The FTX Saga & How SBF Messed Up Risk Management

The market is still trying to bounce back from the demise of FTX and its venture arm, Alameda Research. Sam Bankman-Fried, like Do Kwon, is unlikely to face serious consequences. At least for now.

After a few weeks in the shadows, FTX’s CEO, SBF, returned to the DealBook’s public stage on November 30 in an attempt to deliver additional explanation.

SBF was one of the speakers at the conference in New York. Notable participants included Ukraine President Volodymyr Zelensky, US Treasury Secretary Janet Yellen, Meta CEO Mark Zuckerberg, and BlackRock CEO Larry Fink, among others.

A Curious Situation

Timing, according to SBF, is the roadblock to the FTX exchange. In this scenario, the market collapse occurred at an inopportune time.

FTX was originally valued at $40 billion, but the explosion drove the business toward bankruptcy. In mid-November 2022, FTX filed for Chapter 11 bankruptcy.

Following the filing of the bankruptcy, CoinDesk discovered balance sheet irregularities in the Alameda Research hedge fund. According to preliminary judicial procedures, billions of dollars in FTX customer funds remain unresolved.

The former billionaire’s link to various sectors of the US body is also a major concern.

According to rumors, SBF made large contributions to the US government in the past, which may have provided him with significant support.

Sam Bankman-Fried revealed that the close association between Alameda Research and FTX has weakened over time. He asserted that Alameda Research would account for only approximately 2% of FTX volume in 2022, down from around 45% in 2019.

Risk Management Done Wrong

Following his virtual keynote at this week’s DealBook Summit, the former FTX CEO spoke with BC News’ George Stephanopoulos. Sam Bankman-Fried stated he didn’t spend any time at FTX handling risk management.

The disclosure exposes that Sam Bankman-Fried was extraordinarily careless in running and trading a massive enterprise like FTX without any risk management plan or strategy. When something goes wrong, this will be detrimental to the user.

Not only has SBF made such admissions, but the online community has also discovered an interview with Caroline Ellison, co-CEO of Alameda Research Fund in May 2022. As a result, in that interview, Caroline Ellison indicated that she did not believe in utilizing Stop Loss orders when trading.

Regulators’ Call

The US government is seeking information about FTX and its key figures, including the company’s founders Sam Bankman-Fried and Caroline Ellison, who was formerly part of Alameda Research’s leadership.

The request is being sent to crypto investors as well as trading companies that worked closely with the exchange.

The U.S. Attorney’s Office for the Southern District of New York reportedly sent out a series of notices, which requested the recipients to voluntarily disclose information regarding a list of FTX workers and associates, according to the sources that Bloomberg cited.

The US Securities and Exchange Commission (SEC) is also pursuing a parallel civil investigation into the collapse of the FTX exchange. Companies who invest in or trade on the bitcoin platform have all received similar demands for information from the government.

The government wants to discover more about the connections that those companies have to the defunct cryptocurrency giant, as well as the communications that former top officials at FTX and Alameda, such as SBF, and Ellison, had with one another.

In addition, the SEC is conducting an investigation into what FTX representatives have communicated to investors in order to determine whether or not there has been any misrepresentation that is in violation of applicable securities laws.

Taking into consideration what the company and its officials have informed investors and customers since the exchange failed a month ago, these steps show that authorities are casting a wide net as they embark on a probe into the FTX collapse.

Law enforcement officials have not brought any charges against anyone at this time.