It might be a little too early to throw Sam Bankman-Fried in the same bucket as notorious fraudster Bernie Madoff — or maybe not.
The full post-mortem of his epic collapse from crypto prodigy and billionaire to broke crypto villain extraordinaire won’t be ready for some time. Prosecutors in the U.S. Prosecutor’s Office for the Southern District are looking at possible charges before the end of the year, I’m told, so other than exculpatory evidence, we can’t yet classify him as a criminal.
The curator is just getting into trouble. He calls what happened — the disappearance of billions, massive losses in supposedly segregated accounts in Bankman-Fried’s FTX crypto exchange — “unprecedented.” But he has stopped calling it a fraud.
At the very least, the 30-year-old male child, known by his initials as “SBF,” can best be described as a world-class schemer. Armed with the benefit of hindsight, you can see how SBF built his one-time crypto empire on a pile of quicksand by cultivating his image of nonconformity with his unkempt hair and pairing it with the halo of waking politics.
Of course all scammers have their shtick. In Madoff, those who fell for his hustle wanted to believe that a fatherly figure from Queens, skilled in the markets and looking out for their best interests, would help them retire in style. If you convinced him to let you in, the “Madoff Bond” would take care of you and your children forever. The promised guaranteed return turned out to be a mirage, because nothing in finance can ever be guaranteed.
More recently, the Elizabeth Holmes buzz has been a well-cultivated image of cool techies. She pretended to take her Steve Jobs act down to the black turtleneck and hoarse voice as she pushed through what now appears to be a life-changing and unlikely innovation: a DIY blood testing product that would have revolutionized healthcare .
SBF’s hustle was virtue’s diversionary technique that made its way into the hearts and minds of the media and financial elite so they didn’t bother to investigate the logical holes in its business model.
There were certainly signs of those holes. He amassed his paper fortune, about $16 billion, on the back of a dubious crypto, FTT. There were unwanted links between his FTX crypto exchange and a prop trading fund he managed alongside it.
He made a lot of money – for a time. SBF was compared to Warren Buffett by the geniuses of Fortune magazine. But Buffett made his fortune over a long career. SBF made almost all of its “money” in about three short years.
How did he manage it? SBF went to MIT, so that gave him the imprimatur of smarts and marketability to investors. He wore a hoodie, so that may have made him hip to the rambling tech media, always looking for the next maverick to change the world. During our Fed-induced financial bubble and irrational exuberance in crypto, he was able to ride the wave of easy money and the opacity of crypto trading.
He may have been smart, but real skilled traders avoid life-changing losses by watching markets turn against them and move on. When crypto started correcting and crashing, SBF famously doubled down on its investment in distressed crypto outfits. That should have been a sign of his deceit.
Yet no one asked where he got the money to do it because he had built such a reputation as a do-gooder who was on the right side of investing. He donated to progressive politicians in the Democratic Party and $10 million to President Biden in 2020, buying cover. He spoke incessantly of the need for the super rich like himself to embrace something known as “effective altruism” – you earn money with the goal of giving it back to make the world a better place.
You can see it in the reverence people like Tony Blair or Bill Clinton gave him at conferences just before his collapse. Or how congressional committees sought his advice, almost until he imploded, on all crypto matters.
The chattering classes, the Blairs, the Clintons, the financial press, ate it up.
The absurdity of it all didn’t stop Sequoia Capital, the VC heavyweight, from giving him money, or newsreaders begging him for fawning interviews or Congress to get his two cents on regulatory issues. A few weeks before its fall, SBF was presented to investors in the Middle East for even more money. Hell, he recruited Tom Brady and Larry David as FTX brand ambassadors.
SBF joined crypto regulators at the Commodity Futures Trading Commission, the Securities and Exchange Commission. He met with chairman Gary Gensler to pitch an idea for a new crypto exchange, despite Gensler’s skepticism about the industry, with no one thinking “is this guy too good to be true?” — except for a lone handful, which may include SBF himself. He recently commented in a moment of candor that his virtue signaling was “a stupid game.”
Now you tell us.