Article: Sam Bankman-Fried: The making and unmaking of Silicon Valley’s crypto king

Entrepreneurship

Sam Bankman-Fried: The making and unmaking of Silicon Valley’s crypto king

Silicon Valley wunderkind Sam Bankman-Fried, who sold his ‘philanthropic face’ to woo investors, also hobnobbed with bigwigs like Bill Clinton and Tony Blair, who fell for his persona.
Sam Bankman-Fried: The making and unmaking of Silicon Valley’s crypto king

UPDATE: Sam Bankman-Fried is scheduled to face a criminal trial on October 3, 2023

Not long ago, curly-haired, young, and charming, Sam Bankman-Fried looked a perfect fit to become a Silicon Valley mogul. The 30-year-old founder of the cryptocurrency exchange FTX exhibited an uncanny bravado. He would approach investors while playing video games and shared stages with Bill Clinton and Tony Blair sporting a T-shirt and shorts.

These gimmicks apart, his surreal statements that he wanted to “prevent nuclear war and stop future pandemics” found him many admirers.

Bankman-Fried profited greatly in his business. His estimated net worth reached more than $26 billion at one point.

Everything that he did clicked, until FTX collapsed.

The rise and fall of companies in Silicon Valley are not uncommon. Just days ago, there was a furore over the fall of Theranos anchored by its charismatic founder Elizabeth Holmes, who earned fame until she was badly exposed.

Elizabeth Holmes and Sam Bankman-Fried typify the dramatic image of the ambitious Silicon Valley bosses, who go bankrupt and pull hundreds down with their misadventures. Yet the FTX owner's approach seems to have surpassed that of Theranos.

Bankman-Fried's philanthropic persona duped bigwigs into falling for his scam. 

There’s a common thread that runs deep among these two entrepreneurs. There may be nothing wrong with their soaring ambitions, but the means through which they wanted to ensure a fast rise caused their downfall.

Back in 2014, Elizabeth Holmes, at the age of 30, suddenly catapulted to fame and became the ‘darling’’ of all. Soon Theranos owner’s claim about its much-publicised blood-testing system, Edison, was punctured. Holmes had earlier made a great deal of the high efficacy of the method to rapidly and effectively detect cancer and diabetes with only a few drops of blood.

By 2018, Holmes’ $9 billion miracle company had collapsed.

In Bankman-Fried’s case, his crypto exchange FTX’s epic collapse has by now opened Pandora’s box.

Bankman-Fried sold philanthropy to make money

Beneath the surface of his philanthropic promise, lurked something sinister.

Motivated by self-styled idealists spending the wealth of their billionaire patron to make the "world a better place", FTX Foundation and its flagship Future Fund duped others. Bankman-Fried styled himself as one of the “world’s greatest fundraisers.”

Effective altruism (EA), which is projected as a social movement focused on doing the most good possible for maximum number of people, became a tool of Bankman-Fried. One of its ‘shining stars’, he duped countless customers.

Fried’s action threw questions about the intention of EA. His action embarrassed the pioneers of the movement whose actions began to be scrutinised.

Does this fraud mean there was something wrong with the intellectuals spearheading the altruism movement? 

While the real intention of the movement may not have been wrong. The way it was hijacked by a person of Bankman-Fried’s stature brought a bad name to the subscribers of the ideology. Bankman-Fried’s interaction over a meal with Will MacAskill, the Scottish moral philosopher, seems to have changed the course of his life. Bankman-Fried, then a college-goer, told MacAskill that he was interested in devoting his career to animal welfare. MacAskill, however, advised him to pursue a high-earning career and then donate huge amounts of money to humanitarian causes.

So the dream-big young acolyte chose a career in finance and, later, crypto. 

Bankman-Fried fixed his sights on crypto, founding trading firm Alameda Research in 2017 before launching FTX a few years later. The price of bitcoin and other digital currencies surged. It helped FTX become one of the world’s five biggest crypto exchanges. It was the world's second-largest centralised crypto exchange until a few days ago.

It took just two years for the 30-year-old entrepreneur to build FTX into a $32 billion company. Besides spending hundreds of millions of dollars to resuscitate struggling crypto firms, his quick rise also saw him become a major political donor to Joseph R. Biden Jr.’s presidential campaign.

Suddenly, Sam Bankman-Fried needed a bailout for his struggling firm.

The owner of Binance and arch-rival Changpeng Zhao wanted to rescue the FTX from a crisis on Twitter. On November 8, he declared his intention on the microblogging site only to backtrack just 48 hours later. Binance pulled out of the proposed deal, sending shockwaves through the crypto market on November 10. Private equity firms caught in the crossfire of the crypto exchange wars have thrown their hands up and fled the field.

On November 11, FTX filed for bankruptcy amid revelations that it lent billions of dollars of customer assets to fund risky bets at its sister trading firm.

According to the firm’s new chief executive John J. Ray, a “complete failure of corporate controls” at the company caused the disaster. At the same time, the exchange's lawyers have said Bankman-Fried ran it as his own “personal fiefdom.”

Ironically, Bankman-Fried joined the race to be featured among the world’s 100 richest people this month.

The ex-owner of FTX craftily sold philanthropy to raise funds and earn goodwill. 

“It’s the thing that matters the most in the end,” he said in an April interview on the “80,000 Hours” podcast.

He further said he drew lessons in utilitarianism from his law-professor parents. The entrepreneur said he is motivated by the thought of trying to do the greatest good for the greatest number of people.

By his admission, he started applying philanthropic ideals while majoring in physics at MIT. The suffering of animals on factory farms disturbed him. Bankman-Fried claimed that he had stopped eating meat.

Sam Bankman-Fried created an aura around himself. He was viewed as “a kind of visionary, once in a lifetime mind.” Sam Bankman-Fried’s loss of fortune typifies the story of a bright entrepreneur whose ambition to grow too fast caused the catastrophe.

A Bloomberg report underlines the agony of a BlockFi director whose future is now uncertain thanks to a now-defunct deal with FTX that could have soothed the crypto lender’s liquidity woes after filing for bankruptcy itself in October.

“Sam Bankman-Fried was the devil in nerd’s clothes,” he said.

The ex-FTX owner kept telling lies till the end. As his empire crashed around him, Bankman-Fried tweeted, “Everything is fine. FTX is fine.” 

A few days later, that tweet was gone, too.

Sam Bankman-Fried acknowledged that poor oversight and client losses caused the collapse of his cryptocurrency exchange, but he maintained that he had not committed fraud.

“I did not try to commit fraud on anyone,” he said in his first interview since the multibillion-dollar fund filed for bankruptcy and regulators from several countries on the sidelines of the DealBook Summit in November last week. 

His big promises and high pitch have made investors believe in whatever he said. FTX’s venture capitalists have been SBF’s biggest champions up until the collapse. Venture capital firm Sequoia Capital famously published a long magazine-type feature in which the writer speculated that SBF could be the world’s first trillionaire. The firm has since taken the article off its website.

Later, the firm cut down its investment in FTX to zero from over $210 million sensing the bankruptcy trouble of the Sam Bankman-Fried-led firm. Just one month ago, it heaped heavy praise on ‘SBF’.

Sequoia made itself a laughing stock when it highlighted the comment of the firm’s partner, who said the FTX founder had a chance of becoming the world’s first trillionaire.

Michelle Bailhe, who knew SBF and his firm well, had then quipped: “I think he has a real chance at that.”

Sequoia’s honeymoon with Bankman-Fried ended soon. It scrubbed the story from its website and replaced it with a much more sombre disclosure.

Will the disgraced entrepreneur end up in jail? 

Now, Bankman-Fried and his company are under the scanner of the Department of Justice and the Securities and Exchange Commission. 

The fall of FTX founder, who was once projected to be the “next Warren Buffett,” and suffered from a ‘saviour complex,’ is a total shocker. Renato Mariotti, a former federal prosecutor, and trial attorney spoke of the impending trouble.

"It sure looks like there's a chargeable fraud case here …,” he told CNBC.

He sounded caution saying, “If I represented Bankman-Fried, I would tell him he should be very concerned about prison time. That it should be an overriding concern for him."

There are speculations about his future. A Twitter user, who recently spotted Caroline Ellison, former CEO of Alameda Research, at a New York coffee shop, speculated that Ellison might be in New York to negotiate a plea deal with authorities.

The gravity of the crime once proven in a court of law may bring real legal troubles for Sam Bankman-Fried.

There is an indication that he could face years in prison over FTX’s $32 billion meltdown, once the US court convicts him.

There seems to be no end to the agony for the crypto nomad. His wish to “grow too fast” cost him dear—loss of face, and most importantly, trust and credibility—key assets for a starry-eyed entrepreneur. 

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Topics: Entrepreneurship, Leadership, Life @ Work

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