On Sept. 16, CNBC’s “Squawk Box” aired a segment about Sam Bankman-Fried — the chief executive, on the time, of the cryptocurrency exchange FTX — and his recent spree of acquisitions within the wake of an industry downturn. “They call him the J.P. Morgan of crypto, right?” the host asked, comparing Bankman-Fried to a financier with a lot money he backstopped myriad failing banks in an effort to stabilize your complete financial sector. “The White Knight of Crypto,” read the text at the underside of the screen.
Over a shot of Bankman-Fried trotting through a car parking zone within the Bahamas, a reporter repeated facts I actually have come to think about because the Precrash Litany of Sam Bankman-Fried: He’s a multibillionaire at 30, he drives a Toyota Corolla, he lives within the Bahamas with nine roommates and a goldendoodle. He has gotten richer, faster, than almost anyone in history, having began his best-known company in 2019. In an interview, he perched on a stool and talked in regards to the moves that drew the Morgan comparison: self-sacrificing investments his firm made within the interest of saving, in his words, the larger crypto “ecosystem.”
Two months later, the “White Knight” narrative was tossed within the office trash can and lit on fire. The crypto publication CoinDesk had reported on documents that shook people’s faith in Bankman-Fried’s corporations, and shortly most everyone aside from the goldendoodle — investors, customers, employees — rushed for the doors. In a snap, Bankman-Fried was deposed as chief executive, and FTX filed for bankruptcy. The Nov. 11 edition of “Squawk Box” featured Anthony Scaramucci, whose SkyBridge Capital sold a 30 percent stake of its fund to Bankman-Fried across the time of those “White Knight” bailouts. “I don’t wish to call it fraud at this moment, because that’s actually a legal term,” he said. But you sensed that he very much did wish to call it fraud, the legal word.
The rapidity of this shift, especially in financial media, was enough to provide an off-the-cuff observer whiplash. In 2021, Forbes featured Bankman-Fried on its cover for its list of the 400 richest Americans, with a buoyant profile inside focused on the youthful billionaire’s guarantees to donate his expanding wealth. Switch to this past fall, and the magazine posted a video titled “‘Devil in Nerd’s Clothes’: How Sam Bankman-Fried Fooled Everyone.”
On YouTube, the highest comments on precollapse coverage of Bankman-Fried now are inclined to be sarcastic allusions to this shift. (“Kudos CNBC for recognizing a solid businessman!”) On Twitter, offended FTX customers have berated crypto journalists for his or her perceived failures. However the media was hardly alone in rapidly changing its tenor; almost no one told a consistent story before and after the crash. Even among the many angriest commentators, few had picked up on details like Bankman-Fried’s relative lack of philanthropy compared with all of the stories about his grand plans for philanthropy. Removed from being isolated, credulousness abounded.
What to Know About the Collapse of FTX
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What’s FTX? FTX is a now bankrupt company that was considered one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency often known as FTT. The corporate, based within the Bahamas, built its business on dangerous trading options that should not legal in america.
Who’s Sam Bankman-Fried? He’s the 30-year-old founding father of FTX and the previous chief executive of FTX. Once a golden boy of the crypto industry, he was a significant donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that urges adherents to provide away their wealth in efficient and logical ways.
How did FTX’s troubles begin? Last 12 months, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, sold the stake he held in FTX back to Mr. Bankman-Fried, receiving plenty of FTT tokens in exchange. In November, Mr. Zhao said he would sell the tokens and expressed concerns about FTX’s financial stability. The move, which drove down the value of FTT, spooked investors.
What led to FTX’s collapse? Mr. Zhao’s announcement drove down the value and spooked investors. Traders rushed to withdraw from FTX, causing the corporate to have a $8 billion shortfall. Binance, FTX’s foremost rival, offered a loan to avoid wasting the corporate but later pulled out, forcing FTX to file for bankruptcy on Nov. 11.
Why was Mr. Bankman-Fried arrested? FTX’s collapse kicked off investigations by the Justice Department and the Securities and Exchange Commission focused on whether FTX improperly used customer funds to prop up Alameda Research, a crypto trading platform that Mr. Bankman-Fried had helped start. On Dec. 12, Mr. Bankman-Fried was arrested within the Bahamas for lying to investors and committing fraud. The day after, the S.E.C. also filed civil fraud charges.
All this opacity can scramble our ability to inform accurate stories, allowing for less than two speeds: full throttle and roadside automobile fire.
Bankman-Fried insisted on remaining the foremost character of this story long after lawyers advised against it, giving quite a few on-the-record interviews and appearing at The Times’s DealBook Summit conference. The saga of his ascension and decline grew larger and bigger, partly since it told a rare crypto story: the sort legible to those bored with crypto. On the best way up, he was a budding philanthropist. On the best way down, he was proof, to those that wanted it, that crypto businesses weren’t rather more than a shell game. In mid-December he was arrested within the Bahamas and charged with a wide range of fraud in america, and the blockbuster financial thriller stood to turn out to be a legal one.
Theranos, WeWork, countless early dot-coms and pre-2008 financial instruments: Just about all began as exciting business stories about people and corporations that seemed poised to remake their industries in progressive ways and had the capital, growth or returns to suggest they may be on to something. Those articles continued right until the companies imploded amid revelations of fraud, incompetence or brazen recklessness. “Whom the gods would destroy,” Paul Krugman wrote in a 2001 Times column about Enron, “they first placed on the duvet of Businessweek.”
These types of seductively optimistic possibilities — guarantees like painless blood testing or office space that builds community — naturally draw attention, but in addition they sit at the guts of deception and fraud. The worst narrative implosions could also be less about bad individuals than how easy it may well be to cover consequential information which may help reveal the difference. Public corporations based in america must commonly open their books to investors, but private ones haven’t any such obligation — especially ones based offshore, as FTX was. Private wealth has soared over the past 20 years, and so has the number of personal corporations, leading one S.E.C. official to warn recently that a rapidly increasing portion of the economy is “going dark.” This may enable dangerous carelessness or fraud. John Jay Ray III, the person brought in to wash up after Bankman-Fried — the person tasked with the identical job within the Enron bankruptcy — said he’d never before seen “such a whole failure of corporate controls and such a whole absence of trustworthy financial information.” On one hand, those outside the firm can have didn’t do their due diligence; on the opposite, it might have been not possible had they tried.
All this opacity can scramble our ability to inform accurate stories, allowing for less than two speeds: full throttle and roadside automobile fire. What little people did find out about FTX supported, in a really possible way, the story the corporate was telling; people really did entrust Bankman-Fried with billions, and that actually did give him newsworthy power and influence. It was when the general public not bought this story that the cash rushed out. His power was contingent on belief, an all-or-nothing proposition that media coverage feebly reflected. It’s not surprising that Bankman-Fried says he opposed filing for bankruptcy, a process that reveals heaps of knowledge in public filings; he believed, rightly, that if he could someway win back people’s confidence, all the pieces could proceed.
Bankman-Fried now seems less just like the foremost character in his own story and more like an empty vessel into which individuals poured torrents of money, hoping to create the crypto dreamworld they desired. The issue we must reckon with is that even when the story people told about him was inaccurate, there was incontrovertibly a story to inform — his success and influence were real enough to change the world while they existed. Yet almost nobody had access to the knowledge mandatory to make that story more accurate or reveal the idea of that success. So we got a laudatory story followed by a heaping platter of schadenfreude. There’s all the time next time, right?
Source photograph: Jeenah Moon/Bloomberg, via Getty Images; Alex Wong/Getty Images