Sam Bankman-Fried (SBF) appeared at the New York Times DealBook Summit, where he discussed the reasons for the demise of FTX. He claims that despite setbacks, he isn’t focusing on potential criminal liability and is trying to help make stakeholders whole.
Andrew Ross Sorkin of The New York Times interviewed Sam Bankman-Fried (SBF), the former chief executive of the failed FTX crypto exchange. Speaking virtually at the DealBook Summit, the disgraced CEO aired his thoughts and looked back at what went wrong with the exchange.
Dishing out the facts
One upside that SBF continued to drill was that all American customers are “okay” in terms of client assets. He claims that FTX U.S., the company’s trading platform for American-based customers, is still solvent. SBF remained “confused” about why FTX U.S. is not processing customer withdrawals right now.
BeInCrypto covered this narrative in a previous article. To shed further light on the solvency, FTX US Derivatives (formerly LedgerX), a solvent entity of SBF’s crumbled empire, prepared to make available $175 million for use in FTX’s bankruptcy proceedings.
“The money, which could be transferred as soon as Wednesday, comes from a $250 million fund that LedgerX had set aside for a bid to get regulatory approval to clear crypto derivatives trades without intermediaries.”
Nonetheless, the bankruptcy involves more than 100 creditors and perhaps more than a million customers whose assets are missing. There is very little documentation, and replacement CEO John Ray said FTX is an epic mess and it will likely take many years for customers to recover their assets if they ever do.
There are still concerns at large. Per the interview, FTX’s fall boiled down to a risk management problem that got out of hand in what SBF calls a “run on the bank.”
‘Look, I Screwed Up’
The rippling effect from the massive collapse and demise of the exchange was and still is severely felt across the industry. What went south for FTX and its executives was a regulatory check on its risk management. When asked by the interviewer, the former executive acknowledged the same:
“We completely failed on risk management and conflict of interest risk. There was no person in charge of positional risk on FTX.”
Zooming in on the topic, SBF tried to connect the dots.
Firstly, FTX didn’t have a board overlooking the operations. “The problem is there were too many boards — of FTX Japan, Singapore, Europe, etc.” As a result, no singular entity oversaw any form of global risk management.
SBF then repeatedly mentioned clients’ margin accounts and said the problem at FTX was a lack of risk controls and allowing those margin accounts to grow too large. But surprisingly, he denied he had knowingly committed fraud. “Margin calls, customers borrowing from each other, and from Alameda was one of those,” Bankman-Fried said, referring to the problems that brought down his firm.
As those client bets went terribly, FTX executives raced to close the margin accounts, but the losses grew too quickly. Covering them and a rush of withdrawals in early November drained FTX’s accounts and caused the exchange to collapse.
“I obviously wish that I spent more time dwelling on the downsides and less time thinking about the upsides. Had I been a bit more concentrated on what I was doing, I would have been able to be more thorough,” he said. “That would have allowed me to catch what was happening on the risk side.”
He concluded the interview by saying:
“I made a lot of mistakes, never tried to commit fraud. I was not really cautious enough from a downside perspective. I was looking at a 30% down move; then, a 95% down move happened.”
It seems like SBF plans to shift the blame for FTX’s failure. Not to Alameda’s bad bets or potentially unlawful moving of funds, but onto clients instead. The blame-the-customers defense could indeed raise more speculations on crypto Twitter.
Some of the users have already raised their voices:
Another user criticized the NY Times instead for giving SBF a platform:
Lastly, the interview concluded as SBF was thanked for participating, and the audience gave him a round of applause:
Troubles Ahead
Amid all the chaos, SBF chose to speak out despite his legal aids advising against it. Bankman-Fried said his lawyers did not support his decision to speak, but he decided to sit for the interview. “I have a duty to talk and to explain what happened.”
He added:
“I was as truthful as I’m knowledgeable to be.”
Bankman-Fried is being investigated by the authorities in multiple jurisdictions, including the Bahamas, Turkey, and the United States. Whatever the ex-CEO said could potentially be used by investigators and prosecutors in jurisdictions around the world. Nonetheless, he opined:
“The classic advice is ‘don’t say anything, recede into a hole. But that’s not who I am, and that’s not who I want to be. I have a duty to talk and explain what happened.”
What Does the Future Hold for SBF?
When Asked whether he was concerned about criminal liability, Bankman-Fried had a hard time finding his footing on this topic but stated:
“There’s a time and a place for me to think about myself and my own future. I don’t think this is it.”
He appears to be recreating a future where he testifies at congressional hearings, perhaps explaining the fall. Just as in the past when he played the role of industry’s spokesman, convincing lawmakers crypto was an innovation U.S. investors needed.
On the contrary, U.S. securities law clarifies that non-bank brokerage firms should have $1 in assets for every dollar margin it extends. As per Stephen Gandel, the New York Times representative, ‘SBF appears to have admitted that was not the case and that the firm used client funds as collateral for the firm’s loan. That is not allowed in the U.S.’
But again, FTX was based in the Bahamas, which further complicates the case against him.
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