On Sept. 16, CNBC’s “Squawk Box” aired a segment about Sam Bankman-Fried – then-CEO of the cryptocurrency exchange FTX – and his recent wave of takeovers in the wake of an industry downturn. “They call him the JP Morgan of crypto, right?” asked the host, likening Bankman-Fried to a financier with so much money that he turned his back on countless failing banks to stabilize the entire financial industry. “The White Knight of Crypto”, read the text at the bottom of the screen.
On a shot of Bankman-Fried trotting across a parking lot in the Bahamas, a reporter repeated facts that I’ve come to regard as Sam Bankman-Fried’s pre-crash litany: He’s a multi-billionaire by the age of 30, he drives a Toyota Corolla, he lives in the Bahamas with nine roommates and a goldendoodle. He has become richer and faster than almost anyone in history, having founded his most famous company in 2019. In an interview, he sat down on a stool and talked about the moves that drew the Morgan equation: self-sacrificing investments his company made to, in his words, save the larger crypto ecosystem.
Two months later, the story of the “White Knight” was thrown in the office trash can and set on fire. Crypto publication CoinDesk had reported on documents that rocked people’s trust in Bankman-Fried’s companies, and soon almost everyone but the goldendoodle – investors, customers, employees – was rushing to the doors. In an instant, Bankman-Fried was ousted as CEO and FTX filed for bankruptcy. The The November 11 edition of “Squawk Box” featured Anthony Scaramucci, whose SkyBridge Capital sold a 30 percent stake of its fund to Bankman-Fried around the time of those “White Knight” bailouts. “I don’t want to call it fraud at this point because that’s actually a legal term,” he said. But you sensed he wanted to call it fraud, the legal word.
The speed of this shift, especially in the financial media, was enough to give any casual observer a lash. In 2021, Forbes placed Bankman-Fried on the cover of its list of the 400 richest Americans, with a vibrant inside profile focused on the youthful billionaire’s pledges to donate his growing wealth. Switch to last fall and the magazine posted a video titled “‘Devil in Nerd’s Clothes’: How Sam Bankman-Fried Fooled Everyone.”
On YouTube, the main comments on Bankman-Fried’s precollapse coverage are now mostly sarcastic allusions to this shift. (“Kudos to CNBC for recognizing a solid businessman!”) On Twitter, angry FTX clients have berated crypto journalists for their alleged failures. But the media wasn’t the only one quickly changing its tone; hardly anyone told a consistent story before and after the crash. Even among the most angry commentators, few had picked up on such details as Bankman-Fried’s relative lack of philanthropy compared to all the stories of his grand philanthropy plans. Far from being isolated, there was a lot of gullibility.
What you need to know about the collapse of FTX
What is FTX? FTX is a now-bankrupt company that used to be one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. Based in the Bahamas, the company built its business on risky trading options that are not legal in the United States.
All this opacity can confuse our ability to tell accurate stories, allowing only two speeds: full throttle and roadside car fire.
Bankman-Fried insisted on remaining the protagonist of this story long after lawyers advised against it, giving numerous on-the-record interviews and appearing at The Times’ DealBook Summit conference. The saga of its rise and fall grew bigger and bigger, in part because it told a rare crypto story: the kind that was readable to those not interested in crypto. On his way up he was a budding philanthropist. On his way down he was proof, for those who wanted it, that crypto companies were little more than a shell game. Arrested in the Bahamas in mid-December and charged with a wide range of fraud across the United States, the financial blockbuster was on the cusp of becoming a legal thriller.
Theranos, WeWork, countless early dotcoms and pre-2008 financial instruments: almost all of them started as exciting business stories about people and companies that seemed to be on the cusp of reshaping their industries in innovative ways and that had the capital, growth or returns to suggest that they might be onto something. Those articles continued until the companies imploded amid revelations of fraud, incompetence or gross recklessness. “Whom the gods would destroy,” wrote Paul Krugman in a 2001 Times column about Enron, “they put on the cover of Businessweek for the first time.”
These seductively optimistic possibilities—promises like painless blood tests or community-building office space—are sure to draw attention, but they’re also at the heart of deceit and fraud. The worst narrative implosions may be less about bad individuals than about how easy it can be to hide follow-up information that might help reveal the difference. Public companies based in the United States are required to open their books to investors on a regular basis, but private companies do not have that obligation, especially offshore, as FTX was. Private wealth has soared over the past 20 years, as has the number of private companies, prompting an SEC official to recently warn that a rapidly growing part of the economy is “on the rocks.” This can allow for dangerous carelessness or fraud. John Jay Ray III, the man brought in to clean up after Bankman-Fried – the man with the same job in Enron’s bankruptcy – said he had never seen “such a complete failure of the company’s controls” and such a complete absence of reliable financial information.” On the one hand, those outside the company may not have done their due diligence; on the other hand, it would have been impossible if they had tried.
All this opacity can confuse our ability to tell accurate stories, allowing only two speeds: full throttle and roadside car fire. What few people knew about FTX supported in a very real way the story the company was telling; people really entrusted Bankman-Fried with billions, and that really gave him newsworthy power and influence. It wasn’t until the public stopped buying this story that the money just poured out. His power depended on faith, an all-or-nothing proposition that dimly mirrored media coverage. Unsurprisingly, Bankman-Fried says he resisted filing for bankruptcy, a process that reveals heaps of information in public filings; he rightly believed that if he could somehow regain the people’s trust, everything could go ahead.
Bankman-Fried now looks less like the main character in his own story and more like an empty barrel into which people have poured streams of money, hoping to create the crypto dream world they wanted. The problem to consider is that even if the story people told about him was inaccurate, there was an irrefutable story to tell – his success and influence were real enough to change the world while they existed. Yet almost no one had access to the information needed to make that story more accurate or reveal the basis of that success. So we got a laudatory story, followed by a large scale of gloating. There’s always a next time, right?
Photo source: Jeenah Moon/Bloomberg, via Getty Images; Alex Wong/Getty Images
