Wednesday, November 9, 2022

SBF Interview with Carlyle's Rubenstein


In September Carlyle co-founder David Rubenstein interviewed FTX's Sam Bankman-Fried (SBF).  They discuss the "J.P. Morgan of crypto" label placed on SBF after he bailed out a number of failed crypto firms.

"Dr. Doom" Nouriel Roubini recently wrote:

"The bubbles of private equity, property, venture capital and cryptocurrencies will burst now that the era of cheap money is over.

Bursting Bubble brothers, SBF and Rubenstein.

Update 11-10-22:  Bloomberg reported FTX with an $8 billion hole is careening toward bankruptcy.  WSJ said Bankman-Fried committed the financial sin of tapping into customer accounts.  It lent over half of its customer's funds to Bankman-Fried's Alameda Research. 

Special Situations Research Letter indicated which funds had equity stakes in FTX:

Update 11-11-22:  Marc Cohodes saw through SBF in this video from September.  The media finally found SBF's operation was headed by college friends.  This would have been more important information than SBF running with Bill Clinton and Tony Blair.

Update 11-12-22:  It's amazing how the smartest guys in the room turn stupid when caught doing something bad.

....Bankman-Fried’s stunning claim that he was unaware of FTX’s leverage risk, including an apparent lack of basic financial controls. 

Reminds me of Carlyle after the implosion of Carlyle Capital Corporation.  Both highly leveraged, done in by investors demanding their money back.  SBF and Rubenstein can share bankruptcy stories when the FTX fiddler returns.  Maybe Orlando Bravo can join them as the PEU invested big in FTX.

Update 11-13-22:  Son of a law and psychology professor SBF calls it a "poor judgment call":

"FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call... All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda."

More like financial crime....   Mark Cuban said:

....with FTX now—that’s somebody running a company that’s just dumb as f*** greedy. So, what does Sam Bankman do? He just, give me more, give me more, give me more, so I’m gonna borrow money, loan it to my affiliated company, and hope and pretend to myself that the FTT tokens that are in there on my balance sheet are gonna sustain their value.”

The SBF-Rubenstein interview pitted "Effective Altruism vs. Patriotic Philanthropy."  Both are excuses to unethically garner gobs of money.  Patriotic Philanthropy comes with preferred taxation.  

Update 11-15-22:  Competence is not needed, just sponsorship.   SBF's vacuous speech is rivaled by Marc Andreesson.  Big's Matt Stoller cites Andreesson and a16z as crypto fraudsters.

Update 11-16-22:  News reports indicate SBF approached PEUs Apollo and TPG for a cash infusion.  There is no evidence FTX reached out to Carlyle's Rubenstein.  Both are investors in Paxos.

Update 11-17-22:   The guy who wound down Enron in bankruptcy called FTX the worst he's ever seen.  

Former FTX CEO Sam Bankman-Fried received a $1 billion personal loan from one of four silo companies deeply involved in the collapse of the FTX cryptocurrency exchange.

A formal declaration in ongoing Chapter 11 bankruptcy filings from FTX’s new CEO John Ray III has revealed further misappropriation of funds by Bankman Fried.

SBF's effective altruism was an operationalized fraud fraught with blatant conflicts of interest.  Where was the board of directors with fiduciary oversight?   SBF and his polymath inner circle refused to create one.

Sheila Bair (who gifted BankUnited to Carlyle) said FTX is similar to Bernie Madoff's ponzi scheme.

Update 11-25-22:  Ruybenstein came out in favor of blockchain technology after saying this of crypto (last week on Fox Business):

"We should be worried because it's very risky, it's very complicated and people don't have the information they would have if it was properly regulated.  It really isn't regulated, and so it's the Wild West to some extent."

"Generally it's a very complicated area, it's not for people who are not professionals," he said.

"I don't think it's going to go away completely, but clearly it's been damaged a great deal and a lot of people are going to be suffering from this."

The article made no mention of Rubenstein's family office investment in Paxos.  Undeclared conflicts of interest are part of the investment Wild West.

Update 11-26-22:  Which flimsy SBF excuse is true?  

Bankman-Fried blames "confusing internal labeling" for why billions in customer funds were transferred to Alameda.  

Bankman-Fried implies in an interview that he forgot about $8 billion in customer deposits.

Rubenstein's softball questions couldn't ferret this out prior to the fall of SBF.

Update 11-29-22:  More funny money implodes:

Crypto lender BlockFi has about $355 million in cryptocurrencies currently frozen on crypto exchange FTX, attorney Joshua Sussberg told a U.S. bankruptcy court on Tuesday.

The $355 million is on top of another $671 million in loan to FTX sister company Alameda Research.

SBF has interviews lined up for 11-30 with Dealbook's Andrew Ross Sorkin and 12-1 in a Twitter space.  The people interviewing SBF should be legal authorities, not journalists.

Update 12-2-22:  SBF admitted that his philanthropic reputation was at least partly a bogus public-relations play.  Rubenstein is yet to do so, however his ex-wife called him out for using his patriotic philanthropy to make more green.

Update 12-3-22:  Rubenstein said this of SBF:

...the collapse of Sam Bankman-Fried's exchange should serve as a reminder that the space still isn't regulated by the Securities and Exchange Commission, which let it avoid providing accurate financial updates and for some employees to use company funds to buy houses in the Bahamas.

The SEC does very little to regulate private equity and the greed and leverage boys regularly siphon company funds from affiliates via deal fees. management fees, and special dividends/distributions (often debt funded).

Update 12-7-22:  Barron's interviewed Rubenstein and asked:

Did you invest in FTX?

I didn’t. My family office team looked at FTX at the $30bn valuation [earlier this year]. It didn’t move forward, and the memo never reached me, but the other day they showed me what they had prepared. The memo pointed out all the concerns about conflicts of interest. There wasn’t a lot of transparency.

Wow, Rubenstein had research on FTX at his disposal prior to his show's SBF interview.  So much for preparation outside lobbing softball questions at people he considers his peer.

You interviewed him for your own show this summer.  Could we have seen something like this coming?

Someone would have to have done some digging. Add Rubenstein to the gloss over list.

Update 12-8-22:  CoinDesk added:

FTX was an improperly organized firm at its founding. Customer assets were always precariously placed. And we know this now because of SBF’s own description of its end.

Update 12-13-22:  SBF is finally under the control of a legal authority.  

Update 12-14-22:  Did SBF's politically connected parents help him rise to the level of a peer to David Rubenstein?

Update 12-18-22:   Once again the smartest guys in the room plead ignorance.

"I think he believes he can play the media and the world the way he plays the markets. Get the view out there that was just incompetent. Just speculation, but I think this is the game he is playing."

Update 12-31-22:  Business Insider reported:

Sam Bankman-Fried had at least four meetings with senior White House advisers this year, including just two months before FTX collapsed, according to a report from Bloomberg.

Most recently, Bankman-Fried met with Steve Ricchetti, counselor to the president, on September 8, sources told Bloomberg.

 That was one week after The David Rubenstein showed aired their SBF interview.

Update 1-1-23:  In an earlier financial crisis SBF promised lenders big returns for a cash infusion

....he promised annual returns as high as 20% in exchange for loans of cash or crypto, but offered few specifics.

Sounds like a young Rubenstein. 

Update 1-4-23:  The last count in the indictment is an allegation that SBF conspired with others to violate campaign finance laws.  SBF made "enormous illegal contributions disguised to look as if they were coming from SBF’s “wealthy co-conspirators.” 

Update 1-5-23:  SBF's General Counsel at FTX "told prosecutors what he knew of Bankman-Fried's use of customer funds to finance his business empire."  He had over a year to learn how SBF did business.

8-3-2021:  Cryptocurrency exchange FTX.US named a former Sullivan & Cromwell LLP and U.S. Commodity Futures Trading Commission attorney as general counsel.

Meanwhile Sullivan and Cromwell remains the law firm for FTX, before, during and after the revelations of gross mismanagement and fraud.

Update 1-16-23:  Business Insider reported:

Sam Bankman-Fried was a spiteful and insecure manager who reacted badly to any conflict or criticism, according to a former top executive for FTX's US-based operation.

Some people believe they are above the law.