Sam Bankman-Fried blames Caroline Ellison’s Alameda for FTX collapse
Sam Bankman-Fried has laid the blame squarely on Caroline Ellison’s company Alameda for FTX’s collapse in a trainwreck interview.
Sam Bankman-Fried has dumped much of the blame for the downfall of FTX on Alameda Research, the trading firm run by his ex-girlfriend Caroline Ellison.
It comes as a bankruptcy filing by the cryptocurrency exchange reveals the company’s management had virtually no idea where its cash was at any time, never held board meetings and approved employee expenses with personalised emojis.
In a trainwreck interview, the disgraced crypto mogul exchanged a series of Twitter direct messages with Vox reporter Kelsey Piper as he tried to explain the calamitous collapse of his crypto empire while unleashing on sister company Alameda, headed by Ms Ellison.
At one point worth $47.77 billion ($US32 billion), FTX Group filed for bankruptcy on November 11 due to a liquidity crunch. The company ran out of cash as customers rushed to withdraw funds after it was revealed Alameda’s balance sheet was packed full of FTX’s FTT token and Binance CEO Changpeng Zhao announced Binance was dumping its FTT holdings.
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Mr Bankman-Fried, known as SBF, had a net worth estimated at $23 billion (US$16 billion) which crashed to basically zero when his businesses went bankrupt.
He had appointed Ms Ellison as CEO of FTX’s sister company Alameda in October 2021, despite her limited experience.
US regulators are now investigating whether FTX mishandled customer funds, with reports FTX lent $15 billion ($US10 billion) of customer funds to Alameda.
In the November 16 interview with Vox, SBF was asked whether FTX had “loaned money to Alameda, who had gambled with their [customer] money, and lost it”.
“[I] thought Alameda had enough collateral to reasonable [sic] cover it,” SBF responded.
Asked what he would change if he could “do it all over again” SBF wrote: “More careful accounting and offboard Alameda from FTX once FTX could live on its own.”
SBF claimed that FTX didn’t “invest” customer deposits because Alameda, not FTX, actually made the investments. He sidestepped the fact that his company FTX Group also owned Alameda Research.
SBF blamed “messy accounting” for the financial disaster.
“I didn’t realise [the] full size of it until a few weeks ago,” he wrote, saying it “was messier and more organic” than simply lending out customer funds.
“Each step was in isolation rational and reasonable, and then we finally added it up last week and it wasn’t,” he wrote.
He maintained that he “didn’t want to do sketchy stuff”.
“And I didn’t mean to. Each individual decision seemed fine and I didn’t realise how big their sum was until the end,” he wrote.
“It was never the intention” to get away with it, he stated, adding: “Sometimes life creeps up on you.”
SBF and Ellison were reportedly part of a group of 10 roommates that controlled operations at FTX and Alameda from a penthouse in the Bahamas.
The group was said to be romantically entangled, with some online speculation asserting they were a “polycule,” or network of polyamorous relationships.
Ms Ellison also sparked scrutiny for a now-viral 2021 tweet in which she talked about “regular amphetamine use,” the New York Post reports.
She also wrote graphic blog posts about polyamory and masochism.
SBF says ‘f**k regulators’
In the interview, SBF also revealed his contempt for regulators, despite previously lobbying in Washington for a regulatory framework for cryptocurrency.
“F**k regulators. They just make everything worse. They don’t protect customers at all,” he wrote in the exchange with Piper.
That comment prompted the new CEO of FTX, John J. Ray III, to respond in the bankruptcy filing.
“The debtors have made clear to employees and the public that Mr Bankman-Fried is not employed by the debtors and does not speak for them.
“Mr Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements,” he stated.
‘I feel bad for those who get f***ed by it’
SBF was widely known as a proponent of “effective altruism”, the idea that evidence and reason should be used to benefit as many people as possible. He planned to give away the billions he made from the crypto exchange to charitable causes.
Ms Piper asked SBF if he still stood by the position that he “shouldn’t do unethical sh*t”.
“Like if you’re running Philip Morris no one’s going to want to work with you on philanthropy,” Ms Piper asked. “I was trying to figure out like, if that was kind of the PR off-the-cuff answer?”
SBF responded: “Man all the dumb sh*t I said. It’s not true, not really.
“Everyone goes around pretending that perception reflect[s] reality. It doesn’t. Some of this decade’s greatest heroes will never be known, and some of its most beloved people are basically shams.”
He then blasted his arch rival, Binance’s Changpeng Zhao, known as CZ.
“A month ago CZ was a walking example of ‘don’t do unethical sh*t’ or our money is worthless’. Now he’s a hero. Is it because he’s virtuous? Or because he had the bigger balance sheet. And so he won.”
SBF admitted “most” of the “ethics stuff” was a front and argued he “had to be” good at talking about ethics.
“It’s what reputations are made of, to some extent. I feel bad for those who get f***ed by it. By this dumb game we woke Westerners play where we say all the right [shibboleths] and so everyone likes us.”
‘Contents are shocking’
The contents of FTX’s bankruptcy filing have been described as “shocking”.
Mr Ray, a lawyer who has worked on major bankruptcy cases, including Enron’s, was scathing in his assessment of the executive team.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.
“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
The company employed “unacceptable management practices included the use of an unsecured group email account to access confidential private keys and critically sensitive data” and it “did not keep appropriate books and records, or security controls, with respect to its digital assets” which amounted to billions of dollars.
Stunningly, customer crypto deposits and balances were not recorded on the balance sheet.
I just read FTX's Chapter 11 First Day Affidavit.
— jonwu.eth (@jonwu_) November 17, 2022
In it, the appointed restructuring CEO John Jay Ray III, who oversaw Enron's bankruptcy proceedings, calls FTX's case the worst of his career.
Its contents are shocking.
Here are the highlights:
👇
I read the 30 page FTX Bankruptcy court filing.
— Genevieve Roch-Decter, CFA (@GRDecter) November 17, 2022
How bad were FTX's internal controls?
Here are the worst examples 👇
The filing revealed that Alameda issued three loans, including a personal loan of $1.5 billion ($US1 billion) to SBF.
Corporate funds were used to purchase homes and other personal items for employees and advisers – often without documentation.
FTX’s US balance sheet shows about $2 billion ($US1.36 billion) of total assets, however Mr Ray said he does “not have confidence in it” because it was produced while SBF was in control of the company. The company has about $843 million ($US564 million) of cash on hand.
The astonishing lack of corporate governance at the company was also revealed with the news it “never had board meetings”.
FTX Group also did not “maintain centralised control of its cash” and did not have an accurate list of bank accounts.
The company also did not keep accurate records of the identities of employees and contractors.
Decisions were mostly made over chat through an app that automatically deletes messages after a certain amount of time.
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