‘Deep down I screwed up,’ says FTX founder

Speaking from his bed in Nassau (Bahamas) around 3 am on Saturday, Sam Bankman-Fried wrestled with one of the basic questions about the collapse of his $32 billion crypto empire.

The FTX founder insisted he isolated himself from trading and risk management at trading firm Alameda Research, in which he was the majority partner, for “conflict of interest reasons” related to his role as custodian of client assets as an executive- head of exchange FTX.

But he also admitted, in an interview with the Financial Times, a closer involvement in Alameda’s financial decisions than he had previously disclosed.

The conversation, which the 30-year-old businessman asked to be held via video call in the early hours of the morning from his home in the Bahamas, is part of a media campaign to apologize that Bankman-Fried launched last week.

The former tycoon freely admitted in several interviews what he called “huge oversights and screw-ups” and a lack of “rigorous thinking”.

The media onslaught intrigued many at a time when the circumstances surrounding the collapse of FTX, one of the largest cryptocurrency exchanges, are still being scrutinized by at least 1 million creditors, criminal investigators and civil litigation.

Bankman-Fried told the FT that keeping quiet could be seen as “tacitly admitting the truth of many theories” that have proliferated online about his alleged wrongdoing.

“As far as there’s a tactical part to it, I think basically things got to the point where, quite frankly, there were a lot of conspiracy theories floating around that had no validity,” Bankman-Fried said. “To be clear, deep down I fucked up. I fucked up and people got hurt. And you didn’t need a conspiracy theory to get there.”

He faces accusations in a US lawsuit that his companies were a “pyramid scheme”. Executives running the bankrupt company said in court filings that FTX appeared to have “concealed the misuse of customer funds”.

Bankman-Fried denied intentional wrongdoing, blamed his own “massive management failures” and said he only fully realized FTX’s perilous financial state days before it was forced to file for bankruptcy in Delaware in early November.

He admitted that Alameda has been allowed to exceed normal lending limits on the FTX exchange since its early days.

At the heart of Bankman-Fried’s account of how FTX ended up with a shortfall of approximately $8 billion in client assets is the exchange’s excessive lending to Alameda, which plowed the money into risky investments and doomed bets on digital tokens. .

Bankman-Fried dodged the FT’s questions about the excessive borrowing and soured investments that ultimately sunk Alameda, poking a hole in FTX’s finances, and declined to discuss the legal fallout he could face. He said he deliberately avoided involvement in Alameda’s trading and risk management to avoid conflict with his position as chief executive of FTX, and neglected to monitor the risk they posed to the exchange.

However, he said that earlier this summer he participated in conversations in which Alameda’s financial health and loans were discussed. Previously, he had suggested that he only “fully realized” his dangerous position last month.

“I remember there were some discussions about Alameda’s positions. I don’t remember the numbers. I don’t remember numbers being said, not sure if they were. I think Alameda did some recounts at the time, or checked the health of their position “, said.

He recalled at least one meeting at FTX’s Nassau office after the cryptocurrency market crash in May, where staff said that Alameda’s access to third-party loans was being reduced and it might need to borrow more from FTX. He said he couldn’t remember who participated.

“My impression at the time was something like people taking stock post-crash,” he said.

“Alameda had a number of margin positions, open on various lending desks, usually net long positions,” he said, and a fraction of these were transferred to FTX when other lenders withdrew, increasing Alameda’s liabilities to FTX at around US$ 6 billion (R$ 31.2 billion).

Asked how the big increase in loans to Alameda by FTX was approved by the exchange, he said: “I don’t feel good about not knowing the answer.”

He said the company doesn’t have a chief risk officer monitoring its margin positions or rules about who needs to approve big loan changes. “As a company, we kind of lost track of positional risk in a very broad and destructive way,” he said.

Bankman-Fried also said he was involved in two of Alameda’s biggest uses of funds: the $4 billion it poured into venture capital and the $3 billion he said the firm used to buy out Alameda’s equity stake. rival Binance on FTX.

“Those two add up to a pretty big number,” he said, adding that the two uses of cash were “the least unsatisfactory answer I could find” in response to the question of how Alameda disbursed billions in FTX cash.

He said he didn’t know at the time exactly which funds came from loans rather than from Alameda’s business profits. But he said venture capital investments were “effectively, some of them, on the margin”.

“I regret it. I regret it a lot,” he added.

Bankman-Fried’s attempt to explain what went wrong was full of caveats and references to his incomplete memory. He cited a lack of “confidence” in his answers at least a dozen times, calling other answers “idle speculation” or “shitty answers”. At one point he stopped for half a minute with his head in his hands.

Some observers interpreted his public “mea culpa” as an honest attempt to recall a situation that quickly got out of hand. Others find his explanations implausible.

Several former employees who spoke with the FT questioned its portrayal of FTX as a company that was driven off a cliff by the well-meaning failure of its mostly young leadership team.

Ira Sorkin, the attorney who defended fraudster Bernard Madoff, told Bloomberg that the Bankman-Fried media campaign was a mistake. “You are not going to influence the public. The only people who are going to listen to what you have to say are regulators and prosecutors,” he said.

But there are signs that it is having an effect. Hedge fund manager Bill Ackman tweeted this week: “Call me crazy but I think [Bankman-Fried] is telling the truth.”

Maxine Waters, who will chair FTX hearings at the House of Representatives Financial Services Committee later this month, said in a tweet that she “appreciates” Bankman-Fried’s candor and “willingness to speak to the public.” .

But despite her public explanations, Bankman-Fried said she doesn’t expect to win people over. “I’m not expecting any positive feelings,” he said. “Like, I don’t think I deserve this.”

Translated by Luiz Roberto M. Gonçalves