Sam Bankman-Fried: The man behind FTX’s rise and fall
A few years after graduating from college, Sam Bankman-Fried grew worried he was not taking enough risks. So the son of two Stanford Law School professors quit his Wall Street job and in 2017 started a cryptocurrency hedge fund, setting off a sequence of events that culminated on Thursday with him being sentenced to 25 years in prison over what federal prosecutors called one of the biggest financial frauds in U.S. history. Two years after launching a hedge fund, Alameda Research, Bankman-Fried founded FTX in 2019, an exchange that let users buy and sell digital assets such as bitcoin. Cryptocurrency valuations surged, propelling Bankman-Fried to a net worth of $26 billion by October 2021, according to Forbes magazine, before he turned 30 – the 25th richest person in America. He parlayed that wealth into political clout, becoming one of the biggest donors to Democratic candidates and causes ahead of the 2022 U.S. midterm elections – though he also donated to Republicans through straw donors to mask his involvement, U.S. District Judge Lewis Kaplan said on Thursday at his sentencing hearing.
Based in an expensive Bahamas resort community, Bankman-Fried became known for his mop of unkempt curly hair and for wearing rumpled shorts, even when entertaining dignitaries including Bill Clinton. In a cryptocurrency sector plagued by hacks and money laundering, Bankman-Fried hired celebrities including NFL quarterback Tom Brady and comedian Larry David to feature in advertisements portraying FTX as safe. He publicly backed efforts to regulate crypto. But prosecutors say his laid-back demeanor and cultivation of a responsible image concealed his years-long embezzlement of customer funds. They contend the theft came to a head in 2022, when crypto prices swooned and he used FTX funds to plug losses at Alameda. A jury found him guilty on seven counts of fraud and conspiracy on Nov. 2, following a monthlong trial in Manhattan federal court. Three former members of his inner circle, who pleaded guilty and agreed to cooperate with prosecutors, testified against him and painted an unflattering portrait of his character, detailing instances in which he snapped angrily at colleagues and suggested his quirky persona was mostly an act.
“The goal was power and influence,” U.S. District Judge Lewis Kaplan said before sentencing Bankman-Fried. “He did it because he wanted to be a hugely, hugely politically influential person in this country.” Bankman-Fried pleaded not guilty and has vowed to appeal his conviction and sentence. Testifying in his own defense at trial, the Massachusetts Institute of Technology graduate acknowledged inadequate risk management, but denied stealing funds.
He said he made mistakes, such as not implementing a risk management team, that harmed FTX customers and employees. But he said he never intended to defraud anyone or steal customers’ money.
Kaplan found he had lied on the stand by saying he did not know Alameda had spent FTX customer deposits.
Bankman-Fried, wearing a beige short-sleeve jail T-shirt, acknowledged during 20 minutes of remarks to the judge on Thursday that FTX customers had suffered and he offered an apology to his former FTX colleagues.
“Customers have been suffering,” Bankman-Fried said, sighing frequently during his remarks. “I didn’t at all mean to minimize that. I also think that’s something that was missing from what I’ve said over the course of this process, and I’m sorry for that.”
SOUGHT TO AVOID ‘COMFORTABLE’ PATH
Bankman-Fried had little crypto experience before founding Alameda, which initially made money by exploiting differences in prices in digital tokens between the United States and Asia. A physics major at MIT, he told an FTX podcast that he did not apply himself in classes and did not know what to do with his life for most of college.
But he grew interested during those years in a movement known as effective altruism, which encourages talented young people looking to make a mark on the world to focus on earning money and giving it away to worthy causes. That led him to take a job as a quantitative trader at Jane Street, but he began to doubt whether he was earning all he could.
“If I really think that I should be trying to maximize expected values, that probably implies substantially riskier strategies than what seems intuitively right,” he said in the June 4, 2020, podcast. “I should be careful not to fall prey to trying to choose a comfortable path.”
He brought on Gary Wang, an old friend from math camp, and later Caroline Ellison, a fellow effective altruist from Jane Street and Bankman-Fried’s ex-girlfriend. Both would join him in the Bahamas, where they shared a $30 million penthouse with other Alameda and FTX executives, including Nishad Singh.
Wang, Ellison and Singh each pleaded guilty and testified against Bankman-Fried at trial. They have not yet been sentenced. Bankman-Fried was jailed in mid-August, after U.S. District Judge Lewis Kaplan revoked his bail for likely trying to tamper with witnesses at least twice – including by sharing Ellison’s private writings with a New York Times reporter.
In a letter to Kaplan, Bankman-Fried’s psychiatrist George Lerner wrote that his patient is on the autism spectrum. Bankman-Fried’s father, the law professor Joseph Bankman, wrote that his son long struggled with making eye contact and responding to social cues, but that the media did not care while FTX was thriving.
“Once the company crashed and his wealth was gone, people became less forgiving, and have interpreted these same characteristics … as a sign of disrespect, evasion or lying,” Bankman wrote.