It may be a little too soon to lump Sam Bankman-Fried into the same boat as infamous fraudster Bernie Madoff — or maybe not.
The full post-mortem of his epic meltdown from crypto prodigy and billionaire to broke crypto villain extraordinaire won’t be ready for some time. Prosecutors for the US Attorney for the Southern District are considering possible charges before the end of the year, I’m told, so unless there is exculpatory evidence, we can’t yet call him a criminal.
The bankruptcy trustee is just starting to get into trouble. He calls what happened – the disappearance of billions, massive losses in supposedly separate accounts at Bankman-Fried’s FTX crypto exchange – “unprecedented”. But he stopped short of calling it a fraud.
If nothing else, the 30-year-old man-child known by his initials “SBF” can be described as a world-class schemer. Armed with hindsight, you can see how cultivating his image of nonconformity with his shaggy hair and pairing it with the halo of woke politics, SBF built his former crypto empire on a pile of quicksand.
Of course, all scammers have their shtick. In Madoff, those who succumbed to his hustle wanted to believe that a father figure from Queens, savvy about 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” took care of you and your children in perpetuity. The promised guaranteed returns turned out to be a mirage because nothing in finance can ever be guaranteed.
More recently, the bustle of Elizabeth Holmes was a well-cultivated image of the cool tech-geek. She faked her role as Steve Jobs down to the black turtleneck and hoarse voice as she pushed what now appears to be a life-changing and unlikely innovation: a do-it-yourself blood test product that would have revolutionized healthcare health.
SBF’s hustle was Virtue’s diversionary technique signaling its way into the hearts and minds of the media and financial elite so they wouldn’t bother to examine the logical holes in its business model.
Signs of these holes were definitely there. He amassed his paper fortune, around $16 billion, on the back of a dodgy crypto, FTT. There were untoward ties between his FTX crypto exchange and an props trading fund he ran alongside.
He made a lot of money – for a while. SBF has been compared to Warren Buffett by the geniuses at Fortune Magazine. But Buffett made his fortune over a long career. SBF earned almost all of its “money” in about three short years.
How did he manage? SBF went to MIT, which gave it the imprimatur of intelligence and marketability to investors. He wore a hoodie, which may have made him into the tech media always looking for the next maverick to change the world. During our Fed-induced financial bubble and irrational crypto exuberance, he was able to ride the wave of easy money and crypto-trading opacity.
He may have been smart, but real shrewd traders avoid life-changing losses as they watch the markets turn against them and move on. When the crypto started to correct and crash, SBF doubled down on its investments in distressed crypto outfits. That should have been a sign of his deception.
Yet no one asked him where he got the money to do it, because he had built a reputation as a benefactor who was on the safe side of investing. He gave progressive politicians in the Democratic Party and President Biden $10 million in 2020, which allowed him to hedge. He spoke endlessly about the need for super rich like him to embrace what is called “effective altruism” – you earn money with the aim of giving it back to make the world a better place.
You can see it in the deference that people like Tony Blair or Bill Clinton showed him at conferences just before his collapse. Or how congressional committees sought his advice, almost the minute he imploded, on all crypto issues.
The chattering classes, the Blairs, the Clintons, the financial press, ate it up.
The absurdity of it all hasn’t stopped VC heavyweight Sequoia Capital from giving him money, or news anchors from begging him for flattering interviews or Congress from getting his two cents on regulatory issues. SBF was presented to investors in the Middle East for even more money a few weeks before its fall. Hell, he recruited Tom Brady and Larry David as FTX brand ambassadors.
SBF has approached crypto regulators 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 of the industry, with no one thinking, “is this guy too good to be true? ” – except for a lone handful, including perhaps SBF himself. He recently remarked in a moment of candor that his virtue signaling was “a dumb game.”
Now tell us.
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