Sam Bankman-Fried – SBF, as he prefers to be called – awaits his fate while free on a $250 million bond. Although a lot of people want this man punished quickly, the trial and ultimate justice will take time. In the meantime, it is worth taking a moment to consider all the many betrayals that helped further this great theft. Of course, blame extends to Caroline Ellison who headed the associated hedge fund, Alameda, and Gary Wang, SBF’s partner. Both have pled guilty. Blame and an important lesson also extends to the media and the entire investment community. Indeed, when it comes to the failed crypto exchange FTX, the failed FTT token, and of course the failed Alameda hedge fund, blame lodges in so many places it is hard to know where to begin. (Trigger warning: the rest of this piece is laced with the contempt and sarcasm these events deserve.)
Here is the state of play so far. SBF has returned to the States, sparing all the delays of extradition from the Bahamas. Evidently, Bahamian jails are motivational. The Department of Justice has leveled criminal charges. The Securities and Exchange Commission (SEC) and the Commodity Futures and Trading Commission (CFTC) have begun civil actions. Several states seem poised to act against SBF. He and others will no doubt also face class action suits from victims and their associates.
All of this will take time. No doubt the confessions of Ellison and Wang will speed along the prosecution’s case. Still, prosecutors will not quickly sort through the impenetrable nature of crypto and the innumerable cross dealings between SFX and Alameda and possibly others. Poor or nonexistent record keeping – done intentionally or out of neglect – will make it still harder to build a case on any of these levels. It is instructive in this that in another complex case, that of Enron, it took three years after the bankruptcy before the authorities were ready even to bring charges against the firm’s executives.
For all the complexity and the overhanging mystery of crypto (perhaps romance is the right word) it is possible here (if not in legal matters) to cut to the basics of what happened. Just as in the case of Bernie Madoff, SBF took money from people, failed to do what he promised, and instead used most of it for activities that the investors never anticipated and would never have permitted had they been informed. Exchanges have an obligation to safeguard the funds left with them, and investment firms also have fiduciary rules. There are marketing needs, to be sure, but these do not include using huge chunks of other people’s money for lavish living or making grants to politicians and media outlets. There are legitimate investments, but they are seldom in these areas.
SBF has another similarity to Madoff. (Since Mr. Bankman-Fried likes initials, it seems only fair here to honor Mr. Madoff in the same way and refer to him as BM, and freely use those initials to make still other associations applicable to either of these gentlemen.) Both men softened their marks by affiliating themselves with otherwise reputable people and organizations. Their ability to do so gave their criminal activity a large group of facilitators, unwitting conspirators who also carry some of the blame in both frauds.
Madoff worked Jewish houses of worship and civic organizations. By insinuating himself into these prestigious connections, he made himself seem trustworthy to a certain set and in so doing discouraged the due diligence that people owed themselves and others and that might have exposed the fraud. Instead, their trust served as an implicit endorsement that baited Mr. Madoff’s trap for others. These people were victims, of course, but they also deserve blame. They not only let themselves and their dependents down, they helped BM extend his net.
Bankman-Fried affiliated himself with a larger, more diverse group. He targeted a broad cultural set by helping their political tribunes and their favored media outlets. Seduced by SBF’s “generosity” to what they considered the “right” people and causes, beneficiaries or admiring observers spent little or no time trying to penetrate what SBF was about and instead simply praised his supposed brilliance and his selflessness. The media are especially guilty in this. Its members have an obligation to investigate. The effective endorsements SBF received in this way far exceeded anything Madoff managed to procure. The associated blame accordingly is that much greater. Sadly, few of these people will pay for the harm they helped cause.
The most embarrassing aspect of this circus is how SBF played on people’s vain self-regard. He made a direct and very public appeal to those who like to view themselves as cutting edge and disruptive. His association with the supposedly revolutionary potential of crypto helped immeasurably with this “revolutionary” set, as did his SBF’s personal edgy cool and his charitable choices. His hairdo, costume, and unconventional living arrangements, all of which generated an almost childish enthusiasm in the media, did the same. Even the financial media wrote less about his business than about his alternative lifestyle and, of course, that beanbag chair.
It is amazing that this set, even after his wrongdoing was exposed, has found it hard to show the contempt that these abusive matters deserve. Politicians said that they will give to charity the ill-gotten funds they received from him. Those monies should go back to the now bankrupt SFX so that the bankruptcy managers can help some of the victims recover some of the wealth they lost. It is ridiculous, scandalous in fact, that politicians who received stolen money now seek to elevate their image with charitable giving. Bankman-Fried has even evoked courtesy and moderation from Representative Maxine Waters – a leader in such circles who otherwise calls for street violence at the drop of an adverb. He played this groups’ vanity superbly and baldly admitted it in his recent New York Times interview. Sadly, few who he played so well will likely even pause to consider how embarrassed they should be and how much their cheering helped him victimize others.
Blame, and perhaps legal liability, extends to yet another group — those to whom others entrusted money. These fiduciaries at pension funds, foundations, and the like poured millions, billions into this carnival without as much due diligence as a homemaker uses to buy a peach from a fruit stand. Those who lost their own money may have let down only themselves and perhaps their heirs. But those with fiduciary responsibilities have betrayed a professional and legal trust. These failures not only deserve blame for giving SBF an effective endorsement, they deserve to lose the positions of trust they failed and perhaps a good portion of their remaining personal wealth. Civil suits may accomplish some of this.
Many chapters will yet be written. It is entirely likely, that the last words on the SBF adventure will not be spoken before another crook, plays on people’s sloth, vanity, and lack of responsibility to manage an even bigger theft.