SBF’s Side of the Story

In June 2022, SBF, Ellison, Wang, and Singh realized that Alameda an additional liability on FTX of up to $11 billion. But they didn’t confirm the actual size, how it had happened, and how quickly Alameda could return the borrow until shortly before Binance's attack.

“However, not all elements of the prosecution narrative line up neatly. Singh said he left the crucial June meeting still thinking things were OK and did not realise customer funds were being raided until September” (Financial Times). What SBF “didn't put together until September or October . . . [was] that Alameda had this additional 8 billion, $10 billion liability and it was associated with the fiat@ account” (trial transcript). “By October, [SBF] had a clearer picture. It was only then that he could see that Alameda had been operating as if the $8.8 billion in customer funds belonged to it” (Going Infinite). Singh confirmed that the details were only figured out “in the weeks or months” following the June 2022 meeting — and in fact that several others were looped in to help: “Adam, Andrea, and Gary went through an exercise with help of the fiat settlement team to . . . split that fiat@FTX.com balance into two balances: One corresponding to what Alameda owed, one corresponding to what FTX owed” (trial transcript). Gary similarly confirmed that “in the months following June 2022, there was a project to get a clearer picture of what Alameda's net asset value was . . . And that included getting a clearer picture of the fiat@ liability that was owed by Alameda” (trial transcript).

SBF said that after discovering this additional liability, he “asked Caroline to confirm that . . . Alameda's NAV was [still] positive 8 to 10 billion . . . and she said that they had in fact confirmed that” (trial transcript). Consequently, according to Singh, “Sam said he's not too worried and he described a number of sort of strategies that we could pursue . . . . He described selling off Alameda's illiquid but, according to his estimation, valuable assets, and properties; he described, for the ones that weren't sellable but generated revenue, making sort of low-hanging changes to make them more profitable; he discussed raising from investors, selling FTX equity; and he discussed making FTX——oh, he said that FTX.US futures, which we believed would come online, you know, any day now, would be a boon to the company, and would be great for revenue and for its valuation, and that there were many engineering projects that were crucial and were themselves very valuable” (trial transcript). SBF also “asked Andrea Lincoln, one of the developers, to work on [getting their accounting in shape], with an ETA of October 15th” (trial transcript) and explored replacing Alameda with a liquidity provider that would make less mistakes: “SBF, who held a 16% stake in the firm called Modulo, floated that firm as a possible market maker replacement for Alameda” (Blockworks).

“Bankman-Fried says he believed he was permitted to borrow from Alameda as a primary owner. ‘It usually came because there was an investment I needed to make and a I needed capital for, so I would generally borrow funds from Alameda for it,’ he says. ‘It had a few billion dollars of arbitrage-based profit over the prior two years. I saw no reason I couldn’t borrow from it.’ . . . Bankman-Fried says he discussed with lawyers that some people didn’t want the investments to come directly from Alameda. He says attorneys told him an option was to get a loan from the company and make the investment himself. He says lawyers structured the loans” (Bloomberg).

“My personal consumption was a tiny fraction of my earnings, and my consumption, donations, and investments combined were less than—and came from—earnings” (Substack).

The relevant text exchange no longer exists. Still, SBF and Ellison tried to recall what they’d said 16 months prior about one of the Alameda balance sheets that Ellison sent to lenders.

“Q. . . . What, if anything, did you say when you sent this to the defendant by Signal? A. I said, Here are some alternative presentations I came up with for the balance sheet, and I explained roughly what I did in various tabs. Q. And in substance, how did you describe what you had done in alternative 7? A. I said I had netted out the exchange borrows against the related-party loans and then moved the rest to the long-term loans category. Q. What did the defendant say? A. He said that alternative 7 looked good and that I should send that one to Genesis” (trial transcript).

“SBF, however, said he only took a brief look at one of the balance sheets shown in the Excel file. He said it wasn't unusual for Ellison to bring him an Excel filed with multiple tabs. He often only looked at the main one, he said today. As to whether or not he looked at all eight versions of the balance sheet, he said ‘I just don't remember one way or another’” (Axios).

“Whereas prosecutors, for example, suggested Bankman-Fried and his colleagues customarily deleted communications to avoid legal trouble, Bankman-Fried testified that he was merely following a rule he picked up during his days as a young quantitative trader at Jane Street. That was the ‘New York Times test,’ which, according to Bankman-Fried, was a frequent point of reference at the elite quant shop. ‘Anything that you write down,’ he recalled, ‘there's some chance it could end up on the front page of The New York Times.’ He added: ‘A lot of innocuous things can seem pretty bad’ without context” (CoinDesk).

“[SBF] says Chief Regulatory Officer Dan Friedberg put together a documentation-retention policy to describe in what circumstances retention or deletion of data would be required. . . . Bankman-Fried says any formal business communications, any decisions made and any records would not be deleted. They would be in email or a Slack channel without auto-deletion on. . . . Bankman-Fried says in November 2022 he took an effort to disable auto-deletion ‘on any place I found it,’ including in Signal chats” (Bloomberg).

“[SBF] says they moved to the Bahamas mostly because it was one of a handful of countries that had a ‘full regulatory framework’ for crypto. The Bahamas had been positioning itself at that time as a crypto haven” (Bloomberg).

“‘We have been shocked at the ignorance of those who assert that FTX came to the Bahamas because they did not want to submit to regulatory scrutiny,’ said Ryan Pinder, the country's attorney general and Minister of Legal Affairs on Sunday. ‘In fact, the world is full of countries in which there is no legislative or regulatory authority over the crypto and digital asset business, but the Bahamas is not one of these countries’” (TheStreet).

“[SBF] has shown an immense amount of remorse and regret for whatever mistakes he made . . . I am not use to this; every other person that I have interacted with here places the blame on someone else” (ex-NYPD cellmate).

“I should have been on top of this and I feel really, really bad and regretful that I wasn’t and a lot of people got hurt and that’s on me” (Forbes). “I was C.E.O. of FTX, and that means whatever happened, why ever it happened—I had a duty. I had a duty to all of our stakeholders, to our customers, our creditors. I had a duty to our employees, to our investors and to the regulators of the world to do right by them and make sure the right things happened at the company. And clearly, I did not do a good job with that. Clearly I made a lot of mistakes. There are things I would give anything to be able to do over again. I did not ever try to commit fraud on anyone” (New York Times).

“‘I'm haunted, every day, by what was lost . . . It's most of what I think about each day . . . I never thought that what I was doing was illegal. But I tried to hold myself to a high standard, and I certainly didn't meet that standard’ . . . Bankman-Fried said Sunday that ‘of course’ he is remorseful. ‘I've heard and seen the despair, frustration and sense of betrayal from thousands of customers; they deserve to be paid in full, at current price,’ he said. . . . He added that he ‘felt the pain’ from co-workers as he ‘threw away what they poured their lives into’ and from the charities he supported ‘as their funding turned into nothing but reputational damage. . . . I never intended to hurt anyone or take anyone's money. But I was the CEO of FTX, I was responsible for what happened to the company, and when you're responsible it doesn't matter why it goes bad. I'd give anything to be able to help repair even part of the damage. I'm doing what I can from prison, but it's deeply frustrating not to be able to do more,’ he said.” (ABC News)

SBF did say that “the ethics stuff” was “mostly a front”. But he added “that's not all of it” and proceeded to clarify that his frustration was with “this dumb game we woke westerners play where we say all the right shiboleths and so everyone likes us” (Vox). He later elaborated: “there are a lot of things that I think have really a massive impact on the world. And ultimately, that’s what I care about the most. . . . Separately from that, there is a bunch of bullshit that regulated companies do to try and look good. . . . if like three different quarterbacks throw a touchdown in the same game for the same team, we will donate two used cars to charity-type campaigns. . . . We thought about ourselves as legitimately trying to do good, but we also thought about what we could do to make sure that our image reflected that” (New York Times). Luxury cars, for instance, would not have reflected a legitimate desire to do good: "I bought [SBF] a BMW to drive around in and he made me sell it and get him a Corolla" (X).

Much attention has been given to FTX’s investments in lavish real estate and marketing. But one could view the property as simply “sound real-estate investments, and Bankman-Fried needed fitting places to host such figures as Bill Clinton and Tony Blair . . . In a widely amplified story, Fox Business reported that Bankman-Fried owned a yacht; the claim was attributed to a local yachtsman, who said he frequently spotted Bankman-Fried at the marina, and Bankman-Fried’s spokesman categorically denied that his client had himself ever ‘owned’ a boat” (New Yorker). The defense pointed out that “‘the Bahamas real estate was corporate housing for FTX employees.’ FTX, he said, was trying to court top professionals who ‘uprooted their lives’ to move there when they could just have easily gone to work at Google or Facebook” (Guardian). As for the marketing, “‘When I looked into competitors’ marketing budgets, they appeared to be 100% of the revenue,’ Bankman-Fried says. ‘We were spending 10 to 20% on marketing’ . . . Multiple crypto companies . . . ran Super Bowl ads” (Bloomberg). Far from the jet-setting life of luxury often portrayed, SBF “didn’t drink or party” (TIME), “worked 12 to 22 hours a day, and took one day off every couple of months” (The Verge), and never set foot on the “semi-private beach” beneath his apartment (Going Infinite).

SBF’s psychiatrist has reminded the Court that “Sam is on the autism spectrum” and explained that this “impaired his ability to communicate emotions” (George Lerner), a phenomenon known as alexithymia. This may explain comments like “There’s a pretty decent argument that my empathy is fake, my feelings are fake, my facial reactions are fake” (The Block). If an autistic person regularly feels the need to fake emotion to fit in, that does not mean they are not motivated to help others.

To the contrary, letters to the court detail a long history of altruism. SBF’s executive assistant says he “never acted out of greed or self-interest” and that he “consistently demonstrated a commitment to ethical business practices and a genuine desire to make a positive impact on the world”; a Rwandan charity advisor comments on how SBF was “well-informed of Africa’s unique challenges” and lamented how much the media coverage was “littered with claims I knew were false”; a crypto skeptic suggests this is “the first time in the entire history of criminal justice where the defendant donated most of his earnings at his previous job to charity”; an FTX victim notes how SBF “cared about chickens in university” even though “people hate animal rights activists”; and SBF’s family write, “he has never felt happiness or pleasure in his life and does not think he is capable of feeling it” and “He wouldn’t make small talk about your dog, but he’d subsist on bread and water in prison to avoid eating an animal. He was never good at apologizing, but always quick to admit fault. He would be uncomfortable giving me a hug, but I know he would give me a kidney if I needed one” (Court Listener).

“The Bahamas media assembled. The new prime minister arrived, with an entourage. . . . Sam emerged, looking as if he had fallen out of a dumpster: cargo shorts, wrinkled T-shirt, droopy white socks. Same guy, thought Ian. From the moment he had started on the project and begun to observe Sam from afar, Ian had found the same thought often crossing his mind: how shockingly just like he’d been in high school Sam still was. When the oddball in your high school class became one of the richest people in the world, you sort of assume the oddball must have changed. Sam hadn’t changed” (Going Infinite).

“By the time of Sam’s trial, the government was able to sell ideas about him that would have struck any of his closest colleagues as preposterous. The suggestion, for example, that everything about Sam’s appearance had been carefully curated to trick people. . . . If Sam Bankman-Fried’s appearance was an act, it was an act he’d performed his entire life. . . . His “look” couldn’t have been more sincere. . . . At some point after he became a public figure — a thing he’d never expected to be — he no doubt noticed that other people seemed to be charmed by his look. His realization would have relieved him of any pressure to alter his appearance. But that’s different from creating a persona to deceive others” (Washington Post).

Beyond the issues already discussed, the prosecution’s much-quoted portrayal of FTX as “built on lies” appears to be based largely on: statements about the relationship between FTX and Alameda; SBF’s frequent use of “I don’t recall” under cross-examination; the contrast between SBF’s public and private attitudes to regulators; and a tweet thread made to reassure customers as withdrawals spiked.

It’s often claimed that SBF told everyone Alameda’s FTX account was just like everyone else’s, the key reference being a tweet from 2019. But in that tweet, SBF is merely responding to a concern about potential front running: “How are you going to resolve the conflict of interest of running your own derivative exchange, AND actively trading against the market at the same time?” (X). Prosecutors also quoted an email and an interview; SBF claimed the wider conversation in both instances had again been front running. FTX’s former COO told Michael Lewis, “It was literally the first thing I was asked every day. Is Alameda Research front-running us? . . . No one ever asked about liquidation . . . And no one ever asked, ‘Is our money actually inside Alameda?’” (Going Infinite). Wang said front running “was not a thing that happened at FTX, because there was not a way for anybody to see people's orders before they were processed” (trial transcript) and that “Alameda's role as a market maker on FTX was described in documents that FTX put out to the public” (trial transcript) (...and in SBF's tweet about front running).

“I don’t recall” was honesty, not evasiveness. “I'm somewhat sympathetic to the idea that being in jail made it difficult for Bankman-Fried to properly prepare for cross-examination” (CoinDesk). “There were around 10 million documents turned over in discovery, not including the database” (Bloomberg). “Bankman-Fried estimated he gave around 50 interviews and didn’t have access to any internal documents. He said he didn’t remember every statement he made to journalists” (CNBC).

“In a text exchange with the reporter, Bankman-Fried wrote ‘F--- regulators.’ Bankman-Fried testified that he was growing frustrated with regulators and skeptical about what they were doing. He said he felt all the work he’d done might have encouraged bad regulation as much as good regulation” (CNBC). His full comment was “F--- regulators they make everything worse they don’t protect customers at all” (Vox).

As for the tweet thread, “On Nov. 7, 2022, as FTX customer withdrawals spiked, Bankman-Fried wrote: ‘FTX is fine. Assets are fine,’ and that the exchange had ‘enough to cover all client holdings.’ . . . Wang, however, admitted on cross-examination that in a Nov. 17 meeting with prosecutors he said the tweet was true because Bankman-Fried was careful to say that FTX was solvent but not liquid” (Yahoo Finance). “At the point where I posted it,” SBF said, “Alameda still had a net asset value of roughly positive 10 billion. FTX had no holes on its balance sheet. And there had been no attack on the customer assets” (trial transcript). “‘The evening of Nov. 7 and continuing into the morning of Nov. 8, there was a market crash . . . Overall, this led to a roughly 50% crash in Alameda’s assets . . . Alameda was still solvent, but there was little margin for error left.’ . . . Bankman-Fried says that after that, ‘I took down the tweet thread’” (Bloomberg).

FTX’s ability to make customers whole is regularly attributed to SBF’s “lucky” holdings in Anthropic, Bitcoin, etc., that have recently surged in value. But some critics notice that “FTX had not benefited from the phenomenal growth in the [crypto] market” (The Conversation) and no explanation is ever given for why SBF's successful venture portfolio was mere luck rather than evidence against him having gambled on “overpriced” investments (Financial Times) or evidence that “FTX Was Never Really Bankrupt” (Project Syndicate). The defense argued that “[while] the prosecution was trying to paint FTX’s investments as risky and bad, Anthropic’s success showed that their investments were merely part of a reasonable investing strategy,” but the judge concluded that “any success was irrelevant. This is like arguing, he said, that if he broke into the Federal Reserve and stole money to use on Powerball lottery tickets, it was OK if the tickets won. It’s not OK and Anthropic . . . should not be discussed” (Wired).

SBF’s defense spoke of a “perfect storm” — a hard-to-predict confluence of unfortunate events, starting with the $8 billion fiat error. In 2022, the crypto crash combined with Ellison’s failure to hedge meant that “Alameda’s NAV fell from about $40 billion to around $10 billion” (Bloomberg). A few months later, Binance allegedly “‘leaked a balance sheet; blogged about it; fed it to Coindesk,’ Bankman-Fried wrote . . . The source of the leak has been one of the most-asked questions in crypto. . . . Ellison said Zhao’s ‘real aim . . . was to hurt FTX and Alameda’” (Financial Times); within days, “over a 12-hour period or so . . . this led to a roughly 50% crash in Alameda’s assets, and that was the 50% crash that drove its net asset value... to just a little above zero” (Bloomberg). Then there’s the aforementioned “criticism over the [bankruptcy] law firm’s role in [FTX’s] rise, collapse and unwinding. The firm’s ‘apparent conflicts of interest permeated FTX’s bankruptcy filing and every aspect of the case’” (Financial Times).

Of course, this perfect storm cannot be excused entirely as bad luck. However, “[p]oor risk management is not a crime” (Reuters).