures FTX Trading Commission, told Congress is the ideal example why his agency needs authority over crypto exchanges that it now lacks.
“That’s what concerns me. This is the gap that exists,” Benham said in congressional testimony“If we don’t do something, customers will continue to lose money and we’re going to be right back here in a couple months.”
Calls for regulating crypto were also heard in the European Union.
The steep decline in crypto prices, such as bitcoin falling from nearly $70,000 to now well under $20,000, was dismissed by insiders as a crypto winter. FTX calls into question the suggestion of an inevitable crypto spring to come. With the fall of FTX, there is now widespread speculation that crypto winter is shaping up to be a crypto ice age.
Peter Page is the Contributions Editor at Grit Daily. Formerly at Entrepreneur.com, he began his journalism career as a newspaper reporter long before print journalism had even heard of the internet, much less realized it would demolish the industry. The years he worked a police reporter are a big influence on his world view to this day. Page has some degree of expertise in environmental policy, the energy economy, ecosystem dynamics, the anthropology of urban gangs, the workings of civil and criminal courts, politics, the machinations of government, and the art of crystallizing thought in writing.