FTX: Silicon Valley's favorite whiz kid unravels

How did Sam Bankman-Fried lead FTX to bankruptcy?

Sam Bankman-Fried.
(Image credit: Ting Shen/Bloomberg via Getty Images)

Sam Bankman-Fried, the founder of $32 billion crypto exchange FTX, was the industry's golden boy, captivating "crypto bros and the Davos set," who poured billions into his firm, said Alexander Osipovich in The Wall Street Journal. Behind the scenes, though, the company that went bankrupt last week was a "chaotic mess." The people who ran FTX and its related companies lived and worked together in a $30 million penthouse in the Bahamas. "Romantic relationships among Bankman-Fried's upper echelon were common." So was "the use of stimulants" — something Caroline Ellison, the 28-year-old CEO of Bankman-Fried's trading firm, Alameda Research, and his sometime romantic partner, publicly bragged about. Meanwhile, SBF, as he was known, was taking huge, and possibly illegal, risks — namely, using customer deposits so that Alameda could "buy stakes in speculative startups," the hallmark of a Ponzi scheme. The executive appointed to clean up the mess, John Ray, "has helped oversee some of the biggest bankruptcies ever," including Enron's. He said he had never seen a "complete failure of corporate controls" as extreme as that of FTX.

Bankman-Fried blames "confusing internal labeling" for why billions in customer funds were transferred to Alameda, said Matt Egan at CNN. But former top U.S. financial regulator Sheila Bair said she detects "eerie similarities between his rise and fall and that of infamous Ponzi scheme mastermind Bernie Madoff." Both "proved adept at using their pedigree and connections to seduce investors" — and investigators missed "red flags" hidden in plain sight. This may turn out to be a story of fraud and theft, said Matt Levine in Bloomberg, but it "also reads like what would happen if you and a few of your college friends set up a gigantic international financial exchange after a year or two of working in finance." Still, Bankman-Fried implies in an interview that he forgot about $8 billion in customer deposits. I think even my college buddies and I wouldn't mess that up.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up
To continue reading this article...
Continue reading this article and get limited website access each month.
Get unlimited website access, exclusive newsletters plus much more.
Cancel or pause at any time.
Already a subscriber to The Week?
Not sure which email you used for your subscription? Contact us