Inside Sam Bankman-Fried’s Doomed FTX Empire
The Wall Street Journal takes a look Inside Sam Bankman-Fried’s Doomed FTX Empire
That's a free link. Here are a few snips.
The emerging picture of what went wrong suggests the crypto empire was a mess almost from the start, with few boundaries, financial or personal.
From its earliest days, the firm was an unruly agglomeration of corporate entities, customer assets and Mr. Bankman-Fried himself, according to court papers, company balance sheets shown to bankers and interviews with employees and investors. No one could say exactly what belonged to whom. Prosecutors are now investigating its collapse.
Corporate money was used to buy real estate, but records weren’t kept. There wasn’t even a roster of employees, to say nothing of the terms of their employment. Bankruptcy filings say one entity’s outstanding loans include at least $1 billion to Mr. Bankman-Fried personally and $543 million to a top lieutenant.
The lives of the people who ran FTX and its related companies were similarly blurred. Ten of them lived and worked together in a $30 million penthouse at an upscale resort in the Bahamas. The hours were punishing, and the lines between work and play were hard to discern. Romantic relationships among Mr. Bankman-Fried’s upper echelon were common, as was use of stimulants, according to former employees.
“Nothing like regular amphetamine use to make you appreciate how dumb a lot of normal, non-medicated human experience is,” Ms. Ellison once tweeted. A lawyer for Ms. Ellison declined to comment.
To the outside world, Mr. Bankman-Fried was the mayor of cryptoland, the man charged with convincing lawmakers, investors and enthusiasts that he’d built a new kind of finance. He urged Congress and regulators to approve his model for crypto trading. On Twitter, he admonished competitors for practices he called unsafe.
FTX and Alameda, the trading firm, extended hundreds of millions of dollars in credit to prop up one struggling lender, BlockFi, and made an unsuccessful bid to keep lender Voyager Digital out of bankruptcy.
Mr. Bankman-Fried’s heroics drew comparisons to John Pierpont Morgan’s private bailouts that helped end the Panic of 1907.
What’s an FTT Worth?
Humans have ascribed value to objects for eons. A dollar bill is just a piece of paper, after all. But its value comes from traditions and agreements, laws and practices formed over hundreds of years. Cryptocurrencies compress that into the stroke of a key: Make a cryptographic token with some code, give it a name, and get someone to believe it’s worth $10. If you hold a hundred thousand of these tokens, you now have an asset worth a million dollars—in theory.
Alameda holds the lion’s share of FTT in existence. Before it collapsed, Alameda had marked the value of its FTT at $5.5 billion, according to the document. [Mish Comment: Now it's about $8 billion in the hole.]
After a stint in Hong Kong, Mr. Bankman-Fried and FTX made their home in the Bahamas, moving in 2021 to take advantage of the island country’s crypto-friendly regulatory regime.
On the archipelago’s New Providence island, an 80-square-mile oasis that feels to its financial elite like a small club, FTX landed with a splash, according to people on the island. The company rapidly acquired high-end real estate.
The Bahamian prime minister, Philip Davis, hoped FTX would help center his country as a nexus of the crypto world, he said in several public speeches. When given the chance to buy FTX equity earlier this year, one Bahamian FTX worker said employees spent thousands of dollars each on shares.
FTX hired a Bahamian security firm to guard FTX headquarters shortly before the collapse. After the news, the majority of non-local FTX employees left the island. The security guards said they found themselves protecting nearly vacant buildings.
Before the company collapsed, FTX staffers frequented Island Brothers, an upscale French bistro a stone’s throw from the company’s headquarters, restaurant employees said. The owner got to know Mr. Bankman-Fried’s father, Stanford tax-law scholar Joseph Bankman, during his visits to Nassau to spend time with his son.
Last week, FTX’s downfall brought Mr. Bankman to Island Brothers in a somber mood. After a few pleasantries, the restaurant owner said, Mr. Bankman broke down in tears.
It's a long but fascinating read of greed, arrogance, drugs, corruption and most of all no accounting of anything at any time.
Meet Queen Caroline
Forbes wrote an interesting article ‘Queen Caroline’: The ‘Fake Charity Nerd Girl’ Behind The FTX Collapse
Alameda Research CEO Caroline Ellison is a math whiz who loves Harry Potter, fringe political philosophy and taking big risks. She is also one of the supporting players in Sam Bankman-Fried's FTX catastrophe.
“Being comfortable with risk is very important,” Ellison said on a podcast in May. “There are a lot of people who are very smart, but aren’t good, necessarily, at the messy world of trading—especially crypto.”
As FTX cartoonishly imploded, going from “Assets are fine” tweets to bankruptcy in four days, attention turned to Alameda’s $10 billion in assets and its alleged practice of funneling FTX’s customer deposits to invest in risky speculative bets. Multiple crypto companies once seen as industry pillars are now on the verge of the same fate. While the daily headlines document years of alleged wrongdoing, the spotlight has broadened beyond Bankman-Fried to his inner circle, and landed on Ellison, a rare female leader in a male dominated industry.
Some of her defenders, who call her “Queen Caroline,” are followers of Curtis Yarvin, a neoreactionary political theorist and far right darling. Many of the people who have flocked to Ellison’s defense gather on Urbit, a peer-to-peer platform created by Yarvin, one of her online supporters told Forbes. They think Ellison was set up to be the fall person, and claim that former co-CEO Sam Trabucco, who they derisively call “Sam Tabasco," is behind Alameda’s implosion. Trabucco didn’t respond to multiple requests for comment.
Over the past two weeks, much has been speculated about the romantic ties between Ellison and Bankman-Fried, which Bankman-Fried confirmed by telling the New York Times that the two were no longer involved. A CoinDesk report claimed that Ellison had serially dated Bankman-Fried, and alleged that both were among a group of 10 roommates who’d been intimately involved at some point. The exact contours of the pairings are unknown, but public Venmo transactions between Nishad Singh, Sam Trabucco, and FTX chief of brand and people Cindy Watanabe show them paying one another for domestic trappings like “kale,” gas and laundry.
Years earlier, Ellison had apparently written on Tumblr, with indeterminate seriousness, that after exploring polyamory, she believed that “everyone should have a ranking of their partners, people should know where they fall on the ranking, and there should be vicious power struggles for the higher ranks” — a dynamic she equated to a “imperial Chinese harem.”
Is There Anything Left of FTX?
According to John J. Ray, the cryptocurrency exchange’s new CEO, some regulated or licensed subsidiaries of FTX have solvent balance sheets
A statement released Saturday from John J. Ray, the company’s new CEO, struck a slightly more optimistic tone about the possibility of recovering assets compared with his previous dour assessment. On Thursday, the veteran bankruptcy executive said he had never seen anything as bad as FTX in 40 years in the restructuring business.
“We are pleased to learn that many regulated or licensed subsidiaries of FTX, within and outside of the United States, have solvent balance sheets, responsible management and valuable franchises,” said Mr. Ray, who was hired to oversee the company during its bankruptcy process, on Saturday.
The filing identified 216 bank accounts with positive balances, offering the possibility that there was some value left in FTX’s wreckage for creditors to recover. It verified account balances worth about $564 million, according to the Saturday filing. Much of that money, however, is either held in outside entities that directly filed for bankruptcy protection or is considered restricted cash, meaning others may lay claim to it.
From Darling to Zero
Bankruptcy Batter's Box
Whatever remains of the FTX mess, if anything, the attorneys handling the bankruptcy claims will get it all.
With an overall balance sheet of negative eight billion, balances of $564 million will not go far. Customers on the FTX will be last in line.
The wild west of crypto ends with a big implosion, but it's still ongoing. There are still more companies and players headed for the same fate as the above.
Genesis is in the bankruptcy batters box right now. The embattled crypto lender was reportedly seeking a bailout before it suspended withdrawals this week.
This post originated at MishTalk.Com.
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