FTX Founder Blames ‘Bad Legal Advice’ For Crypto Firm’s Bankruptcy

Topline

Sam Bankman-Fried insinuated law firms looking for a massive payday contributed to cryptocurrency exchange FTX’s decision to file for bankruptcy last month, during a Monday morning interview with Forbes, as the FTX founder outlined his roadmap for what led to his once burgeoning empire’s shocking demise—and tried to place blame elsewhere.

The house of cards came tumbling down last month for Sam Bankman-Fried, pictured here by Forbes in … [+] March 2021.

Virgile Simon Bertrand/The Forbes Collection

Key Facts

“I got some very bad legal advice,” Bankman-Fried told Steven Ehrlich, Forbes’ director of digital assets research, about what inspired FTX’s Chapter 11 bankruptcy filing on November 11, adding he received “inappropriate” and “manipulative” advice overall during the process.

Bankman-Fried suggested bankruptcy may not have been the only choice for FTX, claiming “multiple” unspecified funding offers were on the table and its U.S. operations were still solvent (rival Binance discussed buying FTX last month, but quickly scrapped the deal and said FTX’s liquidity problems were “beyond our control or ability to help”).

Bankman-Fried is no longer in charge at FTX, resigning as its CEO on the same day the company filed for bankruptcy, and was replaced by John J. Ray III, who led the energy company Enron following its scandal-driven 2001 bankruptcy, a saga that’s drawn innumerable comparisons to FTX.

Bankman-Fried alluded to lawyers’ windfall from the bankruptcy proceedings for Enron in his interview with Forbes, saying he “didn’t realize until very recently that in the Enron bankruptcy, I guess the total legal fees charged of the [Enron] estate by the various lawyers were $700 million or so,” adding he “can’t speak to motives.”

Lawyers representing Enron investors were awarded $688 million in legal fees in 2008 for recouping a record $7.2 billion settlement fund for shareholders.

Bankman-Fried also claimed what he described as a “targeted attack” against him, FTX and his trading firm Alameda Research caused Alameda’s hedges against its massive holdings of FTX’s own token to be rendered ineffective, explaining the firm did not account for an “idiosyncratic market crash that specifically targets assets that one party holds.”

Crucial Quote

“I fucked that all up,” Bankman-Fried said Monday about the “powerful things” built by FTX.

Key Background

Bankman-Fried founded FTX in 2019, quickly growing it into one of the largest crypto exchanges in the world as the industry boomed. The 30-year-old joined Forbes’ list of billionaires in 2021 and was worth as much as $24 billion earlier this year as FTX peaked at a $32 billion valuation in January. But Bankman-Fried’s empire, which also included Alameda, crashed even quicker than it rose. FTX filed for bankruptcy just nine days after a Coinbase report revealed major red flags about FTX and Alameda’s intertwined finances. Bankman-Fried has made himself surprisingly publicly available for somebody potentially facing criminal charges, appearing for a live interview at a New York Times conference November 30 and conducting several other interviews since. He has also been frank on Twitter, tweeting, “I fucked up, and should have done better,” the day before he resigned as FTX’s CEO.

Big Number

20%. That’s how much bitcoin has declined since November 5, the day before Changpeng Zhao, the CEO of FTX’s primary rival Binance, said his firm had sold all of its holdings in FTX’s crypto token, as FTX’s unraveling bled into overall confidence in the industry.

What To Watch For

If Bankman-Fried testifies before Congress this week. Bankman-Fried tweeted Friday he was “willing” to testify before the House Financial Services Committee as part of a Tuesday hearing into FTX’s collapse. He is on the panel’s scheduled list of speakers for Tuesday, along with FTX’s current CEO John J. Ray III.

Surprising Fact

Bankman-Fried secretly lent $43 million to the CEO of crypto publication the Block, the outlet revealed for the first time Friday, the latest indication of how he used his billions to cozy up to lawmakers and the media. The former crypto wunderkind’s funding to Vox, ProPublica, the Intercept and Semafor had previously been disclosed. Bankman-Fried gave about $40 million to Democrats this election cycle and claims he also gave millions to Republicans in secret donations.