FTX: the legend of Sam Bankman-Fried | FT Film

I did not know that there is any

improper use of customer funds

everybody wanted to find the chosen one

the genius that person was sandbank and

freed and the company that he ran was

FTX FTX is a crypto exchange Sam was the

founder of FTX and the chief executive

FTX grew in about three years exploded

onto the scene had the backing of

celebrities FTX is the safest and

easiest way to buy and sell crypto it's

the best way to get in the game at the

heart of this you have an incestuous

relationship between two companies that

were supposed to be separate FTX and

Alameda that was so much alleged misuse

of funds it all came crashing down in a

matter of days when FTX collapsed I

ended up losing a 2.1 million dollars

I could just say this is one of the

biggest frauds in American Financial

history Regulators fell for it Venture

capitalists fall for it everyone fell

for the legend of Sam

foreign

almost universally known as SBF or Sam

came from relative obscurity to King Of

The Hill in crypto within just a few

short years he's the son of law

professors he went to mass Camp he went

to MIT and then after graduating from

oit he went to Jane Street which is one

of the world's biggest market makers

trading firms if you think of sandbag

and freed you think of curly messy hair

and cargo shorts he barely sleeps he

sleeps in the office he sleeps in a bean

bag people look for geniuses they look

for the key man he was like Elon like

Zuckerberg he was just Sam he was SPF he

wasn't a gene Street for very long the

phrase he used once was neutral but a

waste of brain power we went to work at

the Center for Effective altruism like a

think tank that encourages people to

give away lots of their money in certain

ways he was working at the charity

during the day and trading crypto all

night he talks about how he wants to

accumulate as much wealth as possible to

distribute it to people who need it as

fast as he can that's where the idea for

Alameda came from that they were going

to get into this market and use sort of

traditional Finance strategies to make a

load of easy money in crypto

in 2017 some found Alameda research

which was a proprietary trading firm and

Market maker imagine it being pounded in

his basement five or six people College

roommates old friends of Sam from math

Camp the prices of cryptocurrencies like

Bitcoin were different on different

exchanges in different countries if you

bought and won and sold in another you

could make money for free because the

market was inefficient supposedly this

is where he made enough money to get

Alameda research rolling even at that

point there were people who thought that

what they were doing was too risky so

one of their earliest investors walked

away FTX which is the company that

people have heard of comes out of

elementa it's basically the same team

2019 they're talking about hey maybe we

should found our own exchange FTX

exploded into the mainstream

I think we're pretty ambitious about

about fds and certainly we're aiming to

become you know the biggest crypto

Exchange

yeah

2021 was the year where FTX really burst

onto the scene The Wider crypto industry

was also exploding into the mainstream

at the end of 2020 there was some

institutional buy-in a lot of interest

in digital assets like Bitcoin it signed

a sponsorship deal with Mercedes Formula

One

signed up Tom Brady and Gisele Bundchen

it's not that this is big it commanded a

mainstream awareness that perhaps no

other exchange has enjoyed

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he's everywhere and it's the one that

you mentioned when you're talking about

well there's a lot of quite sketchy

shops out there in crypto ftx's where

they do things properly my name is Sunil

cavouri after graduating from University

I joined Deutsche Bank and worked at JP

Morgan Stanley over 10 years ago I left

the city I trade for my personal account

as a retail investor since 2016 or so I

invested quite a bit into crypto I had

six seven million dollars on FTX at the

end of 2021 they were promoting it to

retail investors and saying if you want

to gain crypto the safest ways to get to

crypto is use FTX July 2021 FTX closed

the funding round of 900 million dollars

which valued the company at the time at

about 18 billion Within

two or three years this thing

worth 32 billion dollars the company is

worth more than Deutsche Bank was at the

time that is unbelievable

investors were incredibly Keen to get a

piece of the crypto action it seemed

like the market was only going up has

investment from a whole bunch of huge

names like Sequoia like Paradigm temasek

from Singapore you've got SoftBank tiger

Global you've got the Ontario teachers

pension fund just these huge investors

and Blackwell I mean a traditional

Finance who are very skeptical about

crypto they invest in FTX Vader than

Finance so I I thought the safest place

to park my money was obviously FTX

before you know it he's making comments

to the Ft saying oh yeah at some point

I'd quite like to buy Goldman Sachs

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it's FTX it's a safe and easy way to get

into crypto

yeah

yeah and I'm never wrong about this

stuff never

one of the biggest highs for the

exchange came in February 2022 when it

managed to score a big Super Bowl ad I

left my cane in there what what

do you mean hey that's an expensive cane

Larry David was the star of the FTX ad

and then in June it also secured the

naming rights to the Miami Heat NBA

stadium in some ways what made Sam

special was the mainstream acceptance

that he got at one point he was

literally sharing a stage with Bill

Clinton and Tony Blair something about

Sam

just drew in really intelligent people

so there's a really important stage in

the narrative Arc if you like for FTX

around May 2022. there was a so-called

stable coin and an Associated crypto

this Terra lunar pairing that just

unraveled in dramatic style it took down

with it lending Platforms in crypto a

bunch of trading Platforms in crypto and

who was there to pick up the pieces

sandbank them free RTX CEO Sam bingman

free discussing his thought process

behind offering crypto company bailouts

saying it's quote worth incinerating a

small amount of money to keep crypto

infrastructure going he was the lender

of Last Resorts and Wealthy enough to be

able to plug the Gap when bits of the

industry got themselves into trouble it

only took a few months come November for

everything to come crashing down on the

2nd of November poindeska raised

questions about ftt Alameda was listing

as an asset very very large Holdings of

ftt a token that is issued by FTX State

control the supply the equivalent of

counting your own stock as an asset on

your balance sheet ftt is a token is not

widely held or traded it's not like

Bitcoin Alameda the market making arm

that is supposed to be separate from FTX

was holding over five billion dollars

worth of ftt token that is a significant

figure the relationship between Alameda

research and FTX might not be quite what

everybody thinks it is and a lot of the

supposed assets the Alameda research has

on its books are actually tokens that

are created by FTX out of thin air when

the coindesk article came out and

obviously I feel really stupid now so

saying it I wasn't personally I wasn't

too concerned it focused on the Alameda

balance sheet rather than

FTX FTX is an exchange whereby you you

trade assets Alameda is a prop hedge

fund totally separate and they trade

their own balance sheet I mean that's

the

supposed to be I mean why would I assume

otherwise so there's various bits of

lending going on here that are backed by

these ftt tokens

that are only worth something if we all

kind of look around the room and agree

that they're worth something but

actually they're worth absolutely

nothing they're like loyalty tokens for

FTX they enable you to trade on on the

platform and get certain discounts are

they money that's a huge assumption

my name is Nicola white I'm the CEO of

b2c2 the principal at risk liquidity

provider we support the institutional

trading of crypto and we don't face

retail investors our clients are the

largest banks and trading firms globally

we had the opportunity to work with

Alameda earlier in the year which we had

turned down you know we take a very

conservative approach to risk and they

just didn't fit our risk profile

just a few days later enter stage rights

CZ

Chang Pang Zhao he runs binance which is

the other really big kind of global

cryptocurrency exchange he tweets that

he is going to be selling his Holdings

or finances Holdings of the ftt token

due to some recent Revelations and the

price of these tokens really starts

cratering for fast this really was the

moment that caused widespread Market

panic and that sent the price of ftt

absolutely plunging was just watching

the graph and it was going further and

further down Finance is one of the major

holders other than FTX and Alameda

themselves and we know from the balance

sheet of Alameda that value of ftt is

kind of integral to the whole financial

structure of the sandbagment freed

Empire very quickly after the CEO of

Alameda Caroline Ellison came out and

said we'll buy it it kind of smelled a

bit funny something's going on here why

do they want to hold the ftt token at a

certain level if they could keep ftt's

price supported then they wouldn't have

to kind of accept that the value of

their own assets were falling and that

they were potentially insolvent then

that failed

within just a few days FTX is

effectively running out of money this is

a bank with nothing backing it if you do

not trust that your money is safe it's

very easy for a background to develop 24

hours later on November 7 Sam tweets

that FTX is fine and assets are fine he

was saying right up to the very last

minute FTX was fine or the FTX us was

fine or that you know this is all just a

bit understanding insolvency rumors

plaguing crypto exchange FTX are being

denied by CEO Sam Bateman freed after a

coindesk investigation revealed the

balance sheet of FTX sister company

Alameda research was loaded with ftx's

Native exchange token ftt on November

the 8th CZ said that he was going to

acquire FTX which was just completely

insane you've got the head of the

world's biggest crypto company saying

that he's going to buy his Rivals crypto

company Sam is Dead in public trying to

reassure people and people had a lot of

faith in FTX and sambanga freed my name

is Carol Alexander I'm a crypto expert I

had a small portfolio of crypto so that

I can teach the students uh what's

happening on exchanges my decision to

put funds on fgx was just a personal

connection of somebody who met some

bankman freed and a lot of people

recommended FTA I first heard about the

problems with FTX when I was out in

Barcelona at the Quant mines Congress

it's an annual

um Summit for mathematical Finance

everybody there was

was really surprised none of us thought

it was going to be serious only takes 24

hours one day later for Susie to have a

look under the bonnet look at the books

and actually decide that no he's not

going to buy FTX and meanwhile inside

the company people would describe just

total chaos employees are quitting left

right and Center Sam is trying to kind

of steer the sinking ship the events

unfolded very very quickly we tried to

withdraw some funds from the exchange

and those withdrawals weren't processed

FTX suspends withdrawals and in a memo

to his employees SPF says that they're

trying to raise funds it was when he

stopped withdrawals that was the biggest

thing I thought oh you know there's

something wrong here you have hedge

funds you have various Market

participants in crypto saying yeah Sam

can't get my money back here I wasn't

giving you this money I was just trading

through you I didn't realize that you

were going to take these funds away from

me we had about 9 million of assets on

FTX uh leading up to the time in which

they suspended withdrawals we felt

comfortable that we could absorb the

losses if if one or two or three

exchanges go down on the day that FTX

you know stopped paying back its

customers which is effectively the day

it's collapsed that morning major

sophisticated investors in crypto were

still telling me safest houses it cannot

go down what was going through my mind

was first and foremost how do we

mitigate the risk to The Firm

secondly what are the knock-on effects

for the market right people having their

cash tied up at FTX meant you know they

weren't in the same financial position

as they might have been

foreign

million dollars U.S

um yeah

I think Sam probably still thought that

FTX could be salvaged but of course he

was wrong FTX filed some bankruptcy in

New York and Sam resigns as chief

executive I've never seen anything

unravel in that sort of space of time

before it's had a significant effect on

my life I couldn't sleep and eat

properly for at least few few weeks it

was just basically stolen overnight

it's just been difficult

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million dollars worth of ftx's customer

money is disappeared since then that

number has grown there's an alleged 8

billion hole of customer money that is

just missing unaccounted for I don't

think we've we've given up on the

possibility of getting funds back but we

have written them down from an

accounting perspective

I filed a class action lawsuit so I was

the lead plaintiff the international

plaintiff against all the people who

profited and enabled the ledge forward

the celebrity promoters I felt that I

had to do something thankfully I've I've

had a supportive wife and I you know

kept me going mentally I've been

probably more difficult I would say

after FTX files for bankruptcy Sam is

still in the Bahamas where he lives and

where he was running FTX from he started

to tweet a lot he's out here tweeting

long thread trying to explain what

happened and how desperately he's trying

to work to get customers money back and

how sorry he is all the talk online is

when are they going to arrest this guy

but in this intervening period

sambachman freed hits the media circuit

hard after apologizing profusely on

Twitter he talks to the New York Times

he talks to Good Morning America

I did not know that there is any

improper use of customer funds he

eventually talks to the Ft as well his

message is absolutely consistent he says

over and over again I up and I'm

really sorry and I didn't mean to do

anything fraudulent have I done

something fraudulent I didn't mean to do

anything fraudulent you can just imagine

his lawyers just tearing their hair out

like please Sam for the love of God will

you shut up and stop talking to

journalists there were a number of

things I was paying close attention to

in terms of trading volume and revenue

and liquidity I wasn't in terms of

balances or positional risk Sam gave us

an interview shortly before he was

arrested he said to me okay how about

three o'clock in the morning I think you

would necessarily he starts out sitting

looking normal at a camera but he's

always moving and he's kind of Shifting

around the camera angle's changing he's

clearly he's moving his laptop he's

giving this interview from his bed he

would ask him questions that you know

you would think are pretty

straightforward every answer starts with

I'm not sure I don't have access to this

I don't have access to that let me take

a step back

there may be discussions I don't know

about I do remember that there were some

discussions around alameda's position

um I don't remember numbers from those I

don't remember numbers being said I'm

not sure they weren't yeah I think

that's all I got he was trying to manage

the FTX narrative in a way that really

put his apology at the Forefront but at

no point as he's saying this was fraud

or this was on purpose it's just one big

mistake it's just one huge

misunderstanding this is just not how

anybody ever behaves when they are in

the kind of legal position that that Sam

was you do not talk to the press and any

lawyer would tell you that

finally on December the 12th Sunday

rested in the Bahamas initially he

resists extradition the conditions in

the Jailer Bahamas are notoriously

difficult he didn't really want to be

extradited to the United States but I

think after a short period in jail in

the Bahamas that idea became a little

bit more appealing to him

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flown to the U.S

come on

he appeared before a judge he's pleaded

not guilty they raise a 250 million

dollar bail for him to effectively go

and sit in his parents house in

California for as long as it takes until

this goes to trial he is charged with

eight counts by the southern district of

New York which includes wire fraud

conspiracy to commit wire fraud campaign

Finance violations the SEC and the cftc

who are two major Regulators in the

states have also brought charges against

Sam that there is a future where Sam

potentially spends the rest of his life

in prison this company is really unlike

any other

Jacks didn't have a board there were no

adults in the room there was no one

overseeing what was going on inside no

risk management procedures that didn't

have the corporate structure perhaps

people would conventionally imagine a

whole empire you know including Alameda

and the various arms of FTX were all

kind of being run from a very small

inner circle of people close to Saint

Bergman freed right in the middle of the

circle is SPF and he ran the show then

you've got Caroline Ellison who is chief

executive of Alameda research SBF and

Caroline had an alleged on off romantic

relationship for many months they shared

the same Penthouse apartment in the

Bahamas lived together worked together

was super super close she has since

resigned and pleaded guilty to fraud

charges and is cooperating with law

enforcement in the states and then

you've got Sam Trabuco who was the

co-head of Alameda research alongside

Caroline until the summer when he

resigned and he ran the trading

strategies at Alameda for a while and

you then have Gary Wang Chief technology

officer and co-founder of not only FTX

but also animated research this you know

speaks to the incestuousness essentially

of both companies that were meant to be

separate and he and Sam go way back they

went to math account together and then

they were also College roommates when

they were both at MIT Gary Wang is also

cooperating with law enforcement in the

states after pleading guilty to fraud

charges and then you've got nishad Singh

who was also very close to SBF he you

know shared multiple apartments with Sam

again this speaks to the fact that both

Alameda and FTX which were meant to be

separate companies really in many ways

weren't they lived together they ate

together they did whatever else it is

together

everything wall

yeah the fast food the grocery

deliveries when I was in the Bahamas I

spoke to a person who worked for a food

delivery company and they'd be ordering

maybe 500 bucks worth of takeout every

night it was just sort of free-flowing

money and getting Amazon packages flown

in from Miami night sale and beach

resorts if you're a nerd and you're

working with a bunch of other nerds and

you're changing the world through sheer

nerdery you feel pretty powerful no one

outside the Inner Circle knew really

what was going on there was only a

handful maybe five or six people at the

top who knew the inner workings of FTX

and Alameda and the crossover there

everything that happened with FTX and

Sam really highlights the need for a

distributed management structure no one

person should be able to make every

decision about a company and also there

should be multiple layers of governance

within a company it's not just crypto

Traders large and small that have lost

Venture Capital firms professional

investors that had helped get FTX off

the ground have had to write down their

Investments some of them worth you know

hundreds of millions of dollars down to

a big fat zero the one that everyone

thinks of is Sequoia Capital there are

VC firms and there are VC firms Sequoia

is a very serious BC firm and it went to

the effort of posting on its website an

article running to 13 800 words talking

about what a genius Sam is how he has

the status of Legend all of these

Venture Capital investors say look where

it surprises everybody we did the due

diligence on FTX

how

there's a great attraction for big

institutions to go into crypto although

it's high risk it can be very high

returns particularly when the odds are

stuck in your favor their balance sheets

are so large that they can afford to

take risks they don't need to do the due

diligence they just need to get in there

early they write down the investment the

people who get hurt are the retail

investors they call you can't write down

you know

well I mean I'm a good invite now 2.1

billion dollars okay and then the other

guy he's like come on many institutional

investors

you know parked due diligence

essentially over fomo the fear of not

being part of this new technology you

know people are calling it like the new

internet that probably propelled some of

these investors to not look deep enough

and just say hey take my money it's also

possible you know some investors

returned away because they were asking

questions that FTX didn't want to answer

when you have a lineup around the block

of other investors who are ready to

write your check today you don't need to

go with the investor who's asking

difficult questions one big VC investor

shemathaya says that he was approached

about putting some money to work in FTX

and he said okay look this is

interesting there's a few things we'd

want you to do differently we'd want you

to have a board we'd want you to have

some sort of oversight and he says the

response from FTX was quote go

yourself backing from really big name

Venture Capital firms really big name

investors really matters because it

pulls in

are the people it pulls in the hedge

funds it pulls in the retail Traders

ftx's Auditors were not in the big four

but they were armanino and pragamatis in

the US and armanino is one of the top 20

accounting firms in the US by revenue

and the fact that they didn't catch on

to any of this it just shows a complete

failure auditing crypto is really

difficult you have various tokens that

are worth whatever it is the company

says that they're worth you know the big

name Auditors are generally too nervous

to get involved in this space it's

really incumbent on these crypto

exchanges and these other crypto

companies to convince Big Time Auditors

that they should lend their legitimacy

to these companies and you know until

that happens these Legacy issues of

transparency and safety of customer

funds they're going to persist we have

filled though more due diligence

questionnaires in the last 10 weeks and

probably we did in in the year before

that but I think that's a really good

thing right I think it's really good

that the counterparties and the clients

that we're facing and are diving into

details they're understanding the risks

that they're taking we really need to

work to build up that level of trust

back in the industry but I'm very you

know encouraged by the fact that people

are taking the time to do it there's

also the question of Regulation with

crypto Regulators don't know entirely

how and what to do with it how to

classify it unfortunately it's taken a

catastrophic collapse of one of the

biggest companies in the industry to

prompt Regulators to start thinking

seriously about what they should do to

protect consumers

that FDF

DX close to getting cftc regulation

they'd applied they had an excellent

margin model that took account of very

high margin requirements and we're not

going to allow their customers 100 times

leverage Finance even offers 125 times

leverage on some products in some

jurisdictions

so fgx was a completely different animal

this is FTX us to binance FTX

International which is the main part of

the business it's much bigger than the

US business and is where the problems

seem to have come from along with

Alameda is based in the Bahamas which

has a tailor-made regulatory regime that

they rolled out for digital assets they

see this industry that's booming and

they don't want to miss out it's just

not the kind of thing that could happen

if these companies are being regulated

as tightly as companies that perform

equivalent functions in major Financial

Market Regulators are so far behind

there's a lack of knowledge and a lack

of resources these exchanges they call

themselves self-regulated which

basically means not regulated at all

there will come a time when Regulators

eventually get their act together and

they stop platforms like binance

operating as Shadow Banks their own

blockchain nft marketplaces limit order

books brokerage custody and clearing and

settlements I mean how do you regulate

something like that it's got to stop we

want to partner with Regulators to

create a framework that is fit for

purpose for crypto and digital assets

having worked in traditional Finance for

a fairly long period of time I think

it's important that we don't try to

pigeonhole crypto and digital assets

into that existing regulatory framework

as soon as you regulate something just

like with the Venture Capital firms that

is stamp of approval this thing has some

sort of regulatory oversight it's safe I

can put my money to work here

that's not a kind of Indemnity that

regulators and governments have wanted

to give to crypto Sam was really at the

Forefront of lobbying Democrats in the

US talking to regulators and lobbying

them to change the crypto regulatory

landscape the money that was flowing

into FTX some of this money has ended up

as political donations a lot of this is

to the Democratic party and so one of

the big lines that people throw about is

well you know obviously Congress never

looked properly into FTX because he was

pumping money into the Democrats it

turns out the firm was also pumping

money into the Republicans so a lot of

folks saw what Sam was doing and accused

him effectively of trying to Lobby not

for crypto's interests in Washington but

for ftxs and Sam's interests

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U.S prosecutors say this is one of the

biggest frauds in American Financial

history the most insane alleged fraud to

have taken place blowing Enron and

others out of the water the failure of

FTX hasn't really affected the price of

Bitcoin people will cling onto these

coins for dear life people in the crypto

industry say it's just an FTX problem

it's an SPF problem this is a crypto

issue it's not just an FTX issue Sam was

the poster child of this crypto industry

personally I'm just taking a break

people who want to invest I don't I

don't see why you know they should stop

what's happened to FTX tells you that

the infrastructure here that's built on

top of an asset which to be clear has an

intrinsic value of zero is incredibly

shaky if FTX can disappear in a

fortnight then any of them can 2023 is

going to be a year where the crypto

industry writ large and many Chief

Executives of big crypto companies are

going to have to deal with regulatory

scrutiny that perhaps they wouldn't have

had to have dealt with if it wasn't for

ftx's collapse in November this is a

cool abortion retail for investors who

were jumping into FTX for fear of

missing out you have to do due diligence

first and foremost you have to check

what's going on the crypto Bros have

been able to say ah it's just fud fear

uncertainty doubt just ignore it turns

out everyone needed a whole lot more fod

Sam what he's trying to do is say

this was all an accident and what

prosecutors will try and pin him on is

that this is fraud

ible

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thank you

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