After earning his undergraduate degree, Sam Bankman-Fried began to worry that he wasn’t taking enough chances a few years later.
From Wall Street to Crypto: The Rise of Sam Bankman-Fried
The son of two Stanford Law School professors resigned from his Wall Street position and launched a cryptocurrency hedge fund in 2017, which sparked a series of events that led to his criminal conviction on Thursday for participating in what federal prosecutors have dubbed one of the largest financial frauds in American history.
Two years after initiating a hedge fund, Alameda Research, Bankman-Fried established FTX, an exchange facilitating the purchase and sale of virtual assets like bitcoin. The next two years saw a sharp increase in the value of cryptocurrencies, which helped Bankman-Fried reach a net worth of $26 billion before turning thirty, according to Forbes magazine.
Political Influence and Iconic Image
Before the 2022 U.S. midterm elections, he turned his riches into political power by contributing significantly to Democratic politicians and causes. Originally from the Bahamas, Bankman-Fried gained notoriety for his dishevelled, curly hair and his rumpled shorts, which he wore even when hosting dignitaries such as Bill Clinton.
Bankman-Fried engaged well-known figures, including NFL quarterback Tom Brady and comedian Larry David, to appear in advertising for FTX, a cryptocurrency that has been beset by hacking and money laundering. He openly supported attempts to control cryptocurrency.
Prosecutors, however, contend that his carefree manner and attempts to project a responsible image hid his years-long misappropriation of client monies. They claim that in 2022, when cryptocurrency prices plummeted and he utilised FTX monies to cover Alameda’s losses, the theft reached a peak.
The Trial and Testimonies
On October 4, a federal court in Manhattan opened his trial. In their testimony, three ex-members of his inner circle—who have pleaded guilty and consented to work with the prosecution—described episodes in which he lost his cool around coworkers and implied that his eccentric demeanour was primarily a front.
“He expressed his belief that his hair held great value,” stated Caroline Ellison, the ex-CEO of Alameda and intermittent partner of Bankman-Fried.
Her statement stated that since the beginning of his Wall Street career, “he had gotten higher bonuses because of his hair and that it was an important part of FTX’s narrative and image.”
No sentences have been handed down for Ellison or the other two cooperating witnesses, former FTX executives Gary Wang and Nishad Singh. U.S. District Judge Lewis Kaplan may be urged by prosecutors to consider their assistance when deciding how to penalise them.
The Massachusetts Institute of Technology graduate, Bankman-Fried, testified in his own defence that he was “busy and lazy,” rarely had his hair cut, and preferred to wear shorts and T-shirts because they were “comfortable.”
A not guilty plea has been entered by Bankman-Fried on seven counts of conspiracy and fraud. Although he has admitted to poor risk management, he has denied embezzling money.
The now 31-year-old Bankman-Fried testified that he made errors that hurt FTX workers and customers, such as failing to establish a risk management team. However, he insisted that he never meant to take money from clients or commit fraud.
“We believed we could create the greatest product available,” Bankman-Fried stated throughout his six-hour testimony in federal court in Manhattan. “It turned out basically the opposite of that.”
Bankman-Fried Sought to Stay Away From Comfortable Path
Prior to starting Alameda, Bankman-Fried had limited experience in the cryptocurrency space. The company’s early profits were derived by taking advantage of discrepancies in digital token pricing between the US and Asia. He admitted to not applying himself in class and not knowing what to do with his life for the majority of his time in college, on an FTX podcast. He was an MIT physics major.
However, it was during those years that he developed an interest in the effective altruism movement, which advocates for gifted youth who want to leave their mark on the world to concentrate on making money and donating it to deserving organisations. This prompted him to accept a position at Jane Street as a quantitative trader, but he started to question whether he was making the most money possible.
“If I really think that I should be trying to maximise expected values, that probably implies substantially riskier strategies than what seems intuitively right,” he stated in the podcast on June 4, 2020. “I should be careful not to fall prey to trying to choose a comfortable path.”
He introduced us to Ellison, a fellow Jane Street effective altruist, and then to Gary Wang, an old buddy from maths camp. He would take both of them to the Bahamas, where they lived in a $30 million condominium with Nishad Singh and other executives from FTX and Alameda.
U.S. District Judge Lewis Kaplan revoked Bankman-Fried’s bail in mid-August, putting him in jail for allegedly attempting to influence witnesses at least twice, including by disclosing Ellison’s confidential correspondence to a writer for the New York Times.
Following his incarceration, Bankman-Fried wrote in private, “There will probably never be anything I can do to make my lifetime impact net positive.” He shared the words with a social media influencer, who then provided them to the Times. “And the truth is that I did what I thought was right.”
