Decrypt’s 2022 Person of the Year: Sam Bankman-Fried

Comparisons to Bernie Madoff are not quite right.

But there are some similarities between the man who became synonymous with financial crime and FTX founder Sam Bankman-Fried, says a former lawyer for the Securities and Exchange Commission.

“Madoff was the chairman of Nasdaq and he created the first electronic stock exchange in the United States. Probably when Madoff started, I’m sure his intentions were good,” Elliott Lutzker, chairman and partner at Davidoff Hutcher & Citron, told Decryption.

The same could perhaps be said for Bankman-Fried, Lutzker says. “Maybe in the first year his intentions were good, but right now everything around him is just a common criminal.”

The sudden revelation of Bankman-Fried as a “common criminal” is startling – so much so that he was the only clear contender for Decryption Person of the Year for how big he loomed in the industry throughout 2022.

How it started

Bankman-Fried started in 2013 as an intern at proprietary trading firm Jane Street Capital, a prestigious first gig for an MIT student. He graduated in 2014 and worked there full-time until 2017, focusing on exchange-traded funds.

After a brief stint at the Center for Effective Altruism, he founded his own trading desk: Alameda Research. It was critical to generating what would become Bankman-Fried’s $26 billion fortune and cementing his image as a thoughtful, idea-loving crypto scientist. The trading bureau won recognition for arbitrage deals that took advantage of the “Kimchi premium,” or the fact that bitcoin often sells for more on Korean exchanges than it can be bought on U.S. exchanges.

In early 2019, Bankman-Fried was ready to grow his empire, founding the international crypto exchange FTX.com in Hong Kong before moving his headquarters to the Bahamas. Until his collapse, he spent millions on marketing, plastering his face on the walls of buildings, signing endorsement deals with NFL quarterback Tom Brady, actor Larry David and entrepreneur Kevin O’Leary. He spent lavishly on political donations and courting MPs. Through it all, he regularly marketed sage-like ideas in Twitter threads.

So it was a Shakespearean level twist on December 12th, a month later FTX filed for Chapter 11 bankruptcy protection and Bankman-Fried resigned, Bahamian police arrested him. As of this writing, he is being held in a Bahamian prison awaiting extradition to the United States criminal charges will be filed for conspiracy, money laundering and fraud, and civil charges by the SEC and CFTC.

“The quirk, the thing that’s really a thing, is that the real crooks who aren’t out in the public and don’t talk out loud or anything — they don’t register with the SEC or as a broker-dealer to cover the 1% or 2% of their assets when 98 or 99 percent are offshore,” Lutzker said. “When you’re trying to be under the radar, you don’t want to register with the SEC or testify in Congress. I mean, he was there. It’s surprising that it took that long to explode.

What’s up

Much of the social media chatter, memes and speculation since Bankman-Fried’s fall from grace has come from people who didn’t know him or had a vested interest in his companies. It is telling who does not want to talk about the FTX CEO after his arrest.

Multicoin Capital, an Austin, Texas-based venture capital firm that managed as much as $9 billion in April, participated in FTX’s $1 billion Series B round in July 2021, when the company had a valuation of $18 billion. In November, the company he also leads $20 million investment round in Solana in 2019, published a lengthy letter (shared on Twitter by the pseudonymous trader Soldman Gachs) detailing his exposure to the FTX crash.

But when asked for comment by Decryptionthe company refused.

Crypto policy think tank Coin Center Communications Director Neeraj Agrawal shared his personal thoughts on Bankman-Fried on Twitter, writing Monday that U.S. officials are “protecting him by accusing him of all possible financial crimes at the same time,” sarcastically playing off the conspiracy theories that officials have been foisting on him. But he said Decryption the organization has no official comment on the matter.

Thoma Bravo, founded by billionaire CEO Orlando Bravo, did not respond to a request for comment about the founder of what it once called “the world’s most cutting-edge, sophisticated cryptocurrency exchange.”

There was no response from early FTX investor and frequent rival Binance. The other exits include: Early investor Lightspeed Venture Partners; otherwise vocal critic Rep. Maxine Waters (D-CA); and Sen. John Boozman (R-AR), who sponsored the Digital Consumer Protection Act (DCCPA) that Bankman-Fried so loved.

For what it’s worth Decryption was in the process of scheduling its own interview with Bankman-Fried just before he was arrested. Instead, it seemed timely to review unpublished portions of an interview from 2021 when he was listed Founder of the Yearand shared that FTX has increased its headcount faster than it expected.

“The thing that drives our company is the actual work, not its management. Management can be a really good multiplier for some of that,” he said during an interview in December 2021. “But the most important thing is the actual individual work, and we don’t want to impose management as a form of prestige at the expense of, that people do what they are good at and that ultimately brings value to the company.”

In the midst of nearly every major crypto firm laying off staff or implementing a hiring freeze since Terra’s collapse in May, Bankman-Fried wrote on Twitter that FTX has “10% more employees than others, but when it comes to production, I’d take any of them.”

He even boasted that some of the developers he hired “were rejected by another employer” and “now produce more than the entire team of this company”.

At the time, this sounded like a corporate culture that valued individual contributors over team leaders and other forms of middle management. But now it appears to have contributed to what new FTX CEO John Ray III coined the company’s “paperless bankruptcy” during a Dec. 13 House Financial Services Committee hearing.

Ray called the FTX leadership, including and especially Bankman-Fried, “extremely inexperienced and unsophisticated.”

An effective lobbyist

Bankman-Fried really didn’t let her inexperience get in the way.

Since 2021, he has spent millions on political donations. But he wasn’t content to leave it at that—he became a regular in D.C., hosting breakfasts for lawmakers and appearing at events to hold court on the crypto industry.

While talking to Decryption on what it’s like to work around Bankman-Fried’s foray into lobbying, Blockchain Association CEO Kristin Smith was forthcoming: FTX has never been part of a crypto lobby group.

“Obviously Sam personally spent a lot of time in Washington and he had a pretty aggressive strategy that, frankly, was very different from how the rest of the industry approached things,” she said. “So, you know, from my perspective, not having to deal with him on a regular basis anymore is a bit of a silver lining.”

Because FTX wasn’t officially part of the Blockchain Association, Smith wasn’t always in the room when Bankman-Fried was building influence in D.C.—hosting breakfasts with senators, going to happy hours with congressional staffers, setting up one-on-one meetings with individual senators. But she knows a common theme has emerged.

“There was a situation where a group of lobbyists and advocates got together to have a strategy session, and he showed up in the middle of it and basically talked to us for 45 minutes and then left,” Smith said. “So, I think my understanding is that a lot of the conversations have been kind of one-sided. But at the same time, I think people cared a lot about Sam. They considered him affordable.

Bankman-Fried’s brand of accessibility has become something of a spectacle. He slept for a while bean bags at the FTX office and infrequently joined calls without concurrent you are playing a computer gamelike League of Legends, flipping coins or shuffling a deck of cards.

Tolerance for his quirks evaporated after FTX. Listeners gave him an anti-aircraft weapon for playing video games during Twitter Space just hours before he was arrested.

Through it all, Bankman-Fried’s parents, law professors at Stanford University, have been on hand to advocate on his behalf and guide him. Recently New York Times report named Joseph Bankman as a paid FTX employee who frequently flies to the company’s headquarters in the Bahamas. Mrs. Fried, who built a political advocacy network, accepted donations from her son.

His brother is instrumental in leading his philanthropic efforts, leading the lobbying group Guarding Against Pandemics, which he funds. Bankman-Fried also founded the FTX Future and Building a Strong Future funds, both of which lost their management teams after the collapse of FTX.

In addition to his family, Bankman-Fried maintains a close inner circle that holds the leadership positions in his companies. For a while, nine friends turned CEOs lived with him in his $30 million penthouse in the Bahamas. The inner circle included Nishad Singh, former director of engineering at FTX, and Alameda and FTX co-founder Gary Wang. It also included former Alameda Research CEO Caroline Ellison and FTX Digital chairman Ryan Salame, both of whom are rumored to have been cooperation with the authorities after the bankruptcy of the company. Ellison and Bankman-Fried have been romantically linked at times.

Last year, Singh spoke to Decryption about the qualities that initially attracted him to Bankman-Fried, who convinced him to leave Facebook to join Alameda Research and then FTX. In retrospect, Singh seems to be describing what drew the entire industry to Bankman-Fried before the illusion was shattered.

“The parts of him that were there at the time were his kind of undoubted brilliance, his hyper-quantitative reasoning and his ability to see reality clearly, numerically. And I think that was a really appealing thing for me to see at the time,” he said.

During the 2021 interview, Singh went on to describe Bankman-Fried’s wizardry for Excel and intense attention to detail.

Now all this is in stark and terrifying contrast to his more recent insistence in interviews that he didn’t deliberate mixing of fundsI did not know Alameda Research was borrowing funds from FTX clients on such a dramatic scale and simply had no idea what was going on in these own companies.