Vox - The collapse of FTX and Sam Bankman-Fried’s shocking downfallhttps://cdn.vox-cdn.com/community_logos/52517/voxv.png2024-03-28T12:30:49-04:00http://www.vox.com/rss/stream/232354872024-03-28T12:30:49-04:002024-03-28T12:30:49-04:00Sam Bankman-Fried’s trial pulled back the curtain on crypto
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<figcaption>Sam Bankman-Fried attends court in July 2023 for a federal case that accused him of fraud, conspiracy, and other charges. | Victor J. Blue/Bloomberg via Getty Images</figcaption>
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<p>The criminal conviction of the once-lionized cryptocurrency billionaire will have ripple effects on the entire industry.</p> <p id="IGTqi2">Last November, after just a few hours of deliberation, a New York jury convicted <a href="https://www.vox.com/future-perfect/23471446/ftx-collapse-crypto-bankruptcy-sam-bankman-fried-downfall" data-source="encore">Sam Bankman-Fried</a> of fraud and conspiracy in the public flameout of his <a href="https://www.vox.com/crypto" data-source="encore">cryptocurrency</a> exchange FTX, which stands accused of stealing as much as $10 billion from customers. On March 28, Bankman-Fried, who gained international prominence as the disheveled crypto genius behind the exchange, which he founded in 2019, was sentenced to 25 years in federal<strong> </strong>prison. </p>
<p id="DtxARI">The intense, five-week criminal trial last fall unveiled the framework of deception that Bankman-Fried, 32, had for years used to prop up FTX and himself and, despite the protests of some crypto enthusiasts that <a href="https://www.vox.com/recode/2022/12/7/23497285/sam-bankman-fried-ftx-sbf-anger-fraud-crypto-media-peter-kafka-column">he was just one rotten apple</a>, made it<strong> </strong>hard for the public not to wonder whether the rest of the crypto world operates with such disregard for rules and risk behind the scenes, too. </p>
<p id="NMPxF3">Take, for example, Bankman-Fried’s jarring testimony — a final attempt to drive home his narrative of wide-eyed carelessness — that he “<a href="https://www.cnn.com/business/live-news/sbf-testimony-before-jurors-ftx-fraud-trial/h_50669cd4836b32f3b46172426d7b5108">didn’t know anything about crypto</a>” before starting FTX, his now-bankrupt cryptocurrency exchange. “I just knew they were things you could trade,” he told the jury. Millions of customers had traded on FTX, depositing money onto the exchange on the basis that it was the most trustworthy crypto exchange available. After the company <a href="https://www.reuters.com/business/finance/us-treasury-financial-watchdogs-companies-among-ftx-creditors-filing-shows-2023-01-26">filed for bankruptcy late last year</a>, approximately 9 million creditors, including FTX customers and investors, were identified. </p>
<p id="iEPSei">At its height, FTX was valued at more than $32 billion, and Bankman-Fried himself was worth <a href="https://www.forbes.com/profile/sam-bankman-fried/?sh=70fc91bf4449">about $26 billion</a>. That lucrative empire fell to shambles in late 2022, when it became public that FTX had been using the deposits of its customers as a de facto piggy bank covering both business and personal matters. Prosecutors said FTX took billions from its clients to cover debt and make trades at sister hedge fund Alameda Research, to buy luxury real estate, to make political and charitable donations, and more. Bankman-Fried was charged with multiple federal counts of fraud, money laundering, and conspiracy, and arrested in the Bahamas last December.</p>
<p id="AhcJC4">The trial was much watched by crypto insiders, skeptics, and legal experts because it’s the biggest crypto fraud case to date, with wider consequences for the entire industry. The media, once full of effusive praise for Bankman-Fried and a key vehicle for his rise to fame, <a href="https://www.theguardian.com/commentisfree/2022/dec/17/sam-bankman-fried-arrest-ftx-media-sec">turned against him</a>. The mood in the overflow rooms at the courthouse, filled with lawyers, crypto enthusiasts, <a href="https://www.nytimes.com/2023/10/20/technology/crypto-influencers-degenerates-sam-bankman-fried-trial.html">financial victims of FTX’s fallout</a>, and other rubberneckers, had reportedly been gleeful, with onlookers finding amusement in the trial’s twists and turns. The <a href="https://www.wired.com/story/galactic-embarrassment-crypto-world-is-already-sick-of-sbf-trial/">crypto industry</a> had excommunicated its most visible titan, too, either because traders were<strong> </strong>angry they’d personally been burned or because they saw him as crypto’s worst ambassador, contributing to the impression that crypto is shady and replete with criminal activity. </p>
<p id="GHC6Cl">The prosecution came with a mountain of receipts. Former executives and employees at both FTX and Alameda, including Alameda CEO and Bankman-Fried’s ex-girlfriend Caroline Ellison, FTX co-founder Gary Wang, and FTX head of engineering Nishad Singh, testified that <a href="https://www.nytimes.com/2023/10/10/technology/caroline-ellison-sam-bankman-fried-trial.html">they had committed crimes at his behest</a>. Prosecutors also produced tweets, screenshots of texts and group chats, direct messages, and quotes from the many, many media appearances and interviews Bankman-Fried had given to the press. All the while, Bankman-Fried maintained his innocence, saying he didn’t realize FTX funds were missing until just before its collapse. The defense’s main weapon was to maintain that Bankman-Fried had merely been overworked and unwittingly allowed things at FTX and Alameda to spiral out of control — that it wasn’t intentional. He downplayed how much he knew, and how much control he had over his subordinates. “I don’t recall giving any direction,” <a href="https://www.nytimes.com/2023/10/31/technology/sam-bankman-fried-testify-ftx-money.html">he said</a> when asked about the misuse of FTX customer funds.</p>
<p id="w8myJM">Throughout the trial, however, he and his defense failed to offer a compelling explanation for how billions had been misappropriated without the CEO’s knowledge, or why his subordinates would engage in such a scheme without his involvement. Adding to the circus-like atmosphere, his team requested a <a href="https://www.cnbc.com/2023/10/16/sbfs-decision-to-testify-hinges-on-access-to-adderall-defense-asks-for-delay-.html">delay until the defendant could receive Adderall</a>, a prescription drug often used to treat ADHD. The delay request was denied, but Bankman-Fried had also reported not having access to Adderall while in jail awaiting trial, and complained of <a href="https://www.coindesk.com/policy/2023/09/26/overcrowded-no-heat-little-light-inside-sbfs-prison-digs/#:~:text=Conditions%20at%20the%20jailhouse%2C%20where,slim%2C%20his%20lawyers%20have%20argued.">cruel conditions</a>. And then, with the defense’s arguments going poorly, they made an eleventh-hour decision to put Bankman-Fried on the stand.</p>
<p id="bg7O06">For years, Bankman-Fried presented himself as the oddball genius leader of an effort to legitimize the crypto world — to demystify it, and show the world that it was exciting but safe because he was a responsible steward. Early articles <a href="https://asia.nikkei.com/Business/Business-Spotlight/Hong-Kong-s-29-year-old-crypto-billionaire-FTX-s-Sam-Bankman-Fried">about him</a> <a href="https://www.bloomberg.com/news/articles/2019-11-13/billion-dollar-a-day-crypto-trader-finds-accolades-top-anonymity">spotlit his</a> <a href="https://www.forbes.com/sites/stevenehrlich/2021/10/06/the-richest-under-30-in-the-world-all-thanks-to-crypto/?sh=3cb436be3f4d">incredible success</a> — emphasizing his youth — and <a href="https://www.coindesk.com/markets/2021/12/07/most-influential-2021-sam-bankman-fried/">burgeoning influence</a>, particularly as a philanthropist and <a href="https://www.vox.com/recode/2021/3/20/22335209/sam-bankman-fried-joe-biden-ftx-cryptocurrency-effective-altruism">political donor</a>. He graced magazine covers and was named one of <a href="https://time.com/collection/100-most-influential-people-2022/6177770/sam-bankman-fried/">Time magazine’s 100 most influential people in 2022</a>. (Disclosure: In August 2022, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s <a href="https://www.vox.com/future-perfect">Future Perfect</a> a <a href="https://www.vox.com/2020/1/7/21020439/support-future-perfect">grant</a> for a 2023 reporting project. That project was canceled.) He continued to try to control the narrative even in the months following the company’s implosion. </p>
<p id="sh89AT">“Basically, as soon as the company collapsed, he seemed to think that if he just explained things well enough, people would understand that he didn’t do anything wrong,” says Molly White, a crypto researcher who has been <a href="https://newsletter.mollywhite.net/">following the trial</a> — and FTX at large — closely. Prosecutors even implied that the master storyteller spun a <a href="https://www.law.com/newyorklawjournal/2023/11/01/sam-bankman-fried-lawyer-closes-by-asking-jury-to-find-ftx-founder-acted-in-good-faith/?slreturn=20231002213051">“smooth” narrative</a> while on the stand, one that emphasized his earnestness and good intentions.</p>
<p id="8KOybG">During the trial, the prosecution also revealed a document created by Ellison titled “Things Sam Is Freaking Out About” — and on the list was “<a href="https://cointelegraph.com/news/things-sam-is-freaking-out-about-caroline-ellison-diary">bad press</a>.”</p>
<p id="lHsIc4">He had reason to worry. It took just one outlet to unravel the yarn Bankman-Fried had spun. The crypto news site CoinDesk’s initial questioning of <a href="https://www.coindesk.com/policy/2023/09/20/breaking-down-the-infamous-alameda-balance-sheet/">Alameda’s balance sheet</a>, for which it won the <a href="https://www.coindesk.com/video/coindesk-journalists-win-2023-loeb-award-for-beat-reporting-category">2023 Loeb journalism award</a>, was the flint that sparked the fire leading to his downfall. It’s telling that when the fire started blazing in earnest, with customers unable to withdraw their funds because the exchange didn’t have enough money on hand, one of Bankman-Fried’s top priorities was to <a href="https://www.wsj.com/livecoverage/sam-bankman-fried-trial-testimony-ftx/card/bankman-fried-believed-his-ftx-is-fine-tweet-he-says-2WrPVAqmTfresCa3O0z9">tweet that everything was fine</a>. </p>
<p id="EOAUnd">When times were good, Bankman-Fried was happy to be the face of FTX and crypto. He founded both FTX and Alameda and remained FTX’s CEO until the bitter end. All this made the defense’s claim that Bankman-Fried didn’t know about the missing FTX money until October 2022, not long before the exchange’s collapse, harder to believe. If he wasn’t the ringleader, then who at FTX and Alameda had gotten the idea to take the money and use it on investments, swanky real estate, political donations, and so much more?</p>
<p id="RaOnIN">Bankman-Fried couldn’t give a clear answer, instead implying that witnesses like Ellison, Singh, and Wang — who have <a href="https://www.nytimes.com/2023/02/28/technology/ftx-guilty-plea-fraud.html">all taken plea deals</a> on their own fraud charges — were misremembering or lying.</p>
<p id="rFtSD5">The defense told jurors that he didn’t know about FTX’s troubles in part because he and other FTX heads were so busy “building the plane as they were flying it.” </p>
<p id="66dMBO">Yet, in one of the most shocking moments of the trial, Ellison said that, on Bankman-Fried’s orders, she created not one but seven versions of falsified Alameda balance sheets that would make its financial situation seem less dire. These fake financial statements, prosecutors said, hid the billions Alameda owed FTX customers. One witness who helped fix a bug in FTX’s code testified that he’d told Bankman-Fried in summer 2022, months before whispers of trouble, that there were billions missing in customer funds at FTX. </p>
<p id="CeefeT">Singh, the former engineering director at FTX, testified that when he began to suspect Alameda was using FTX customers’ funds, he arranged a meeting with his boss to express his concerns. As FTX began to crumble in late 2022, Singh asked Bankman-Fried to <a href="https://fortune.com/crypto/2023/10/30/prosecutors-private-message-nishad-singh-sam-bankman-fried-sbf-criminal-intent-friend-distress-suicidal/">take the bulk of the responsibility, as CEO of FTX</a>. At the time, he testified, he thought Bankman-Fried had agreed. But the trial has made clear that Bankman-Fried is unwilling to take responsibility — in his telling, his only failure was that the founder and leader of one of the biggest crypto exchanges in the world simply hadn’t caught on to the illegal machinations unfolding right under his nose. </p>
<p id="eN3W9g">Part of the lie Bankman-Fried successfully sold was that FTX was one of the safest crypto exchanges. The implosion of FTX showed that it was not safe — and perhaps nothing about crypto was, either. But the appearance of being by-the-book and risk-calculated was essential to FTX’s pitch to investors and to customers, and partly why it was the <a href="https://www.npr.org/2022/11/14/1136482889/ftx-sam-bankman-fried-shockwaves-crypto">third-largest crypto exchange</a> in the world by trading volume. It made Bankman-Fried a crypto whale — a term used to describe the handful of the biggest crypto holders in the world, often billionaires and multimillionaires — who had acted as the industry’s spokesperson. He publicly welcomed regulation (though he was adamant that crypto fall under the authority of the weaker Commodity Futures Trading Commission, not the Securities and Exchange Commission), and was often meeting with politicians in Washington, DC. He tried to put a palatable sheen on crypto, long treated with distrust and incomprehension by outsiders.</p>
<p id="ApyUhs">All of these public facts were used against Bankman-Fried in court. The prosecution grilled him on making claims <a href="https://twitter.com/innercitypress/status/1719020685144605169">about FTX’s safety</a>, and referred to a <a href="https://twitter.com/innercitypress/status/1714731660757917864">Vox interview</a> where he revealed a hostile attitude toward government oversight of crypto, writing, “fuck regulators.” </p>
<p id="qEFTUx">Reactions to the trial have shown that, like the jury, the crypto community is not on Bankman-Fried’s side, either. For some, his disgrace is a huge setback in the effort to clean up crypto’s reputation. </p>
<p id="oz288H">“I think they’re very angry,” says White.</p>
<p id="Ndz4kT">For others, the idea of any regulation remains anathema to the ethos of crypto as a decentralized alternative to fiat currencies. In their view, Bankman-Fried was a sellout, or he was never really an adherent of crypto’s anti-establishment ideology in the first place. </p>
<p id="IiQRbu">In private messages revealed in court, Bankman-Fried had <a href="https://fortune.com/crypto/2023/10/25/crypto-defi-problem-terrorist-financing-aml-kyc-hamas/">called anti-regulation crypto advocates on Twitter</a> “dumb motherfuckers” who were “about to hand the industry” to SEC chair Gary Gensler. </p>
<p id="wlfs0F">It turns out Bankman-Fried and the FTX debacle have made regulatory scrutiny and crackdowns from Gensler’s SEC more likely. It has already been chasing after other major crypto exchanges, including <a href="https://www.vox.com/23752826/binance-coinbase-sec-crypto-investors">Binance and Coinbase</a>, and the agency has signaled its intention to <a href="https://www.politico.com/news/2023/01/18/sec-crypto-crackdown-gensler-00077866">dramatically accelerate its enforcement actions</a>.<strong> </strong>“I think some people are blaming this crackdown on the crypto industry on Sam Bankman-Fried personally,” says White.</p>
<p id="UEugds">It’s not just about FTX and SBF, though. Throughout the trial, White says, we’ve seen ample indication that the chaos that went on at FTX may be “pretty normal stuff for the crypto world — things are often being run by the seat of someone’s pants.”</p>
<p id="Fa434O">In closing arguments, the defense argued that Bankman-Fried had made mistakes, but he was being unfairly smeared as a “<a href="https://www.bloomberg.com/news/articles/2023-11-01/sbf-lied-about-big-things-and-little-things-prosecutor-says">villain</a>.” Everything he had done — the exorbitant spending on PR, the political donations, the falsehoods and exaggerations he told the public — had been in good faith and for the good of the business. </p>
<p id="ZXyMRr">The prosecution emphasized that this trial wasn’t really about crypto, but about “lies and stealing and greed.” It was about a man who spun a wild, alluring, but ultimately false tale. </p>
<p id="7vIBCr">“Would you agree you know how to tell a good story?” US Attorney Danielle Sassoon asked as she cross-examined the defendant. </p>
<p id="YGVAFZ">“I don’t know. It depends on what metrics you use,” <a href="https://www.cnbc.com/2023/10/30/sam-bankman-fried-blames-everyone-but-himself-in-day-two-of-testimony.html">Bankman-Fried replied</a>. </p>
<p id="USt3jV">In the end, the case, and the trial, served to shatter the myth of the monkish, eccentric crypto billionaire — an image that empowered Bankman-Fried to wield influence over crypto regulation and even on US politics. The outcome of the biggest crypto fraud trial ever all but ensures that the industry will be the target of more scrutiny, attempts at regulation, and cynicism. Bankman-Fried tried to weave a compelling case for why everyone but him was responsible for stealing people’s money. The jury determined that, in fact, the blame lies squarely on him. </p>
<p id="L8AL2b"><em><strong>Update, March 28, 12:30 pm ET:</strong></em><em> This story was originally published on November 3, 2023, and has been updated to include Bankman-Fried’s federal prison sentence.</em></p>
https://www.vox.com/23944399/sam-bankman-fried-sbf-ftx-trial-fraud-guiltyWhizy Kim2022-12-22T15:11:46-05:002022-12-22T15:11:46-05:00Sam Bankman-Fried’s arrest is the culmination of an epic flameout
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<figcaption>FTX founder Sam Bankman-Fried, center, is led away in handcuffs by officers of the Royal Bahamas Police Force in Nassau, Bahamas, on December 13. | Mario Duncanson/AFP via Getty Images</figcaption>
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<p>After quickly amassing political and philanthropic influence, the former billionaire has been arrested for fraud.</p> <p id="Jztbh6">As recently as the summer of 2022, <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy">Sam Bankman-Fried</a> was the boy-wonder face of crypto: a 30-year-old who founded <a href="https://www.reuters.com/markets/currencies/top-crypto-exchanges-by-volume-2022-11-09/">one of the biggest cryptocurrency exchanges</a> in the world, a celebrated philanthropist worth an estimated $16 billion, and a <a href="https://www.washingtonpost.com/politics/interactive/2022/top-election-donors-2022/">major Democratic donor</a> who quickly found favor in Washington. By early November, he was at the center of an epic flameout that left his empire and his image as an uncannily sharp, altruistic <a href="https://www.forbes.com/sites/chasewithorn/2022/11/09/whats-sam-bankman-fried-worth-now-not-clear-but-not-a-billionaire-the-former-crypto-wunderkind-admits-to-forbes/">billionaire</a> in ruins. </p>
<p id="y5MZs5">In December, Bankman-Fried was <a href="https://www.nytimes.com/2022/12/12/business/ftx-sam-bankman-fried-bahamas.html">arrested in the Bahamas</a> and charged with wire fraud, securities fraud, and money laundering, among other things; he has since been extradited to the US and released from jail on a <a href="https://www.reuters.com/legal/ftx-founder-bankman-fried-make-us-court-appearance-after-extradition-2022-12-22/">$250 million bond</a> — according to Reuters, the largest-ever pretrial bond.<strong> </strong>A trial date has not been set, but it is expected to take place in the Southern District of New York. Caroline Ellison and Gary Wang, two former top executives at Bankman-Fried’s companies, have <a href="https://www.cnbc.com/2022/12/22/ftxs-gary-wang-alamedas-caroline-ellison-plead-guilty-to-federal-charges-cooperating-with-prosecutors.html">pleaded guilty to several fraud charges</a> and are cooperating with federal prosecutors in the investigation. The Securities and Exchange Commission has also separately charged Bankman-Fried, Ellison, and Wang with <a href="https://www.sec.gov/news/press-release/2022-234">defrauding FTX investors</a>. </p>
<p id="u7UDLe">In the annals of crypto disasters, the tale of Bankman-Fried may go down as one of the most jaw-dropping. He resigned from his crypto exchange, FTX, as it <a href="https://www.vox.com/the-goods/23451761/ftx-sam-bankman-fried-ftx-bankrupt-binance-bitcoin-alameda">collapsed</a> from a domino effect of <a href="https://www.reuters.com/business/finance/crypto-exchange-ftx-saw-6-bln-withdrawals-72-hours-ceo-message-staff-2022-11-08/">a surge in customers trying to withdraw their funds</a>, and the company filed for bankruptcy. The Wall Street Journal reported that Bankman-Fried may have illegally taken about <a href="https://www.wsj.com/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732?mod=e2tw">$10 billion in FTX customers’ funds for his trading firm</a>, Alameda Research, whose future is also in peril. And Bankman-Fried is now <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-11-2022/card/bloomberg-estimates-sam-bankman-fried-s-net-worth-at-zero-byL97Xf4UJhiK7vCNmtD#:~:text=As%20of%20Monday%2C%20Mr.%20Bankman,net%20worth%20at%20about%20zero.">worth close to nothing</a>.</p>
<p id="VPZ6Hq">The downfall of FTX isn’t a typical story of crypto’s volatility or investor risk-taking; it crumbled not due to bad luck, but due to what now appears to be unsustainable layers of deception. On the surface, FTX appeared to be thriving — in the past year, it made several high-profile acquisitions and bailed out other failing crypto companies.<strong> </strong>In reality, it was <a href="https://www.bloomberg.com/news/articles/2022-11-12/ftx-trading-s-liabilities-dwarfed-liquid-assets-ft-says#xj4y7vzkg">drowning in debt</a>. At least <a href="https://www.cnbc.com/2022/11/12/1-billion-to-2-billion-of-ftx-customer-funds-missing-report.html">$1 billion in customer funds</a> is reportedly missing. The stunning contrast between image and reality has resulted in Bankman-Fried facing a reputational fall from grace swifter than any in recent memory. The Justice Department and SEC began <a href="https://www.wsj.com/articles/sec-investigates-crypto-platform-ftx-11668020379">investigating FTX</a> immediately after its collapse, and<strong> </strong>his friends and admirers in <a href="https://www.politico.com/news/2022/11/10/crypto-megadonor-sam-bankman-fried-00066062">crypto, philanthropic, and political circles</a> have quickly begun distancing themselves from the man widely dubbed the king of crypto.</p>
<aside id="2iarVs"><div data-anthem-component="readmore" data-anthem-component-data='{"stories":[{"title":"Sam Bankman-Fried tries to explain himself ","url":"https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy"}]}'></div></aside><p id="6NU9t0">A senior Democratic strategist who spoke on condition of anonymity to protect their clients told Vox that politicians who’ve received donations from Bankman-Fried, who spent <a href="https://www.wsj.com/livecoverage/election-midterms-2022/card/embattled-cryptocurrency-founder-spent-40-million-on-midterms-LrGzUib972QeOG22ub17">around $40 million</a> during the midterm election cycle, are considering returning that money. A few, including Sens. Dick Durbin (D-IL) and Kirsten Gillibrand (D-NY), have said they plan to donate<a href="https://fortune.com/crypto/2022/11/15/politicians-sam-bankman-fried-donations-ftx-charity/"> Bankman-Fried’s contributions to charity</a>. </p>
<p id="vnMtng">On November 10, Bankman-Fried <a href="https://twitter.com/SBF_FTX/status/1590709166515310593">publicly apologized</a>. “I fucked up, and should have done better,” he wrote on Twitter. “I also should have been communicating more very recently.” He pointed to “<a href="https://twitter.com/SBF_FTX/status/1590709172936798208">a poor internal labeling of bank-related accounts</a>” as one reason why FTX didn’t have the liquidity to return money to clients.</p>
<p id="pexNxJ">In the last year, Bankman-Fried had soared to buzzy prominence as a paragon of how the ultra-rich, who have seemingly endless wealth, might use it for good. He’s been the subject of countless profiles; he was on the cover of <a href="https://fortune.com/2022/08/03/global-500-2022-economic-outlook-russia-ukraine-covid-crypto/">Fortune’s September issue</a>. The media portrayed him as an unassuming, nerdy savant, frequently noting his down-to-earthness, his messy mop of hair, his penchant for wearing T-shirts and shorts, his Toyota Corolla. Investors were enamored of the fact that <a href="https://www.bloomberg.com/news/newsletters/2022-11-10/sam-bankman-fried-sbf-was-seen-by-vcs-as-a-model-founder-at-ftx">he wasn’t a buttoned-up entrepreneur</a>; he played <a href="https://www.businessinsider.in/investment/news/sam-bankman-fried-was-once-caught-playing-the-video-game-league-of-legends-during-a-pitch-meeting-for-ftx/articleshow/95436178.cms">computer games during pitch meetings</a>, and like other modern-day founders, his eccentricities were taken as <a href="https://www.businessinsider.com/ftx-investor-sequoia-removes-sam-bankman-fried-profile-2022-11">proof of his distinct genius</a>.</p>
<p id="sLSSTk">Bankman-Fried, meanwhile, came off as a billionaire refreshingly unimpressed by the glitz and pomp of a typical billionaire’s lifestyle. The FTX Foundation, Bankman-Fried’s philanthropic arm, says it has donated <a href="https://web.archive.org/web/20221109183641/https://ftx.com/giving">over $190 million to date</a>. (Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s Future Perfect a <a href="https://www.vox.com/2020/1/7/21020439/support-future-perfect">grant</a> for a 2023 reporting project. That project is now on pause.) </p>
<p id="8tXb8N">“It’s hard to spend more than millions a year in an effective way on yourself, even if you wanted to,” he told <a href="https://finance.yahoo.com/news/superyachts-ultra-rich-money-ftx-sam-bankman-fried-140710556.html">Yahoo Finance</a> earlier this year. “And I think that’s why we see <a href="https://www.businessinsider.com/yachts-owned-by-tech-execs-richard-branson-larry-page-larry-ellison-2019-3">superyachts</a> — because a lot of people literally can’t figure out anything else to do with their money.”</p>
<p id="2m2DqP">But Bankman-Fried seemingly had figured it out. That he had articulated a data- and evidence-based plan for how to give away his wealth is, in part, what makes his downfall so stunning. Who is Bankman-Fried if not a political megadonor? Who is he if not a philanthropist and not a billionaire? Who was he all along?</p>
<h3 id="NXWxVY">How Bankman-Fried earned his money and how he spent it</h3>
<p id="vJhvDO">Bankman-Fried went to Wall Street because he wanted to make as much money as possible. That’s not especially notable. What set him apart was how effectively and quickly he turned those intentions into a reality. The son of two Stanford professors, he majored in physics at MIT, but then, influenced by effective altruism leader and Oxford philosopher Will MacAskill, decided to work for a trading firm where he could earn a lot more money, a lot quicker — ostensibly with the aim of ultimately giving it away almost as quickly. </p>
<p id="SF83Sz">The effective altruism movement attempts to use evidence and reason to determine the best ways of doing good in the world. When it comes to charitable giving, effective altruists often focus on causes that they view as important, tractable, and neglected — areas where a little bit of funding could have an outsize impact.</p>
<p id="oWb5Nt">Some effective altruists also believe in “earning to give” — entering a lucrative field over a poorly paying one so that more money can be given away. “If what you’re trying to do is donate, you should make as much as you can and give as much as you can,” Bankman-Fried <a href="https://www.vox.com/recode/2021/3/20/22335209/sam-bankman-fried-joe-biden-ftx-cryptocurrency-effective-altruism">told Recode</a> in an interview last year. In other words, the ends justify the means. If the math shows that it’s magnitudes better to be an investment banker than work at a nonprofit, that’s what you ought to do. In recent days, prominent voices in the effective altruism world, including <a href="https://twitter.com/willmacaskill/status/1591218030364995585">MacAskill</a> and <a href="https://twitter.com/moskov/status/1591592375553781760">Facebook co-founder Dustin Moskovitz</a>, who is a major funder of the EA-aligned nonprofit Open Philanthropy, have both disavowed that sort of utilitarian calculus. </p>
<aside id="acwUk6"><div data-anthem-component="readmore" data-anthem-component-data='{"stories":[{"title":"Effective altruism gave rise to Sam Bankman-Fried. Now it’s facing a moral reckoning.","url":"https://www.vox.com/future-perfect/23458282/effective-altruism-sam-bankman-fried-ftx-crypto-ethics"}]}'></div></aside><p id="SylZoc">Bankman-Fried started his career on Wall Street in 2013, when he was 21. He made his riches through cryptocurrency arbitrage — buying coins for a lower price on one crypto exchange, then quickly selling them for a higher price on a different exchange. He convinced a few fellow effective altruist friends to help in this arbitrage model and founded his trading firm, Alameda Research. By 2019, it was turning enough profit that Bankman-Fried launched his own crypto exchange, FTX. Part of FTX’s draw for investors was that it allowed riskier trades than other exchanges; it allowed people to make highly leveraged bets — at least until 2021, when it <a href="https://www.nytimes.com/2021/07/25/us/politics/cryptocurrency-ftx-high-risk-trade.html">reduced the amount of leverage</a> it offered clients. Bankman-Fried was quickly branded as a <a href="https://www.wsj.com/articles/this-vegan-billionaire-disrupted-the-crypto-markets-stocks-may-be-next-11618565408">brilliant disruptor</a> in crypto. That year, at the age of 29, he was <a href="https://www.forbes.com/sites/stevenehrlich/2021/10/06/the-richest-under-30-in-the-world-all-thanks-to-crypto/?sh=10a349603f4d">worth $22.5 billion</a>. </p>
<p id="Duh0ak">Though 2022 was an <a href="https://www.nytimes.com/2022/05/12/technology/cryptocurrencies-crash-bitcoin.html">incredibly turbulent year for crypto</a>, Bankman-Fried not only seemed to remain unscathed, he seemed poised to keep the industry from falling apart. He positioned himself as a beacon for other companies. He gave the crypto lender BlockFi a $250 million line of credit; he bailed out the <a href="https://www.reuters.com/technology/crypto-exchange-ftx-acquire-bankrupt-voyagers-assets-2022-09-27/">bankrupt crypto broker Voyager Digital</a>. He also launched his venture fund FTX Ventures this year, which manages about $2 billion in assets. It looked like Bankman-Fried was going to come out of the crypto winter stronger than his competitors, mostly by turning someone else’s loss into his opportunity. </p>
<p id="4U1YM3">Bankman-Fried appeared to be settling comfortably onto the throne of influence. In June, he signed the Giving Pledge, joining the ranks of other billionaire mega-philanthropists like Warren Buffett, Bill Gates, and MacKenzie Scott in a commitment to give away at least 50 percent of his wealth. “A while ago I became convinced that our duty was to do the most we could for the long run aggregate utility of the world,” Bankman-Fried wrote in his <a href="https://givingpledge.org/pledger?pledgerId=445">pledge letter</a>. In some ways, signing this pledge was repeating himself — he had already <a href="https://www.usatoday.com/story/money/2022/04/05/cryptocurrency-ceo-donate-charity/7272175001/">promised to give away 99 percent</a> of his fortune. In February 2021, he founded the FTX Foundation, which supported causes such as improving animal welfare and fighting global poverty, and funded research and projects that would improve “humanity’s long-term prospects” through the foundation’s <a href="https://ftxfuturefund.org/">Future Fund</a>. On November 10, in light of FTX’s collapse, all the <a href="https://twitter.com/teddyschleifer/status/1590891417433296896">members of the Future Fund resigned</a>.</p>
<p id="bJCEM2">At just 30 years old, he was making waves in the political world, too. Bankman-Fried was one of the biggest individual donors to Joe Biden in 2020, and the <a href="https://www.opensecrets.org/elections-overview/biggest-donors">sixth largest individual donor</a> overall for the 2022 midterm cycle, contributing almost $40 million to various candidates and PACs, including a $1 million donation to Beto O’Rourke’s failed campaign for Texas governor. One of Bankman-Fried’s top aims was getting more <a href="https://www.protectourfuture.us/">political investment in pandemic preparedness</a> — he spent millions backing the congressional run of <a href="https://www.vox.com/23066877/carrick-flynn-effective-altruism-sam-bankman-fried-congress-house-election-2022">effective altruist Carrick Flynn</a>, whose platform <a href="https://www.carrickflynnfororegon.com/issues">prioritized pandemic prevention</a>; Flynn lost his primary race.</p>
<p id="57DUX3">In short, Bankman-Fried had been <a href="https://www.politico.com/news/2022/08/04/democratic-megadonor-sam-bankman-fried-00049048">building a bona fide political machine</a>, hiring staff to advise him on his various interests, which included crypto regulation. He was something of a media patron too, investing in new news site Semafor and awarding grants to other publications. </p>
<p id="hT9EzV">He was the key liaison for Congress and the White House on the matter of crypto regulation, even testifying in front of Congress this year. He told the <a href="https://www.latimes.com/politics/story/2022-08-12/sam-bankman-fried-ftx-political-donations">Los Angeles Times in August</a> that he was “spending a lot of time talking with members about what constructive things would be on crypto policies and about what can be done to provide federal oversight of it.” Critics and skeptics argued that Bankman-Fried’s presence in Congress was more about ensuring crypto would fall under the <a href="https://www.bloomberg.com/news/articles/2022-06-01/sam-bankman-fried-crypto-industry-push-to-avoid-sec-rule">oversight of the Commodity Futures Trading Commission rather than the SEC</a>, because the CFTC is seen as the less powerful of the two.</p>
<p id="ypLL25">Bankman-Fried appeared ready to spend even larger sums of money in Washington and in media. Earlier this year, he floated the idea of spending <a href="https://www.cnbc.com/2022/05/24/crypto-billionaire-says-he-could-spend-a-record-breaking-1-billion-in-2024-election.html">up to $1 billion on politics in 2024</a> if it meant blocking Donald Trump. He also texted <a href="https://www.vox.com/recode/2022/10/1/23381257/elon-musk-texts-twitter-billionaires">Elon Musk this spring</a>, signaling his interest in spending billions to join in on the Twitter acquisition deal.</p>
<p id="dEtnpx">In hindsight, there may have been signs of trouble. Weeks before the midterms, Bankman-Fried suddenly <a href="https://www.politico.com/newsletters/morning-money/2022/10/14/billion-dollar-slip-up-why-bankman-fried-is-rethinking-election-spending-00061809">walked back his intent to spend quite so much</a> on politics in the coming years, calling the $1 billion figure a “dumb quote” on his part. He didn’t spend much in the lead-up to the midterm election, saying, “I think primaries are more important.” At the same time, Democrats were warning that a <a href="https://www.washingtonpost.com/politics/2022/10/07/house-democrats-fundraising/">lack of funding in the last weeks of the election cycle</a> could jeopardize their chance of securing a House majority.</p>
<h3 id="VH8p9m">What the fall of a crypto billionaire says about scrutiny of the ultra-rich</h3>
<p id="trVqD9">It’s not every day that a billionaire suddenly loses everything — that dishonor belongs to a small and ignominious circle including the likes of <a href="https://www.vox.com/2015/10/20/9576501/theranos-elizabeth-holmes">Elizabeth Holmes</a>, <a href="https://www.businessinsider.com/how-bernie-madoffs-ponzi-scheme-worked-2014-7">Bernie Madoff</a>, and Archegos founder and <a href="https://www.bloomberg.com/news/features/2021-04-08/how-bill-hwang-of-archegos-capital-lost-20-billion-in-two-days">investor Bill Hwang</a> — and it’s rarer still for a renowned philanthropist and political megadonor’s wealth to topple like a house of cards. </p>
<p id="DUipda">Given just how wide-ranging Bankman-Fried’s influence is, his downfall has caused turmoil in several circles. FTX’s customers were mostly individual traders — some now <a href="https://www.bloomberg.com/news/articles/2022-11-10/ftx-collapse-users-locked-out-of-accounts-and-worried-funds-are-gone#xj4y7vzkg">fear they’ve lost their life savings</a>. FTX’s fall has affected the stability of the broader crypto market, and the price of bitcoin, the world’s most highly-valued digital currency, has plunged. The FTX Future Fund has said it likely wouldn’t be able to <a href="https://twitter.com/teddyschleifer/status/1590891417433296896">honor all the commitments it made to grantees</a>, and Bankman-Fried’s financial ruin could cause further shockwaves in philanthropy: The effective altruism nonprofit Open Philanthropy has already acknowledged that the FTX Foundation’s shuttering would <a href="https://forum.effectivealtruism.org/posts/mCCutDxCavtnhxhBR/some-comments-on-recent-ftx-related-events">affect its grantmaking strategy</a>. Bankman-Fried had essentially earmarked 99 percent of his wealth for the public good — and now, all of that is lost.</p>
<p id="mRZWXp">If the allegation that FTX used <a href="https://www.theverge.com/2022/11/10/23451484/ftx-customer-funds-alameda-research-sam-bankman-fried">$10 billion in customers’ funds to help Alameda Research</a> is true, the possibility that Bankman-Fried could face jail is “very realistic,” said John Reed Stark, a former SEC enforcement attorney and expert in cybersecurity law. “If these facts are true, someone came to me as a client and said, ‘Here’s what I did, I robbed my customers to enrich myself,’ that’s very serious. It goes far beyond securities violations.” </p>
<p id="NOkxYE">Stark compared the magnitude of any potential crime to that of <a href="https://www.vox.com/2015/10/20/9576501/theranos-elizabeth-holmes">Holmes</a>, who <a href="https://www.justice.gov/usao-ndca/pr/theranos-founder-elizabeth-holmes-found-guilty-investor-fraud">defrauded investors</a>, or <a href="https://www.businessinsider.com/how-bernie-madoffs-ponzi-scheme-worked-2014-7">financier Madoff</a>, the mastermind behind the biggest Ponzi scheme in history. “I think this is worse because there is a <a href="https://www.investopedia.com/terms/r/retailinvestor.asp">retail investor</a> component to this imbroglio.” </p>
<p id="fnXMwI">Bankman-Fried and his companies were based in the Bahamas, but “it’s going to be illegal, no matter where you are, to take stuff that’s not yours,” said Stark.</p>
<p id="sjudCl">That so many people in different industries are rocked by a single person’s financial ruin illuminates the magnitude of influence billionaires have. It also shows why that influence needs serious, careful examination. How much credence can we give to a sales pitch? Bankman-Fried has defended the crypto industry, and specifically his exchange, against the perception that it was rife with scams or danger. “He says FTX is running an honest market, checks customers’ backgrounds, buys carbon credits to offset its emissions, and is more efficient than the mainstream financial system. But it’s clear the main appeal for him is getting rich quick,” Bloomberg’s Zeke Faux <a href="https://www.bloomberg.com/news/features/2022-04-03/sam-bankman-fried-ftx-s-crypto-billionaire-who-wants-to-give-his-fortune-away">wrote in a profile from April</a>.</p>
<p id="8ymA9r">Bankman-Fried may not have been forthcoming when concern about FTX started to bubble up. On November 7, before the degree of FTX’s financial disorder was evident, <a href="https://www.businessinsider.com/ftx-sam-bankman-fried-deleted-assets-fine-tweet-binance-deal-2022-11">Bankman-Fried tweeted</a> that everything was fine. “Assets are fine,” he wrote. “FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries),” he wrote in another. But it <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">now appears that wasn’t</a> true. He has since deleted those tweets.</p>
<p id="OUTqnz">In a <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy">Twitter DM interview</a> with Future Perfect reporter Kelsey Piper following the implosion of FTX, Bankman-Fried revealed a cynical view of ethics that seemed to contradict the more nuanced views of right and wrong he’d discussed in the press before.</p>
<p id="GfvsVl">“[M]an a lot of the dumb shit I said,” he wrote. “[I]t’s not true, not really.”</p>
<p id="tvvOIV">By his accounting, a person’s virtue is largely perception — as much about whether someone is seen as a winner or a loser as it is about actually acting virtuously. “[E]veryone goes around pretending that perception reflects reality,” he wrote in the candid, at times shocking, exchange. “[I]t doesn’t. [S]ome of this decade’s greatest heroes will never be known, and some of its most beloved people are basically shams.”</p>
<p id="Y4iEMY"><em><strong>Correction, November 15, 11:15 am ET:</strong></em><em> An earlier version of this story misnamed a show on which Bankman-Fried appeared. It is </em>Meet the Press Reports.</p>
<p id="mqfvcm"></p>
<p id="sEXgzR"><em><strong>Update, November 16: </strong></em><em>This piece has been updated with additional information about the status of Future Perfect’s grant from the Building a Stronger Future foundation.</em></p>
<p id="TpARNr"></p>
<p id="kZaMPG"><em><strong>Update, December 22, 3 pm ET: </strong></em><em>This story, originally published on November 15, has been updated multiple times, including most recently with news of the extradition and bond of Bankman-Fried and news of the guilty pleas entered by two of his associates. </em></p>
https://www.vox.com/the-goods/23458837/sam-bankman-fried-ftx-sbf-downfall-explainedWhizy Kim2022-12-20T08:00:00-05:002022-12-20T08:00:00-05:00The billionaire vibe shift
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<img alt="Photo collage of Sam Bankman-Fried, Elon Musk, and Kanye West as seen through wavy glass." src="https://cdn.vox-cdn.com/thumbor/P50uWJcGrBmWDNCpFmgUcKR31b8=/135x0:2802x2000/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/71772166/billion1219.0.jpg" />
<figcaption>Amanda Northrop/Vox</figcaption>
</figure>
<p>It was the year the billionaires showed who they really are.</p> <p id="w9DtW2">At first, 2022 looked like it would be another celebratory year for the extremely rich. In early January, Tesla stock was trading at well over <a href="https://finance.yahoo.com/quote/TSLA/history?p=TSLA">$300 per share</a>. Its CEO, Elon Musk, had recently been named <a href="https://time.com/person-of-the-year-2021-elon-musk/">Time’s 2021 Person of the Year</a>. He was Earth’s <a href="https://www.forbes.com/sites/elizahaverstock/2022/01/03/happy-new-year-elon-musk-gets-25-billion-richer-on-2022s-first-trading-day-as-tesla-stock-soars/?sh=da87abf6b2ba">richest person</a>, an exemplar of capitalism gone right, a visionary building companies that would benefit humanity and not just line his own pockets. He was so intelligent that he purportedly <a href="https://www.businessinsider.com/how-elon-musk-learned-rocket-science-for-spacex-2014-10">taught himself rocket science</a>, so ambitious that he made the electric car sexy in an <a href="https://twitter.com/elonmusk/status/1050809258659344384">effort to stem the climate crisis</a>. </p>
<p id="E0B3xT">As 2022 comes to a close, the awe Musk enjoyed has turned into shock and jeers. <a href="https://www.vox.com/recode/2022/10/28/23426922/elon-musk-army-fandom-former-fans-twitter-ceo">Fans have defected</a>. <a href="https://www.bloomberg.com/news/articles/2022-12-07/tesla-tsla-stock-slump-investors-frustrated-by-elon-musk-twitter-distraction">Tesla investors are growing mutinous</a> (at publication time, Tesla stock was languishing around $150). Musk was even recently <a href="https://www.washingtonpost.com/arts-entertainment/2022/12/12/dave-chappelle-elon-musk-booed">booed by the audience</a> at Dave Chappelle’s comedy show. In a <a href="https://twitter.com/elonmusk/status/1604617643973124097">Twitter poll</a> he posted over the weekend, Musk asked whether he should step down as head of Twitter, saying he would “abide by the results of this poll.” Nearly 60 percent of respondents answered yes.</p>
<p id="og03F2">A similar riches-to-rags story unwound <a href="https://www.vox.com/the-goods/23458837/sam-bankman-fried-ftx-sbf-downfall-explained">Sam Bankman-Fried</a>, the erstwhile crypto billionaire who told the public he was using the gangbuster profits from a flashy but risky industry to <a href="https://www.vox.com/future-perfect/23298870/effective-altruism-longtermism-will-macaskill-future">change the world</a> <a href="https://www.vox.com/future-perfect/2022/8/8/23150496/effective-altruism-sam-bankman-fried-dustin-moskovitz-billionaire-philanthropy-crytocurrency">for good</a> — making him a media darling who graced the <a href="https://fortune.com/magazine/">cover of Fortune magazine</a> in September. Other billionaires soaked in excess, buying <a href="https://finance.yahoo.com/news/superyachts-ultra-rich-money-ftx-sam-bankman-fried-140710556.html">private jets and superyachts</a>; he was sleeping on bean bag chairs at his office and thinking of how to donate what he earned. Then, almost as suddenly as he had established himself as an altruistic public figure, his cryptocurrency exchange, FTX, imploded, his billions vanished, and he was arrested on <a href="https://www.nytimes.com/2022/12/12/business/ftx-sam-bankman-fried-bahamas.html">charges of fraud and money laundering</a>, among other crimes. It turned out that his monkish pose <a href="https://www.reuters.com/technology/exclusive-bankman-frieds-ftx-parents-bought-bahamas-property-worth-121-mln-2022-11-22/">wasn’t quite true</a>. </p>
<p id="uR9iHp">Or consider Ye, once a critically acclaimed superstar often called a genius. For many years he exhibited <a href="https://www.vox.com/2018/5/2/17311148/kanye-west-slavery-choice-harriet-tubman-quote-comments-trump">insulting</a>, <a href="https://www.elle.com/culture/celebrities/a39110342/kanye-west-kim-kardashian-harassment/">toxic</a> behavior, but it wasn’t until late 2022, when he made a series of escalating antisemitic rants that ended with <a href="https://www.vox.com/culture/23400851/kanye-west-antisemitism-hitler-praise">posting a swastika on Twitter</a>, that it solidified into a definitive reckoning. High-fashion institutions cut ties with him, and Adidas ended its collaboration with him on the fashion line Yeezy, leaving Ye no longer a billionaire, according to <a href="https://www.forbes.com/sites/lisettevoytko/2022/10/25/billionaire-no-more-kanye-wests-anti-semitism-obliterates-his-net-worth-as-adidas-cuts-ties/?sh=2f069f0117e7">Forbes</a>.</p>
<p id="srveyv">They and plenty of other billionaires, such as Bill Gates and Warren Buffett, have long been viewed by the public and policymakers as thought leaders, geniuses, benevolent stewards of society. The ultrarich often have intimate access <a href="https://www.nytimes.com/2022/11/22/business/ftx-sam-bankman-fried-influence.html">to Washington power</a> <a href="https://www.nbcnews.com/politics/donald-trump/story-trumps-explosive-dinner-ye-nick-fuentes-rcna59010">players</a> and are lavished with positive attention in the press. But polls show that <a href="https://thehill.com/blogs/ballot-box/342773-poll-most-americans-distrust-billionaires/">distrust</a> and <a href="https://www.pewresearch.org/fact-tank/2021/07/28/americans-views-about-billionaires-have-grown-somewhat-more-negative-since-2020/">skepticism</a> of billionaires have been building in recent years; in a Vox/Data for Progress <a href="https://www.vox.com/recode/2021/3/30/22357510/poll-billioniares-data-for-progress-vox-wealth-philanthropy-inequality">poll last year</a>, 72 percent of likely voters surveyed said that it was unfair that billionaires had become richer during the pandemic. </p>
<p id="GsjV1t">It was against this backdrop that this year’s billionaire controversies unfurled, setting off a public reappraisal of the richest in society. It was <a href="https://www.washingtonpost.com/opinions/2022/11/11/billionaire-worship-crypto-bankman-fried-musk/">the end of the</a> <a href="https://www.theatlantic.com/technology/archive/2022/09/elon-musk-texts-twitter-trial-jack-dorsey/671619/">“billionaire genius” myth</a>, and the notion that <a href="https://www.theatlantic.com/ideas/archive/2022/09/big-tech-founders-gates-neumann-jobs/671519/">wealthy elites</a> should be <a href="https://www.vox.com/the-goods/23466433/sbf-ftx-zuckerberg-elon-musk-billionaires-lies">taken at their word</a>. 2022 marked the peak of what can best be described as a billionaire vibe shift.</p>
<p id="rl1Mh6">Part of the public’s captivation with billionaires in 2022 is the schadenfreude of watching the powerful tumble. This year also drove home that the ultrarich aren’t privy to greater wisdom or savvier than the rest of us, said Anand Giridharadas, author of <em>Winners Take All: The Elite Charade of Changing the World</em>. Musk’s baffling, impetuous decisions and <a href="https://www.vox.com/recode/23450058/elon-musk-twitter-ceo-change-mind-reversal-flip-flop">reversals</a> at Twitter, for example, have yanked back the curtain on how Musk leads his companies. He “just revealed billionaires are not smarter than you,” Giridharadas told Vox. “They are people who happen to have a billion dollars or more.”</p>
<p id="Dme3IW">The revelation that billionaires are not an exceptional group of people except for the size of their net worth marks a schism from the idea that the wealthy are demigods. Silicon Valley’s many billionaires insist that <a href="https://www.nytimes.com/2019/09/28/opinion/sunday/silicon-valley-techno-optimism.html">technology will transform and save the world</a>. The infamous robber barons, like Andrew Carnegie and John Rockefeller, often remade their image, after a career of exploiting their workers, as magnanimous philanthropists. </p>
<p id="DqjGJL">“I think [billionaires] internalize, ‘Look, I’m a billionaire, therefore I’m not only good at amassing wealth — I’m good, period,’” said Peter Goodman, a New York Times economics journalist and author of <em>Davos Man: How the Billionaires Devoured the World</em>. “Because we all want to believe that our society is fair and rewards the right thing.” </p>
<p id="EDgFdW">But the problems of American plutocracy are often hard to see. “These systems that uphold billionaire power and privilege are really largely invisible,” said Giridharadas. “You can’t really see into their bank accounts; you know about 0.1 percent of the lobbying that goes on.” Charles and David Koch, for example, are now well-known for spending their oil fortune on disseminating a right-wing, anti-government worldview from think tanks to universities to the uppermost chambers of power in Washington — often through undisclosed donations. But for a while, they operated quietly. They’re <a href="https://www.propublica.org/article/dark-money-leonard-leo-barre-seid">far from alone</a>. Research has shown that <a href="https://www.nytimes.com/2022/04/06/magazine/billionaire-politics.html">many billionaires engage in “stealth politics,</a>” angling for unpopular policies, such as lowering taxes for the wealthy, under the radar. The usefulness of the very public reputational ruin of Musk and Bankman-Fried is that it offers a rare insight into what makes powerful, wealthy people tick. “Every now and then, these kinds of spectacular flare-ups become so important because they’re public biopsies,” Giridharadas said.</p>
<p id="iyrJXd">Musk’s <a href="https://www.vox.com/recode/2022/10/1/23381257/elon-musk-texts-twitter-billionaires">text messages around his bid to purchase Twitter</a> offered a glimpse at how wealthy people make decisions that have an impact on the rest of society. They were notable mostly for how unimpressive they were: He and his associates didn’t float <a href="https://www.washingtonpost.com/lifestyle/2022/10/01/elon-musk-texts-twitter/">novel, incisive ideas</a> about how to improve a social media company. Most of the players, from moneyed investors to politicians, came off as merely obsequious.</p>
<p id="EF5DAs">In Bankman-Fried’s case, the disintegration of a well-known, highly valued crypto company added credence to crypto critics’ view that the industry, and the powerful players within it, are playing a confidence game. Bankman-Fried’s philanthropic commitments and his calls for reasonable crypto regulation certainly helped cement his public image, but they also fed people’s eagerness to trust and invest in crypto. He has now been charged with deceiving FTX investors, and the SEC alleges that he “orchestrated a years-long fraud,” rerouting FTX customer funds for his personal use. The fiasco has given the public a damning look at the <a href="https://www.washingtonpost.com/business/2022/12/18/crypto-winter-ftx-collapse-bitcoin-prices/">dark side of the crypto industry</a>.</p>
<p id="pCknS7">The larger-than-life personas of billionaires like Musk, Bankman-Fried, and others, which cast them as hyper-intelligent and insightful, gained them a lot of influence. Musk in particular garnered an <a href="https://www.theverge.com/2018/6/26/17505744/elon-musk-fans-tesla-spacex-fandom">entrenched fan base</a> for his humanity-saving mission and for his outlandish, troll-y online image. Margaret O’Mara, a professor of American history at the University of Washington and author of <em>The Code: Silicon Valley and the Remaking of America</em>, told Vox that the model of the “eccentric genius entrepreneur” has long been used to great success by the nation’s business leaders. “From Edison forward, you have these slightly quirky, very showman-like people,” she said. Edison was an especially skilled marketer who loved to put on spectacular events, such as lighting up the <a href="https://www.nytimes.com/1882/09/05/archives/miscellaneous-city-news-edisons-electric-light-the-times-building.html">New York Times building</a> in 1882.</p>
<p id="heNxNv">Billionaires in America have also long benefited from a tradition of lionizing captains of industry. They were respected as self-made men, and there was a great belief in “the individual savior figure coming in to change everything,” O’Mara said.</p>
<p id="34cP8E">“It’s the cowboy, it’s the rugged individualist,” she continued. “The reality is kind of far from the truth — cowboys would ride together.”</p>
<p id="EfHyyr">The American preoccupation with the genius savior dovetails with the American distrust of government and other public institutions; the conventional neoliberal wisdom is that institutions would be better, more efficient, if they were all run like businesses. Yet even trust in business appears to be changing. Data from both Pew and Gallup shows declining trust in most institutions, and notably, that now includes businesses too. The <a href="https://www.pewresearch.org/science/2022/02/15/americans-trust-in-scientists-other-groups-declines/">Pew results showed that 60 percent of those surveyed in 2021</a> said they had little or no confidence in business leaders, and according to <a href="https://news.gallup.com/poll/394283/confidence-institutions-down-average-new-low.aspx">Gallup’s 2022 survey</a>, the public’s trust in big business hit a new low since the polling firm first measured the metric in 1973.</p>
<p id="boI20d">That’s not exactly surprising. US wages haven’t grown much <a href="https://www.cnbc.com/2022/07/19/heres-how-labor-dynamism-affects-wage-growth-in-america.html">since the late 1970s</a>, and over the years, and particularly through the pandemic, increasing wealth concentration at the top has intensified conversations around excess corporate profits, labor exploitation, and the general miasma of <a href="https://www.cnbc.com/2022/10/24/more-americans-live-paycheck-to-paycheck-as-inflation-outpaces-income.html">financial precarity</a> that most Americans exist in. </p>
<p id="X978XO">In recent history, there has been growing public awareness of the mechanics behind billionaire wealth creation, too, and a broader “recognition that nobody becomes a billionaire without engaging in some kind of manipulation of the system,” Goodman said. “There’s lobbying, there’s a perversion of the tax code, there’s probably exploitation of labor — there’s an undermining of the labor movement. There’s a perversion of democracy.” Since <em>Citizens United v. Federal Election Commission</em>, a 2010 Supreme Court decision allowing corporations and outside spending groups to contribute unlimited amounts of money to political campaigns, an increasing amount of <a href="https://www.opensecrets.org/news/2021/03/one-billion-dark-money-2020-electioncycle/">dark money from the ultrarich</a> has also poured into American politics.</p>
<p id="jA1w2O">“People were not connecting these pain points in their lives to what the group of people called billionaires was doing,” Giridharadas said. Now, the connections are more readily drawn: <a href="https://www.businessinsider.com/amazon-ceo-jeff-bezos-net-worth-explodes-in-2020-chart-2020-12">Amazon founder Jeff Bezos adding $75 billion</a> to his net worth in the first year of the pandemic is seen as directly related to the <a href="https://www.vox.com/recode/2020/6/29/21303643/amazon-coronavirus-warehouse-workers-protest-jeff-bezos-chris-smalls-boycott-pandemic">unsafe working conditions</a> and <a href="https://www.nytimes.com/2020/11/19/business/retail-workers-hazard-pay.html">low pay of Amazon employees</a> in that same period.</p>
<p id="cY4CgB">It’s hard to adequately emphasize the acceleration of wealth concentration in the past few years: more than <a href="https://webassets.oxfamamerica.org/media/documents/Inequality_Kills.pdf">$5 trillion was added to billionaires’ net worth</a> worldwide between March 2020 and November 2021, according to an <a href="https://oxfamilibrary.openrepository.com/bitstream/handle/10546/621341/bp-inequality-kills-170122-en.pdf">Oxfam report</a>. That was more than the world’s billionaires had accumulated in the <a href="https://oxfamilibrary.openrepository.com/bitstream/handle/10546/621341/tb-inequality-kills-methodology-note-170122-en.pdf">previous 14 years</a> put together. Tech billionaires were the undisputed winners of the early pandemic years, raking in so much money that their <a href="https://www.vox.com/recode/2022/9/29/23377578/tech-billionaires-pandemic-wealth-2022">huge losses in the 2022 downturn have failed to wipe out the gains</a>. These companies’ founders and CEOs are doing fine; over a hundred thousand employees in the tech sector, however — including 10,000 at Amazon — have <a href="https://www.vox.com/recode/2022/11/10/23451038/silicon-valley-layoffs-meta-facebook-jobs-work-identity">lost their jobs</a> this year.</p>
<p id="wBMj5S">“We’re seeing more examples of how wealth comes at the expense of the vulnerable,” said Goodman.</p>
<p id="9YEObt">Take the recent labor fight rail workers waged to <a href="https://www.vice.com/en/article/g5v9xy/the-freight-rail-labor-dispute-was-never-about-sick-days">win better working conditions</a>. They were poised to go on strike if their demands — which included such basic benefits as <a href="https://www.vox.com/policy-and-politics/2022/11/29/23484623/congress-rail-strike-biden-sick-days">seven paid sick days per year</a> — weren’t met. A strike would have had a sweeping impact across the entire US economy, but Congress took that leverage away from rail workers, taking a vote that forced them to agree to a tentative agreement sans sick leave. Essential workers, not the rail companies, were asked to bend the knee to avoid a catastrophic strike. BNSF Railway, one of the companies employing workers involved in the labor dispute, is owned by Warren Buffett’s conglomerate Berkshire Hathaway; BNSF earned $6 billion in profits last year and has been accused of holding up the contract negotiations with the union this year. In September, Sen. Bernie Sanders <a href="https://twitter.com/SenSanders/status/1569800707460534277">called on Buffett to help broker a deal</a>, but the renowned philanthropist — who has committed to giving away 99 percent of his wealth — did not publicly comment on the dispute.</p>
<p id="L1nZuE">Despite the evidence that their incredible riches are amassed at the expense of economic hardship for others, the wealthy elite rarely acknowledge their power and social position. Goodman pointed to Salesforce CEO <a href="https://www.nytimes.com/2022/01/13/business/davos-man-marc-benioff-book.html">Marc Benioff’s declaration last year</a> that CEOs stepped up as heroes of the pandemic. “[Billionaires] spend a lot of time telling you that not only am I not the problem, I’m the solution to the problem,” he said.</p>
<p id="6dlSwI">As that narrative becomes less credible to the public, calls for change — like levying higher taxes on the rich — grow louder. In turn, billionaires have been <a href="https://nymag.com/intelligencer/2022/05/pity-the-billionaire-marc-andreessen-edition.html">airing their grievances</a>, fixating on victimhood. Even Jeff Bezos, who typically has not waded into political debates, <a href="https://www.cnbc.com/2022/05/14/amazons-bezos-criticizes-biden-over-inflation-tweet.html">sniped at President Biden on Twitter</a> this year over his statement that wealthy corporations should be taxed more.</p>
<p id="DeR5JN">Musk has been pounding the pulpit of free speech. His <a href="https://www.vox.com/recode/2022/10/1/23381257/elon-musk-texts-twitter-billionaires">text messages</a> showed that he was far from alone: Several people in his circle of rich friends and acquaintances echoed Musk’s basic thesis that Twitter had become too “woke” — a threadbare euphemism for left-wing progressivism and social justice. Ye, whose <a href="https://www.nytimes.com/2022/12/02/business/media/kanye-west-twitter-suspension.html">Twitter account was suspended again</a>, hasn’t just been making antisemitic rants — for years now he has portrayed the public censure of his increasingly racist and misogynistic views as an example of cancel culture. These billionaires, who are among the wealthiest and most well-connected people in the world, would have their audience believe that they’re persecuted and speaking truth to power. </p>
<p id="T7B59t">Bankman-Fried, too, seemed to chafe somewhat at the strictures of what’s socially acceptable to say — of keeping up a palatable billionaire image. In a <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy">Vox interview</a> over Twitter DMs, he admitted that he “had to be” good at talking about ethics because it was part of a “dumb game we woke westerners play where we say all the right shiboleths [sic] and so everyone likes us.”</p>
<p id="XJXWXV">That succinctly says the unsayable out loud. The long-running narrative of the brilliant, benevolent billionaire has ensured the public’s awe and deference. When this myth is no longer compelling, there’s a crisis in the plutocracy.</p>
<p id="0TJarG">What this year has made vivid is that billionaires are as mundane as the rest of us, with some virtues but also plenty of vices, sometimes inspiring and often disappointing — except that they have billions of dollars at their disposal. And that power allows them to make stunningly bad decisions that impact millions of people.</p>
<p id="ySayOZ">Giridharadas joked that he would like to thank the billionaires. “At some level, it’s valuable when these people make it so explicit. I feel like it’s a big sacrifice to educate people about the real nature of the system.”</p>
https://www.vox.com/the-goods/2022/12/20/23509726/billionaire-vibe-shift-elon-sbf-2022Whizy Kim2022-12-13T19:13:28-05:002022-12-13T19:13:28-05:00The socially sanctioned arrogance of SBF
<figure>
<img alt="SBF being interviewed on screen." src="https://cdn.vox-cdn.com/thumbor/B0fmGWiRHSFBlBINxmZhHPuYG8s=/444x0:4000x2667/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/71746208/1445868310.0.jpg" />
<figcaption>Andrew Ross Sorkin and Sam Bankman-Fried onstage at the 2022 New York Times DealBook conference on November 30, 2022, in New York City, weeks after FTX’s collapse. | Thos Robinson/Getty Images for the New York Times</figcaption>
</figure>
<p>Sam Bankman-Fried is what happens when nobody looks under the hood.</p> <p id="wHpWBH"><a href="https://www.vox.com/the-goods/23458837/sam-bankman-fried-ftx-sbf-downfall-explained">Sam Bankman-Fried</a>, the <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy">disgraced founder</a> of the <a href="https://www.vox.com/the-goods/23451761/ftx-sam-bankman-fried-arrest-bankrupt-bitcoin-alameda">now-bankrupt crypto exchange FTX</a>, perhaps could have spent less time doing <a href="https://twitter.com/teddyschleifer/status/1600206292399796229">media interviews while playing video games</a> over the past few weeks and instead spent more time Googling extradition treaties. At the very least, he could have spent less time doing media interviews where he said he didn’t think he would be placed under arrest.</p>
<p id="YvJ7N4">In a Twitter Spaces during the day on Monday, Bankman-Fried <a href="https://www.axios.com/2022/12/12/sam-bankman-fried-arrested-bahamas-extradition">said</a>, “I don’t think I will be arrested,” referring to the <a href="https://www.vox.com/the-goods/23451761/ftx-sam-bankman-fried-bankrupt-binance-bitcoin-alameda">scandal that has engulfed his business dealings</a> since November, leaving FTX bankrupt and its customers unable to withdraw funds. Hours later, authorities in the Bahamas, where Bankman-Fried lives and FTX is based, arrested him following criminal charges filed by the US Attorney’s Office of the Southern District of New York. The SEC and CFTC are going after Bankman-Fried, often referred to as SBF, as well. After being <a href="https://www.coindesk.com/policy/2022/12/13/ftx-founder-sam-bankman-fried-denied-bail-in-the-bahamas/">denied bail</a> by a judge in the Bahamas, he awaits an extradition hearing in jail there set for February 8, 2023. </p>
<p id="kRk3pO">In the multitude of interviews and Twitter chats Bankman-Fried has done with the media in recent weeks, he’s been cagey but casual in discussing his liabilities in the situation. “What happens happens. That’s not up to me,” he told Puck’s Teddy Schleifer in an <a href="https://puck.news/sam-bankman-fried-sbf-interview/">early December interview</a>, when asked whether he thought someone should go to jail over the FTX debacle. When the New York Times’s Andrew Ross Sorkin asked him days earlier whether he was concerned about potential criminal culpability, <a href="https://www.nytimes.com/2022/12/01/business/dealbook/sam-bankman-fried-dealbook-interview-transcript.html">he replied</a>, after some bumbling, “It sounds weird to say it, but I think the real answer is it’s not what I’m focusing on.”</p>
<p id="FmZCF2">The hubris is impossible to ignore. </p>
<div class="c-float-right"><div id="qrZQGc"><div data-anthem-component="aside:11274339"></div></div></div>
<p id="EoKsDB">The 30-year-old MIT graduate has squandered the funds of hundreds of thousands of his customers, most of whom are unlikely to see much, if any, of their money back. He’s continually said he’s sorry and that he “fucked up,” but an oops doesn’t excuse or explain billions of missing dollars, misused funds, or the serious charges of fraud against him. His apologies are also in conflict with many of his actions, before FTX’s collapse and after, as he has continued to cast blame elsewhere for what happened.</p>
<p id="osU6U0">FTX looks to have been quite the opposite of the safe, upright crypto institution Bankman-Fried said it was. His refusal to take full responsibility, even now, speaks to the size of his ego. </p>
<h3 id="XernnM">Bankman-Fried’s words don’t reflect his actions throughout his time at Alameda and FTX</h3>
<p id="QCkDbx">Bankman-Fried spent enormous amounts of money and personal capital to build up his profile and his brand. He slapped FTX’s name on anything he could, including the Miami Heat’s arena, and put his face in ads. He cast himself as <a href="https://www.vox.com/future-perfect/23500014/effective-altruism-sam-bankman-fried-ftx-crypto">a super do-gooder</a>, making money hand over fist in crypto in order to direct it to the philanthropic endeavors he and others in his inner circle preferred. (Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s Future Perfect a <a href="https://www.vox.com/2020/1/7/21020439/support-future-perfect">grant</a> for a 2023 reporting project. That project is now on pause.)</p>
<div class="c-float-right"><aside id="197fuI"><q>“Bankman-Fried’s house of cards began to crumble”</q></aside></div>
<p id="mD5MJk">All the while, he was, <a href="https://www.docdroid.net/kxfZltq/unsealed-indictment-in-us-v-bankman-fried-22-cr-673-abrams-as-sam-bankman-fried-of-ftx-heads-to-sdny-echoes-of-onecoin-and-un-bribery-cases-pdf#page=10">allegedly, committing serious crimes</a>, <a href="https://www.wsj.com/articles/ftx-founder-samuel-bankman-fried-arrested-in-bahamas-11670890250?mod=hp_lead_pos1">including</a> wire fraud, securities fraud, and money laundering, and mixing funds of his cryptocurrency exchange, FTX, with those of the trading firm he founded, Alameda Research. According to the <a href="https://www.sec.gov/litigation/complaints/2022/comp-pr2022-219.pdf">SEC’s complaint</a> against Bankman-Fried, “From the inception of FTX, Bankman-Fried diverted FTX customer funds to Alameda, and he continued to do so until FTX’s collapse in November 2022.” </p>
<p id="H7vPnw">In other words, Bankman-Fried’s assertions that he wasn’t aware of what was going on with FTX and Alameda mixing funds and that the exchange went under because he was asleep at the wheel are, if the allegations against him are to be believed, a lie. “While he spent lavishly on office space and condominiums in The Bahamas, and sank billions of dollars of customer funds into speculative venture investments, Bankman-Fried’s house of cards began to crumble,” the complaint reads.</p>
<p id="0W9dYP">After positioning himself as the serious and safe face of crypto on Capitol Hill and among regulators, Bankman-Fried has also been charged with campaign finance violations and allegations that he made excess donations than the permitted amount, including by using other people’s names. It’s an image of a guy who was well aware of the rules and guardrails around him — he’s quite fluent in regulatory speak — and seemed to believe they didn’t or shouldn’t apply to him. </p>
<p id="EioTSj">In an <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy">interview with Vox’s Kelsey Piper in November</a> conducted via Twitter direct message, he declared, “Fuck regulators. They make everything worse.” Those are words he might come to regret as the regulators are now coming after him. Then again, given his cavalier attitude, who knows?</p>
<h3 id="Gic6xn">The blame game continues</h3>
<p id="3uFYUM">In testimony he was set to deliver before a House Financial Services Committee hearing prior to his arrest that was <a href="https://www.forbes.com/sites/stevenehrlich/2022/12/13/exclusive-transcript-the-full-testimony-sbf-planned-to-give-to-congress/?sh=6f6032c83c47">published by Forbes</a>, Bankman-Fried purports to accept responsibility for FTX’s collapse but repeatedly casts blame elsewhere. It begins with the line that’s become typical for Bankman-Fried — “I fucked up” — and then goes on a winding path that swings between accepting fault and abdicating responsibility. </p>
<p id="WTxp4y">Bankman-Fried repeats his regret that FTX filed for Chapter 11 bankruptcy and laments that the company, which is now being run by John J. Ray III, who helped manage Enron <a href="https://www.investopedia.com/updates/enron-scandal-summary/">after its 2001 collapse</a>, has rebuffed his offers to help fix the disaster he created. He claims he would have been able to “easily collect some pieces of the data” FTX has been unable to find. In a Trump-esque fashion, he at times reflects an “I alone can fix it” attitude — even though in other moments of this saga, when convenient, he’s been very careful to note that on certain items <a href="https://www.yahoo.com/now/sam-bankman-fried-says-paid-131705410.html">he wasn’t paying attention</a>. </p>
<p id="Cb1Bx1">Bankman-Fried says that he’s still aware of “billions of dollars of serious offers for financing” to make customers “substantially whole,” but that would require the company be restarted as an exchange. It’s not clear who those offers are supposedly from. And then, his testimony yet again places blame elsewhere for those magic, mysterious new funds not appearing. “I admit I am not optimistic about some parts of the process,” he says. “I have not myself witnessed any progress by Mr. Ray’s team toward raising substantial funds or restarting the exchange.”</p>
<p id="7c45Ly">Ray has been cutting and candid in his analysis of what happened with FTX as he learns more details. In his testimony before the House Financial Services Committee on Tuesday, December 13 (the hearing Bankman-Fried was also supposed to appear at), Ray said that FTX went on a $5 billion “spending binge” in late 2021 through 2022, and that loans and other payments over $1 billion were made to insiders. He said that FTX’s collapse stemmed from the “absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or the controls that are necessary for a company that is entrusted with other people’s money or assets.” Ray also said at the House hearing that FTX <a href="https://twitter.com/business/status/1602742605611405314?s=20&t=Y2th261Alzz822dIYU40IA">used QuickBooks</a> for accounting. There was, he says, “<a href="https://twitter.com/kprescott/status/1602692534668607489?s=20&t=9ruxQuW2VzyKxki2fPDhnA">no sophistication</a>” and an “absence of any management” at FTX.</p>
<p id="zxFivB">Many of Bankman-Fried’s words and actions in recent weeks have been at the very least petty and often borderline delusional. He’s taken swipes at Binance, the competitor that partly spurred FTX’s collapse, <a href="https://twitter.com/SBF_FTX/status/1601191234034274304?s=20&t=pFhxI1FmiaGes2jcYD4c8w">accusing its CEO of lying</a> and claiming the company, which briefly entertained buying FTX, never intended to go ahead with the deal. (Bankman-Fried aside, Binance is <a href="https://www.reuters.com/markets/us/us-justice-dept-is-split-over-charging-binance-crypto-world-falters-sources-2022-12-12/">facing troubles of its own</a>.) </p>
<p id="LsmoHI">In his prepared testimony, he says FTX’s new leadership is “destructive.” He seems to cast Ray and others as racist, declaring their move to seize assets from FTX out of the Bahamas and to the United States equates “malign intent and incompetence on the part of other races, cultures, and governments” that would be “considered deeply offensive if directed at American minorities.” </p>
<h3 id="P8bC7J">Maybe he thought he could get away with this because that’s often how things work</h3>
<p id="gaVYFi">In retrospect, it’s hard not to look at Bankman-Fried now and wonder how he was able to pull all of this off. The answer is simply that he was allowed to.</p>
<p id="KEq2kW">He <a href="https://www.nytimes.com/2022/11/11/technology/ftx-investors-venture-capital.html#:~:text=Despite%20raising%20%242%20billion%2C%20he,FTX%20employee%20and%20a%20lawyer.">managed to raise $2 billion from investors</a>, including big names like Sequoia, Tiger Global, and SoftBank, who it would appear failed to look very closely under the hood. He was the subject of multiple <a href="https://www.cnbc.com/2022/09/16/how-billionaire-bankman-fried-survived-the-slump-and-still-expanded.html">largely</a> <a href="https://www.bloomberg.com/news/features/2022-04-03/sam-bankman-fried-ftx-s-crypto-billionaire-who-wants-to-give-his-fortune-away">flattering</a> <a href="https://www.nytimes.com/2022/05/14/business/sam-bankman-fried-ftx-crypto.html">profiles</a> that marveled at his schlubby appearance and apparent commitment to the <a href="https://www.vox.com/future-perfect/2022/8/8/23150496/effective-altruism-sam-bankman-fried-dustin-moskovitz-billionaire-philanthropy-crytocurrency">effective altruism philosophy</a> and philanthropic causes. Media outlets continue to note that his parents are Stanford law professors and that he grew up in smart, wealthy, liberal circles, as though that upbringing has some sort of important meaning.</p>
<div class="c-float-right"><aside id="URWMfV"><q>If the rules have never applied to you, why would they start now?</q></aside></div>
<p id="hDaroZ">Given all of this, it makes sense why Bankman-Fried certainly before and even now has displayed such audacity in his business decisions and personal actions. If you tell everybody you’re awesome and have totally got this, and everybody around you is constantly reinforcing that you’re awesome and have totally got this, you might very well be inclined to go along with it. If the rules have never applied to you, why would they start now? You achieve wunderkind status, and you notice nobody around you is really kicking the tires on how you got there, so you roll with it — even if that maybe involves doing some alleged big crimes. </p>
<p id="wdUERl">What lies ahead for Bankman-Fried is unclear. He appears to be in a lot of trouble, and he’ll have a team of probably very good lawyers to defend him in court (though how much he’ll heed their advice is an open question). At the very least, he’ll probably have to chill on the media interviews and tweeting for a while. Though given his love for speaking with the press — and the press’s love for speaking with him — this will likely not be the last time we’ll hear from him. </p>
<p id="DyJ7jP">Perhaps the bigger question to ask beyond Bankman-Fried himself is how he was able to achieve such status in the first place, to display such arrogance without ever worrying it would come before a fall. Maybe the scarier thing is that guys like this get away with stuff like this all the time. There might be an SBF 2.0 lurking around the corner, but more likely, there are a few hiding in plain sight right now.</p>
<p id="i74mDQ"><em><strong>Update, December 13, 7 pm ET: </strong></em><em>This story has been updated with news of Bankman-Fried’s bail denial and extradition hearing.</em></p>
https://www.vox.com/the-goods/23507854/sbf-arrest-bahamas-ftx-wire-fraud-sec-cftc-sdny-whyEmily Stewart2022-12-13T19:11:26-05:002022-12-13T19:11:26-05:00FTX’s implosion and SBF’s arrest, explained
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<img alt="An image of Sam Bankman-Fried’s face, blurry, behind the shards of a bitcoin." src="https://cdn.vox-cdn.com/thumbor/KCegKWaWPEJfp0FZgFyKlOBaQ_o=/240x0:1680x1080/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/71611788/FTX_implosion_blur_v2.0.jpg" />
<figcaption>Dion Lee/Vox, Getty Images</figcaption>
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<p>Sam Bankman-Fried and his crypto company FTX experienced a shocking downfall. Now, Bankman-Fried has been arrested in the Bahamas.</p> <p id="Lp4hzm"><a href="https://www.vox.com/the-goods/23458837/sam-bankman-fried-ftx-sbf-downfall-explained">Sam Bankman-Fried</a>, one of the crypto industry’s biggest stars, has had a <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy">rough end to 2022</a>. His crypto exchange FTX — which was once valued at <a href="https://www.cnbc.com/2022/01/31/crypto-exchange-ftx-valued-at-32-billion-amid-bitcoin-price-plunge.html">$32 billion</a> — declared bankruptcy in November, leaving his customers unable to withdraw their money and his investors out of luck. Now he’s been <a href="https://www.npr.org/2022/12/12/1142361088/bankman-fried-ceo-ftx-crypto-exchange-arrested-bahamas-charges-sdny">arrested</a> in the Bahamas following the filing of criminal charges in the US, where he remains in jail after being <a href="https://www.coindesk.com/policy/2022/12/13/ftx-founder-sam-bankman-fried-denied-bail-in-the-bahamas/">denied bail</a> and awaits an extradition hearing on February 8, 2023. The <a href="https://www.docdroid.net/kxfZltq/unsealed-indictment-in-us-v-bankman-fried-22-cr-673-abrams-as-sam-bankman-fried-of-ftx-heads-to-sdny-echoes-of-onecoin-and-un-bribery-cases-pdf">charges include</a> wire fraud, securities fraud, money laundering, and campaign finance laws violations. The Securities and Exchange Commission <a href="https://www.sec.gov/news/press-release/2022-219">has charged</a> Bankman-Fried with defrauding equity investors, and the Commodity Futures Trading Commission <a href="https://www.docdroid.net/EmmPXDR/cftc-vs-samuel-db-pdf">has filed a complaint</a> against him as well. </p>
<p id="C3EQz6">Before the scandal, Bankman-Fried captured the interest of those in finance, politics, philanthropy, and beyond. He said he <a href="https://www.nbcnews.com/politics/2022-election/crypto-billionaire-says-spend-record-breaking-1-billion-2024-election-rcna30351">might spend</a> as much as $1 billion on the 2024 election. He said he had a lot of <a href="https://www.ftxpolicy.com/posts/possible-digital-asset-industry-standards">ideas for policing</a> the crypto industry and <a href="https://www.latimes.com/politics/story/2022-08-12/sam-bankman-fried-ftx-political-donations">using his crypto-fueled fortune for good</a>. He said he’d be fine <a href="https://www.cnbc.com/2022/06/22/sam-bankman-fried-rescues-crypto-lenders-blockfi-voyager.html">bailing out some crypto companies</a> in trouble as crypto winter hit over the summer. All of these claims are now essentially meaningless, thanks to another thing he said on November 7: that his crypto exchange, FTX, was “fine.” It was not. Instead, the next day, the exchange imploded. By November 11, the company had <a href="https://twitter.com/FTX_Official/status/1591071832823959552">filed for bankruptcy</a>, and Bankman-Fried resigned as CEO.</p>
<p id="cLeIDM">The company’s <a href="https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-balance-sheet-was-bad?sref=qYiz2hd0">balance sheet has since been revealed to be a disaster</a>, and it’s unclear where much of the company’s money has even gone. FTX’s new CEO — who helped manage Enron <a href="https://www.investopedia.com/updates/enron-scandal-summary/">after its 2001 collapse</a> — <a href="https://www.bloomberg.com/news/articles/2022-11-17/here-are-the-craziest-parts-from-the-new-ftx-bankruptcy-filing?sref=qYiz2hd0">said</a> that he has never in his career “seen such a complete failure of corporate controls and such complete absence of trustworthy financial information.” <a href="https://www.cbsnews.com/news/ftx-sam-bankman-fried-house-committee-testify/">He believes</a> FTX collapsed because a “very small group of grossly inexperienced and unsophisticated individuals” running the company “failed to implement virtually any of the systems or controls” needed to handle other people’s money. The situation, again, coming from the guy who dealt with the Enron fallout, is “unprecedented.”</p>
<p id="QZtboQ">“It’s incredible how quickly these things can spiral out of control,” Molly White, a software engineer and prominent crypto critic behind the website <a href="https://web3isgoinggreat.com/">Web3 Is Going Just Great</a>, told me in a November interview in the wake of FTX’s collapse.</p>
<h3 id="RPx7aL">SBF 101</h3>
<p id="VoTwSo">Whether or not you’re a <a href="https://www.vox.com/the-goods/23071245/bitcoin-price-crypto-ethereum-nfts-defi-stablecoin">crypto person</a>, chances are you’ve come into some sort of contact with FTX and its founder, Sam Bankman-Fried — better known as SBF — before its implosion. He’s partnered with big names, such as soon-to-be-divorced couple <a href="https://www.vox.com/the-goods/23148474/crypto-celebrities-ftx-kim-kardashian-larry-david">Tom Brady and Gisele Bündchen</a>, to spread the crypto gospel. He co-hosted Crypto Bahamas with medium name Anthony Scaramucci; figures such as Bill Clinton and Tony Blair attended. (Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s Future Perfect a <a href="https://www.vox.com/2020/1/7/21020439/support-future-perfect">grant</a> for a 2023 reporting project. That project is now on pause.)</p>
<p id="dqke5s">FTX ran a <a href="https://www.youtube.com/watch?v=BH5-rSxilxo">memorable ad</a> featuring Larry David during the Super Bowl encouraging people to jump into crypto, even if they didn’t really get it. He bought the naming rights to the Miami Heat’s arena; <a href="https://www.bloomberg.com/news/articles/2022-11-08/ftx-takeover-leaves-a-ton-of-sports-sponsorships-in-limbo?sref=qYiz2hd0">if that name will soon have to change is uncertain</a>. Bankman-Fried was a major donor to <a href="https://www.coindesk.com/markets/2020/11/05/cryptocurrency-ceo-donated-second-largest-amount-to-joe-bidens-campaign/">Joe Biden’s presidential campaign</a> and again in the 2022 midterms, largely in the primaries. <a href="https://www.theatlantic.com/technology/archive/2022/10/sam-bankman-fried-crypto-ftx-2022-midterms/671823/">He slowed political spending down</a> in the election cycle’s final weeks. He had positioned himself as the “acceptable” face of crypto to Washington, DC, policymakers, and the public. </p>
<div class="c-float-right"><div id="76Wclj"><div data-anthem-component="aside:11274339"></div></div></div>
<p id="ifLU7b">In a matter of days in the fall of 2022, his empire exploded in a rather spectacular fashion. Thanks to a <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/">leak</a> about the financial health of a trading firm he founded, Alameda Research, and some savvy maneuvers from a competing exchange, Binance, investors began to pull their money out of FTX en masse. FTT, a token the company issues, plunged in value. FTX was forced to seek a bailout. It didn’t get one. Now, much of the operation has been revealed to be a house of cards, and Bankman-Fried is facing serious charges.</p>
<p id="m5TvzF">Billions of dollars <a href="https://www.bloomberg.com/news/articles/2022-11-08/sbf-net-worth-is-eviscerated-in-days-with-binance-set-to-buy-ftx?sref=qYiz2hd0">have been wiped from</a> Bankman-Fried’s net worth, who now says his wealth is in the tens of thousands of dollars; FTX is bankrupt. The picture emerging is an ugly one. FTX <a href="https://www.cnbc.com/2022/11/15/ftx-says-could-have-over-1-million-creditors-in-new-bankruptcy-filing.html">could have 1 million creditors affected</a> by its bankruptcy proceedings, and it’s not evident when, if ever, its customers will see any of their money returned. </p>
<p id="z7A92S">John J. Ray III, the aforementioned new CEO of FTX, said in a <a href="https://twitter.com/FTX_Official/status/1591071832823959552">statement</a> on November 11 that Chapter 11 is “appropriate to provide FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders.” Bankman-Fried, who has said he’s intent on finding ways to help customers who can’t get their money out of the exchange, was to remain on in the transition, though the company has sought to distance itself from him. A<strong> </strong><a href="https://twitter.com/FTX_Official/status/1592985707819462657?s=20&t=6t1iHV1j9u1XpnrhIw0yqw">tweet</a> on November 16 says he has “no ongoing role” at FTX, FTX US, or Alameda, and he “does not speak on their behalf.”<strong> </strong> </p>
<p id="tcQsGY">This didn’t stop Bankman-Fried from giving interview after interview about FTX, among the most explosive of which was conducted <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy">by Vox reporter Kelsey Piper</a>, until his December 12 arrest. During that conversation, among other things, he claimed regulators — who he was previously courting — “make everything worse,” acknowledged a lot of his talk about ethics was a front, and said “each individual decision” he made “seemed fine and I didn’t realize how big their sum was until the end.”<strong> </strong></p>
<p id="LK6r6F">He also claimed he would have been able to make customers fully whole within a month had FTX not filed for bankruptcy (without offering up any explanation how) and seemed to be holding on to some sort of hope he would still be able to turn things around. “A month ago I was one of the world’s greatest fundraisers,” he wrote in the DM. “Now I’m the fallen wreckage of one but there’s a thing about being fallen — there are people who know what it’s like, and who want to do for someone else what nobody did for them.” </p>
<p id="5DX5hQ">Despite Bankman-Fried’s borderline delusional beliefs about a turnaround, it’s<strong> </strong>hard to see this ending well. Some 130 entities, including FTX, FTX US, and Alameda Research, are involved in the bankruptcy<strong> </strong>proceedings. Bahamian authorities arrested Bankman-Fried after receiving notice that the US filed criminal charges against him. On Tuesday, December 13, a Bahamian judge <a href="https://www.coindesk.com/policy/2022/12/13/ftx-founder-sam-bankman-fried-denied-bail-in-the-bahamas/">denied</a> Bankman-Fried’s attorneys’ request that he be released on $250,000 bail and said he must remain in jail there until his next hearing in February 2023. Bankman-Fried is <a href="https://www.cnbc.com/2022/12/13/sam-bankman-fried-denied-bail-in-bahamas-on-ftx-fraud-charges-judge-cites-flight-risk.html">poised to fight</a> extradition to the US. (The Bahamas has an extradition treaty with the US.)</p>
<p id="8C9Gaa">Bankman-Fried spent the weeks prior to his arrest peddling countless apologies on Twitter and in media interviews. “I’m piecing together all of the details, but I was shocked to see things unravel the way they did earlier this week,” <a href="https://twitter.com/SBF_FTX/status/1591089317300293636">he wrote</a> in a series of tweets in November. The picture coming together of how his operations were run reveals the unraveling was perhaps not so shocking after all. </p>
<div class="c-float-right"><aside id="RmYoGD"><q>“Sam went from being the darling of the regulators to suddenly being a pariah, and it happened in a matter of what? Three days?”</q></aside></div>
<p id="3bvsRe">Crypto has seen a series of blowups over the past decade, and this is among the biggest — the industry’s <a href="https://www.vanityfair.com/news/2008/08/bear_stearns200808-2">Bear Stearns moment</a>, in a way.</p>
<p id="fNXq5G">“Sam went from being the darling of the regulators to suddenly being a pariah, and it happened in a matter of what? Three days?” said Douglas Borthwick, chief business officer at INX, a crypto trading platform. “Astounding.” </p>
<h3 id="brQHAe">FTX’s shocking implosion, explained-ish</h3>
<p id="MwmWzU">In some ways, the story of what happened here is a bit of a classic one — one competitor (Binance) saw the opportunity to try to kill off another (FTX), so it did.</p>
<p id="beTYSA">“This is two crypto exchange founders doing economic warfare, and one clearly won and one clearly lost,” said David Hoffman, the co-owner of <em>Bankless</em>, a podcast and newsletter in the crypto space. </p>
<p id="Nmxdh3">How it was able to do so is a little complicated to unpack.</p>
<p id="fJKodd">Changpeng Zhao, a Chinese-born entrepreneur with Canadian citizenship who is more commonly referred to as CZ, launched Binance in 2017 and has <a href="https://www.wsj.com/articles/binance-became-the-biggest-cryptocurrency-exchange-without-licenses-or-headquarters-thats-coming-to-an-end-11636640029">since grown it</a> to be the biggest crypto exchange in the world. Bankman-Fried launched Alameda Research, a quantitative trading firm focused on digital assets, in 2017, and then FTX, an exchange, in 2019. Bankman-Fried stepped away from running the day-to-day at Alameda, but the two entities <a href="https://www.bloomberg.com/news/articles/2022-09-27/sam-bankman-fried-s-alameda-research-draws-increasing-attention?sref=qYiz2hd0">remained very much connected</a>.</p>
<p id="7f90wv">Up until November, the story was that FTX and Alameda were in decent shape. FTX <a href="https://www.cnbc.com/2022/09/21/ftx-in-talks-to-raise-1-billion-at-valuation-of-about-32-billion.html">had a $32 billion valuation</a>, its smaller FTX US division (that’s in line with US regulations and doesn’t allow nearly as <a href="https://www.nytimes.com/2021/07/23/us/politics/crypto-billionaires.html">much risky behavior as regular FTX does</a>) was pegged at <a href="https://www.cnbc.com/2022/01/26/coinbase-rival-ftx-us-valued-at-8-billion-in-first-funding-round.html">$8 billion</a>, and Alameda <a href="https://www.bloomberg.com/news/articles/2022-09-14/trading-firm-alameda-research-powers-ftx-ceo-sam-bankman-fried-s-crypto-empire?sref=qYiz2hd0">had brought in a $1 billion profit</a> in a single year. Things have since fallen apart very fast.</p>
<p id="hqBuRQ">On November 2, Ian Allison at CoinDesk <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/">published a leak</a> revealing that much of Alameda’s $14.6 billion in assets were parked in a digital token created by FTX, called FTT. (In crypto, <a href="https://www.investopedia.com/terms/c/crypto-token.asp">tokens</a> are digital assets built on a blockchain.) Among other perks, FTT tokens give holders a discount on FTX trading fees. But the tokens were, like a lot of crypto tokens, kind of a made-up thing where their value was derived in believing there was value. “They printed this token out of thin air, endowed it with some valuation, and then Alameda used it as collateral,” said Nic Carter, partner at venture capital firm Castle Island Ventures.</p>
<p id="gaLLY8">Bloomberg’s Tracy Alloway <a href="https://twitter.com/tracyalloway/status/1590373675014189056?s=20&t=eKru_Hzzt4om43rpioBr2w">used the example</a> of a Beanie Baby you buy for $5 and then sell for $20 because you make a price guide saying that’s what he’s worth. In this case, FTX was making the Beanie Baby itself — as in issuing the FTT token for free — then buying some of the tokens back for whatever amount. It was then able to say the token was worth that amount and do <a href="https://twitter.com/tracyalloway/status/1590374495336157186?s=20&t=eKru_Hzzt4om43rpioBr2w">business with it</a> by, for example, using it as collateral for a loan. </p>
<p id="Dzq737">The CoinDesk leak and revelations that it had so much money in FTT prompted questions about Alameda’s financial health and concerns that a fall in the token’s value could <a href="https://www.nytimes.com/2022/11/09/technology/ftx-binance-crypto.html">cause real problems for both the trading firm and FTX</a>. </p>
<p id="vq0Yuj">Days later, on November 6, Zhao <a href="https://twitter.com/cz_binance/status/1589283421704290306?s=20&t=F6-_1bHwbixdB9vP90XqDQ">said on Twitter</a> that Binance would be liquidating its FTT holdings, which it received after exiting its stake in FTX last year. (Binance was an investor in FTX, with <a href="https://www.reuters.com/technology/exclusive-behind-ftxs-fall-battling-billionaires-failed-bid-save-crypto-2022-11-10/">Zhao buying a 20 percent stake</a> in the exchange soon after its launch, according to Reuters.) He said Binance received $2 billion in tokens, including some in the FTX token, at the time, but due to “recent revelations that have come to light,” they were offloading the FTT.</p>
<p id="BWHaoR">The whole thing sort of spiraled from there. Alameda’s CEO, Caroline Ellison, <a href="https://twitter.com/carolinecapital/status/1589264375042707458">insisted</a> Alameda was fine and <a href="https://www.bloomberg.com/news/articles/2022-11-08/crypto-exchange-ftx-s-token-tumbles-below-22-barrier-amid-spat?utm_source=google&utm_medium=bd&cmpId=google&sref=qYiz2hd0">offered to buy</a> Binance’s FTT at $22 a token, around where it was at the time. (Ellison is an interesting character, and <a href="https://www.forbes.com/sites/davidjeans/2022/11/18/queen-caroline-the-risk-loving-29-year-old-embroiled-in-the-ftx-collapse/?sh=5e17c8ae791f">Forbes has a good profile of her here</a>.)<strong> </strong>Bankman-Fried claimed FTX’s assets were fine. Investors didn’t believe them. </p>
<p id="MkJMiu">FTT’s value <a href="https://coinmarketcap.com/currencies/ftx-token/">plunged</a> and is now under $2,<strong> </strong>holders made a mad dash to sell, and customers started trying to pull their money out of FTX altogether. The exchange suffered from a liquidity crunch, meaning it ran out of money. By November 8, it became apparent that this was all sort of the “this is fine” meme, but the fire had engulfed the building and everyone in it. Bankman-Fried <a href="https://twitter.com/SBF_FTX/status/1590012124864348160?s=20&t=SoFGmQDkSDq2wRnaeX025w">announced</a> that FTX had reached a “strategic transaction” to hand FTX over to Binance (but not FTX US). Zhao <a href="https://twitter.com/cz_binance/status/1590013613586411520">said</a> Binance had signed a non-binding letter of intent to buy FTX, pending due diligence. The non-binding part wound up being important as <a href="https://www.coindesk.com/business/2022/11/09/binance-is-strongly-leaning-toward-scrapping-ftx-rescue-takeover-after-first-glance-at-books-source/">reports soon began to emerge</a> that Binance might back out, which it eventually did. </p>
<p id="RjpBaF">“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said in a <a href="https://twitter.com/binance/status/1590449161069268992?s=20&t=IKx1x0QoQGA4EUw48Xz6Rg">series of tweets</a>. “In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.”</p>
<p id="xvkHVO">In a November 8 <a href="https://twitter.com/WClementeIII/status/1590107340317294593?s=20&t=hTmmDiw06VGPlQ3sfV6DCg">letter to investors</a>, which include SoftBank, Tiger Global, and the Ontario Teachers’ Pension Plan, Bankman-Fried said he was “sorry” he’d been hard to contact amid all the drama and that the “details are still being hashed out” in the Binance deal — a deal that he noted was non-binding and, ultimately, would soon be defunct. “Our first priority is to protect customers and the industry; that’s been guiding what we do,” he wrote. </p>
<p id="HFH42G">On the morning of November 9, Zhao <a href="https://twitter.com/cz_binance/status/1590351182513729544?s=46&t=6j4wZdSy1YXeTWtKI3V92w">tweeted out a note</a> he’d sent to the Binance team saying he “did not master plan this or anything related to it” and that he had “very little knowledge of the internal state of things at FTX” before Bankman-Fried called asking for help. (To be sure, his <a href="https://twitter.com/cz_binance/status/1589283421704290306?s=20&t=F6-_1bHwbixdB9vP90XqDQ">tweet earlier in the week</a> indicated he had a hunch otherwise.) Semafor <a href="https://www.semafor.com/article/11/08/2022/before-deal-with-rival-ftx-scoured-wall-street-silicon-valley-billionaires-for-1-billion-lifeline">reported</a> on November 8 that FTX had tried to get a bailout from Silicon Valley and Wall Street investors before resorting to Binance; many of FTX’s investors reportedly <a href="https://www.theinformation.com/articles/ftx-venture-investors-fear-total-wipeout-in-binance-rescue-deal">said they were blindsided by the deal</a>. </p>
<div class="c-float-right"><aside id="kLUI44"><q>“Clearly, something was very awry”</q></aside></div>
<p id="DRTrkl">“Binance saw something at FTX, they realized there was a vulnerability — we don’t know what it was yet — and realized they could take them out, which they did. It was really an incredible strategic move,” Carter said. “For Sam to sell to his literally biggest competitor, it definitely is a tough pill to swallow, so clearly, something was very awry.”</p>
<p id="Ck0hvI"><a href="https://www.reuters.com/technology/exclusive-behind-ftxs-fall-battling-billionaires-failed-bid-save-crypto-2022-11-10/">This wasn’t the beginning</a> of Zhao’s and Bankman-Fried’s simmering rivalry — the former didn’t love the latter’s policy outreach in the US — but it was the first time it had boiled over in such a big way. The potential deal signaled a detente, but now, it appears the hostilities remain. “At some point I might have more to say about a particular sparring partner, so to speak,” Bankman-Fried <a href="https://twitter.com/SBF_FTX/status/1590709197502812160?s=20&t=ML9gOqv79mRDvzcyiGS3Ww">tweeted</a> on November 10 in an apparent reference to Zhao. “But you know, glass houses. So for now, all I’ll say is: well played; you won.”</p>
<h3 id="LItHMx">There are still some unknowns here, though the knowns are pretty wild </h3>
<p id="gg4CO8">In a call with investors on November 9,<strong> </strong>first reported by <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-09-2022/card/ftx-needs-8-billion-bankman-fried-tells-investors-2RSa5oqZyZZ5YrPLuZuL">the Wall Street Journal</a>, Bankman-Fried told them he needed $8 billion to cover all of the requests customers were making to withdraw their money. <a href="https://www.ctvnews.ca/business/ontario-teachers-pension-plan-writes-down-ftx-investment-to-zero-1.6158854">Several</a> of FTX’s investors <a href="https://techcrunch.com/2022/11/09/sequoia-capital-marks-its-ftx-investment-down-to-zero-dollars/">have written down</a> their investments in FTX to $0, meaning they think it’s worthless.<strong> </strong></p>
<p id="dEhijy">Since things began to fall apart in early November, there’s been quite a bit of <a href="https://www.wired.com/story/ftx-collapse-binance-crypto-deal/">speculation</a> as to what happened. Many people I spoke with openly wondered where the original leak to CoinDesk had come from. <a href="https://www.reuters.com/technology/exclusive-behind-ftxs-fall-battling-billionaires-failed-bid-save-crypto-2022-11-10/">Reuters reported</a> on November 10<strong> </strong>that Bankman-Fried had transferred at least $4 billion in funds to Alameda to prop the firm up after it had suffered losses, a portion of which were customer deposits. He reportedly didn’t tell other FTX executives about it because he was nervous it would leak. </p>
<p id="8dXEva">In <a href="https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-wstate-rayj-20221213.pdf">testimony</a> to be delivered before the House Financial Services Committee on December 13, FTX’s new CEO said that customer assets from FTX were indeed commingled with assets from Alameda, and that Alameda used client funds to engage in trading that exposed customer funds to huge losses. He also said that FTX went on a $5 billion “spending binge” in late 2021 through 2022, and that loans and other payments over $1 billion were made to insiders.</p>
<p id="tuu8rK">To state the obvious here, none of this is good. When you give your money to a crypto exchange, you are supposed to be able to get it back when you want to. That means “a client fund needs to be segregated, whether that’s dollars or whether that’s crypto,” Borthwick said. And if the exchange isn’t holding onto the client funds but is instead lending them or trading them (<a href="https://www.bloomberg.com/opinion/articles/2022-11-09/bankman-fried-s-ftx-had-a-death-spiral-before-binance-deal?sref=qYiz2hd0">as Matt Levine at Bloomberg points out</a>, banks, for example, lend customer deposits), then it runs the risk of not having the money to hand back to clients, especially when the clients come asking for the money all at once. </p>
<p id="FGEE3l">On November 12, <a href="https://www.ft.com/content/0c2a55b6-d34c-4685-8a8d-3c9628f1f185">the Financial Times published</a> a copy of FTX’s balance sheet dated two days earlier that was, to put it plainly, bonkers. It revealed that much of FTX’s assets were in venture capital investments that weren’t liquid and crypto tokens that were, as FT noted, not widely traded and that, as Bloomberg’s Levine explained, were sort of “magic beans” that FTX had made up. The balance sheet also listed a negative $8 billion entry labeled “hidden, poorly internally labeled ‘@fiat’ account” and a $7 million holding called “TRUMPLOSE.”</p>
<p id="sgtAjI">Bankman-Fried keeps offering up explanations, though they are often caveated with the assertion that he’s still “<a href="https://twitter.com/SBF_FTX/status/1590709172936798208?s=20&t=QVhPzE1Goh1dQnI4jDN_kA">fleshing out every detail</a>” of what happened and that everything he’s saying is “<a href="https://www.nytimes.com/2022/12/01/business/dealbook/sam-bankman-fried-dealbook-interview-transcript.html">to my knowledge</a>.”</p>
<p id="4Y9PRt">“In a very real way, SBF did this to himself, and its impacts will be felt across the ecosystem even by those trying to make a real difference,” said Scott Moore, the co-founder of Gitcoin, a project for building and funding Web3 open-source infrastructure, referring to other projects in the space around areas like decentralized finance and public works.</p>
<p id="O3Fzqb">FTX was not as transparent as it should have been about what it was doing with assets and deposits, and as the public and the authorities learn more, criminal activity may in fact be involved. “At some point, because of the situation with the FTT price [falling] and the information that Alameda had these positions that were collateralized with the FTT token and all of these things, it translated to a bank run on FTX,” said Alex Svanevik, CEO of blockchain analytics platform Nansen, referring to the colloquial term for when a critical mass of customers removes their money from a financial institution over solvency fears. “The great irony is that, of course, SBF was the guy who was in Washington trying to engage with regulators, and it looks like he didn’t have his own house in order.”</p>
<p id="wDVkjB">What happened is not entirely different from what transpired when crypto lender Celsius <a href="https://www.bloomberg.com/news/articles/2022-07-14/crypto-lender-celsius-files-for-bankruptcy-in-cash-crunch?sref=qYiz2hd0">filed for bankruptcy</a> earlier this year or when crypto broker <a href="https://www.coindesk.com/layer2/2022/07/12/behind-voyagers-fall-crypto-broker-acted-like-a-bank-went-bankrupt/">Voyager</a> or another crypto lender, <a href="https://blockworks.co/how-blockfi-went-from-tech-unicorn-to-crypto-burnout/">BlockFi</a>, went under. </p>
<p id="0DMVro">“People park money with these different entities and then trust these entities with having control over the funds, and on the back end, these entities are doing frankly irresponsible things with customers’ deposits,” Svanevik said. It causes problems because crypto’s very volatile, so valuations can fluctuate quickly and make it riskier than more traditional assets.</p>
<p id="eQgfxw">FTX’s downfall has <a href="https://www.cnbc.com/2022/11/16/genesis-lending-unit-halts-withdrawals-in-aftermath-of-ftx-collapse.html">caused contagion across other players in the crypto industry</a>, meaning one failure <a href="https://www.coindesk.com/markets/2022/11/17/crypto-exchanges-binance-and-okx-suspend-support-for-solana-versions-of-usdt-usdc-stablecoins/">causes disruptions at other organizations</a>. Troubled crypto lender BlockFi, which Bankman-Fried <a href="https://www.ft.com/content/69ab1469-df01-4ea2-a015-b0e9904af4cc">said he would bail out in June</a>, <a href="https://www.wsj.com/articles/blockfi-files-for-bankruptcy-as-latest-crypto-casualty-11669649545?mod=hp_lead_pos1">filed for chapter 11 bankruptcy</a> in late November as part of the FTX fallout. Multiple <a href="https://www.coindesk.com/markets/2022/12/06/crypto-firm-orthogonal-victim-of-ftx-contagion-now-faces-internal-dissent/">other companies</a> are in trouble. </p>
<p id="pVZj4u">“The last several months, FTX was coming out as the savior of the industry and trying to help others,” said Reena Aggarwal, a professor of finance at Georgetown. </p>
<p id="13FPnm">Zhao has perhaps taken Bankman-Fried’s place as the voice of crypto and the industry’s savior. He <a href="https://www.cnbc.com/2022/11/16/binance-ceo-crypto-will-be-fine-announces-industry-recovery-fund.html">has said</a> the sector “will be fine” and is trying to set up a recovery fund to help people in the arena. Still, as the Wall Street Journal notes, <a href="https://www.wsj.com/articles/binance-is-trying-to-calm-investors-but-its-finances-remain-a-mystery-11670679351?mod=djemalertNEWS">Binance’s financial situation</a> is a mystery as well. </p>
<p id="vuqGsB">One point of relief is that FTX’s collapse and the current turmoil in the crypto industry has not affected the broader financial system. “If it was a regulated bank, the Fed would have stepped in, but it’s not,” Borthwick, whose own exchange runs entirely within the lines of US securities laws, said.<strong> </strong></p>
<p id="k6FwGb">Whether this was a Bear Stearns situation, a Bernie Madoff scenario, a combination, or something else entirely, for customers holding money on the exchange, it doesn’t really matter what the mechanism was if they don’t get that money back, <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-08-2022/card/ftx-customers-could-see-their-money-again-outside-observers-say-probably-possibly-eventually-maybe-kqLtmPutQZyW5qWFksIn">which it seems increasingly unlikely they will</a>. Not to mention the investors who backed FTX and will very likely <a href="https://www.theinformation.com/articles/ftx-venture-investors-fear-total-wipeout-in-binance-rescue-deal">not be seeing a return on that investment</a> and will lose most or all of their capital.</p>
<p id="qeOx2z">“It doesn’t matter what the scheme was on the back end if you can’t get your money out,” Svanevik said. “They exercised poor risk management and they jeopardized customers’ deposits, which they shouldn’t do.” Though, of course, it matters to US authorities.</p>
<p id="ddkZnM">The story has all sorts of twists and turns and open questions. The company apparently hired an in-house psychiatrist who talked to <a href="https://www.nytimes.com/2022/11/15/technology/ftx-sam-bankman-fried-psychiatrist.html">the New York Times</a> about prescribing stimulants to employees. The Times and other outlets have also reported that many of the employees lived together and were romantically involved, including Bankman-Fried and Ellison. Some of the products Alameda was advertising — including high-yield loans with “no downside” — <a href="https://twitter.com/mrjasonchoi/status/1592502790932156418">look sketchy as hell</a>.<strong> </strong></p>
<h3 id="G2yB9h">Crypto is still a roller coaster you might want to stay off of</h3>
<p id="phAko5">FTX’s implosion has been nothing short of spectacular. While many people I spoke with noted they’d had some hesitation about FTX and Alameda intermingling in the past and <a href="https://beincrypto.com/questions-of-propriety-arise-over-links-between-ftx-and-alameda-research/">potential conflicts of interest</a>, most acknowledged they really did not expect this to happen this fast and in this way.</p>
<p id="CnpbOw">“[FTX] was so intent on legitimizing themselves and getting in the DC policy orbit,” Carter said.</p>
<p id="ekdVYT">Bankman-Fried’s power has evaporated and then some. He had really positioned himself as the face of crypto and certainly of FTX (the company literally ran <a href="https://www.vogue.com/article/gisele-bundchen-ftx-cyrpto-philanthropy-campaign-interview">ads</a> featuring him). His regulatory and political investments, at least for the time being, are quite worthless, as is his weight in the crypto policy arena. </p>
<p id="TkkrKS">“The bill that Sam was working on is dead in the water, crypto loses some of its luster among these politicians that FTX was cozying up to,” Carter said. “There’s a renewed sense that this industry is just totally unregulated and run by crooks and fraudsters.”</p>
<div class="c-float-right"><aside id="aKeXN8"><q>“A situation like this becomes, frankly, quite embarrassing”</q></aside></div>
<p id="129JZQ">“A key pillar of FTX’s marketing strategy has been to elevate the personal brand of SBF, and that’s where a situation like this becomes, frankly, quite embarrassing,” Svanevik said. </p>
<p id="yN1HO6"><a href="https://www.bloomberg.com/news/articles/2022-11-11/sam-bankman-fried-s-assets-go-from-16-billion-to-zero-after-ftx-collapse?sref=qYiz2hd0">Bloomberg</a> estimates that Bankman-Fried’s personal wealth has been wiped out; his net worth had been pegged at nearly $16 billion at the start of November, and is believed to have peaked at $26 billion in March. He is a major player in philanthropy and, specifically, the <a href="https://www.vox.com/future-perfect/2022/8/8/23150496/effective-altruism-sam-bankman-fried-dustin-moskovitz-billionaire-philanthropy-crytocurrency">effective altruism movement</a>, where adherents — including some like Bankman-Fried who are or aim to become ultra-wealthy — give away money to try to do the most good for the most people. His plunging net worth means significantly fewer funds for the causes he cares about — including <a href="https://www.politico.com/news/2022/08/04/democratic-megadonor-sam-bankman-fried-00049048">pandemic prevention</a> — and the effective altruism community <a href="https://forum.effectivealtruism.org/posts/yjGye7Q2jRG3jNfi2/ftx-will-probably-be-sold-at-a-steep-discount-what-we-know">has acknowledged</a> the potential impact. The movement is <a href="https://www.vox.com/future-perfect/23458282/effective-altruism-sam-bankman-fried-ftx-crypto-ethics">now undergoing</a> a <a href="https://www.vox.com/future-perfect/23500014/effective-altruism-sam-bankman-fried-ftx-crypto">moment of reckoning of its own</a>. </p>
<p id="faWGC3">The entire episode draws attention to a consistent theme in crypto: It remains very much the Wild West. Even the best-known billionaire (who probably is a billionaire no longer) advancing this new technological and financial paradigm can wind up in a house-of-cards, smoke-and-mirrors scenario. Bankman-Fried’s “FTX is fine” declaration is reminiscent of a message another prominent crypto figure, Do Kwon, sent over the summer when his <a href="https://www.coinage.media/s1/inside-cryptos-largest-collapse-with-terras-do-kwon">operation collapsed</a>, telling his customers, “steady lads.”</p>
<p id="GKTlYr">“It’s remarkable, again and again, how crypto personalities like SBF will claim that everything is fine up until the very second they have to admit it isn’t,” White said. Much of crypto hinges on the belief that everything is fine and that coins and tokens have value ... unless and until that belief dissipates.</p>
<p id="KZdw3C">The prices of many cryptocurrencies have declined in the wake of the FTX revelations. Binance, which <a href="https://www.reuters.com/investigates/special-report/fintech-crypto-binance-zhao/">has come under</a> regulatory scrutiny of its own, has highlighted its own “<a href="https://www.binance.com/en/blog/community/our-commitment-to-transparency-2895840147147652626">commitment to transparency</a>” in an effort to shore up confidence it won’t wind up like FTX. The share prices of Coinbase and Robinhood have <a href="https://www.bloomberg.com/news/articles/2022-11-09/coinbase-robinhood-lead-10-billion-stock-rout-on-crypto-mayhem?sref=qYiz2hd0">fallen</a>. Even people in the crypto space who don’t particularly love Bankman-Fried — including Zhao — acknowledge FTX’s troubles are bad for the industry. “Do not view it as a ‘win for us,’” Zhao wrote in early November. “User confidence is severely shaken. Regulators will scrutinize exchanges even more.” </p>
<p id="DtedJb">Every time there’s a blow-up like this, there are calls for greater scrutiny on the arena overall, but many regulators and policymakers remain behind the curve. It’s worth noting that up to now, a lot of them <a href="https://twitter.com/HaloCrypto/status/1590417311839981569?s=20&t=b5xUxpjoaH-7HwzoKxAHUA">were listening to Bankman-Fried, too</a>. (<a href="https://www.vox.com/recode/22452151/memes-bitcoin-dogecoin-elon-musk">I interviewed</a> Bankman-Fried about meme investing and regulations in 2021, when he told me, “Some things are clearly legitimate and some things are clearly bullshit, and there’s also this long tail of things that are a little bit confusing.”)</p>
<p id="x2PfUb">“SBF was just spending a lot of time in DC schmoozing with lawmakers and giving recommendations on possible crypto regulation, acting as the ‘adult in the room’ and the liaison from the crypto industry,” White said. “If I was those legislators, I would be questioning a lot of his suggestions.”</p>
<p id="sPElYt">“Everyone wants to go bankless until they get punched in the face, and after they get punched in the face they say, ‘Hold on, where are the regulators?’” Borthwick said. But, he noted, this saga is very much still unfolding. “This isn’t the end of it.”</p>
<p id="M3eh9y"></p>
<p id="TWJ3Gr"><em><strong>Update, November 16:</strong></em><em> This story has been updated with additional information about the status of Future Perfect’s grant from the Building a Stronger Future foundation.</em></p>
<p id="667K0F"></p>
<p id="mlBlb5"><em><strong>Update, December 13, 7 pm ET: </strong></em><em>This story, originally published on November 10, has been updated throughout multiple times, including most recently with news of Bankman-Fried’s arrest and details about the charges against him.</em></p>
https://www.vox.com/the-goods/23451761/ftx-sam-bankman-fried-arrest-bankrupt-bitcoin-alamedaEmily Stewart2022-12-12T20:50:38-05:002022-12-12T20:50:38-05:00How effective altruism let Sam Bankman-Fried happen
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<p>Profound philosophical errors enabled the FTX collapse.</p> <p id="37n9F2">I have a lot of reasons to be furious at <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy">Sam Bankman-Fried</a>. His extreme mismanagement of FTX (which his successor <a href="https://www.documentcloud.org/documents/23310507-ftx-bankruptcy-filing-john-j-ray-iii">John J. Ray III</a>, who previously helped clean up the Enron debacle, described as the worst he’s ever seen) led to the sudden collapse of a <a href="https://www.cnbc.com/2022/09/21/ftx-in-talks-to-raise-1-billion-at-valuation-of-about-32-billion.html">$32 billion</a> financial company. He lost <a href="https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/#:~:text=The%20exchange's%20founder%20Sam%20Bankman,amount%20at%20about%20%241.7%20billion.">at least $1 billion in client funds</a> after surreptitiously transferring it to a hedge fund he also owned, potentially in an effort to make up for huge losses there. His historic management failures pulled the rug out from under his users, his staff, and the <a href="https://www.forbes.com/sites/johnhyatt/2022/11/14/sam-bankman-fried-promised-millions-to-nonprofits-research-groups-thats-not-going-too-well-now/?sh=35121e55ee87">many charities</a> he promised to fund. He hurt many, many, many people. On Monday, news broke that <a href="https://www.vox.com/the-goods/23451761/ftx-sam-bankman-fried-arrest-bankrupt-bitcoin-alameda">he had been arrested in the Bahamas</a>, where FTX is based, after US prosecutors in the Southern District of Manhattan had filed criminal charges of wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering against him, <a href="https://www.nytimes.com/2022/12/12/business/ftx-sam-bankman-fried-bahamas.html">according to reporting by the New York Times</a>.<strong> </strong></p>
<p id="xaIHi5">But for me, the most disturbing aspect of the Bankman-Fried saga, the one that kept me up at night, is how much of myself I see in him.</p>
<p id="UKpMc5">Like me, Bankman-Fried (“SBF” to aficionados) grew up in a college town surrounded by left-leaning intellectuals, including both of his parents. So did his business partner and Alameda Research CEO Caroline Ellison, the child of MIT professors. Like me, they were both drawn to utilitarian philosophy at a young age. Like me, they seemed fascinated by what their privileged position on this planet would enable them to do to help others, and embraced the effective altruism movement as a result. And the choices they made because of this latter deliberation would prove disastrous.</p>
<p id="IDq1mL">Something went badly wrong here, and my fellow journalists in the take mines have been producing a small library of theories of why. Maybe it was SBF and Ellison’s <a href="https://www.theatlantic.com/ideas/archive/2022/11/cryptocurrency-effective-altruism-ftx-sam-bankman-fried/672149/">choice to earn to give</a>, to try to make as much money as possible so they could give it away. Maybe the problem was that they <a href="https://www.vice.com/en/article/bvmanv/ok-wtf-is-longtermism-the-tech-elite-ideology-that-led-to-the-ftx-collapse">averted their gaze from global poverty to more “longtermist” causes</a>. Maybe the issue is that they were not giving away their money <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3995225">sufficiently democratically</a>. Maybe the problem was a <a href="https://twitter.com/HeerJeet/status/1591457628471046145">theory of change that involved billionaires</a> at all. </p>
<p id="LKFuvi">It took me a while to think through what happened. I thought Bankman-Fried was going to commit billions toward tremendously beneficial causes, a development I chronicled in a <a href="https://www.vox.com/future-perfect/2022/8/8/23150496/effective-altruism-sam-bankman-fried-dustin-moskovitz-billionaire-philanthropy-crytocurrency">long piece earlier this year</a> on how EA was coping with its sudden influx of billions. The revelation that his empire was a house of cards was shattering, and for weeks I was too angry, bitter, and deeply depressed to say much of anything about it (much to the impatience of my editor).</p>
<p id="YhJCD8">There’s still plenty we don’t know, but based on what we <em>do</em> know, I don’t think the problem was earning to give, or billionaire money, or longtermism per se. But the problem does lie in the culture of effective altruism. SBF was an inexperienced 25-year-old hedge fund founder who wound up, unsurprisingly, hurting millions of people due to his profound failures of judgment when that hedge fund grew into something enormous — failures that can be laid in part at the feet of EA. </p>
<div class="c-float-right c-float-hang"><aside id="gK1uVc"><q>Despite everything, this isn’t a time to give up on effective altruism</q></aside></div>
<p id="k97yl1">For as much good as I see in that movement, it’s also become apparent that it is deeply immature and myopic, in a way that enabled Bankman-Fried and Ellison, and that it desperately needs to grow up. That means emulating the kinds of practices that more mature philanthropic institutions and movements have used for centuries, and becoming much more risk-averse. EA needs much stronger guardrails to prevent another figure like Bankman-Fried from emerging — and to prevent its tenets from becoming little more than justifications for malfeasance.</p>
<p id="kQJEbi">Despite everything that’s happened, this isn’t a time to give up on effective altruism. EA has quite literally saved lives, and its critique of mainstream philanthropy and politics is still compelling. But it needs to change itself to keep changing the world for the better.</p>
<h3 id="4Kmqek">How crypto bucks swept up EA — and us?</h3>
<p id="1BvdYV">First, a disclosure: This August, Future Perfect — the section of Vox you’re currently reading — was awarded a $200,000 <a href="https://www.vox.com/2020/1/7/21020439/support-future-perfect">grant</a> from Bankman-Fried’s family foundation. The grant was for a reporting project in 2023, which is now on pause. (I should be clear that, under the terms of the grant from SBF’s foundation, Future Perfect has ownership of its content and retains editorial independence, as is standard practice for all of our grants.) </p>
<p id="PyIk9r">We’re currently having internal discussions about the future of the grant, mainly around the core question: What’s the best way to do good with it? It’s more complicated than just giving it back, not least because it’s hard to be sure where the money will go — will it go toward making victims whole, for instance?</p>
<p id="TQswFx">Obviously, knowing what we know now, I wish we hadn’t taken the money. It proved the worst of both worlds: It didn’t actually help our reporting at all, and it put our reputation at risk.</p>
<p id="KFnx66">But the honest answer to whether I regret taking the money <em>knowing what we knew then</em>, the answer is no. Journalism, as an industry, is struggling badly. Employment in US newsrooms <a href="https://www.pewresearch.org/fact-tank/2021/07/13/u-s-newsroom-employment-has-fallen-26-since-2008/">fell by 26 percent from 2008 to 2020</a>, and this fall has seen another <a href="https://www.wsj.com/articles/cnn-gannett-other-media-giants-resort-to-layoffs-ahead-of-potential-downturn-11670043844">end-of-year wave in media layoffs</a>. Digital advertising has <a href="https://www.axios.com/newsletters/axios-media-trends-3d3a617d-2368-4108-b70d-3cba0d0446bb.html?chunk=3&utm_campaign=The%20Media%20Roundup%20from%20Media%20Voices&utm_medium=email&utm_source=Revue%20newsletter&utm_term=emshare#story3">not made up for the collapse of print ads and subscriptions</a>, and digital subscription models have proven <a href="https://www.nytimes.com/2022/08/03/business/media/new-york-times-quarterly-earnings.html">hit</a> or <a href="https://www.theverge.com/2021/3/24/22349175/medium-layoffs-union-evan-williams-blogger-twitter-subscription">miss</a>. Vox is no different from other news organizations in our need to find sources of revenue. Based on what we knew at the time, there was also little reason to believe Bankman-Fried’s money was ill-gotten.</p>
<p id="YDYEXp">(This is also as good a place as any to clear the air about Future Perfect’s mission. We have always described Future Perfect as “inspired by” effective altruism — meaning that it’s not part of the movement but informed by its underlying philosophy. I’m an EA, but my editor is not; indeed, the majority of our staff aren’t EAs at all. What unites us is the mission of using EA as a lens, prizing importance, tractability, and neglectedness, to cover the world — something that leads to a set of coverage priorities and ideas that we believe are woefully underrepresented in the media.)</p>
<p id="3HcHWj">In the aftermath of the FTX crash, a common criticism I’ve gotten via email and <a href="https://twitter.com/tomer_stern/status/1590894461198172160">Twitter</a> is that I, and other EAs, should have known this guy was sketchy. And in some sense, the sense in which crypto as a whole is a kind of royal scam without much of a use case beyond paying for drugs, we all knew he was. I <a href="https://www.vox.com/future-perfect/2022/8/23/23313081/effective-altruism-billionaires-tax-inequality-dustin-moskovitz-sam-bankman-fried">said as much on this website</a>.</p>
<div class="c-float-left c-float-hang"><aside id="KOuMBP"><q>I think crypto is stupid. Millions apparently disagreed.</q></aside></div>
<p id="ohgEXd">But while <em>I</em> think crypto is stupid, millions apparently disagreed, and wanted places to trade it, which is why the stated business activities of Alameda and FTX made sense as things that would be immensely profitable in a normal, legal sense. Certain aspects of FTX’s operations <em>did</em> seem a bit noxious, particularly as its advertising and publicity campaigns ramped up. “I’m in on crypto because I want to make the biggest global impact for good,” <a href="https://decrypt.co/98890/ftx-announces-1-billion-charity-fund-first-print-ad-campaign-starring-gisele-bundchen">read an ad FTX placed in magazines like the New Yorker and Vogue</a>, featuring photos of Bankman-Fried (other ads in the same campaign featured model Gisele Bündchen, <a href="https://people.com/sports/tom-brady-gisele-bundchen-among-celebrities-named-ftx-crypto-lawsuit/">one of many celebrities</a> who endorsed the platform). As I <a href="https://www.vox.com/future-perfect/2022/8/23/23313081/effective-altruism-billionaires-tax-inequality-dustin-moskovitz-sam-bankman-fried">said in August</a>, “buying up Super Bowl ads and Vogue spreads with Gisele Bündchen to encourage ordinary people to put their money into this pile of mathematically complex garbage is … actually morally questionable.”</p>
<p id="t3iizp">I stand by that. I also stand by the idea that what the money was meant to do matters. In the case of the Bankman-Fried foundations, it was for funding coverage and political action around improving the long-term trajectory of humanity. It seemed like a worthwhile topic before FTX’s collapse — and it still is. </p>
<h3 id="q7dxqu">The problem isn’t longtermism …</h3>
<p id="enUtrz">Ah, yes: the long-term trajectory of humanity, the trillions upon trillions of beings who could one day exist, dependent on our actions today. It’s an impossible concept to express without sounding unbelievably pretentious, but it’s become a <a href="https://www.vox.com/future-perfect/23298870/effective-altruism-longtermism-will-macaskill-future">growing focus of effective altruism in recent years</a>. </p>
<p id="Dvg0B5">Many of the movement’s leaders, most notably Oxford moral philosopher Will MacAskill, have embraced an argument that because so many more humans and other intelligent beings could live in the future than live today, the most important thing for altruistic people to do in the present is to promote the welfare of those unborn beings, by ensuring that future comes to be by preventing existential risks — and that such a future is as good as possible.</p>
<p id="NhR1Iu">MacAskill’s book on this topic <em>What We Owe the Future</em> received one of the biggest receptions of any philosophy monograph in recent memory, and both it and his more technical work with fellow Oxford philosopher Hilary Greaves make pointed, <a href="https://www.vox.com/future-perfect/23298870/effective-altruism-longtermism-will-macaskill-future">highly contestable claims about how to weigh future people against people alive today</a>.</p>
<p id="zAxrTj">But the theoretical debate obscures what funding “longtermist” causes means in practice. One of the biggest shortcomings of MacAskill’s book, in my view, is that it failed to lay out what “making the future go as well as possible” involves in practice and policy. The most specific it got was in advocating measures to prevent human extinction or a catastrophic collapse in human society.</p>
<p id="J5QXbd">Unless you are a <a href="https://www.nytimes.com/2022/11/23/climate/voluntary-human-extinction.html">member of the Voluntary Human Extinction movement</a>, you’ll probably agree that human extinction is indeed bad. And you don’t need to rely on the moral math of longtermism at all to think so. </p>
<p id="RDUE5V">If one goes through the “longtermist” causes funded by Bankman-Fried’s now-defunct charitable enterprises and by the Open Philanthropy Project (the EA-aligned charitable group funded by billionaires Cari Tuna and Dustin Moskovitz), the money is overwhelmingly dedicated to efforts to prevent specific threats that could theoretically kill billions of humans. Before the collapse of FTX, Bankman-Fried put millions into scientists, companies, and nonprofits working on <a href="https://ftxfuturefund.org/our-grants/?_area_of_interest=biorisk-and-recovery-from-catastrophe">pandemic and bioterror prevention</a> and <a href="https://ftxfuturefund.org/our-grants/?_area_of_interest=artificial-intelligence">risks from artificial intelligence</a>.</p>
<div class="c-float-right c-float-hang"><aside id="NmeXuq"><q>You’ll probably agree that human extinction is indeed bad</q></aside></div>
<p id="AOypjD">It’s fair and necessary to dispute the empirical assumptions behind those investments. But the core theory that we are in an unprecedented age of existential risk and that humans must responsibly regulate technologies that are powerful enough to destroy ourselves is very reasonable. While critics <a href="https://www.washingtonpost.com/opinions/2022/09/05/longtermism-philanthropy-altruism-risks/">often charge</a> that longtermism takes away resources from more pressing present problems like climate change, the reality is that pandemic prevention is, <a href="https://twitter.com/dylanmatt/status/1580927121383645186">bafflingly, underfunded</a>, explicitly <a href="https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2021/">compared to climate change</a> and especially compared to the <a href="https://www.hsph.harvard.edu/c-change/news/primary-pandemic-prevention/">seriousness of the threat</a>, and longtermists were trying to do something about it. </p>
<p id="olgTau">Sam’s brother and main political deputy Gabe Bankman-Fried was investing serious capital into a strategy to force an evidently unwilling Congress to <a href="https://www.vox.com/23020343/pandemic-prevention-apollo-athena-bipartisan-commision">appropriate the tens of billions of dollars annually needed</a> to make sure nothing like Covid happens again. Mainstream funders like the <a href="https://www.vox.com/2022/3/17/22976981/nuclear-war-russia-ukraine-funding-macarthur-existential-risk-effective-altruism-carnegie">MacArthur Foundation had pulled out of nuclear security programs</a>, even as the war in Ukraine made an exchange likelier than it had been in decades, but Bankman-Fried and <a href="https://forum.effectivealtruism.org/posts/M7wNHbpqnLfDzmDK9/new-nuclear-security-grantmaking-programme-at-longview">groups he supported</a> were eager to fill the gap.</p>
<p id="1XTHgb">I have a hard time looking at those funding decisions and concluding that’s where things went wrong.</p>
<h3 id="BdJO0U">… the problem is the dominance of philosophy</h3>
<p id="8qcbus">Even before the fall of FTX, longtermism was creating a <a href="https://www.technologyreview.com/2022/10/17/1060967/effective-altruism-growth/">notable backlash</a> as the “parlor philosophy of choice among the Silicon Valley jet-pack set,” in the <a href="https://newrepublic.com/article/168047/longtermism-future-humanity-william-macaskill">words of the New Republic’s Alexander Zaitchik</a>. Some EAs <a href="https://forum.effectivealtruism.org/posts/H35jDxtvvTpcgwuub/a-critique-of-longtermism-by-popular-youtube-science-channel">like to harp on mischaracterizations by longtermism’s critics</a>, blaming them for making the concept seem bizarre. </p>
<p id="Eia3RJ">That might be comforting, but it’s mistaken. Longtermism seems weird not because of its critics but because of its proponents: it’s expressed mainly by philosophers, and there are strong incentives in academic philosophy to carry out thought experiments to increasingly bizarre (and thus more interesting) conclusions. </p>
<p id="rCbcoD">This means that longtermism as a concept has been defined not by run-of-the-mill stuff like donating to nuclear nonproliferation groups, but by the philosophical writings of figures like Nick Bostrom, MacAskill, Greaves, and Nick Beckstead, figures who have risen to prominence in part because of their willingness to expound on extreme ideas.</p>
<p id="UqOpg7">These are all smart people, but they are philosophers, which means their entire job is to test out theories and frameworks for understanding the world, and try to sort through what those theories and frameworks imply. There are professional incentives to defend surprising or counterintuitive positions, to poke at widely held pieties and components of “common sense morality,” and to develop thought experiments that are memorable and powerful (and because of that, pretty weird). </p>
<p id="NNGtqU">This isn’t a knock on philosophy; it’s what I studied in college and a field from which I have learned a tremendous amount. It’s good for society to have a space for people to test out strange and surprising concepts. But whatever the boundary-pushing concepts being explored, it’s important not to mistake that exploration for practical decision-making. </p>
<p id="bHBzUu">When Bostrom <a href="https://nickbostrom.com/astronomical/waste">writes a philosophy article for a philosophy journal</a> arguing that total utilitarians (who think one should maximize the total sum of happiness in the world) should prioritize colonizing the galaxy, that should not, and cannot, be read as a real policy proposal, not least because “colonizing the galaxy” probably is not even a thing humans can do in the next thousand years. The value in that paper is exploring the implications of a particular philosophical system, one that very well might be badly wrong. It sounds science fictional because it is, in fact, science fiction, in the ways that thought experiments in philosophy are often science fiction.</p>
<div class="c-float-left c-float-hang"><aside id="gKrBhN"><q>It sounds science fictional because it is, in fact, science fiction</q></aside></div>
<p id="WuLPUr">The dominance of academic philosophers in EA, and those philosophers’ increasing attempts to apply these kinds of thought experiments to real life — aided and abetted by the sudden burst of billions into EA, due in large part to figures like Bankman-Fried — has eroded the boundary between this kind of philosophizing and real-world decision-making. Poets, as Percy Shelley <a href="https://interestingliterature.com/2021/12/shelley-poets-unacknowledged-legislators-world-meaning/#:~:text='Poets%20are%20the%20unacknowledged%20legislators%20of%20the%20world'%20is%20one,from%20a%20work%20of%20prose.">wrote</a>, may be the unacknowledged legislators of the world, but EA made the mistake of trying to turn philosophers into the actual legislators of the future. A good start would be more clearly stating that funding priorities, for now, are less “longtermist” in this galaxy-brained Bostrom sense and more about fighting specific existential risks — which is exactly what EA funders are <a href="https://www.openphilanthropy.org/grants/?q&focus-area%5B0%5D=longtermism&sort=high-to-low#categories">doing in most cases</a>. The philosophers can trod the cosmos, but the funders and advocates should be tethered closer to Earth.</p>
<h3 id="69KVjd">The problem isn’t billionaires’ billions …</h3>
<p id="Ju5qMj">Second only to complaints about longtermism in the corpus of <a href="https://newrepublic.com/article/168885/bankman-fried-effective-altruism-bunk">anti-effective altruist writing</a> are complaints that EA is inherently plutocratic. Effective altruism began with the group Giving What We Can, which asked members (including me) to promise to give 10 percent of their income to effective charities for the rest of our lives.</p>
<p id="jGEZB9">This, to critics, equates “doing good” with “giving money to charity.” The problem only grew when the donor base was no longer individuals making five or six figures and donating 10 percent, but literal billionaires. Not only that, but those billionaires (including Bankman-Fried but also Tuna and Moskovitz) became increasingly interested in investing in political change through advocacy and campaigns. </p>
<p id="jOVS8Q">Longtermist goals, even less cosmic ones like preventing pandemics, require political action. You can’t stop the next Covid or prevent the rise of the robots with all the donated anti-malaria bednets in the world. You need policy. But is that not anti-democratic, to allow a few rich people to try to influence the whole political system with their fortunes?</p>
<p id="dkorOm">It’s definitely anti-democratic, but not unlike democracy itself, it’s also the best of a few rotten options. The fact of the matter is that, in the United States in the 21st century, the alternative to a politics that largely relies on benevolent billionaires and millionaires is not a surge in working-class power. The alternative is a total victory for the status quo. </p>
<p id="9pAwMb">Suppose you live in the US and would like to change something about the way our society is organized. This is your first mistake: You want change. The US political system is organized in such a way as to <a href="https://press.uchicago.edu/ucp/books/book/chicago/L/bo6683614.html">produce enormous status quo bias</a>. But maybe you’re lucky and the change you want is in the interest of a powerful corporate lobby, like easing the rules around oil drilling. Then corporations who would benefit might give you money — and <a href="https://paddockpost.com/2022/02/22/executive-compensation-at-the-american-petroleum-institute/">quite a lot of it</a> — to lobby for it.</p>
<p id="dQ0KcV">What if you want to pass a law that doesn’t help any major corporate constituency? Which is, y’know, most good ideas for laws? Then your options are very limited. You can try to start a major membership association like the <a href="https://www.aarp.org/content/dam/aarp/about_aarp/annual_reports/2022/aarp-2021-financial-statement.pdf#page=6">AARP</a>, where small contributions from members of the groups fund the bulk of their activities. This is much easier said than done. Groups like this have been <a href="https://prospect.org/power/associations-without-members/">on the decline for decades</a>, and major new membership groups like <a href="https://prospect.org/politics/resistance-disconnect-indivisible-national-local-activists/">Indivisible</a> tend to get most of their money from sources other than their members.</p>
<div class="c-float-right c-float-hang"><aside id="ZgHst4"><q>It’s definitely anti-democratic, but not unlike democracy itself, it’s also the best of a few rotten options</q></aside></div>
<p id="AYAyyi">What sources, then? There’s unions — or perhaps more accurately, there <em>were</em> unions. In 1983, 20.1 percent of American workers were in a union. In <a href="https://www.bls.gov/news.release/union2.nr0.htm">2021</a>, the number was 10.3 percent. A measly 6.1 percent of private sector workers were unionized. The share just keeps falling and falling, and while <a href="https://www.vox.com/policy-and-politics/2019/9/2/20838782/unions-for-all-seiu-sectoral-bargaining-labor-unions">some smart people have ideas to reverse it</a>, those ideas require government actions that would probably require plenty of lobbying to reach fruition, and who exactly is going to fund that? Unions can barely keep themselves afloat, much less fund extensive advocacy outside their core functions. The Economic Policy Institute, long the most influential union-aligned think tank in the US, took <a href="https://www.epi.org/about/funder-acknowledgments-and-disclosure-principles/">only 14 percent of its funding</a> from unions in 2021.</p>
<p id="JEaJsa">So the answer to “who funds you” if you are doing advocacy or lobbying and do not work for a major corporation is usually “foundations.” And by “foundations,” I mean “millionaires and billionaires.” There’s <a href="https://www.vox.com/future-perfect/2022/8/23/23313081/effective-altruism-billionaires-tax-inequality-dustin-moskovitz-sam-bankman-fried">no small irony</a> in the fact that causes from expanded social safety net programs to increased access to health insurance to higher taxes on rich people are primarily funded these days by rich people and their estates.</p>
<p id="YJrRyJ">It’s one of history’s strangest twists that Henry Ford, possibly the second most influential antisemite of the 20th century, wound up endowing a foundation that funded the creation of progressive groups like the <a href="https://archives.yale.edu/repositories/12/resources/5167">Natural Resources Defense Council</a> and<a href="https://histphil.org/2021/09/28/maldef-the-ford-foundation-and-the-politics-of-patronage/"> the Mexican American Legal Defense and Educational Fund</a>. But it happened, and it happens much more than you’d think. US history is littered with progressive social movements that depended on wealthy benefactors: Abolitionists depended on donors like Gerrit Smith, the richest man in New York who bankrolled the Liberty and Republican parties as well as John Brown’s uprising in Harpers Ferry; <em>Brown v. Board of Education</em> was the result of a decades-long strategy of the NAACP Legal Defense Fund, a fund created due to the intervention of the <a href="https://www.vox.com/future-perfect/2019/2/28/18241490/movement-capture-civil-rights-philanthropy-funding">Garland Fund</a>, a philanthropy bankrolled by an heir of a senior executive of what’s now Citibank. </p>
<p id="mahn1o">Is this arrangement ideal? Of course not. Scholar <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/lasr.12384">Megan Ming Francis</a> has recently argued that even the Garland Fund provides an example of wealthy donors perverting the goals of social movements. She contends it pushed the NAACP away from a strategy focused on fighting lynching toward one focused on school desegregation. That won <em>Brown</em>, but it also undercut goals that were, at the time, more important to Black activists.</p>
<p id="si27Q6">These are important limitations to keep in mind. At the same time, would I have preferred the Garland Fund not invest in Black liberation at all? Of course not.</p>
<p id="XK5h1n">This, essentially, is why I find the <a href="https://twitter.com/AnandWrites/status/1592165780959154176">use of SBF to reject billionaire philanthropy</a> in general unpersuasive. It is completely intellectually consistent to decide that accepting funding from wealthy, potentially corrupt sources is unacceptable, and that it is okay, as would inevitably follow, if this kind of unilateral disarmament materially hurts the causes you care about. It’s intellectually consistent, but it means accepting defeat on everything from higher taxes on the rich to civil rights to pandemic prevention.</p>
<h3 id="k6vRY4">… it’s the porous boundaries between the billionaires and their giving</h3>
<p id="O3mgMh">There’s a fundamental difference between Bankman-Fried’s charitable efforts and august ones like the Rockefeller and Ford foundations: these philanthropies are, fundamentally, professional. They’re well-staffed, normally run institutions. They have HR departments and comms teams and accountants and all the other stuff you have when you’re a grown-up running a grown-up organization.</p>
<p id="JkxzwM">There are disadvantages to being normal (groupthink, excessive conformity) but profound advantages, too. All these normal practices emerged for a reason: They were added to institutions over time to solve problems that reliably come up when you don’t have them.</p>
<div class="c-float-left c-float-hang"><aside id="5dHSY5"><q>The Bankman-Fried empire was not normal in any way</q></aside></div>
<p id="TbCAQQ">The Bankman-Fried empire was not normal in any way. For one thing, it had already sprawled into a bevy of different institutions in the very short time it existed. The most public-facing group was the FTX Future Fund, but there was also Building a Stronger Future, a funder sometimes described as a “family foundation” for the Bankman-Frieds. (That’s the one that awarded the grant to Future Perfect.) There was also Guarding Against Pandemics, a lobbying group run by Gabe Bankman-Fried and funded by Sam.</p>
<p id="SeUrXO">The deeper problem, behind these operational hiccups, is that in lieu of a clear, hierarchical decision-making structure for deciding where Bankman-Fried’s fortune went, there was nothing separating charitable decision-making from Bankman-Fried individually as a person. I never met SBF in person or talked to him one on one — but on a couple occasions, members of his charity or political networks pitched me ideas and CC’d Sam. This is not, I promise you, how most foundations operate. </p>
<p id="SQYQoO">Bankman-Fried’s operations were deeply incestuous, in a way that has had profoundly negative consequences for the causes that he professed to care about. If Bankman-Fried had given his fortune to an outside foundation with which he and his family had limited involvement, his downfall would not have tainted, say, pandemic prevention groups doing valuable work. But because he put so little distance between himself and the causes he supported, <a href="https://ftxfuturefund.org/our-grants/?_organization_name=giving-what-we-can">dozens</a> <a href="https://ftxfuturefund.org/our-grants/?_organization_name=helixnano">of</a> <a href="https://ftxfuturefund.org/our-grants/?_organization_name=leep">worthwhile</a> <a href="https://ftxfuturefund.org/our-grants/?_organization_name=cecil-abungu-centre-for-the-study-of-existential-r">organizations</a> with no involvement in his crimes find themselves not only deprived of funding but with serious reputational damage.</p>
<p id="pFqL6N">The good news for EAs is that <a href="https://www.openphilanthropy.org/">Open Philanthropy</a>, the remaining major EA-aligned funding group, is a much more normal organization. Its form of professionalization is something for the rest of the movement to emulate.</p>
<h3 id="vbS2gd">The problem is utilitarianism free from any guardrails …</h3>
<p id="jqRTnU">Sam Bankman-Fried is a hardcore, pure, uncut <a href="https://www.vox.com/future-perfect/23458282/effective-altruism-sam-bankman-fried-ftx-crypto-ethics">Benthamite utilitarian</a>. His mother, Barbara Fried, is an influential philosopher known for her arguments that consequentialist moral theories like utilitarianism that focus on the actual results of individual actions are <a href="https://smile.amazon.com/Facing-Up-Scarcity-Nonconsequentialist-Thought/dp/0198847874">better suited for the difficult real-world trade-offs one faces</a> in a complex society. Her son apparently took that insight very, very seriously.</p>
<p id="tWadmW">Effective altruists aren’t all utilitarians, but the core idea of EA — that you should attempt to act in such a way to promote the greatest human and animal happiness and flourishing achievable — is shot through with consequentialist reasoning. The whole project of trying to do the most good you can implies maximizing, and maximizing of “the good,” and that is the literal definition of consequentialism.</p>
<p id="MSGtCj">It’s not hard to see the problem here: If you’re intent on maximizing the good, you better know what the good is — and that isn’t easy. “EA is about maximizing a property of the world that we’re conceptually confused about, can’t reliably define or measure, and have massive disagreements about even within EA,” <a href="https://forum.effectivealtruism.org/posts/T975ydo3mx8onH3iS/ea-is-about-maximization-and-maximization-is-perilous">Holden Karnofsky, the co-CEO of Open Philanthropy</a> and a leading figure in the development of effective altruism, wrote in September. “By default, that seems like a recipe for trouble.”</p>
<p id="Byo6ZI">Indeed it was. It looks increasingly likely that Sam Bankman-Fried appears to have engaged in extreme misconduct precisely because he believed in utilitarianism and effective altruism, and that his mostly EA-affiliated colleagues at FTX and Alameda Research went along with the plan for the same reasons.</p>
<div class="c-float-right c-float-hang"><aside id="Hj5n51"><q>If the conclusions are ugly enough, you should just junk the theory</q></aside></div>
<p id="n7hf4e">When he was an undergrad at MIT, Bankman-Fried was reportedly planning to work on animal welfare issues until a <a href="https://www.bloomberg.com/news/features/2022-04-03/sam-bankman-fried-ftx-s-crypto-billionaire-who-wants-to-give-his-fortune-away?leadSource=uverify%20wall&sref=qYiz2hd0">pivotal conversation with Will MacAskill</a>, who told him that because of his mathematical prowess, he might be able to do more good by working as a “quant” in the finance sector and donating his healthy earnings to effective charities than he ever could giving out flyers promoting veganism.</p>
<p id="UQetLz">This idea, known as “earning to give,” was one of the first distinctive contributions of effective altruism as a movement, specifically of the group 80,000 Hours, and I think taking a high-earning job with the explicit aim of donating the money still makes a lot of sense for most big-money options. </p>
<p id="46EsoT">But what SBF did was not just quantitatively but <em>qualitatively </em>different from classic “earn to give.” You can make seven figures a year as a trader in a hedge fund, but unless you manage the whole fund, you probably won’t become a billionaire. Bankman-Fried very much wanted to be a billionaire — so he could have more resources to devote to EA giving, if we take him at his word — and to do that, he set up whole new corporations that never would’ve existed without him. Those corporations then engaged in incredibly risky business practices that never would’ve occurred if he and his team hadn’t entered the field. He was not one-for-one replacing another finance bro who would have used the earnings on sushi and strippers rather than altruistic causes. He was building a whole new financial world, with consequences that would be much grander in scale.</p>
<p id="BrIbgU">And in building this world, he acted like a vulgar utilitarian. Philosophers like to talk about “biting the bullet”: accepting an unsavory implication of a theory you’ve adopted, and arguing that this implication really isn’t that bad. Every moral theory has bullets to bite; Kant, who believed morality was less about good consequences than about treating humans as ends in themselves, famously argued that it is <em>never</em> acceptable to lie. That leads to freshman seminar-level questions about whether it’s okay to lie to the Gestapo about the Jewish family you’re hiding in your attic. Biting the bullet in this case — being true to your ethics — means the family dies.</p>
<p id="NaBdPU">Utilitarianism has ugly implications, too. Would you <a href="https://academic.oup.com/monist/article-abstract/59/2/204/1360123?redirectedFrom=fulltext&login=false">kill one healthy person to redistribute their organs</a> to multiple people who need them to live? The reality is that if a conclusion is ugly enough, the correct approach isn’t to bite the bullet, but to think about how a more reasonable conclusion could comply with your moral theory. In the real world, we should never harvest hearts and lungs from healthy, unconsenting adults, because a world where hospitals would do that is a <a href="https://www.utilitarianism.net/objections-to-utilitarianism/rights#accommodating-the-intuition">world where no one ever goes to the hospital</a>. If the conclusions are ugly enough, you should just junk the theory, or temper it. Maybe the right theory isn’t utilitarianism, but utilitarianism with a side constraint forbidding ever actively killing people. That theory has problems, too (what about self-defense? a defensive war like Ukraine’s?), but thinking through these problems is what moral philosophers spend all day doing. It’s a full-time job because it’s really hard.</p>
<h3 id="y4rl88">… and a utilitarianism full of hubris …</h3>
<p id="BNNIs7">Bankman-Fried’s error was an extreme hubris that led him to bite bullets he never should have bitten. He famously told economist Tyler Cowen in a <a href="https://conversationswithtyler.com/episodes/sam-bankman-fried/">podcast interview</a> that if faced with a game where “51 percent [of the time], you double the Earth out somewhere else; 49 percent, it all disappears,” he’d keep playing the game continually.</p>
<p id="keqdH4">This is known as the <a href="https://plato.stanford.edu/entries/paradox-stpetersburg/">St. Petersburg paradox</a>, and it’s a confounding problem in probability theory, because it’s true that playing the game creates more happy human lives in expectation (that is, adjusting for probabilities) than not playing. But if you keep playing, you’ll almost certainly wipe out humankind. It’s an example of where normal rules of rationality seem to break down.</p>
<p id="TEZxM7">But Bankman-Fried was not interested in playing by the normal rules of rationality. Cowen notes that if Bankman-Fried kept this up, he’d almost certainly wipe out the Earth eventually. Bankman-Fried replied, “Well, not necessarily. Maybe you St. Petersburg paradox into an enormously valuable existence. That’s the other option.”</p>
<div class="c-float-left c-float-hang"><aside id="idM6PF"><q>These are fun dorm room arguments. They should not guide the decision-making of an actual financial company.</q></aside></div>
<p id="l9Wnyv">These are fun dorm room arguments. They should not guide the decision-making of an actual financial company, yet there is some evidence they did. An <a href="https://twitter.com/AutismCapital/status/1592406121368543233">as-yet-unconfirmed account</a> of an Alameda all-hands meeting describes CEO Caroline Ellison explaining to staff that she and Bankman-Fried faced a choice in early summer 2022: either to let Alameda default after some catastrophic losses, or to raid consumer funds at FTX to bolster Alameda. As the researcher <a href="https://twitter.com/davidad/status/1592509445682388996">David Dalrymple has noted</a>, this was basically her and Bankman-Fried making a “double or nothing” coin flip: By taking this step, they reasoned they could either save Alameda <em>and</em> FTX or lose both (as wound up happening), rather than keep just FTX, as in a scenario where the consumer funds were not raided.</p>
<p id="ksnrn8">This is not, I should say, the first time a consequentialist movement has made this kind of error. While Karl Marx denied having any moral views at all (he was a “scientific” socialist, not a moralist), <a href="https://www.jstor.org/stable/20009494">many</a> <a href="https://www.google.com/books/edition/Marxism_and_Morality/VM1QAQAAIAAJ?hl=en&gbpv=0">Marx</a> <a href="https://scholar.harvard.edu/files/michaelrosen/files/the_marxist_critique_of_morality_and_the_theory_of_ideology.pdf">scholars</a> have described his outlook as essentially consequentialist, imploring followers to act in ways that further the long-run revolution. More importantly, Marx’s most talented followers understood him in this way. Leon Trotsky <a href="https://www.marxists.org/archive/trotsky/1938/morals/morals.htm">defined Marxist ethics</a> as the belief that “the end is justified if it leads to increasing the power of man over nature and to the abolition of the power of man over man.” In service of this end, <a href="https://www.marxists.org/archive/trotsky/1920/terrcomm/">all sorts of means</a> (“if necessary, by an armed rising: if required, by terrorism,” as he wrote in an earlier book) are justified.</p>
<p id="CDDQbH">Trotsky, like Bankman-Fried, was wrong. He was wrong in using a consequentialist moral theory in which he deeply believed to justify all manner of actions — actions that in turn corrupted the project he had joined beyond measure. By winning power through terror, with a secret police and the <a href="https://en.wikipedia.org/wiki/Kronstadt_rebellion">crushing of dissenting factions</a>, he helped create a state that operated similarly and would eventually murder him.</p>
<p id="eCPaEa">Bankman-Fried, luckily, has yet to kill anyone. But he’s done a huge amount of harm, due to a similar sense that he was entitled to engage in grand consequentialist moral reasoning when he knew there was a high probability that many other people could get hurt.</p>
<h3 id="PnW8nx">… but the utilitarian spirit of effective altruism still matters</h3>
<p id="xcctHd">Since the FTX empire collapsed, there’s been an open season of criticism on effective altruism, as well there should be. EAs messed up. To some degree, we’ve got to just take the shots, update our priors, and keep going.</p>
<p id="0Gxdl7">The only criticism that really gets under my skin is this: that the basic premises of EA are trite, or universally held. As <a href="https://freddiedeboer.substack.com/p/effective-altruism-has-a-novelty">Freddie deBoer</a>, the raconteur and essayist, put it: “the correct ideas of EA are great, but some of them are so obvious that they shouldn’t be ascribed to the movement at all, while the interesting, provocative ideas are fucking insane and bad.”</p>
<p id="mN5bM6">This impression is largely the fault of EA’s public messaging. The philosophy-based contrarian culture means participants are incentivized to produce “fucking insane and bad” ideas, which in turn become what many commentators latch to when trying to grasp what’s distinctive about EA. Meanwhile, the definition the Centre for Effective Altruism uses (<a href="https://www.effectivealtruism.org/articles/introduction-to-effective-altruism">“a project that aims to find the best ways to help others, and put them into practice”</a>) really does seem kind of trite in isolation. Isn’t that what everyone’s doing?</p>
<p id="swVWSZ">No, they are not. I used to regularly post about major donations from American billionaires, and you’d be amazed at the kind of bullshit they fund. David Geffen <a href="https://www.vox.com/2015/11/13/9728330/david-geffen-charity-ucla">spent $100 million on a new private school for children of UCLA professors</a> (faculty brats: famously the wretched of the earth). John Paulson gave <a href="https://www.vox.com/2015/6/3/8723189/john-paulson-harvard-donation">$400 million to the famously underfunded Harvard University</a> and its particularly underfunded engineering division (the fact that Harvard’s computer science building is <a href="https://www.seas.harvard.edu/tour/cambridge/5/maxwell-dworkin">named after the mothers of Bill Gates and Steve Ballmer</a> should tell you something about its financial condition). Stephen Schwarzman gave <a href="https://www.vox.com/2015/5/12/8590639/stephen-schwarzman-yale-donation">Yale $150 million for a new performing arts center</a>; why not an <a href="https://getyarn.io/yarn-clip/c623b17c-1ca2-4ec8-87d5-bf58cc28f841">international airport</a>?</p>
<div class="c-float-right c-float-hang"><aside id="n87Ysx"><q>You’d be amazed at the kind of bullshit they fund</q></aside></div>
<p id="ZdYZq2">You don’t need to be an effective altruist to look at these donations and wonder what the hell the donors were thinking. But EA gives you the best framework I know with which to do so, one that can help you sift through the detritus and decide what moral quandaries deserve our attention. Its answers won’t always be right, and they will always be contestable. But even asking the questions EA asks — how many people does this affect? Is it at least millions if not billions? Is this a life-or-death matter? A wealth or destitution matter? How far can a dollar actually go in solving this problem? — is to take many steps beyond where most of our moral discourse goes.</p>
<p id="dqQ5CK">One of the most fundamentally decent people I’ve met through EA is an ex-lawyer named Josh Morrison. After donating his kidney to a stranger, Morrison left his firm to start a <a href="https://en.wikipedia.org/wiki/Waitlist_Zero">group promoting live organ donation</a>. We met at an EA Global conference in 2015, and he proceeded to walk me through my own kidney donation process, taking a huge amount of time to help someone he barely knew. These days he runs a <a href="https://www.1daysooner.org/">group that advocates for challenge trials</a>, in which altruistic volunteers are willingly infected with diseases so that vaccines and treatments can be tested more quickly and effectively.</p>
<p id="WivxyE">Years later, we were getting lunch when he gave me, for no occasion other than he felt like it, a gift: a copy of Hilary Mantel’s historical novel <em>A Place of Greater Safety</em>, which tells the story of French revolutionaries Camille Desmoulins, Georges Danton, and Maximilien Robespierre. All of them began as youthful, idealistic opponents of the French monarchy, and all would be guillotined before the age of 37. Robespierre and Desmoulins were school chums, but the former still ordered the latter’s execution.</p>
<p id="pBrbe1">It reminded Josh a bit of the fervent 20- and 30-something idealists of EA. “I hope this book doesn’t turn out to be about us,” he told me. Even then, I could tell he was only half-joking.</p>
<p id="poi4Q3">Bankman-Fried has more than a whiff of this crew about him (probably Danton; he lacks Robespierre’s extreme humorlessness). But if EA has just been through its Terror, there’s a silver lining. The Jacobins were wrong about many things, but they were right about democracy. They were right about liberty. They were right about the evils of the ancien regime, and right to demand something better. The France of today looks much more like that of their vision than that of their enemies.</p>
<p id="WMivtI">That doesn’t retroactively justify their actions. But it does justify the actions of the thousands of French men and women who learned from their example and worked, in peace, for two centuries to build a still-imperfect republic. They didn’t give up the faith because their ideological ancestors went too far.</p>
<p id="jfJLPO">EAs can help the world by keeping the faith, too. Last year, GiveWell, one of the early and still one of the best EA institutions, <a href="https://files.givewell.org/files/metrics/GiveWell_Metrics_Report_2021.pdf">directed over $518 million</a> toward its <a href="https://www.givewell.org/charities/top-charities">top global health and development charities</a>. It chose those charities because they had a high probability of saving lives or making lives dramatically better through higher earnings or lessened illness. By the <a href="https://docs.google.com/spreadsheets/d/1z065ab9PPMu9i5KiQ4yLyQJPFQCfEzHSgtHulPiZeBo/edit#gid=1061916285">group’s metrics</a>, the donations it drove to four specific groups (the Against Malaria Foundation, Malaria Consortium, New Incentives, and Helen Keller International) saved 57,000 lives in 2021. The group’s recommendations to them from 2009 to present have saved some 159,000 lives. That’s about as many people as live in Alexandria, Virginia, or Charleston, South Carolina.</p>
<p id="g3XrHi">GiveWell, should be proud of that. As someone who’s donated tens of thousands of dollars to GiveWell top charities over the years, I’m personally very proud of that. EA, done well, lets people put their financial privilege to good use, to literally save lives, and in the process give our own lives meaning. That’s something worth fighting for.</p>
<p id="0iUwoa"><em><strong>Update, December 12, 8:40 pm:</strong></em><em> This story was originally published on December 12 and has been updated to include the news of Sam Bankman-Fried’s arrest. </em></p>
https://www.vox.com/future-perfect/23500014/effective-altruism-sam-bankman-fried-ftx-cryptoDylan Matthews2022-12-09T13:50:00-05:002022-12-09T13:50:00-05:00I went to effective altruism’s first post-Sam Bankman-Fried conference. Here’s what I saw.
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<img alt="" src="https://cdn.vox-cdn.com/thumbor/6Uu3zmAD95v437Ncq7Jh0xHSnOA=/151x0:1591x1080/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/71731452/kelsey_ea_conf_board_1.7.jpg" />
<figcaption>Christina Animashaun/Vox</figcaption>
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<p>EA faces a reckoning after the fall of a major donor, but its rank-and-file members haven’t given up.</p> <p id="KsZRaD">This past weekend, I attended Effective Altruism Global x Berkeley, one of the small effective altruism conferences that the Centre for Effective Altruism — the main leadership group of the EA movement — runs all over the world. </p>
<p id="Ne3RY7">I attend two or three EA Global events a year, but this one felt more than a bit different. It was the first such meeting since the bombshell that is the collapse of Sam Bankman-Fried’s multibillion-dollar cryptocurrency empire hit the effective altruism movement last month. </p>
<p id="59oK0i">Bankman-Fried was perhaps <a href="https://www.vox.com/future-perfect/2022/8/8/23150496/effective-altruism-sam-bankman-fried-dustin-moskovitz-billionaire-philanthropy-crytocurrency">EA’s highest-profile champion</a>, and had pledged to give his wealth (once estimated as high as $32 billion) to EA causes, with a focus on longtermism and pandemic prevention. Now, his company is in bankruptcy proceedings, something like $8 billion in customer deposits is missing, and the <a href="https://www.wsj.com/articles/sec-investigates-crypto-platform-ftx-11668020379">Securities and Exchange Commission and US Department of Justice are investigating</a>. </p>
<p id="ijNJGt">(Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s Future Perfect a <a href="https://www.vox.com/2020/1/7/21020439/support-future-perfect">grant</a> for a 2023 reporting project. That project is now on pause.) </p>
<aside id="qXOHKz"><div data-anthem-component="newsletter" data-anthem-component-data='{"slug":"future_perfect"}'></div></aside><p id="fXVMgy">Effective altruism has come under <a href="https://www.theguardian.com/commentisfree/2022/nov/16/is-the-effective-altruism-movement-in-trouble">intense criticism</a> in the wake of the FTX debacle, including from those involved with the movement. Josh Morrison, who founded an organization that promotes challenge trials for vaccines, told the New Yorker writer Gideon Lewis-Kraus <a href="https://www.newyorker.com/news/annals-of-inquiry/sam-bankman-fried-effective-altruism-and-the-question-of-complicity">in a piece last week</a> that “the E.A. community disregarded the risks of tying itself to an aggressive businessman in a lawless industry.” </p>
<p id="z2kvUj">So I wondered: What will EAG x Berkeley be like? Is the movement shell-shocked? Angry? Confused? Where is effective altruism headed? </p>
<p id="tjQUGs">I’ve been involved with EA for 10 years, so take this with a grain of salt, but my overall impression from the conference is that the EA movement is more resilient than I’d been giving it credit for. It’s not that FTX wasn’t on people’s minds; I gave a talk discussing what I’ve observed around the crisis and it was well-attended, reflecting the intense interest in the matter. But the attendees, one got the sense, were a bit too busy to obsess over cryptocurrency. They wanted to focus on the work.</p>
<p id="e0nKse">I talked to people who advised on national Covid-19 response, to the founder of <a href="https://maternalhealthinitiative.org/">a maternal health nonprofit</a> working to improve women’s access to contraception options, to people developing new tools for understanding the behavior of powerful AI systems. I moderated a panel on nuclear risks and the state of efforts to mitigate them, and when the panel concluded, the panelists were surrounded by college students eager to know more about how to get into a career in nuclear risk. In other words, it was precisely what happens when I usually attend an EA conference.</p>
<h3 id="dbez2O">Some lessons from a crypto disaster</h3>
<p id="6hEcd8">But the question remains: What could a movement focused around effective charity have done about one of its biggest donors and most public adherents blowing up his company, potentially leaving hundreds of thousands of customers high and dry? </p>
<p id="QiXY4m">Substantially more than it did — though less, perhaps, than many of its members would like to think. </p>
<p id="NCsVRN">In my talk, I argued that external critics from EA or anywhere else probably weren’t going to catch Bankman-Fried’s shady business practices, which he managed to keep secret even from the legal and compliance teams, and most of the employees, at his own company. But the critics could have helped ensure that stories of past accounting incompetence and unreasonable risk appetite by Bankman-Fried got out, as Lewis-Kraus <a href="https://www.newyorker.com/news/annals-of-inquiry/sam-bankman-fried-effective-altruism-and-the-question-of-complicity">charged in his piece</a>, and even if rumors of being ruthless or untrustworthy wouldn’t have taken Bankman-Fried down, they might’ve helped some of his customers be warier. </p>
<p id="MwdeuV">EA advocates could have pushed back harder on the wisdom of EA affiliating itself so closely with Bankman-Fried, and asked more questions — as <a href="https://www.vox.com/future-perfect/2022/8/23/23313081/effective-altruism-billionaires-tax-inequality-dustin-moskovitz-sam-bankman-fried">my colleague Dylan Matthews did</a> — about whether running Super Bowl ads for what was effectively a gambling company was morally okay even if it had been all on the up-and-up.</p>
<p id="O8xeug">While those are the concrete issues, the Bankman-Fried saga also calls into stark relief some more abstract ones. </p>
<p id="UMYoit">A tiny movement of idealistic, frugal young people putting their giving toward malaria nets — as EA did in its earliest days — doesn’t need to grapple with big questions about political power, metaethics, risk appetite, or how their message might be interpreted by extremists or provide cover for wrongdoing. </p>
<p id="X6JPcu">The movement that effective altruism is today — big, well-funded (if less well-funded than it was before FTX’s fall), and working in many more muddy waters — cannot avoid these questions. </p>
<p id="k4N3vv">EA as a formalized concept is <a href="https://www.centreforeffectivealtruism.org/history">barely more than a decade old</a> and hasn’t yet learned all of the cautionary lessons it will need. Current events are a painful introduction to the fact that there’s a lot that can go wrong when things go wrong. </p>
<h3 id="8IyfR5">What’s ahead for effective altruism </h3>
<p id="HFJld7">I do think that the effective altruism movement and its leaders and community institutions — especially the ones that trusted and vouched for Bankman-Fried, such as Oxford philosopher Will MacAskill — are facing a reckoning, with effects that have yet to be fully felt. </p>
<p id="EMGmkG">But I ultimately believe that EA — meaning the people doing the work, if not necessarily a leadership that appears to have let them down — will emerge stronger from this moment. Effective altruists are still driven to identify the most important, underserved, solvable problems in the world, and then do something about them. It’s a powerful motivator that doesn’t depend on the credibility of EA organizations or EA-associated billionaires. The young people I talked to this weekend didn’t want EA money, they wanted advice on how to live the most impactful lives possible. </p>
<p id="wPJWYS">People show up to these things because they like the message that they, through their work and donations, can tackle whatever matters the most. It turns out it’s deeply important to people to do that, and EA is where many of them gather to do it. Faced with a choice between a painful moral and institutional reckoning or quitting to go work a normal job, a lot of people will take the reckoning. </p>
<p id="8YxfEE"><em>A version of this story was initially published in the Future Perfect newsletter. </em><a href="https://confirmsubscription.com/h/d/A2BA26698741513A"><em><strong>Sign up here to subscribe!</strong></em></a></p>
https://www.vox.com/future-perfect/2022/12/9/23500517/effective-altruism-will-macaskill-ftx-sam-bankman-friedKelsey Piper2022-12-07T16:15:00-05:002022-12-07T16:15:00-05:00The people who hate Sam Bankman-Fried the most
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<img alt="Sam Bankman-Fried in a photo collage with text." src="https://cdn.vox-cdn.com/thumbor/KcS9QT_g2yomvTPN4I_eMF1N2xY=/145x0:1585x1080/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/71723415/sbf_comp_board_1a.0.jpg" />
<figcaption>Christina Animashaun/Vox</figcaption>
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<p>And the people who don’t (which makes the haters even angrier).</p> <p id="gXwOu4">If you are a certain kind of person, you have found yourself entranced by the <a href="https://www.vox.com/future-perfect/23471446/ftx-collapse-crypto-bankruptcy-sam-bankman-fried-downfall">SBF/FTX story</a>. Billions of dollars have vanished from an offshore crypto operation. Drugs and sex may be involved. (Or maybe <a href="https://www.nytimes.com/2022/11/15/technology/ftx-sam-bankman-fried-psychiatrist.html">not</a>.) In the center is a guy who looks like someone you’d cheat off in pre-calc. </p>
<p id="2LuCpO">A few months ago, FTX founder Sam Bankman-Fried was a power broker handing out piles of cash to ... everyone, as well as hosting leaders of the free world on stage; <a href="https://twitter.com/pkafka/status/1590018759376670720">they wore suits, he wore shorts</a>. Now he claims he’s a well-meaning schlub who lost control of the contraption he built and that he’s very sorry.</p>
<p id="G0Kdfa">Me, a guy who covers tech and media? I am definitely in the can’t-get-enough group. </p>
<p id="TfaabN">Other people are not entranced at all. They’re angry, or at the very least, confused: Why is the world treating SBF as a story instead of an enormous fraud?</p>
<aside id="DPFkLX"><div data-anthem-component="newsletter" data-anthem-component-data='{"slug":"vox_peter_kafka"}'></div></aside><p id="ucjshT">“<a href="https://www.coindesk.com/layer2/2022/11/30/ftxs-collapse-was-a-crime-not-an-accident/">FTX’s Collapse Was a Crime, Not an Accident</a>,” snarls a headline from CoinDesk, the crypto publication whose reporting <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/">poked the first hole in the SBF/FTX story a month ago</a>. “What it definitely was was fraud, and from where I’m sitting it very much looks intentional — and Bankman-Fried looks like a serial liar,” <a href="https://stratechery.com/2022/the-nyt-sbf-interview-sharp-china-on-china-protests-and-the-path-to-re-opening/?access_token=eyJhbGciOiJSUzI1NiIsImtpZCI6InN0cmF0ZWNoZXJ5LnBhc3Nwb3J0Lm9ubGluZSIsInR5cCI6IkpXVCJ9.eyJhdWQiOiJzdHJhdGVjaGVyeS5wYXNzcG9ydC5vbmxpbmUiLCJlbnQiOnsidXJpIjpbImh0dHBzOi8vc3RyYXRlY2hlcnkuY29tLzIwMjIvdGhlLW55dC1zYmYtaW50ZXJ2aWV3LXNoYXJwLWNoaW5hLW9uLWNoaW5hLXByb3Rlc3RzLWFuZC10aGUtcGF0aC10by1yZS1vcGVuaW5nLyJdfSwiZXhwIjoxNjcyNDg1MDA0LCJpYXQiOjE2Njk4OTMwMDQsImlzcyI6Imh0dHBzOi8vc3RyYXRlY2hlcnkucGFzc3BvcnQub25saW5lL29hdXRoIiwic2NvcGUiOiJmZWVkOnJlYWQgYXJ0aWNsZTpyZWFkIGFzc2V0OnJlYWQgY2F0ZWdvcnk6cmVhZCIsInN1YiI6IjROQXFaemJudGFwZHdIUHJvaDdjQnMiLCJ1c2UiOiJhY2Nlc3MifQ.hJnACGz73nJafOYF1PanmP_BIfMwQ6g7o9AEbQ5Vq4VtwCeZ9Owt9BK1_buKP-AWLVVPc8MAtQsAJ2OJKYjZ2DGzpNZeS3OB_yJD7KC0580lF5hSqSbemYnwkX0qP2L3yCmmkp4l6SnlkIwpO9fJFd4SAM9vfEvhJ7uuh5D-f0f5TChTgXs7kzsOTjSSHkCoKf4UZaWo58FVmTN_uXqmlGHHwScE0ikuObjYxySvq-4HfXhBakhyycI4ulHT1at8cJxGNU9OAg-PXEko3brnKYo_ouWJqvBQn699cUGbV9cTERR0ZZnJJtc_-YPlRs5a2fvlPtA10NRdwWPWAcdebQ">wrote Ben Thompson</a>, one of the tech world’s most influential analysts. “Even the most gullible person should not believe Sam’s claim that this was an accounting error,” <a href="https://twitter.com/brian_armstrong/status/1599159873232842758?s=46&t=j6mlzcjteV_69_CKlOuENQ">tweeted Brian Armstrong</a>, the CEO of FTX rival Coinbase. </p>
<p id="Z0VjI5">From this perspective, SBF is doing a masterful job of convincing people who should know better that maybe he made an oopsie, and not that he made off with his customers’ money. The intrigue and interviews, from their point of view, are letting SBF off the hook. (Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox a <a href="https://www.vox.com/2020/1/7/21020439/support-future-perfect">grant</a> for a 2023 reporting project. That project is now on pause.)</p>
<p id="F1WxzY">The gap between the SBF curious and the SBF haters won’t have anything to do with what actually happens to SBF. That will (likely) be settled by the court system. But it’s worth exploring: Why are some people mostly interested in the SBF story, and others are incensed by it? And does that gap tell us anything about the way people in and around tech view the world? Let’s start by separating the angry-at-SBF crowd by ideology and motivation.</p>
<h3 id="2tg3Ax">The politicians blaming politicians</h3>
<p id="6zQQPj">This group is pretty straightforward: There’s a scandal — or at least they think people think there is a scandal — and they’re eager to turn it into political advantage. In this case, it’s primarily Republicans who want to lay the blame for FTX on federal regulators, since Democrats control the federal government. And as <a href="https://www.theatlantic.com/ideas/archive/2022/12/ftx-crypto-currency-sam-bankman-fried-regulators/672351/">the Atlantic’s James Surowiecki notes</a>, much of this is blatantly hypocritical, even by political point-scoring standards: The same politicians — like Sen. Ted Cruz (R-TX) — who say the US government didn’t do enough to protect crypto traders in this case had previously complained that the US government was harassing crypto companies like FTX. </p>
<p id="q70OPY">There’s a second, related version of this critique, which lumps together Democrats with the press — Republicans’ other favorite punching bag — and suggests that SBF’s donations to politicians and journalists convinced us to ignore or cover up the FTX story. Under this theory, that money is still convincing us to soft-pedal his alleged crimes.</p>
<figure class="e-image">
<img alt=" " data-mask-text="false" src="https://cdn.vox-cdn.com/thumbor/Bk16Yo9KTPpzO-OAaIgwDnNPaSU=/800x0/filters:no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/24274119/GettyImages_1237098368_1.jpg">
<cite>Tom Williams/CQ-Roll Call, Inc via Getty Images</cite>
<figcaption>FTX CEO Sam Bankman-Fried testifies during a House Financial Services Committee hearing on December 8, 2021, in Washington, DC.</figcaption>
</figure>
<p id="YFDjUw">It’s reasonable to <a href="https://www.theinformation.com/articles/the-press-failure-that-led-to-ftx?utm_campaign=Automated+Fallback+R&utm_content=89&utm_medium=email&utm_source=cio&utm_term=19">question why journalists didn’t pierce the FTX story earlier</a>; I put that query in the same category of self-reflection that some of us undertook after the 2008 financial crisis. But it’s dumb to argue that SBF bought himself good press coverage: For starters, the most persuasive thing you can use to sway journalists isn’t cash, but a good story. And for a couple years, whiz-kid billionaire SBF was a very good story. </p>
<p id="wtkejq">But now he’s an even better story, which is why there’s a steady flow of reporting about the goings on at his collapsed crypto company. Which is <a href="https://twitter.com/eliotwb/status/1598643678112800768?s=20&t=7FkbBbHP2B--4fQepSQKVA">the same reporting SBF haters are using to complain about the press</a>.</p>
<h3 id="S3diHP">The don’t-blame-crypto crowd</h3>
<p id="0CbM0R">This one is also relatively easy to unpack: If you are in crypto, you are very angry at SBF because you think he’s making your bad time worse. </p>
<p id="7JqyWo">After captivating the world for a couple of years, <a href="https://www.vox.com/recode/23158583/crypto-winter-crash-bitcoin-eth-bubble-peter-kafka">crypto has been in meltdown</a> for much of 2022, which means investors in crypto coins and projects have lost money, <a href="https://www.vox.com/recode/22907072/web3-crypto-nft-bitcoin-metaverse">people who thought they were working on The Next Big Thing</a> are having second thoughts, and <a href="https://www.ft.com/content/68ca53f4-50e1-4607-8b05-a8801d8b1cb5">Miami no longer seems so appealing</a>. Now comes SBF, and he’s adding insult to injury: If the crypto doubters already thought crypto was a scam, now they have even more evidence.</p>
<p id="37xXO8">Which is why so many crypto people are taking great pains to argue that SBF and FTX weren’t really crypto people: Yes, they made money by betting on crypto and letting their customers do the same thing, but they weren’t <em>theologically</em> connected to crypto. It was just a thing they bought and sold, like <a href="https://www.businessinsider.com/trading-places-frozen-concentrated-orange-juice-trade-explained-2013-7">orange juice futures</a>. </p>
<p id="JUKpNO">A common argument you’ll hear from crypto folks is that FTX by its very nature — a centralized platform to buy, sell, and borrow crypto — isn’t a “real” crypto operation because real crypto is supposed to be decentralized, with no SBF in the middle who can meddle with the whole thing. (“<a href="https://medium.com/stakefish/not-your-keys-not-your-coins-fad3d43c2713">Not your keys, not your coins</a>” is a thing crypto people say.)</p>
<p id="dk7kRq">But even people who aren’t ideologically married to a specific version of crypto still see SBF as a big step backward for the industry, which was already riddled with stories about bad behavior.</p>
<p id="f7ItxX">“It’s frustrating to see what a lot of people in crypto see as a built-in bias against the industry, which many of us understand because this space does have a side to it that deserves and requires scrutiny,” says Rachael Horwitz, the chief marketing officer for crypto investor Haun Ventures. “But there are people genuinely interested in building, and they’re not given the benefit of the doubt; it’s given to a guy who said all the right things to knock the industry.”</p>
<h3 id="IeSnfJ">The what-can’t-you-see people</h3>
<p id="Af2UC1">This is the group that’s most fascinating to me because they don’t have an obvious dog in this fight. But they still think there’s one clear side in this, and that’s the one that treats SBF as a criminal who made off with billions of his customers’ funds.</p>
<p id="42Lesp">“I personally am not angry. I’m more befuddled,” Ben Thompson told me when we talked this week. “I think [the press and everyone else] should be taking [SBF] at his word. Which means that fraud was committed.”</p>
<p id="nAm6BC">While Thompson acknowledges that crypto is complicated and that the FTX case marries crypto with relatively arcane trading and accounting knowledge, he says the basic idea behind the story should be easy for anyone to understand: SBF took money customers deposited in FTX, his trading platform, and moved it over to Alameda, the hedge fund he owned — a big no-no specifically ruled out in the company’s terms of service. This is an argument you hear a lot from exasperated tech people: “What’s so difficult to understand about this?” </p>
<p id="5iPdZW">A related version of this: frustration with the fact that SBF is talking and talking and talking from a compound in the Bahamas, where FTX was located, instead of a jail cell. Bernie Madoff, many people have noted, was arrested the day after he told his sons he’d been running a massive Ponzi scheme, and pleaded guilty to federal charges a few months later. </p>
<p id="EQhOUG">But as former federal prosecutor Ankush Khardori <a href="https://nymag.com/intelligencer/2022/12/why-hasnt-sam-bankman-fried-been-arrested-yet.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosprorata&stream=top">explains</a>, “Those who are eager to see Bankman-Fried charged with serious financial crimes will just have to be patient.” It’s not uncommon for prosecutors to bring charges more than a year after a complex financial crime has surfaced, and this could be a very complex one, which also took place outside the US. And, unlike Madoff, SBF continues to insist he didn’t commit fraud.</p>
<p id="QM7dEJ">Then there are people who are less upset about the particulars of SBF and more about the model they say he fits: The genius tech founder who dazzles the world, screws up, and then finds plenty of people willing to give him the benefit of the doubt, or even more. </p>
<p id="JjbALY">In other words: a dude.</p>
<p id="JLx6We">“He is not being held to the same standards as women leaders who have more minor missteps,” says Sara Mauskopf, the founder and CEO of <a href="https://winnie.com/">Winnie</a>, a child care startup. “Women, if they are slightly aggressive to their employees, they are erased from the face of the earth. But for male leaders, you can swindle people out of a billion dollars ... It’s amazing to me that we’re still debating whether he’s really a bad person or whether this is fraud.”</p>
<p id="7Mf5oz">I’ve heard that critique often over the last several years, usually following a story about a blow-up at a female-founded company like <a href="https://www.theverge.com/2019/12/5/20995453/away-luggage-ceo-steph-korey-toxic-work-environment-travel-inclusion">Away</a> or <a href="https://www.nytimes.com/2020/03/17/magazine/the-wing.html">The Wing</a>. This time around, I tried positing the theory that people weren’t furious at SBF because they might genuinely be confused about an offshore crypto shop that was built for “prosumers” interested in things like margin accounts. Mauskopf wasn’t having it.</p>
<p id="nOVI5V"> “A year ago, everybody was a Web3 expert. Now suddenly it’s too complex for people to weigh in on?”</p>
<h3 id="ua71XQ">Why aren’t you mad, bro?</h3>
<p id="1HWQK0">I do think that simple confusion — or, at least, the lack of an obvious smoking gun like an “I’m guilty” admission — may be enough for some people to chalk this up as fascinating but not enraging. My former boss, <a href="https://twitter.com/hblodget?lang=en">Henry Blodget</a>, the Wall Street analyst turned publisher — who himself was charged with securities fraud in the aftermath of the dot-com bubble (<a href="https://www.sec.gov/news/press/2003-56.htm">Blodget settled the case</a> without admitting to or denying the charges) — suggested as much last week, with a tweet that then enraged the lock-’em-up crowd:</p>
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<blockquote class="twitter-tweet">
<p lang="en" dir="ltr">FTX’s collapse doesn’t mean someone committed a crime. They were a highly leveraged financial institution. Their “assets” plummeted in value while their liabilities stayed the same. Happens all the time. (Incompetent, reckless, and stupid, yes. Not necessarily criminal.) <a href="https://t.co/2PYOloDy9T">https://t.co/2PYOloDy9T</a></p>— Henry Blodget (@hblodget) <a href="https://twitter.com/hblodget/status/1598351182606524419?ref_src=twsrc%5Etfw">December 1, 2022</a>
</blockquote>
<script async="" src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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<p id="cmGLNS"></p>
<p id="I7xtON">But I think the key element that explains the lack of widespread fury around SBF is one that won’t satisfy many of his critics: Even though SBF’s face showed up on plenty of magazine covers, and the FTX logo appeared on <a href="https://www.coindesk.com/business/2022/11/17/uc-berkeley-suspends-stadium-naming-rights-deal-with-ftx/">sports properties</a> and <a href="https://www.youtube.com/watch?v=_-FQqo46CJQ">TV screens</a>, the average person likely didn’t know much about him or his company. And unlike Blodget after the dot-com crash or Madoff in the great recession of 2008, SBF doesn’t make a good stand-in for the “guy who took your money” role. </p>
<figure class="e-image">
<img alt=" " data-mask-text="false" src="https://cdn.vox-cdn.com/thumbor/3cDaYKnQaz2X0wJLfwzhUri1UPU=/800x0/filters:no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/24274130/GettyImages_1445842962t.jpg">
<cite>Michael M. Santiago/Getty Images</cite>
<figcaption>Sam Bankman-Fried pictured on screen as he speaks during the New York Times DealBook Summit on November 30, 2022, in New York City.</figcaption>
</figure>
<p id="4gN8Yp">That’s in part because SBF likely didn’t take <em>your</em> money. While <a href="https://www.coindesk.com/policy/2022/11/15/ftxs-new-leadership-is-in-touch-with-regulators-may-have-over-1m-creditors-new-filings-say/">FTX had a million creditors</a>, most of whom were customers, that’s a tiny fraction of <a href="https://www.pewresearch.org/fact-tank/2021/11/11/16-of-americans-say-they-have-ever-invested-in-traded-or-used-cryptocurrency/">people who played with crypto</a> over the past few years. And I’d argue that if you did lose money in crypto, it’s much more likely that you did it the old-fashioned way: hopping on Robinhood and buying bitcoin at $60k — it’s now at $17,000 — or dogecoin at 64 cents, minutes before <a href="https://www.youtube.com/watch?v=x5RCfQyTDFI">Elon Musk went on <em>Saturday Night Live</em> and called it a “hustle.”</a> It’s now at 3 cents, as my app reminds me.</p>
<p id="I3ENCl">And it may just be that despite all the inroads crypto made into the mainstream over the last decade — <em>SNL</em> doesn’t do jokes about cryptocurrencies unless a lot of people have heard about those cryptocurrencies — it still isn’t fully mainstream. Which is why the crypto crash that has sucked <a href="https://www.cnbc.com/2022/11/11/crypto-peaked-in-nov-2021-investors-lost-more-than-2-trillion-since.html#:~:text=Crypto%20peaked%20a%20year%20ago,more%20than%20%242%20trillion%20since&text=A%20year%20after%20bitcoin%20peaked,challenges%2C%20market%20forces%20and%20scandals.">$2 trillion</a> out of the market doesn’t feel like something that has leveled lots of people in the way the 2000 and 2008 crashes did. </p>
<p id="wahajM">Again, none of that will have much to do with the way the legal system treats SBF, though there is certainly a theory that his “I’m just a nerd who made a nerdy mistake” semi-explanations are aimed at softening up potential prosecutors, judges, and juries. We’re unlikely to see how that pans out for a long time.</p>
https://www.vox.com/recode/2022/12/7/23497285/sam-bankman-fried-ftx-sbf-anger-fraud-crypto-media-peter-kafka-columnPeter Kafka