The shock was resounding.
It will take time to assess the damage caused by FTX, which, like an octopus, had extended its tentacles through investments in many firms. Many players were exposed to the company.
The explosion took the majority of the players by surprise, but tongues are starting to loosen. It appears red flags had been there for a long time, but no one dared to sound the alarm.
The Savior Needs to be Rescued Himself
Richard Handler, CEO of Investment bank and financial firm Jefferies Financial, emailed an associate on July 7, asking them to introduce him to Bankman-Fried.
"Do you know Sam Bankman-Fried? He seems in over his head and could quickly be in a precarious position. Our expertise in rescuing financial services companies might make it worthwhile to meet w him and begin a relationship. Just a thought.”
The email was sent as Sam Bankman-Fried, the founding CEO of FTX.com, was in the process of rescuing a large number of cash-strapped crypto businesses, due to their direct and indirect exposure to sister cryptocurrencies Luna and UST, or TerraUSD. The two collapsed last May, causing a credit crunch. It was panic.
"Perhaps let him know that you, me and XXXXX have rescued ourselves, knight and fxcm and have a LOT of experience when runs occur on institutions dependent on trust. We should get together for a meeting or dinner. What he is going through is not going to pass as quickly as he might wish and you can quickly become the rescue versus the rescuer if you are not careful.”
Handler knew what he was talking about. He is an expert in restructuring. He helped bail out financial services firm Knight Capital and retail currency brokerage FXCM.
All his attempts to contact Bankman-Fried would be unsuccessful, as shown by other emails he posted on Twitter.
"I've spoken to him once and have exchanged emails including recently. I was actually just talking to our restructuring team on a deal where he is a creditor and will be sending him a note. Will look to parlay it into broader discussion,” replied his partner whose name and address are withheld."
On September 16, Handler tried again.
"I'm at the Rosewood Hotel in the Bahamas today waiting for XXXXX to arrive. Do we have smart way to see if the FTX guy wants to grab lunch? I believe he is here,” he wrote to his associate again, asking him to play the middleman."
His associate replied:
"I'm not really that close to him so I would just have to send him an email - not sure if he will respond but I have no problem to try. Want me to do it?”
Handler nodded and suggested the following email:
"Maybe send him the following note:
Sam,
Our CEO Rich Handler is in the Bahamas today at the Rosewood waiting for one of our most successful client to arrive, XXXXXXXX. Rich has been CEO of Jefferies for 22 of the 32 years he's been w the firm. He steered Jef through multiple financial crises that took out most of our competitors (and almost us) and I worked with him on the bailouts of Knight Securities and FXCM. I asked and he would be happy to have lunch with you. Perhaps his experience could be helpful to you. If nothing else it will be enjoyable. Let me know.”
Bankman-Fried never responded.
Handler concluded with these words: "Arrogance and hubris destroys everything. Every time."
A Flurry of Purchases and a Red Carpet Rolled out by Politicians, Investors and the Media.
Basically, beware of consistent patterns. The thinking below comes from Jesse Powell, the founder and former CEO of centralized exchange Kraken, which competes with FTX. In a long thread on Twitter, he lists nine various red flags that should have alerted everyone.
"9/ Red flags:
* acting like you know everything after showing up to the battle 8 years late
* 9 figs buying political favor
* being overeager to please DC
* huge ego purchases, like 9-fig sports deals
* being a "media darling", seeking out puff pieces
* EA virtue signaling
* FTT."
FTT is a cryptocurrency issued by FTX, while EA stands for Emergency action.
FTX Revenue
The platform generated revenue of $1billion annually. Where did Bankman-Fried get all the cash, coming to the rescue of several businesses in the summer of 2022? Nobody asked any questions of the former trader, who had become a major donor to political campaigns, to advance cryptocurrency interests.
"I was aware of our revenue last year. We did $7 billion revenue and about $4 billion Ebitda and I was aware of their revenue, just as an investor, which was more like around $1 billion," Brian Armstrong, CEO of Coinbase, an FTX rival, told CNBC in an interview on November 10.
"And I was surprised at how much cash that they seemed to have and Sam seemed to have to go out and perform various investments in the markets, both their ventures arm and, you know, buying 9% of Robinhood and other political organizations."
He added: "I was thinking where is all this cash coming from?"
