Sam Bankman-Fried, buffoon or evil mastermind?

I thought it was high time I did a post and took a deeper look at the infamous SBF. Is he really just a buffoon or is there something sinister lurking? Was it all an evil master plan from an equally evil mastermind?

Sam Bankman-Fried

Or SBF for short. An MIT graduate and son to two lawyers, one from Yale and one from Harward. One of the founders of Alameda Research in 2017. A company that was a trading firm that is using Quantitative trading as well as proprietary trading. And in 2019 he went on to be one of the founders of FTX, the crypto exchange.

If you named your company like We Do Cryptocurrency Bitcoin Arbitrage Multinational Stuff, no one's going to give you a bank account. [...] But everyone wants a Research Institute. -Sam Bankman-Fried

I have to give him that he very much is correct here. Just to show the extent of it. Earlier this year I partook in a "start your own business" course for a few weeks. And during that, I looked into the possibility of getting a loan to start up a crypto investment firm. Nothing fancy, just something that would help people invest in crypto. I thought I would contact the different banks in Sweden sp try and get a baseline of what to expect if I took out a loan to start up a company.

What I was met with was not interest numbers and mortgage timelines. But the cold shoulder. As soon as crypto was mentioned it was "we do not deal with that", and "we do not grant loans to crypto businesses". And my friend tried to buy crypto in Binance with his debit card, but was denied. And when he contacted his bank they let him know it was because it was crypto. That was the reason the charge was denied. So to say that banks do not view crypto in a favorable light is probably the understatement of the century. 

But then again how would you view your competitor that in a sense would make your whole business model obsolete? I guess I would not view that in the best of light either.

Growing empire

Just as Alameda Research got started, and FTX was added. Soon thereafter more and more entities got added to a seemingly ever-growing corporate structure. And it was not really until after the bankruptcy filings that effort was put into charting and getting a grip on the whole situation. At the time there were more than 100 entities involved in the corporate structure in one way or another.

Source: https://twitter.com/BLynch_23/status/1598711357867696128

And if you think this cleaned-up version is tricky to wrap your head around. Think how much work it would be to keep track of and be aware of what all of these are doing. Let alone how they are connected and interconnected. It is almost like their default action to want something done was to start up a separate entity to do just that one single task. 

There was however an exodus from Alameda Research in April of 2018. A little more than a year prior to the founding of FTX. The person who led this exodus was nonother than SBF´s co-founder of Alameda Research, Tara Mac Aulay. 

The reason she has given recently is concern over risk management and business ethics. This has been corroborated in other sources as well. "No one was ultimately making sure that our trading and accounting were OK. We did a lot of sloppy trades, many of which some people were at the time worried about," SBF has written in documents dating from 2018. This seemingly corroborates Tara's tweet. 

People were seemingly frustrated that even back then, in 2018. The co-mingling of funds both led to poorly kept records and balance data resulting in millions being lost in a $XRP trade due to the tokens not arriving in time.

Your money, my money, their money. It is all just money in the end, right? Right?

I assume many felt this shoot-from-the-hip and unstructured approach was a stark contrast to where SBF came from prior to Alameda. Jane Street Capital LLC, a quantitative trading giant that has extensive risk management in place. And I assume no co-mingling of funds. But according to the very same documents SBF claimed that this got addressed in March 2018, "and Alameda built systems to better calculate the firm’s profits, losses and transfers, leading to a more profitable trading system".

But I would very much question these claimed changes. How effective can they have been is the people who had concern over them up and left the very next month after they were supposedly "addressed"?

Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here, [...] From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented, -John J. Ray

And judging by what the court-appointed John J. Ray had to say about the companies. It appears that that was his opinion after the fix had been implemented. How bad were things before then? I can only assume that would be the very stuff of nightmares. For an accountant at least. =)

SBF post FTX

And while most people after the crash of the billion-dollar empire would choose to simply stay quiet. And I assume all lawyers would advise their clients the same thing. SBF has instead done the exact opposite. He has now gone on a media tour of sorts. Giving interviews left and right. Which is very strange, especially given that both his parents are lawyers. 

What is it SBF has been saying in these interviews then? He has been telling everyone and everything that he basically has done nothing wrong, or I should say nothing criminal. He admits to being in over his head, and not being up and up on the things he should have been. Doing one mistake after another. All unfortunately culminated in the mess we now have before us. 

A billion here, a billion there. That can happen to anyone...

An $8 billion dollar deficit. And a lot of people wondering where their money has gone. Does SBF have an explanation of how it all got this bad? Well yes, he has. What he is saying is that it was an accounting problem that went on unchecked. One of the reasons for this he gives is during the start of FTX. They had no bank, so when clients wanted to put money onto FTX they paid Alameda Research. They then got credited this money on FTX. 

To the best of my ability, I understand it as thins. Because the money was in one place, at Alameda, but the funds also were credited over at FTX. Alameda thought the money they had where theirs. But in fact, it was FTX´s customer's money. And this is what he wants us to believe caused the $8 billion dollar deficit. 

SBF, when pressured, also said that his margin of error was in the $10 billion dollar ballpark. That amount seems preposterous at best. I have no idea who SBF thinks will buy this excuse, Warren Buffer or Jeff Bezos? 

Just like the magic words "open sesame" opens the door to the treasure for Alibaba. The word "fraud" seems to turn SBF into this guy.

But what about the whole "I am so dumb" stick he is now trying to push on people? To me, it seems like he very much was the smartest guy in the room until someone found out that what they were doing was a fraud. Then with the wave of a wand, SBF went from the smartest guy in the room to the dumbest one.

An example of how preposterous I find this is if we look back at the beginning of this post. SBF´s quote about the thoughts behind the name Alameda Research. That is not something the dumbest guy in the room takes into account. 

Another thing that is in stark contrast to this is the fact that SBF said in the very first interview he has done that he in fact has donated to both Republicans and Democrats to an equal extent. But he has kept the fact about his donations to republicans a secret because it does not play well with the media and the public perception. 

This again do not paint the picture of the ignorant "ops I made mistakes after mistakes and it got out of hand" person. A similar thing was omitted by SBF in a series of leaked messages about his interactions with regulators. It was all for the PR according to him.

Both of these instances do not in my view at least line up with the narrative SBF is trying to push in the interviews. And I assume this will come back and bite him in the end when it all goes to court. Because what SBF is doing now is loudly proclaiming and pushing a certain negative or cause of events. And that leaves very little wiggle room for his legal defense to choose any other strategy. But I guess there is always The Chewbacca Defense to fall back on.

To me, it just reeks of desperation from SBF´s side. Not to mention the fact that is you listen to the interviews where people are asking him about the fact that the user agreement clearly states that there would be no co-mingling of funds or anything done with the customer's funds. He keeps sounding like he is making things up on the fly. But these are the questions he would expect to get asked. Because if they can prove that there was a breach of contract that means fraud. 

But sure one would expect that he would possibly be caught off guard the first time with the question. But how come it sounds like his answers are getting worse over time? If you truly care about the customers like SBF claimed he is doing. Why would he not prepare and be able to give a seemingly cohesive answer to the important questions? Can it be that the babbling buffoon simply fits much better with this new narrative of a buffoon he is trying to go all in on? I for one would argue it is something that SBF provenly has done in the past and to great success as well. So why would he expect it not to work again?

Listening to SBF in the interviews he has given. Especially the ones Coffezilla posted, where he managed to ask SBF questions. I keep thinking about what the terminator says in T2: "I'm a cybernetic organism, living tissue over metal endoskeleton". Only here instead of a metal endoskeleton, the living tissue is draped over a slimy slippery eel.

I hope you have enjoyed this look into SBF. And just in case it was not obvious by now, I definitely am leaning toward the evil mastermind side of things. But hopefully, I have been able to present my case for it in a somewhat unbiased way. But I would like to hear what your thoughts on SBF are. Do you agree with more, or do you think I have missed some things that I need to take into account? Please let me know what you think in the comment section. If you would like to support me and the content I make, please consider following me, reading my other posts, or why not do both instead.

See you on the interwebs!

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