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Whenever I read another story about Sam Bankman-Fried, the disgraced founder and former chief executive of cryptocurrency exchange FTX, I cannot help but think of a poignantly unnerving piece of short fiction by Willa Cather titled, "Paul's Case."
In it, a young man embarks on a journey to escape the trivialities of life in pursuit of the exotic and extravagant. But they are experiences he cannot sustain and they eventually prove to be his undoing.
The story, like that of Icarus, is tragic, so there is no comeuppance involving a public shaming, jilted Wall Street investors, or the Federal Bureau of Investigation struggling to make sense of the protagonist's laptop. (After all, Cather published her piece in 1905 – laptops and crypto were still a good ways off -- although it is entertaining to think of what she would have made of Bitcoin.)
Still, the story has some pungent SBF energy, depicting a young man attempting to rub elbows with those he wishes to emulate, without being very much like them:
"When Paul came to dinner, the music of the orchestra floated up the elevator shaft to greet him. As he stepped into the thronged corridor, he sank back into one of the chairs against the wall to get his breath.
The lights, the chatter, the perfumes, the bewildering medley of color – he had, for a moment, the feeling of not being able to stand it. But only for a moment; these were his own people, he told himself.
He went slowly about the corridors, through the writing-rooms, smoking-rooms, reception-rooms, as though he were exploring the chambers of an enchanted palace, built and peopled for him alone."
That was Paul's case. In Sam's case, the enchanted palace was his company, FTX, ensconced in a $40 million oceanside penthouse, sealed off from prying eyes in the Bahamas and peopled by his colleagues and friends. And he was not a young boy, but an adult in his 30s accused of cheating investors around the world of billions of dollars while casting himself as a dedicated philanthropist and humanitarian.
Since FTX's bankruptcy in November, questions have swirled around the events leading up to the exchange's collapse, but this week a 45-page report from FTX's new chief executive, John Ray, offers a dose of de-mystification and some startling new details.
After interviewing former FTX employees and scouring through terabytes of electronic data and more than one million documents, Ray and his team unearthed correspondences from Bankman-Fried and his sentinels that, it has to be said, hammer home not only just how blasé SBF felt about running a $32 billion crypto empire, but also how he found its total lack of governance to be ... humorous?
In a June 2022 portfolio summary that sought to model cryptocurrency positions of FTX's Alameda Research trading arm, one communication stated that personnel should "come up with some numbers? idk." As in, they should gin up the numbers.
An internal communication from Bankman-Fried stated that Alameda was "hilariously beyond any threshold of any auditor being able to even get partially through an audit."
Also from Bankman-Fried: "Alameda is unauditable. I don't mean this in the sense of 'a major accounting firm will have reservations about auditing it'; I mean this in the sense of 'we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.'"
Then he added: "We sometimes find $50 million of assets lying around that we lost track of; such is life."
The report includes a wide range of other details about how FTX's control failures created an environment where a handful of employees held "virtually limitless power to direct transfers of fiat currency and crypto assets and to hire and fire employees, with no effective oversight or controls to act as checks on how they exercised those powers."
At the same time, Bankman-Fried, when asked about his long-term vision for FTX by venture capitalists, told them, "I want FTX to be a place where you can do anything you want with your next dollar. You can buy Bitcoin. You can send money in whatever currency to any friend anywhere in the world. You can buy a banana. You can do anything you want with your money from inside FTX."
It sounds like that was exactly what FTX executives were doing.
The report further stated that FTX employees, particularly Bankman-Fried, "deprioritized or rejected advice to improve" FTX's control framework, exposing the company to "grave harm from both external bad actors and their own misconduct."
Summing it up, Ray said, "FTX Group failed to implement appropriate controls in areas that were critical for safeguarding cash and crypto assets" and that the company "was tightly controlled by a small group of individuals who falsely claimed to manage FTX Group responsibly, but in fact showed little interest in instituting oversight or implementing an appropriate control framework."
Bankman-Fried, who has pleaded not guilty to the charges filed against him, faces trial in October. Such is life?
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