SBF’s Adventures in Wonderland

Experts weigh in on how the crypto king, Sam Bankman-Fried, got lost in the casino.

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Experts weigh in on how the crypto king got lost in the casino.

Every once in a while, Wall Street becomes enamored of an idea or a notion that’s at best wishfully fantasist – and, at worst, barking mad.


The criminal trial of Sam Bankman-Fried, the former chief executive of bankrupt crypto exchange FTX, seems to have given rise to just such magical thinking. The case somehow has softened the brains of some otherwise very intelligent people, a few of whom have been caught entertaining ideas such as, “If Sam’s wild gambles had worked out before he lost all that money, he would have been hailed a genius.”

A second variation on this line of thinking has been, “What if some of Sam’s wild gambles did work out in the end, and the lost customer money is fortuitously recovered?”

Yet a third version, heartily endorsed by Bankman-Fried’s legal team, has been that Bankman-Fried – who pleaded not guilty to defrauding customers of an estimated $8.9 billion in one of the largest financial collapses in U.S. history – found himself and his $32 billion crypto empire grappling with rapidly changing market conditions that led to a run on customer deposits. As his defense attorney contended, “Sam didn’t intend to defraud anyone; there was no theft.”

In other words, the money disappeared and blame is amorphous.

To summarize the above in the simplest of terms: Sam Bankman-Fried is possibly a misunderstood visionary. His bets would have (maybe) paid off, had he not been the victim of circumstance. And they may yet still.

That appears to imply that the misuse of billions of dollars of customer funds – on an industrial scale – might be vindicated, if Bankman-Fried’s wayward investments suddenly turn positive.

At least, that’s the theory. To put it in the words of Bloomberg opinion columnist Matt Levine:

“If investors give you $100 and you do a series of dumb things with it and give them back $150, they probably won’t complain. What you did was illegal, but you don’t go to prison just because you did something illegal. You go to prison because you did something illegal and prosecutors bother to prosecute you, and if all your investors are happy they are less likely to bother.”

Meanwhile, Bankman-Fried’s friendly biographer, Michael Lewis, has compared SBF favorably with disgraced Theranos chief executive Elizabeth Holmes – a fellow former Silicon Valley billionaire, who went to prison earlier this year for fraud – saying Holmes lied about medical test results of patients that threatened their lives, whereas Bankman-Fried’s victims were just crypto speculators who lost money.

“If you want to do degrees of harm, I thinkit’s a little different,” Lewis said in a recent interview where he declined to say whether he thinks Bankman-Fried knowingly committed fraud on FTX customers and investors. His response: “it’s more complicated” than that. 

Like Bankman-Fried’s defense attorney, Lewis highlighted what he saw as the murkiness of his subject’s true intent, saying it is “the thing that I don’t even really want to speculate about,” and “that’s the tricky part.”

Lewis also repeated the argument that, just maybe, FTX liquidators will scrape enough money from the ravages of the bankruptcy to make the exchange’s customers whole again. “You can’t ignore the fact that these people might get 100 cents back on the dollar,” he said in the same interview, adding, “It’s going to be really interesting to see how much is actually missing in the end.”

Here’s the problem with all of that, according to market experts: Whether you get the money back is beside the point. Stealing, borrowing, or losing customer money – especially if you take those funds and then make outrageous gambles with them without anyone’s permission – is not just illegal and fraudulent, it is considered among the deepest betrayals on Wall Street. It is why Bankman-Fried is facing up to 110 years in prison (which dwarfs Holmes’s 135-month sentence).


“Customer money is utterly sacrosanct,” a retired Wall Street exchange chief executive tells Power Corridor. “If you gamble and replace the money, customers would most certainly still care that you gambled. It does not matter if you’re a visionary. Most customers would not want even a genius to take their money and gamble with it. They expect their money to be managed as their money. It doesn’t matter if Bankman-Fried was right about his investments – it wasn’t his money to take. There is no point to, ‘Oh, eventually he made the money back.’”


Even Lewis, who spent months interviewing Bankman-Fried for his book, “Going Infinite,” on the rise and fall of the MIT math whiz, did not quibble over the fact that customer funds entrusted to Bankman-Fried were bungled, lost or mislocated. “Nobody disagrees that, like, the money was in the wrong place…and we know who did it. It’s sort of like how and why he done it,” he said, referring to Bankman-Fried.

This week, Bloomberg’s Levine, who, it is fair to say, has been a similarly fawning interviewer of Bankman-Fried, noted that during his trial, testimony alleging that Bankman-Fried asked for a variety of balance sheets to be ginned up to deceive his lenders, appeared damning.

“If you prepare a balance sheet for a lender and your boss says, ‘Why don’t we present this information in a different way,’ you probably need a lawyer. If you prepare SEVEN BALANCE SHEETS and your boss is like, ‘Let’s go with Alternative 7,’ then one of you is going to prison absolutely forever,” he offered (caps his).

In light of all of the above, it sure doesn’t sound like there’s any reason for thought experiments on why customers or investors might come out of the FTX bankruptcy feeling satisfied, let alone happy. Not to mention the fact that accused fraudsters on Wall Street aren’t commonly known for “borrowing” customer money (unbeknownst to the customer), making a pile off it, then returning the money to the customer at a tidy profit.

Such ideas, though popular and maybe even the tiniest bit appealing for the pat way in which they dispense with reality, are deeply misleading, says James Koutoulas, chief executive of Typhon Capital Management, a hedge fund based in Miami Beach, Fla., that, among other things, invests in crypto (but avoided investing in Bankman-Fried).

“These Sam Bankman-Fried apologists don’t grasp that customers are not the same as investors,” he tells Power Corridor. “These customers did not invest in FTX, they were not supposed to become victims or exposed to any downside risk, just as they weren’t exposed to the upside of his investments.”

Koutoulas, who is also a lawyer, worked on the bankruptcy of MF Global, one of the largest in Wall Street history. “Customer money is supposed to be sacred, which means customer accounts must be segregated, every minute of every day,” he says. “While crypto accounts aren’t regulated by law, it is fraud.”

A New York-based crypto exchange executive told Power Corridor that he believes the propensity to make excuses for Bankman-Fried stems from the fact that many on Wall Street were fooled by him and are still in various stages of denial.

“Everybody’s so embarrassed they got taken in by a con man and they believed in him,” he says. “I think there are two things going on here: First, he was this ragtag kid who got picked on and comes out of MIT and sticks it to the man. It’s the underdog, nerd turned billionaire. People want to believe it. Second, they are completely humiliated that the emperor has no clothes, he has zero clothes. He was a catfish. And he’s not confessing, either, so that makes it easier to keep up the illusion of his innocence for as long as possible.”

So, what was Bankman-Fried trying to do with all this money?

In his book, Lewis explains how Bankman-Fried met him at his home in Berkeley, Calif., and, during the course of a hike they took together, told Lewis how he wanted to make billions of dollars, maximizing them as “infinity dollars” to cure the world of its ills. From the book:

“Everything about him was peculiar, starting with motives – or at least what he believed his motives to be. He didn’t come right out with all of it on our walk, maybe because he realized how implausible it’d sound to a total stranger. He needed infinity dollars, because he planned to address the biggest existential risks to life on earth: nuclear war, pandemics far more deadly than Covid, artificial intelligence that turned on mankind and wiped us out, and so on. To the list of problems Sam hoped to tackle he’d recently added the assault on American democracy, which, if successful, would make all of the other big problems far less likely to be solved. One hundred fifty billion [dollars] was about what was needed to make a dent in at least one of the big problems.”

Just to be clear, jurors in the trial of Sam Bankman-Fried heard this week how he arranged for his crypto hedge fund, Alameda Research, to shift $10 billion from the accounts of customers at his exchange, FTX, and then loan $5 billion of that to FTX’s executives and affiliated entities. As has also been widely reported, millions of dollars of funds were funneled to not just Bankman-Fried himself, but also his parents and their largely progressive pet political causes.

Bankman-Fried never got close to his desired $150 billion, but what he did do with the billions of dollars briefly in his grasp hardly mirrors the world-saving plan he outlined to Lewis. Which should tell you something.