Sam Bankman-Fried’s terrible, horrible, no good, very bad week

Bankman-Fried, who spent $40 million during the midterms, lost 94% of his fortune this week

Until recently, Sam Bankman-Fried had been viewed as a financial wunderkind who created one of the world’s largest cryptocurrency exchanges, FTX, while amassing a multi-billionaire fortune he used to establish himself as a major player in politics and philanthropy.

But over the past few days, a different narrative has emerged, as the now-beleaguered 30-year-old investor seeks to save his exchange from imminent collapse amid a sudden liquidity crunch that has reverberated across crypto markets, threatened to wipe out most of his personal wealth and left FTX on the verge of potential bankruptcy.

It is an extraordinary reversal of fortune for the once-powerful crypto king, whose net worth had been valued at $16 billion as recently as Monday. Now, even Bankman-Fried himself has acknowledged he may no longer be a billionaire, as some estimates have suggested. His exchange, meanwhile, was valued at just $1 on Tuesday, according to Bloomberg

Bankman-Fried, who has previously helped bail out other struggling crypto companies, was in desperate need of his own savior on Thursday, after a leading competitor, Binance, withdrew from a recent agreement to acquire FTX, citing “mishandled customer funds and alleged U.S. agency investigations.” FTX is reportedly facing investigations from the Securities and Exchange Commission and Justice Department. 

The crisis began last week, when CoinDesk, a crypto news site, obtained a leaked document suggesting a highly risky and potentially improper financial connection between FTX and a hedge fund founded by Bankman-Fried, Alameda Research. The document revealed that a substantial amount of Alameda’s assets were made up of a digital token, FTT, created by FTX itself. 

“While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented,” wrote Ian Allison, a senior reporter at CoinDesk, “not an independent asset like a fiat currency or another crypto.”

The unusual arrangement drew particular scrutiny from Binance, the world’s largest crypto exchange, whose assets included the FTX token. On Sunday, Changpeng Zhao, the chief executive of Binance, said the company would “liquidate any remaining” tokens it had received after its “exit from FTX equity last year.” 

His announcement spooked investors, setting off a massive bank run at FTX. The company is now on the brink of insolvency, as it has been unable to pay for billions of dollars in withdrawal requests.

In an extensive Twitter thread on Thursday morning, Bankman-Fried claimed responsibility for what he described as a “shitshow,” writing: “I’m sorry. That’s the biggest thing. I fucked up, and should have done better.” He said he was “winding down trading” at Alameda and “spending the week doing everything we can to raise liquidity.”

“There are a number of players who we are in talks with,” he wrote. “We’ll see how that ends up.”

FTX announced on Thursday that it had “reached an agreement” with Tron, a blockchain network, that will “allow holders of” some tokens “to swap assets from” the exchange to “external wallets.”

But the company’s future remains in doubt amid mounting scrutiny over its apparently untoward financial relationship with Alameda, among other things. According to The Wall Street Journal, “FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm,” ultimately “setting the stage for the exchange’s implosion.”

FTX did not respond to a request for comment from Jewish Insider on Thursday.

Bankman-Fried, an eccentric idealist who subscribes to a movement known as “effective altruism,” had vowed to eventually give away all of his money.

Before the collapse of FTX, he had spent around $40 million during the midterms to boost a range of candidates, most of whom were Democrats. His contributions made him one of the top donors of the election cycle, according to OpenSecrets, which tracks campaign finance data. 

He gave a large portion of his donations to Protect Our Future PAC, which describes itself as a “an organization designed to help elect candidates who will be champions for pandemic prevention.” The PAC did not respond to a request for comment from JI on Thursday.

Many of the candidates Bankman-Fried supported were also backed by pro-Israel groups such as Democratic Majority for Israel and United Democracy Project, a super PAC affiliated with AIPAC. He gave $250,000 directly to DMFI PAC last May. 

But it is unclear if his backing of pro-Israel candidates was coincidental or motivated by any personal interest in Middle East policy. Bankman-Fried, who is Jewish, does not appear to have spoken publicly about Israel or the Middle East. (DMFI PAC declined to comment.)

It remains to be seen if he will have money to spend in future cycles now that most of his wealth is gone.

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