Sam Bankman-Fried, founder of FTX, answers questions about the company’s collapse: “We screwed up big business”

In his first live appearance since FTX’s spectacular collapse, founder Sam Bankman-Fried asked questions at the DealBook Summit on Wednesday about the collapse of FTX, the bankrupt cryptocurrency exchange he founded, and the sequence of events that led to its explosion. .

Instead of appearing in person, Bankman-Fried spoke from afar from the Bahamas, where FTX is headquartered. He is reportedly under investigation by the Department of Justice and the Securities and Exchange Commission and may face extradition to the United States in the future. He is also expected to testify before congressional committees in the coming weeks.

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FTX was once worth roughly $32 billion, but its boom has sparked wider contagion in the crypto markets, as FTX and other companies intertwined with its sister company, hedge fund Alameda Research, have suffered from financial fallout. An estimated one million customers will attempt to reclaim their assets from FTX as FTX and its affiliates continue to file for bankruptcy.

Bankman-Fried told host Andrew Ross Sorkin that as CEO, he has a duty to do what’s right for employees, creditors and other shareholders, but is “shocked by what happened this month” and there are things I said “I wish I had done”. different.”

He denied the willful misconduct and said, “I have never tried to scam anyone.”

Sam Bankman-Fried, founder and former CEO of FTX Cryptocurrency Derivatives Exchange, speaks in an interview with David Rubenstein on an episode of Bloomberg Wealth on Wednesday, August 17, 2022, in New York, USA. (Photographer: Jeenah Moon/Bloomberg via Getty Images/Getty Images)

Sorkin pressured Bankman-Fried over FTX’s relationship with Alameda Research, as FTX reportedly lent up to $10 billion to support the hedge fund’s finances to Alameda, founded by Bankman-Fried and led by his ex-girlfriend Caroline Ellison. “I didn’t knowingly mix funds,” said Bankman-Fried, but acknowledged the oversight failures for his part.

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Bankman-Fried said Alameda has become too dependent on FTX and denied that it was aware of positions that had led the hedge fund to become over-leveraged. He said he distanced himself from the decision-making process at Alameda because “I was nervous because of the conflict of interest being too involved.”

The Wall Street Journal previously reported that Ellison told Alameda staff that FTX had transferred clients’ funds to meet the hedge fund’s obligations, and that he, Bankman-Fried, and other members of the firm’s leadership were aware of the decision.

Bankman-Fried was asked about his efforts to acquire other crypto companies, and he said, “I saw this as important to the health of the industry.” While the companies it bought are now part of FTX’s bankruptcy proceedings, other FTX-linked crypto companies such as BlockFi, which entered into a loan arrangement that gave FTX the option to buy it, have also filed for bankruptcy amid the pandemic that has affected the crypto industry.

When his lawyers were asked if it was a good idea for him to be so frank with the media, Bankman-Fried replied “absolutely not” but “I have a duty to speak up and explain what happened.”

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He added that he doesn’t think he has any criminal liability for FTX’s collapse, but that’s not the focus right now. “There’s a time and place for me to think about myself and my own future – I don’t think that’s it,” he said.

“Look, I’ve had a bad month, but that’s not the point here,” said Bankman-Fried, emphasizing that he wanted to help customers be “totally whole.” However, he did not go into detail at this stage about how he would achieve this.

Bankman-Fried said that the legal entity that manages FTX’s US business must be solvency and is not sure why it is not open to withdrawals. FTX entities, both headquartered in the US and Bahamas, are in the process of bankruptcy.

Sorkin asked what happened to the $515 million in funds transferred from FTX after filing for bankruptcy. Bankman-Fried said he wasn’t sure and cited several possibilities, including “inappropriate access to assets.” Shortly after FTX filed for bankruptcy, reports of unauthorized transactions emerged in which $1 billion worth of cryptocurrency was lost.

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Bankman-Fried was asked about the philanthropic initiatives he undertook while running FTX and whether they were part of a public relations campaign. He replied that some were genuine philanthropy but “there are things I feel we have to do for business”. Bankman-Fried and Ellison advocated the philosophy of “effective altruism,” which involved raising large sums of money to finance charitable causes.

Hairy-haired Sam Bankman-Fried

Sam Bankman-Fried, founder and CEO of FTX Cryptocurrency Derivatives Exchange, during an interview with David Rubenstein on an episode of Bloomberg Wealth on Wednesday, August 17, 2022, in New York, USA. (Photographer: Jeenah Moon/Bloomberg via Getty Images/Getty Images)

The issue of FTX buying property in the Bahamas with corporate funds was raised by Sorkin, and Bankman-Fried explained that this was done so that the company could offer an “incentive” for relocating engineering workers from Silicon Valley to the Caribbean nation.

Returning to the topic of risk management, Bankman-Fried said that FTX “completely failed” and explained that “There was no one responsible for positional risk at FTX.”

New FTX CEO John Ray III, a corporate restructuring expert dealing with the aftermath of Enron’s explosion, stated in the bankruptcy filings that control of the company is concentrated “in the hands of a very small group of inexperienced, uninformed and potentially compromised.” “complete failure of company controls” due to “individuals”.

Bankman-Fried was asked if he was at fault in the downfall of venture capital firms that invested in FTX to some degree. “I don’t think they take any responsibility,” he said, and that VC funds typically focus primarily on the pros.

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After the video was briefly disconnected towards the end of the interview, Bankman-Fried said he had $100,000 left in the bank and a working credit card. He denied that he withheld or improperly transferred any funds from FTX.

When asked if he was honest during the hour-long interview, Bankman-Fried replied, “I was as honest as I know” and “I don’t know when I’ve been lying.”

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