Sam Bankman-Fried continues to divide.
The fallen founder of cryptocurrency exchange FTX recently launched a media offensive aimed at blaming the overnight collapse of FTX and Alameda Research, a trading platform he controlled, to bad luck.
He had suggested that it was a perfect storm, despite the fact that he controlled both companies and that they were supposed to be independent. But in fact, there were close ties between FTX and Alameda Research.
"I made a lot of mistakes," Bankman-Fried told the New York Times/DealBook. "There are things I would give anything to be able to do over again. I didn't ever try to commit fraud on anyone.
"I saw it as a thriving business and I was shocked by what happened this month," he added on Nov. 30.
FTX filed for Chapter 11 bankruptcy on Nov. 11.
As a crypto exchange, FTX executed orders for clients, taking their cash and buying cryptocurrencies on their behalf. FTX acted as a custodian, holding the clients’ crypto.
Bill Ackman Believes Bankman-Fried
FTX then used its clients’ crypto assets, through its sister company’s Alameda Research trading arm, to generate cash through borrowing or market-making. The cash FTX borrowed was used to bail out other crypto institutions in summer 2022.
At the same time, FTX was using the cryptocurrency it was issuing, FTT, as collateral on its balance sheet. This was a significant exposure, due to the concentration risk and the volatility of FTT.
The insolvency of FTX stemmed from a liquidity shortfall when clients attempted to withdraw funds from the platform. The shortfall appears to have been the result of Bankman-Fried allegedly transferring $10 billion of customer funds from FTX to Alameda Research.
John Ray, FTX's new CEO in charge of the restructuring said there was a software that allegedly allowed the company to hide these transfers from third parties.
But financier Bill Ackman seemed at first to be satisfied with Bankman-Fried's explanations.
"Call me crazy, but I think @sbf is telling the truth," Ackman commented on Nov. 30.
To what Bankman-Fried responded: "I deeply appreciate that. I messed up. I'm going to do everything I can to make it right -- even though I knew it might never be enough."
Ackman's stance, which has come across as supportive of Bankman-Fried, has earned him widespread criticism on social media.
"Incredibly bad take Bill," Dan Held a crypto evangelist commented. "This will come back to haunt you."
"Ok, you're crazy. He's been lying for so long why would he start telling the truth now?" economist and bitcoin's critic Peter Schiff added.
Ackman Reverses Stance
In the face of fierce criticism, Ackman just made a big U-turn and now says he understands that many people want to see Bankman-Fried in jail.
"I was in attendance at the @andrewrsorkin interview of @SBF_FTX and tweeted that I found SBF believable," Ackman, who is known for his investment bets, declared on Dec. 3. "Many have interpreted my tweet to mean that I am defending SBF or somehow supporting him. Nothing could be further from the truth."
"The @FTX_Official fiasco is, at a minimum, the most egregious, large-scale case of business gross negligence that I have observed in my career, and that conclusion is reinforced by SBF’s recent public statements," the founder of hedge fund Pershing Square continued.
He finally concluded that he understands the pain of the victims of the FTX rout and sympathizes with them.
"If indeed he is telling the truth, it may make it more likely that he has civil rather than criminal liability," Ackman said. "I understand why the victims here want him to suffer the most severe consequences including jail time. I would likely feel the same if I too was a victim."
