Thursday, December 1, 2022

SBF on DealCrook

Six months ago FTX founder Sam Bankman-Fried told the House Agriculture Committee about his firm's "conservative risk model" and "strong customer protections."  SBF took the opposite stance in recent interviews, one which was sponsored by NYT Dealbook.

"There is something maybe even deeply wrong there, which was I wasn't even trying," the crypto mogul said. "Like, I wasn't spending any time or effort trying to manage risk on FTX and that that was obviously a mistake."

"If I had been spending an hour a day thinking about risk management on FTX, I don't think that would have happened," he added. "And I don't feel good about that."

Here is Sam's testimony to the Ag Committee from May:

We also have strong customer protections under our model. It is a safe and conservative risk model which would have helped to alleviate some of the instances that we have seen with recent futures exchanges like the LME nickel fiasco earlier this year by having the collateral pre-funded at the clearinghouse rather than relying on credit, and having a real-time risk engine.

We also have enhanced customer protections. We have all of the customer protections that exist on traditional features exchanges and on FCMs because we understand deeply that we have a responsibility to ensure that if there is direct access to the platform, that users are still afforded the same level of protection. On top of that, we have further customer protections, suitability, and transparency than what you find on most other platforms. 

Bankman-Fried got internal feedback on significant risk management, compliance and accounting weaknesses from staff who later quit.  Fox Business reported:

...... proposed setting up rigorous structures and systems for risk, compliance and accounting, Mr. Bankman-Fried was dismissive of the idea, according to the people.

He said such extensive controls could crimp Alameda’s activity and limit how fast the firm could move to place trades, the people said, reducing potential profit.

"I and a group of others all quit, in part because of concerns over risk management and business ethics."

SBF said other things that don't pass the smell test.

Sam Bankman-Fried says a multi-million-dollar house reportedly bought in his parents' name in the Bahamas was actually meant to be company property.

"I don't know the details of the house for my parents," Bankman-Fried told The New York Times' Andrew Ross Sorkin at the publication's DealBook summit on Wednesday. "I know it was not intended to be their long-term property. It was intended to be the company's property. I don't know how that was papered in."

FTX/Alameda was Sam's "personal fiefdom."  If he wanted the property for the company it would have been in a corporate name, not his parents.

A spokesperson for his parents, both Stanford University law professors, previously told Reuters that they had been trying to return the deeds to the company "since before the bankruptcy proceedings."

His father Joseph Bankman is a scholar in the field of tax law.  Did he advise SBF to set up in the Bahamas?

The Bahamas has no income tax, corporate tax, value-added tax or wealth tax for those investing in offshore companies. Foreign investment in tourism and banking is especially welcome.

His denial regarding taking FTX customer funds to cover trading losses at Alameda is not credible.

“I was nervous, because of the conflict of interest, of being too involved,” he said. “I didn’t have the bandwidth to run two companies at once.” At issue are the massive loans of customer money that FTX made to Alameda to cover the firm’s mounting losses, which — as with almost every bad decision that has come to light — Bankman-Fried framed as a mistake rather than deliberate wrongdoing. “I didn’t knowingly co-mingle funds,” he said.

SBF's fiefdom had 130 companies, not two.  His CEO and Board of Director hands are all over them.  Both roles come with fiduciary responsibilities.

SBF did not institute the most basic fiduciary controls (accounting, compliance and risk management., He had the accounting back door installed between FTX and Alameda.  So, why would he draw the line at conflicts of interest?  It makes as much sense as his answer as the veracity of his responses.

“I was as truthful as I’m knowledgeable to be,” he said.

Bankman-Fried had a duty to protect FTX customer accounts.  He highlighted that duty to a Congressional committee.  Instead he pilfered them.  That's the knowable truth and it indicts the former CEO.   SBF should be under the control of a legal authority, not speaking at a Dealbook Summit.

Update 12-2-22:  SBF forgot his prior sales talk of "strong customer protections" and "conservative risk model" with his advice that crypto investors should look for "all the things I wish FTX had been able to supply" when depositing their funds.

Adding to his malfeasance and outright incompetence:

SBF said he paid so little attention to his company expenses that he didn't realize he was spending more than he was taking in.

Sam Bankman-Fried says he "misaccounted" $8 billion after some FTX customer funds were mistakenly counted twice.

The balance sheet combined FTX and Alameda Research, the firm he said he didn't run due to conflicts of interest. I'm sure his CPA lobbyist Mike Conaway would've been glad to help explain things to SBF.

Bankman-Fried's statements are shocking in light of his closeness to political insiders of both Blue and Red teams.  They were going to rely on this guy to structure financial services?

“Regulators have some egg on their face,” he said. “Sam was very far along at pitching to be the cash Bitcoin market here in the US, both with the SEC and CFTC.”

Update 12-3-22:  CoinDesk called it SBF's self-incrimination tour. 

Update 12-6-22:  CoinMarketCap noted how the smartest guy in the room repeated pled ignorance, arrogance and stupidity during his "apology not jail" tour.  I've said for weeks he should be under the control of a legal authority.

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.  His planned Congressional testimony is quite the exercise in image management.

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 1-12-23:  SBF offered doublespeak on his Robinhood shares.