FTX filed for bankruptcy on Friday, leaving reasonable people to wonder how a cryptocurrency platform founded in 2019, which reached a valuation of $32 billion in 2021, could plummet to zero in such a short time. There’s a new piece in the New York Times which gained exclusive access to FTX founder Sam Bankman-Fried, but if you’re looking for answers, you’re not going to find it there. In fact, the interview with SBF, as he’s often called, is presented with such a gauzy lens that you have to start wondering what the hell is going on with crypto reporting at the Times.
The new article in the New York Times by David Yaffe-Bellany lays out the facts in ways that are clearly beneficial to SBF’s version of the story and leaves many of his highly questionable assertions without proper context or even the most minimal amount of pushback. The result isn’t to illuminate the shadowy world of crypto. It reads like if the Times had conducted an interview with Bernie Madoff after his ponzi scheme collapsed and ultimately suggested he just made some bad investments.
As one example, take a paragraph near the beginning of the article that quotes SBF’s dealings with hedge fund Alameda Research, the sister organization of FTX, run by SBF’s sometime romantic partner Caroline Ellison. The paragraph, one of just a few about Alameda, brushes past all the most important facts that have been reported by outlets like Reuters, Bloomberg News, and the Financial Times.
From the New York Times:
Alameda had accumulated a large “margin position” on FTX, essentially meaning it had borrowed funds from the exchange, Mr. Bankman-Fried said. “It was substantially larger than I had thought it was,” he said. “And in fact the downside risk was very significant.” He said the size of the position was in the billions of dollars but declined to provide further details.
SBF’s quote about “borrowing” billions between FTX and Alameda seems to be a wild mischaracterization, if we’re to believe reliable reporting by numerous other outlets, and paints the corporate three-card-Monte as some kind of innocent investment move gone wrong. At least $4 billion of FTX funds, including customer deposits, were moved to prop up Alameda, according to Reuters, and that’s just something you can’t do legally.
The billionaire CEO of Citadel, Ken Griffin, explained just today at a conference in Singapore why moving money in this way isn’t allowed in traditional finance.
“There’s no doubt that customer assets were used to make investment decisions in favor of FTX’s shareholders, which didn’t work, at the expense of the customers. That’s not permitted in American broker dealers. You can’t just use your customer assets to go engage in proprietary trading,” Griffin explained in an interview with Bloomberg News.
“That’s a huge no-no. And that’s a good no-no, to be clear, too,” Griffin continued.
As another example, take a paragraph where the Times discusses FTX’s relationship with Changpeng Zhao, the CEO of Binance:
A former investor in FTX, Mr. Zhao still owned a large amount of FTT, a cryptocurrency that FTX invented to facilitate trading on its platform. On Nov. 6, Mr. Zhao announced on Twitter that he was selling the FTT, spooking customers who rushed to withdraw their FTX deposits.
There’s a lot going on in this paragraph but let’s start with the claim that FTT was a cryptocurrency that was “invented to facilitate trading.” That’s a very crypto-industry-friendly way of talking about what was happening. In reality, FTT was created by SBF for the same reason that any other cryptocurrency has been created: as a speculative asset that allows early investors to extract wealth from people who place money into the asset after the price has soared.
The Times piece also mentions Zhao’s announced sale of FTT token last week, without explaining why the sale itself was a problem. Zhao had acquired the FTT coins in a strange way and wanted to offload it. It started when Zhao bought a 20% interest in FTX back in 2019. After Zhao’s relationship with SBF soured in mid-2021, SBF bought out Zhao’s share in FTX for $2 billion. But a huge chunk of that $2 billion was in FTT, the token invented by SBF. When Zhao announced he was selling all his FTT, $580 million worth according to Reuters, the entire house of cards came crashing down.
Earlier in the piece, the Times calls what happened to FTX a “run on deposits,” a characterization that obscures what really occurred. It’s not clear that FTX even had $580 million liquid enough to cash out just Zhao’s share in a cryptocurrency token that was only invented three years ago. If you fail to explain what FTT actually was, you can’t understand why it was arguably the largest fraud of the past decade.
FTX held just $900 million in liquid assets, and its largest single asset was a cryptocurrency called Serum, according to the Financial Times. FTX held $2.2 billion worth of Serum, but the market value of all Serum everywhere was just $88 million. And you’re never going to guess who created Serum. Much like FTT, Serum was created by FTX and Alameda, according to Bloomberg News. The people behind FTX created their own fake money and they were treating it as though it was real dollars and cents.
But every single explanation in the new Times piece gives both SBF and cryptocurrency more broadly the benefit of the doubt, using the former billionaire’s quotes extensively, and even trying to position his attitude as one of self-reflection rather than ruthless calculation to make himself sound better.
Another excerpt from the Times:
Mr. Bankman-Fried did, however, agree with critics in the crypto community who said he had expanded his business interests too quickly across a wide swath of the industry. He said his other commitments had led him to miss signs that FTX was running into trouble.
“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 going on on the risk side.”
Did SBF “expanded his business interests too quickly” in some way? Did SBF just not “catch what was going on” with the risks he was taking? Or was the entire venture rotten to its core?
Paragraph after paragraph in the Times gives a gentle light to FTX’s extraordinary implosion, explaining that SBF’s “ambitions exceeded his grasp” or speculating that perhaps he was “overly dependent” on a small group of advisors.
And, according to the Times, SBF’s lean staff count wasn’t further evidence that it was all just smoke and mirrors, but rather something to be proud of, along with his charitable contributions:
Mr. Bankman-Fried’s circle of colleagues was bound by a commitment to effective altruism, a charitable movement that urges adherents to give away their wealth in efficient and logical ways. For co-workers outside the clique, it was sometimes difficult to get time speaking with Mr. Bankman Fried, a person familiar with the matter said. And Mr. Bankman-Fried made it a point of pride that FTX had only about a 300-person staff, much smaller than its top rivals, Binance and Coinbase.
Even as he kept hiring down, Mr. Bankman-Fried built an ambitious philanthropic operation, invested in dozens of other crypto companies, bought stock in the trading firm Robinhood, donated to political campaigns, gave media interviews and offered Elon Musk billions of dollars to help finance the mogul’s Twitter takeover.
Mr. Bankman-Fried said he wished “we’d bitten off a lot less.”
Again, this characterization from SBF makes it sound as if he just overextended himself in an otherwise reputable venture. In reality, SBF had built a house of cards “where each individual card is itself a house of cards,” as Rusty Foster put it yesterday.
Even the glaring conflicts of interest made obvious in the FTX downfall are only pointed out as something that SBF’s “critics” would mention:
FTX and Alameda were closely linked. Alameda traded heavily on the FTX platform, meaning it sometimes benefited when FTX’s other customers lost money, a dynamic that critics called a conflict of interest. In the past, Mr. Bankman-Fried has defended the arrangement, saying Alameda provided crucial liquidity — injections of capital that enabled others customers to complete transactions on the exchange.
And, at the end of the day, SBF just wants to cooperate with investigators and do what’s right for the people who put their money into FTX, according to the Times, which quotes SBF uncritically:
As FTX has crumbled, Mr. Bankman-Fried has been “working constructively with regulators, bankruptcy officials and the company to try to do what’s best for consumers,” he said on Sunday.
To top it all off, the Times article never addresses the fact that FTX was allegedly “hacked” over the weekend to the tune of roughly $600 million. Not even a passing mention of this very bizarre thing that will surely have a big impact on the bankruptcy proceedings moving forward.
The Times piece ends with a mention of SBF’s love of video games and his bizarre social media antics over the past two days:
“People can say all the mean things they want about me online,” he said. “In the end, what’s going to matter to me is what I’ve done and what I can do.”
He has also found other ways to occupy his time in recent days, playing the video game Storybook Brawl, though less than he usually does, he said. “It helps me unwind a bit,” he said. “It clears my mind.”
Shortly before the interview, Mr. Bankman-Fried had posted a cryptic tweet: the word “What.” Then he had tweeted the letter H. Asked to explain, Mr. Bankman-Fried said he planned to post the letter A and then the letter P. “It’s going to be more than one word,” he said. “I’m making it up as I go.”
So he was planning a series of cryptic tweets? “Something like that.”
But why? “I don’t know,” he said. “I’m improvising. I think it’s time.”
The Times piece has been met with a disgusted reaction on social media, as people try to make sense of how someone who lost literally billions of dollars from FTX users could just be treated as an innocent businessman whose worst crime may have been some bad trades. But the SEC and DOJ are both investigating FTX, according to the Wall Street Journal, so even if the Times has decided to go easy on SBF, at least there’s hope some justice will be served at some point in the future.