The SBF saga

 Book review - 'Going Infinite' by Michael Lewis

For the most part, this (audio)book, narrated by the author himself, sounds like a character study of the main protagonist, the founder and CEO of failed cryptocurrency exchange FTX, Sam Bankman-Fried aka 'SBF'.  But anyone with even a nodding acquaintance with corporate life would be horrified at the total lack of structure and controls Sam maintained in his business ventures while handling billions, and that he was allowed to get away with it for such a long time.

The book describes a comfortable but seemingly angst-ridden childhood and teenage for Sam, as progeny of respected academics.  Sam considered himself probably the smartest child and young adult among his peers, in a matter of fact way and not out of deliberate conceit.  An interesting episode from his childhood is when he was shocked on realizing that other people considered God as something real, not as a widespread spoof like Santa Claus!  The Bankman-Frieds also didn't celebrate birthdays, contrary to widespread social norms.

Going into his teens, Sam did reasonably well in his studies.  He considered only math and such quantitative subjects as the real stuff, all else and especially liberal arts was to him a lot of mumbo-jumbo.  He was not fond of reading, and thought 'Books were sort of dumb'.  But after some time Sam got really bored and didn't know what else life had in store for him.  He was known among family and friends to sit silent for long stretches, without being unfriendly. He had started showing signs of a character trait of lack of empathy, though not cruelty. Later in working life, he taught himself how to make a show of attention to others, with certain words and gestures, though he'd keep up for life his habit of playing games online while apparently talking to people over video call.

After graduating from MIT with Physics and Math, Sam joined Jane Street, a quantitative-trading firm.  He excelled at his job there, being quantitatively gifted.  Around that time, Sam discovered the community of Effective Altruists (EA), who basically aim to do good for the world by making enormous sums of money and spending on projects and efforts with huge reach.  Sam was influenced by a leading voice in the EA community, and in turn propagated and worked with other EAs throughout his career.

Leaving Jane Street after some time, Sam created his own venture Alameda Research (the firm in the eye of the storm in the FTX scandal) in 2017, with some other EAs (including some like Caroline poached from other firms including Jane Street), to trade cryptocurrencies on many exchanges across the world.  The age of cryptocurrency had dawned not too long back with Bitcoin and such, and Sam devised some computer algorithms to trade them for enormous profits.  Even then, his total lack of respect for established norms of corporate functioning and accounting was apparent.  Millions of dollars in cryptocurrencies routinely went 'missing', and then were found in exchanges at far away places, mostly in Asia.

But Sam was not satisfied with the comparatively small pickings of a few hundreds of millions that Alameda was making with crysptocurrency trading.  He also had a falling out with some of the EAs who helped him run Alameda, and they wanted to push him out.  Sam then created the cryptocurrency exchange FTX in 2019, with the help of reclusive tech wizard Gary (who was known till the end as the only person who really understood what went on inside FTX computers).  This led to ballooning of 'takings' from hundreds of dollars to tens of billions. Forbes magazine once estimated Sam's value to be approx. $ 22 billion on the lower side.  Same operated FTX and Alameda from a number of locations across the world starting with Hong Kong, toying with Dubai for a time, and filally settled at the Bahamas, setting up at Orchid Penthouse, in a collegial setting, and then building a corporate office designed like a 'jungle' at Albany Resorts.  Besides Caroline, his sometime girlfriend who Sam made the CEO of Alameda, a group of other EAs like Nishad and Ramnik helped him run the whole enterprise.

And 'running' the enterprise seemed to be a euphemism for somehow managing to earn in billions while not caring for the most basic corporate structure and accounting norms.  For a multibillion dollar enterprise, FTX had no designated CFO, and no regular accounting reports or balance sheet.  Sam found the human resources function to be wholly unnecessary - not only the processes, but there was not even an organization chart: nobody knew exactly who or how many were working for FTX/Alameda.  Ditto for marketing, which he equated with useless wordplay - for him, all that marketing required is throwing millions of dollars to a wide range of people: politicians (Sam and other EAs once experimented with capturing a US Congress seat by supporting a candidate with a millions of dollars, but he lost), celebrities, sportspersons, TV personalities.  He was confident that as long as the show was kept up, nobody would try look under the hood.  Sam was fond of saying 'People don't see what they're not looking for'.

So how did the house of cards come crashing down?  It seems in his hubris, Sam made the mistake of unnecessarily needling CZ, the found of Binance, the biggest cryptocurrency exchange in the world, a sometime supporter but with whom Sam had a few run ins earlier. A reaction to an innocuous tweet from Coinbase led to a heated exchange over Twitter.  It was alluded that FTX had a big 'hole' in its balance sheet, of about $ 8 billion, mainly through diversion of customer deposits to privately held Alamdea Research, which had lost it either through market losses or in market making, there was no way to tell.  Things unravelled fast, and after trying other avenues Sam at one point agreed to sell FTX to CZ.  But once CZ took back his offer after due diligence, the writing was on the wall, and FTX declared bankruptcy in November 2022.

The sordid FTX saga is still playing out in US courts, with sentence of anything from 5 years to as much as 100 years being talked about for Sam.  The guy himself seems unrepentant, insisting that what he did was probably a mistake, but unintentional and for a good cause.

While picking up through the pieces of FTX, Constance the Mandarin-speaking member of Sam's top team remarked 'He's absolutely zero empathy'.  But probably the last word on the business, as opposed to the person, was probably said by John Ray, the specialist who Sam assigned as the CEO on declaring bankruptcy.  While an abrasive and sometimes misguided troubeshooter, Ray's initial remarks on taking over were on the dot, that he had never come across “such a complete failure of corporate controls and such a complete absence of trustworthy financial information.”