FTX: SBF insists, but the new CEO freezes it

Yesterday, the former CEO of FTX, Sam Bankman-Fried (SBF) gave a lengthy interview in which he shared his side of the story of the collapse of the exchange he co-founded in 2019. 

SBF stated that he never tried to defraud anyone, and that the US version of the exchange, FTX.US, would still be solvent to the point that “withdrawals could be opened up today” because that platform is not plagued by any problems. 

The new CEO of FTX

However, the new CEO of FTX, John Ray, who is managing the restructuring/liquidation process, disagrees. 

A few days ago he briefed FTX and FTX.US employees on how the process of handling the company’s bankruptcy is unfolding. 

Ray said that SBF and other members of his inner circle, including former Alameda Research CEO Caroline Ellison, are no longer involved in the company’s operations, despite SBF’s recent externalizations about an alleged plan to return funds to clients. 

He also has not mentioned anything about reopening withdrawals on FTX.US, probably because he is first trying to raise as much money as possible from as many sources as possible to try at least to pay salaries and suppliers. 

In such a situation, customers do not have first priority over payments, so even if FTX.US has funds it is possible that they will end up being used to pay the group’s debts rather than to refound customers. 

Therefore, the hypothesis launched yesterday by SBF currently does not seem viable at all, and given that Ray was quick to reveal that SBF itself no longer has anything to do with FTX, it is possible that the statements made by the former CEO serve only to try to cool the spirits of his haters, rather than to find real solutions to the problem. 

Alameda Research

SBF then turned to the case of Alameda Research, the company in his group that was involved in trading and likely at the root of the collapse. 

He actually tried to place the blame for the incident generically on the collapse of the markets in 2022, as if Alameda was merely a victim of circumstances, and not a company that took too many risks, some of which later resulted in an actual collapse. 

From his words there seems to be an intention to blame the entire incident on the crypto markets, which allegedly sunk first Alameda and then consequently also FTX. 

Admissions of former CEO of FTX

He did admit fault with regard to risk management oversight, taking responsibility for it. 

Indeed, he even admitted that he was surprised by how important the positions taken by Alameda were because of a lack of oversight on his part. 

However, he denied that he knowingly commingled clients’ funds with those of the company, when in fact it has already become quite clear that this happened. 

If, as he claims, it happened without his knowledge, it is not just a lack of risk management supervision, but a failure to understand the deep mechanisms on which his business was based. However, this does not seem to be a particularly credible hypothesis, to the extent that there are quite a few who do not believe the veracity of this reconstruction of the incident by SBF. 

It should be noted that the interview, as is often the case in such cases, took place practically without cross-examination, although questions from New York Times reporter Andrew Ross Sorkin tried to bring it back to reality. So what was provided by SBF is obviously only his version of events, not at all unbiased, and therefore not at all reliable. 

For example, he lays the blame for what happened at Alameda on others, and that would be the primary cause of the collapse of the entire group he founded and directed, taking only the blame for the lack of supervision. However, since the interview was given alone, there was no rebuttal from those who may have been according to SBF the real culprits in this situation. 

The confusion

The statements made by SBF seemed confusing at times, which suggests that either he really did not know exactly what was going on, or that he is simply trying to shift the responsibility for what happened onto others.

From the way he describes the situation, it is not difficult to guess that he was not capable of managing such a large group, consisting of several companies that managed billions with strong underestimation of risks. 

However, it is not certain that the confusion he is now showing in public also corresponds to an earlier confusion in managing the FTX group, although from the information that has emerged about his management it does appear that he was anything but rigorous. 

He denied that he was the manager of Alameda, and he also denied knowing what was being done by the company that he had founded himself in 2017, and that it had very close financial relations with the other company that he was managing himself, namely FTX. 

The fact remains that such careless, and above all shrewd, management could hardly have led to different results during a bear market such as the current one.