For investors and industry observers, former FTX CEO Sam Bankman-Fried’s (SBF) appearance at the New York Times Dealbook conference this evening was an opportunity to make sense of the FTX train wreck.
But the interview, which was punctuated by a brief loss of connection with Bahamas-based SBF, must have left them even more confused.
A Changed Persona. But Same Responses.
SBF’s interview persona was a contrast to his shenanigans on social media. He fidgeted in his seat. He did not use swearwords. The camera obscured his trademark shorts – a sign of cool genius. He looked contrite: eyes downcast and voice soft. “I want to be helpful, wherever I can, to help FTX’s customers and bring a lot more value to them,” he said.
Alas, his responses to questions remained the same as they have been since the fiasco. They offered little consolation to investors, who have been cheated out of millions.
At the outset, he repeated his claim of innocence. “I didn’t try to commit fraud on anyone,” he said and added that he was “shocked” at the turn of events. [For context, imagine the CEO of a major exchange claiming to be shocked by a run at their trading venue]. He said he was ignorant about his exchange’s exposure to Alameda Research, the toxic sister entity – Bankman-Fried’s other venture – that prompted FTX’s bankruptcy.
The main questions on everyone’s minds are about FTX’s balance sheet. How was Alameda able to build up a position big enough to take down one of the world’s biggest crypto exchanges?
“I have limited access to [FTX] data,” SBF said to explain away his lax monitoring of Alameda’s position. “I wasn’t marking them [FTT tokens and other worthless collateral assets pledged by Alameda for loans from FTX] correctly,” he said. “Clearly, I was not cautious enough from a downside perspective.”
He also said one “unbelievable” area where FTX should have put more effort into was risk management in response to a question about the absence of compliance controls at his exchange. “[There was] no person, chiefly, in charge of risk management,” he told audiences.
These statements from a former trader at an elite trading firm sound hollow and unconvincing. They might also be outright lies.
There is precedent.
SBF told David Rubinstein two months ago that FTX keeps its corporate cash in dollars. We know that is not true. The deal to rescue BlockFi – a crypto lending firm that filed for bankruptcy yesterday – was on FTX US’s balance sheet, SBF said.
Yet, he continues to insist that FTX US is solvent, even though it filed for bankruptcy along with the exchange’s international division. He also dropped some good news for FTX Japan customers during the interview. “I think FTX Japan is fully solvent,” he said.
All of this naturally means that SBF also has no idea about FTX’s missing millions. “[We] don’t have the resources to trace through [the hacker’s identity and funds],” he said. So much so for transparency in cryptocurrencies.
A Representative of Cryptocurrencies
To be sure, there is a grain of truth in SBF’s claims to not knowing the full situation at FTX. Recent events have proved that no one in crypto – a small industry replete with buzzwords and venture capital money but without much substance – seems to have much idea about their business operations or exposure to toxic assets.
SBF is just a very prominent example of this situation. He responses, sorry, deflections and claims of ignorance about his business are a mirror to the industry’s workings. It is up to regulators and lawmakers to bring order and sense to the chaotic world of crypto. It might be an idea to act fast before the industry implodes under the weight of its confusion.