On November 2, 2022, the image of Sam Bankman-Fried as an eccentric financial savant, along with his $32 billion crypto empire, began to crumble. A leaked balance sheet from Alameda Research, Bankman-Fried’s trading firm, revealed that the company, which was closely tied to his crypto-currency exchange, FTX, was built on a pile of illiquid tokens that no one wanted—“shitcoins,” in the parlance of the industry. Alameda and FTX had been widely believed to be making money hand over fist, with Bankman-Fried playing savior to distressed companies during the deepening crypto winter. Instead, they were broke, leveraged to the hilt.
Panicked customers rushed to withdraw their funds, forcing the company to admit that the money wasn’t all there. In one of the more dramatic turnabouts in recent corporate history, FTX went from industry giant to a bankrupt disgrace within a week, as the public learned that billions of dollars in FTX customer funds had been funneled to Alameda Research, which turned out to be less a trading firm than the owner’s personal piggy bank.
That fateful balance sheet was itself revealed to be a lie in Bankman-Fried’s fraud trial, which began earlier this month. The leaked document—one of seven cooked balance sheets that former Alameda C.E.O. Caroline Ellison testified she drew up at Bankman-Fried’s request—actually understated the problem. Still, Bankman-Fried had deemed the document acceptable enough that Alameda sent it to crypto lenders, notwithstanding the fact that some were demanding payback for hundreds of millions of dollars in loans that they had made to Bankman-Fried’s firm just months earlier.
The balance-sheet episode says a lot about how Bankman-Fried ran his businesses, mixing nerdish bravado with an almost pathological indifference to risk. (In court, Ellison testified that Bankman-Fried described himself as “risk neutral.”) FTX wasn’t a good business helmed by a bad leader, the prosecution is arguing, but something much worse: a crypto casino that fueled a criminal enterprise from its 2019 inception, providing billions of dollars in new capital that could be siphoned to Alameda.
“He said that FTX would be a good source of capital” for Alameda, Ellison testified.
FTX customer funds were supposed to be walled off. But in practice FTX and Alameda commingled funds, and the latter secretly withdrew billions of dollars from FTX accounts. The trading firm’s line of credit grew and grew until it was set at $65 billion—a threshold seemingly drawn at random.
In just a few years, Alameda withdrew more than $10 billion from FTX, but it wasn’t enough. By mid-2022, Alameda seemed to have no money of its own. The fund, once thought to be run by financial wizards, had in fact lost huge sums through bad trades, hacks, an industry-wide downturn, and sheer carelessness. The rest had gone to investments, celebrity endorsements, and political donations directed by Bankman-Fried. According to Ellison, Alameda was insolvent.
The leaked document—one of seven cooked balance sheets that former Alameda C.E.O. Caroline Ellison testified she drew up at Bankman-Fried’s request—actually understated the problem.
Desperate for capital, Bankman-Fried directed his lieutenants to find money wherever possible. The company took on billions in risky open-term loans, which could be recalled at any time—and that time was now. Their lenders, companies such as BlockFi and Voyager, were facing their own potential bankruptcies. But even as crypto-currency values plummeted, Bankman-Fried continued to spend vast amounts of money on real estate, an A.I. start-up, a Hollywood money manager, a Bitcoin mining facility in Kazakhstan, and an ex-girlfriend’s crypto hedge fund. “I understood that it was coming from Alameda and that Alameda’s money was coming from FTX customer funds,” Ellison told the court.
Bankman-Fried’s lawyers have presented their client as a risk-it-all financial innovator undone by some bad choices and rising interest rates. But the story told by the prosecution, which echoes recent reporting on the company, presents a picture of widespread criminality, deception, and contempt for business partners, customers, and the law. Although Bankman-Fried instructed his employees to use disappearing messages on Signal, the encrypted chat app, there is an ample record of screenshots, Slack chats, e-mails, recordings of meetings, Google documents, and other materials that, along with witness testimony, portrays him as the ultimate decision-maker in a fraudulent enterprise that robbed its customers to fulfill an impossible appetite for money, political influence, fame, and power.
He seemed to have no endgame except winning it all. Bankman-Fried told Ellison, whom he also dated, that there was a 5 percent chance he would one day be president of the United States, and talked publicly about FTX buying Goldman Sachs on its way to becoming the world’s largest financial institution.
The government’s witnesses include three of Bankman-Fried’s alleged co-conspirators, former friends whose cooperation appears to be motivated by equal parts self-preservation, guilt, and animus toward Bankman-Fried. Their testimony challenges the defense’s contention that Bankman-Fried essentially didn’t know about the movements of money through the companies he owned (and which, according to one colleague, he tracked on one of his six computer monitors). In their version of events, it was all orchestrated by Bankman-Fried.
According to Gary Wang, co-founder of FTX, Alameda took out hundreds of millions of dollars of loans in his name. He didn’t know what the loans were for, only that they might be used for venture-capital investments.
Asked in court why he signed the loan agreements, Wang said, “Sam told me to.”
Remarkably, Wang testified that he paid interest on some of these loans. Alameda eventually gave him a new loan to cover the interest payments.
The absurdities, along with the illicit behavior, only escalated. From balance sheets to conversations with investors, to its promises not to touch customer funds, Bankman-Fried’s towering edifice was lies all the way down, a carnival-esque disaster in which the ringmaster looked a lot like one of the clowns.
Despite handling billions of dollars in cash and crypto, FTX and Alameda had little internal accounting. There was no C.F.O., nor was there a corporate board. Employees who were asked to do some basic company accounting either refused or gave up. It was that bad.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said John J. Ray III, the white-shoe lawyer installed as the new C.E.O. after FTX filed for bankruptcy. Ray, who helped to clean up Enron after it collapsed, helped spearhead a lucrative assignment for his former employer, the elite law firm Sullivan & Cromwell, which is reaping millions of dollars per month in legal fees.
The work of keeping track of Alameda’s and FTX’s many assets, crypto accounts, and soaring liabilities fell to the people now charged as co-conspirators. Ellison would periodically whip together a spreadsheet. At one point she found that Alameda had made $8.2 billion in loans to Bankman-Fried, Wang, FTX director of engineering Nishad Singh, Guarding Against Pandemics, the nonprofit run by Bankman-Fried’s younger brother, Gabriel Bankman-Fried, and others. FTX spent $1.3 billion in endorsements and marketing, including doling out $135 million for the rights to the Miami Heat arena, a deal that lasted less than two years. Bankman-Fried ignored concerns from his colleagues about his spending. “I felt kind of embarrassed and ashamed of how—how much it all reeked of excess and flashiness,” Singh testified. “It didn’t align with what I thought we were building a company for.”
Despite having practically unlimited funds to draw on, and undisclosed advantages on the FTX exchange, Alameda’s traders were terrible at their jobs. The once-vaunted trading firm racked up huge losses and, under the direction of Bankman-Fried, spent billions of dollars on the sort of V.C. investments that take years to bear fruit, either through an I.P.O. or a sale to a bigger company. It made little sense for a trading firm, which is supposed to deal in short-term, liquid investments, to sink so much into start-ups. But Bankman-Fried invested like he had all the time and capital in the world.
There was no C.F.O., nor was there a corporate board. Employees who were asked to do some basic company accounting either refused or gave up. It was that bad.
In the fall of 2022, hoping to raise some much-needed funds, Bankman-Fried flew with Anthony Scaramucci, who had sold 30 percent of his investment firm to FTX, to Abu Dhabi and Saudi Arabia. In notes presented as evidence in court, Ellison wrote that Bankman-Fried wanted to raise money from Saudi crown prince Mohammed bin Salman, or M.B.S. Though he failed to convince his hosts to invest, Bankman-Fried’s alleged bad-mouthing of Changpeng Zhao, the C.E.O. of rival exchange Binance, which is unofficially based in Abu Dhabi, made its way back to Zhao. Weeks later, following the leak of the balance sheet, Zhao would make a public display of selling his huge holdings of FTTs, the native token for the FTX exchange (and yet another acronym in the alphabet soup), which only accelerated the run on FTX customer deposits.
In that same Notes document, titled “Things Sam Is Freaking Out About,” Ellison listed bad P.R.; convincing regulators to go after Binance; the failed deal with M.B.S.; hedging trades to mitigate some of the firm’s riskier bets; and buying Snap, the company behind Snapchat. He also told associates that he wanted to spend $120 million to acquire the chat app Telegram. All this, even as he was desperate to plug a multi-billion-dollar hole. If the money to fulfill his vision couldn’t come from lenders or M.B.S., then Alameda would continue to dip into FTX customer funds, as it had all along.
The story told so far, however damning, is an incomplete one. The government has handed out immunity pleas and cooperation agreements in an effort to bolster their case. Ultimate responsibility and legal liability may lie with Bankman-Fried, who was all too happy to exert authoritarian rule over his subordinates. (Singh, who was childhood friends with Bankman-Fried’s younger brother, Gabe, testified to being intimidated by the high-school math whiz.)
But the erstwhile wunderkind had enablers in finance, media, politics, and pop culture who supported his grift for as long as their interests aligned. There will likely be more indictments, and once-supportive celebrities such as N.B.A. superstar Stephen Curry, who received at least $30 million in an endorsement deal from FTX, will continue to fend off civil litigation.
As the prosecution moves through a substantial witness list, Bankman-Fried’s lawyers have signaled that they may not present a case at all. Perhaps they are relying on their cross-examination and the esoteric details of crypto-currency to sufficiently muddy the waters to produce a mistrial. In any case, Bankman-Fried’s prospects seem dim. “I didn’t know” is a poor excuse when most power and ownership lay with him. Sam Bankman-Fried was FTX, its ubiquitous public face and behind-the-scenes string-puller. Some other last-minute defense may emerge, but he’s unlikely to find sympathetic witnesses among his former employees, and the evidentiary record is strong.
One decision remains: whether to testify. In the months following FTX’s collapse, and even after his arrest, Bankman-Fried gave many interviews and public statements proclaiming his innocence while apologizing for the disaster he oversaw. Mixing wonkish earnestness with a myopic focus on market data, his attempt to talk his way out of public infamy only earned him more infamy, not to mention the revocation of his bail. It revealed what appears to be the supreme arrogance at the heart of his worldview: an apparently sincere belief that only he understands what happened and that only he can explain it.
If Bankman-Fried still believes this, he will have the opportunity to argue for his innocence. But will a jury believe him?
Jacob Silverman is a co-author of Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud
