On Sept. 16, CNBC’s “Squawk Box” aired a segment about Sam Bankman-Fried — the chief executive, at the time, of the cryptocurrency exchange FTX — and his recent spree of acquisitions in the wake of an industry downturn. “They call him the J.P. Morgan of crypto, right?” the host asked, comparing Bankman-Fried to a financier with so much money he backstopped myriad failing banks in order to stabilize the entire financial sector. “The White Knight of Crypto,” read the text at the bottom of the screen.
Over a shot of Bankman-Fried trotting through a parking lot in the Bahamas, a reporter repeated facts I have come to think of as the Precrash Litany of Sam Bankman-Fried: He’s a multibillionaire at 30, he drives a Toyota Corolla, he lives in the Bahamas with nine roommates and a goldendoodle. He has gotten richer, faster, than almost anyone in history, having started his best-known company in 2019. In an interview, he perched on a stool and talked about the moves that drew the Morgan comparison: self-sacrificing investments his firm made in the interest of saving, in his words, the larger crypto “ecosystem.”
Two months later, the “White Knight” narrative was tossed in the office trash can and lit on fire. The crypto publication CoinDesk had reported on documents that shook people’s faith in Bankman-Fried’s companies, and soon most everyone apart from the goldendoodle — investors, customers, employees — rushed for the doors. In a snap, Bankman-Fried was deposed as chief executive, and FTX filed for bankruptcy. The Nov. 11 edition of “Squawk Box” featured Anthony Scaramucci, whose SkyBridge Capital sold a 30 percent stake of its fund to Bankman-Fried around the time of those “White Knight” bailouts. “I don’t want to call it fraud at this moment, because that’s actually a legal term,” he said. But you sensed that he very much did want to call it fraud, the legal word.
The rapidity of this shift, especially in financial media, was enough to give a casual observer whiplash. In 2021, Forbes featured Bankman-Fried on its cover for its list of the 400 richest Americans, with a buoyant profile inside focused on the youthful billionaire’s promises to donate his expanding wealth. Switch to this past fall, and the magazine posted a video titled “‘Devil in Nerd’s Clothes’: How Sam Bankman-Fried Fooled Everyone.”
On YouTube, the top comments on precollapse coverage of Bankman-Fried now tend to be sarcastic allusions to this shift. (“Kudos CNBC for recognizing a solid businessman!”) On Twitter, angry FTX customers have berated crypto journalists for their perceived failures. But the media was hardly alone in rapidly changing its tenor; almost nobody told a consistent story before and after the crash. Even among the angriest commentators, few had picked up on details like Bankman-Fried’s relative lack of philanthropy compared with all the stories about his grand plans for philanthropy. Far from being isolated, credulousness abounded.
What to Know About the Collapse of FTX
What is FTX? FTX is a now bankrupt company that was one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The company, based in the Bahamas, built its business on risky trading options that are not legal in the United States.
All this opacity can scramble our ability to tell accurate stories, allowing for only two speeds: full throttle and roadside car fire.
Bankman-Fried insisted on remaining the main character of this story long after lawyers advised against it, giving numerous on-the-record interviews and appearing at The Times’s DealBook Summit conference. The saga of his ascension and decline grew larger and larger, in part because it told a rare crypto story: the kind legible to those uninterested in crypto. On the way up, he was a budding philanthropist. On the way down, he was proof, to those who wanted it, that crypto businesses were not much more than a shell game. In mid-December he was arrested in the Bahamas and charged with a wide variety of fraud in the United States, and the blockbuster financial thriller stood to become a legal one.
Theranos, WeWork, countless early dot-coms and pre-2008 financial instruments: Almost all began as exciting business stories about people and companies that seemed poised to remake their industries in innovative ways and had the capital, growth or returns to suggest they might be on to something. Those articles continued right until the businesses imploded amid revelations of fraud, incompetence or brazen recklessness. “Whom the gods would destroy,” Paul Krugman wrote in a 2001 Times column about Enron, “they first put on the cover of Businessweek.”
These sorts of seductively optimistic possibilities — promises like painless blood testing or office space that builds community — naturally draw attention, but they also sit at the heart of deception and fraud. The worst narrative implosions may be less about bad individuals than how easy it can be to hide consequential information that might help reveal the difference. Public companies based in the United States must regularly open their books to investors, but private ones have no such obligation — especially ones based offshore, as FTX was. Private wealth has soared over the past 20 years, and so has the number of private companies, leading one S.E.C. official to warn recently that a rapidly increasing portion of the economy is “going dark.” This can enable dangerous carelessness or fraud. John Jay Ray III, the man brought in to clean up after Bankman-Fried — the man tasked with the same job in the Enron bankruptcy — said he’d never before seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information.” On one hand, those outside the firm may have failed to do their due diligence; on the other, it would have been impossible had they tried.
All this opacity can scramble our ability to tell accurate stories, allowing for only two speeds: full throttle and roadside car fire. What little people did know about FTX supported, in a very real way, the tale the company was telling; people really did entrust Bankman-Fried with billions, and that really did give him newsworthy power and influence. It was when the public no longer bought this story that the money rushed out. His power was contingent on belief, an all-or-nothing proposition that media coverage feebly reflected. It’s not surprising that Bankman-Fried says he opposed filing for bankruptcy, a process that reveals heaps of information in public filings; he believed, rightly, that if he could somehow win back people’s confidence, everything could continue.
Bankman-Fried now seems less like the main character in his own story and more like an empty vessel into which people poured torrents of cash, hoping to create the crypto dreamworld they desired. The problem we must reckon with is that even if the story people told about him was inaccurate, there was incontrovertibly a story to tell — his success and influence were real enough to alter the world while they existed. Yet almost no one had access to the information necessary to make that story more accurate or reveal the basis of that success. So we got a laudatory story followed by a heaping platter of schadenfreude. There’s always next time, right?
Source photograph: Jeenah Moon/Bloomberg, via Getty Images; Alex Wong/Getty Images