FTX: the legend of Sam Bankman-Fried | FT Film
FTX, Sam Bankman-Fried's cryptocurrency exchange, exploded onto the scene in just a few years. Endorsed by celebrities and accepted by the establishment, it attracted big-name investors and was valued at $32bn before it collapsed in a matter of days. Regulators fell for it, venture capitalists fell for it, celebrities fell for it - everyone fell for the legend of Sam
Produced, directed and edited by Daniel Garrahan. Filmed by Petros Gioumpasis and Gregory Bobillot. Graphics by Russell Birkett
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I did not know that there was any improper use of customer funds.
Everybody wanted to find the chosen one, the genius. That person was Sam Bankman-Fried, 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.
There was so much alleged misuse of funds.
And it all came crashing down in a matter of days.
When FTX collapsed, I ended up losing a $2.1mn.
And US prosecutors say this is one of the biggest frauds in American financial history.
Regulators fell for it. Venture capitalists fell for it. Everyone fell for the legend of Sam.
Sam Bankman-Fried, 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 Math Camp. He went to MIT. And then, after graduating from MIT he went to Jane Street, which is one of the world's biggest market-makers, trading firms.
If you think of Sam Bankman-Fried, you think of curly, messy hair and cargo shorts.
He barely sleeps. He sleeps in the office. He sleeps on a beanbag.
People look for geniuses. They look for the key man. He was like Elon, like Zuckerberg. He was just Sam. He was SBF.
He wasn't at Jane Street for very long. The phrase he used once was 'neutral, but a waste of brainpower.' He went to work at the Centre for Effective Altruism, 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.
And that's where the idea for Alameda came from - that they were going to get into this market and use traditional finance strategies to make a load of easy money in crypto.
In 2017, Sam founds Alameda Research, which was a proprietary trading firm, a market-maker.
Imagine it being founded in somebody's 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 in one 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 a company that people have heard of, comes out of Alameda. 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 FTX, and certainly, we're aiming to become the biggest crypto exchange.
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. It 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.
He's everywhere. And it's the one that you mention when you're talking about, well, there's a lot of quite sketchy shops out there in crypto. FTX is where they do things properly.
My name is Sunil Kavuri. After graduating from university, I joined Deutsche Bank and worked at JPMorgan, 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 $6mn, $7mn on FTX at the end of 2021. They were promoting it to retail investors and saying, if you want to get in crypto the safest ways to get into crypto is use FTX.
July 2021, FTX closed the funding round of $900mn, which valued the company at the time at about $18bn.
Within two or three years this thing is supposedly worth $32bn.
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 Plan - just these huge investors.
And BlackRock - I mean, a traditional finance who are very sceptical about crypto - they invest in FTX, rather than Binance. So 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.
It's FTX. It's a safe and easy way to get into crypto.
Yeah, I don't think so. 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! 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 stablecoin and an associated crypto, this Terra Luna pairing that just unravelled 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? Sam Bankman-Fried.
FTX CEO Sam Bankman-Fried 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 resort, 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, CoinDesk raised questions about FTT.
Alameda was listing as an asset very, very large holdings of FTT, a token that is issued by FTX. They control the supply - the equivalent of counting your own stock as an asset on your balance sheet. FTT as a token that is not widely held or traded. It's not like Bitcoin.
Alameda, the market banking arm that is supposed to be separate from FTX, was holding over $5bn 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 that 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, 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 trade assets. Alameda is a prop hedge fund, totally separate, and they trade their own balance sheet. I mean, that's... that's how it's 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 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 right, CZ. Changpeng 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 Binance holdings of the FTT token, due to some recent revelations.
And the price of these tokens really starts cratering, fast.
This really was the moment that caused widespread market panic.
And that sent the price of FTT absolutely plunging. I was just watching the graph, and it was going further and further down.
Binance 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 San Bankman-Fried empire. Very quickly after the CEO of Alameda, Caroline Ellison, came out and said, we'll buy it.
It kind of smelt 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 bank run 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 that FTX US was fine, or this is all just a big misunderstanding.
Insolvency rumours plaguing crypto exchange FTX are being denied by CEO Sam Bankman-Fried 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 rival's crypto company.
Sam is out in public trying to reassure people, and people have a lot of faith in FTX and Sam Bankman-Fried.
My name is Carol Alexander. I'm a crypto expert. I had a small portfolio of crypto, so that I can teach the students what's happening on exchanges. My decision to put funds on FTX was just a personal connection of somebody who'd met Sam Bankman-Fried, and a lot of people recommended FTX.
I first heard about the problems with FTX when I was out in Barcelona at the Quant Minds Congress. It's an annual summit for mathematical finance. Everybody there was really surprised. None of us thought it was going to be serious.
Only takes 24 hours - one day later - for CZ to have a look under the bonnet, look at the books, and actually decide that, no, he is not going to buy FTX.
And meanwhile, inside the company, people would describe just total chaos. Employees are quitting left, right, and centre. 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 SBF says that they're trying to raise funds.
It was when he stopped withdrawals. That was the biggest thing. I thought, oh, shit, 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 realise that you were going to take these funds away from me.
We had about $9mn of assets on FTX, leading up to the time in which they suspended withdrawals. We felt comfortable that we could absorb the losses if one or two or three exchanges go down.
On the day that FTX stopped paying back its customers, which is effectively the day it collapsed. That morning, major sophisticated investors in crypto were still telling me, safe as houses, it cannot go down.
What was going through my mind was, first and foremost, how do we mitigate the risk to the firm? And then, secondly, what are the knock-on effects for the market, right? People having their cash tied up at FTX meant they weren't in the same financial position as they might have been.
I end up losing $2.1mn US. Yeah.
I think Sam probably still thought that FTX could be salvaged. But of course, he was wrong. FTX files for 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 a few weeks. It was just, basically, stolen overnight. It's been difficult.
On November the 12th, there are reports that at least $1bn worth of FTX's customer money has disappeared. Since then, that number has grown. There's an alleged $8bn hole of customer money that is just missing, unaccounted for.
I don't think 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 alleged fraud, the celebrity promoters. I felt that I had to do something. Thankfully, I've had a supportive wife, and it 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 threads, 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, Sam Bankman-Fried hits the media circuit hard.
After apologising profusely on Twitter, he talks to The New York Times. He talks to Good Morning America.
I did not know that there was 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 fucked 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, OK, how about 3:00 in the morning? 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 moving his laptop. He's giving this interview from his bed. You would ask him questions that 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.
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 is he 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 Sam was. You do not talk to the press, and any lawyer would tell you that.
Finally, on December the 12th, Sam Bankman-Fried was arrested in the Bahamas. Initially, he resists extradition.
The conditions in the jail in the 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.
He was flown to the US.
Come on. You got it, Sam.
He appeared before a judge. He's pleaded not guilty.
They raise a $250mn 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. There is a future where Sam potentially spends the rest of his life in prison. This company is really unlike any other.
FTX 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. They didn't have the corporate structure, perhaps, people would conventionally imagine.
The whole empire, including Alameda and the various arms of FTX, were all kind of being run from a very small inner circle of people close to Sam Bankman-Fried.
Right at the middle of the circle is SBF, and he ran the show.
Then you've got Caroline Ellison, who was 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, were super, super close.
She has since resigned, and pleaded guilty to fraud charges, and is co-operating with law enforcement in the States.
And then, you've got Sam Trabucco, 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 Alameda Research. This speaks to the incestuousness, essentially, of both companies that were meant to be separate.
And him and Sam go way back. They went to Math Camp together, and then they were also college roommates when they were both at MIT.
Gary Wang is also co-operating 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 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 was financed through FTX - 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 freeflowing money, and getting Amazon packages flown in from Miami, nights out, 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 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 VC 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, we're as surprised as 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 stacked in your favour. 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 - you can't write down, you know - I'm not going to write down $2.1bn, OK? And the other guy - it's like, come on.
Many institutional investors parked due diligence, essentially, over FOMO.
The fear of not being part of this new technology - 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 some investors were turned away, because they were asking questions that FTX didn't want to answer. When you have a line up around the block of other investors who are ready to write your cheque today, you don't need to go with the investor who's asking difficult questions.
One big VC investor, Chamath Palihapitiya, says that he was approached about putting some money to work in FTX, and he said, OK, 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 fuck yourself.' Backing from really big-name venture capital firms, really big-name investors, really matters, because it pulls in other people. It pulls in the hedge funds. It pulls in the retail traders.
FTX's auditors were not in the Big Four, but there were Armanino and Prager Metis 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. 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 until that happens these legacy issues of transparency and safety of customer funds - they're going to persist.
We have filled out more due diligence questionnaires in the last 10 weeks than probably we did 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 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 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.
It shouldn't be forgotten that FTX were very close to getting CFTC regulation. They'd applied. They had an excellent margin model that took account of very high margin requirements, and were not going to allow their customers 100 times leverage. Binance even offers 125 times leverage on some products in some jurisdictions. So FTX 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 were being regulated as tightly as companies that perform equivalent functions in major financial markets.
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, boop, a 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, 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 FTX's and Sam's interests.
US prosecutors say this is one of the biggest frauds in American financial history.
The most insane alleged fraud to have taken place, blowing Enron and others out of the water.
The failure of FTX hasn't really affected the price of Bitcoin. People will cling onto these coins for dear life.
People in the crypto industry say it's just an FTX problem, it's an SBF problem.
This is a crypto issue. It's not just an FTX issue. Sam was the poster child of this crypto industry.
Personally, I'm just taking a break. People who want to invest... I don't see why they should stop.
What's happened to FTX tells you that the infrastructure here that's built on top of an asset - which, to be clear, has an intrinsic value of zero - is incredibly shaky. If FTX can disappear in a fortnight, then any of them can.
2023 is going to be a year where the crypto industry, writ large, and many chief executives of big crypto companies are going to have to deal with regulatory scrutiny that perhaps they wouldn't have had to have dealt with if it wasn't for FTX's collapse in November.
This is a cautionary tale for investors who were jumping into stocks for fear of missing out. You have to do due diligence, first and foremost. You have to check what's going on.
The crypto bros have been able to say, it's just FUD, Fear, Uncertainty, Doubt. Just ignore it. Turns out, everyone needed a whole lot more FUD.
Sam - what he's trying to do is say - this was all an accident. And what prosecutors will try and pin him on is that this is fraud.