Sam Bankman-Fried’s Power Was Contingent on Belief

On September 16, CNBC’s “Squawk Box” aired a segment about Sam Bankman-Fried — the chief executive officer of crypto exchange FTX at the time — and his recent acquisition following the industry downturn. “They call him the JP Morgan of crypto, right?” the presenter asked, comparing Bankman-Fried to a financier who had a lot of money, he helped countless banks fail to stabilize the entire financial sector. “The White Knight of Crypto,” reads the words at the bottom of the screen.

In a shot of Bankman-Fried trotting through a parking lot in the Bahamas, a reporter repeated events that came to mind as Sam Bankman-Fried’s Pre-Crash Prayer: He’s a billionaire in his 30s, he drives a Toyota Corolla, he lives in the Bahamas with 9 roommates and a gold doodle. He got richer, faster than most people in history, after founding his most famous company in 2019. In one interview, he sat on a stool and talked about moves that drew Morgan comparisons: the sacrificial investments his company made for the sake of savings, In his words, the crypto “ecosystem” is bigger.

Two months later, the story of the “White Knight” was thrown into the office trash can and set on fire. Cryptocurrency Publications CoinDesk reported on the documents that shook everyone’s faith in Bankman-Fried’s companies, and before long, most people, except for the doodles – investors, customers, employees – fell. shove out the door. In an instant, Bankman-Fried was ousted from his position of chief executive officer and FTX filed for bankruptcy. The November 11 edition of “Squawk Box” featuring Anthony Scaramucci, which SkyBridge Capital sold a 30% stake in its fund to Bankman-Fried around the time of the “White Knights” bailouts. “I don’t want to call it fraud at this point, because it’s really a legal term,” he said. But you feel that he would love to call it cheating, the legal word.

The rapid pace of this change, especially in the financial media, is enough to startle the casual observer. In 2021, Forbes introduces Bankman-Fried on its cover for the list of the 400 richest Americans, with a prominent profile inside focusing on the young billionaire’s promise to donate his growing fortune. Moving on to this past fall, the magazine posted a video titled “‘Devil in Nerd’s Clothes’: How Sam Bankman-Fried tricked people.”

On YouTube, the top comments on Bankman-Fried’s pre-collapse coverage now tend to allude to this shift ironically. (“Kudos CNBC for recognizing a good businessman!”) On Twitter, angry FTX customers criticized crypto journalists for the failures they noticed. But the media is hardly alone in rapidly changing its tone; Hardly anyone tells a consistent story before and after the crash. Even among the furiest of commentators, few have paid attention to details such as Bankman-Fried’s relative lack of philanthropy compared to all the stories of his great philanthropic plan. he. Far from isolation, gullibility abounds.

All this ambiguity can hinder our ability to accurately tell stories, allowing only two speeds: full throttle and roadside fire.

Bankman-Fried insisted on remaining as the protagonist of this story for a long time after lawyers advised against doing so, giving numerous recorded interviews and appearing at The Times DealBook Summit. The story of his rise and fall is getting bigger and bigger, in part because it tells a rare story about crypto: the kind that is easy to read for those not interested in crypto. On the way up, he was a budding philanthropist. Along the way, he is proof to those who want it, that crypto businesses are nothing more than a shell game. In mid-December he was arrested in the Bahamas and was accused of various types of fraud in the United States, and the blockbuster financial thriller became a legitimate movie.

Theranos, WeWork, countless early dot-com and pre-2008 financial instruments: Almost all of them started out as interesting business stories about people and companies seemingly ready to remake their industry in innovative ways create and have capital, growth, or profits that indicate they may be on to something. Those articles continued until businesses collapsed amid revelations of fraud, incompetence, or brazen recklessness. “Whom the gods will destroy,” Paul Krugman wrote in a 2001 Times column about Enron, “They were on the cover of Businessweek for the first time.”

These kinds of seductive optimism — promises like painless blood tests or community-building office spaces — naturally attract attention, but they are also at the heart of deception and fraud. . The story’s worst undertones may have less to do with bad individuals than with how easy it is to hide consequential information that can help reveal the difference. U.S.-based public companies are required to regularly open their books to investors, but private companies have no such obligation — especially foreign-based companies, like FTX. Private wealth has skyrocketed over the past 20 years, and so has the number of private companies, prompting an SEC official to recently warn that a rapidly growing part of the economy is “in the dark.” . This could allow dangerous carelessness or fraud. John Jay Ray III, who was brought in to clean up after Bankman-Fried – who was given the same task in Enron’s bankruptcy – said he had never seen “a complete failure of corporate control”. company and the complete absence of reliable financial information.” On the one hand, people outside the company may not have fulfilled their accountability; on the other hand, it would have been impossible if they had tried.

All this ambiguity can hinder our ability to accurately tell stories, allowing only two speeds: full throttle and roadside fire. What few people know about FTX supports, in a very real way, the story the company is telling; people actually gave Bankman-Fried billions of dollars, and that really gave him remarkable power and influence. It was when the public stopped buying this story that money started to flow out. His power depends on belief, a all-or-nothing proposition that the mass media reflect weakly on. Unsurprisingly, Bankman-Fried said that he opposes filing for bankruptcy, a process that exposes massive amounts of information in public records; he rightly believes that if he can somehow regain people’s trust, then things can go on.

Bankman-Fried now doesn’t seem like the protagonist of his own story but more like an empty vessel into which people pour money, hoping to create the crypto dream world they desire. The point we have to take into account is that even if the story people tell about him is not accurate, there is certainly a story to tell – his success and influence are real enough to change. world as they exist. Yet almost no one has access to the information needed to make that story more accurate or reveal the basis of that success. So we had a commendable story followed by a plate full of schadenfreude. There’s always the next time, right?

Image source: Jeenah Moon/Bloomberg, via Getty Images; Image Alex Wong / Getty