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 [Music] 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 [Music] 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 [Music] 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 [Music] 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 [Music] U.