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How Bankman-Fried tried to cling to FTX

For days, Bankman-Fried ignored their warnings and clung to power, seemingly convinced that he could save FTX despite mounting evidence to the contrary.

Sam Bankman FriedSam Bankman-Fried speaks at the Crypto Bahamas conference in Nassau, April 27, 2022. The collapse of FTX, one of the world’s largest cryptocurrency companies, is still sending shock waves through the crypto world. (Erika P. Rodriguez/The New York Times)

Written by David Yaffe-Bellany

When the cryptocurrency exchange FTX filed for bankruptcy Nov. 11, the company’s founder, Sam Bankman-Fried, announced the news in a contrite message on Twitter.

But his attempt to calm the situation belied what had just taken place within the company. As the crisis unfolded, a group of FTX lawyers and executives moved to strip authority from Bankman-Fried and urged the company’s top leaders to prepare for bankruptcy. For days, Bankman-Fried ignored their warnings and clung to power, seemingly convinced that he could save the firm, despite mounting evidence to the contrary.

“The exchanges must be halted immediately,” Ryne Miller, a top FTX lawyer, wrote in an email to Bankman-Fried and other staff Nov. 10. “The founding team is not currently in a cooperative posture.”

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Bankman-Fried eventually relented, stepping down as FTX’s chief executive and authorizing the company to file for bankruptcy. Dozens of pages of internal company emails and texts obtained by The New York Times offer a detailed look at those chaotic final days, as messages flew back and forth among FTX officials who seemed to be growing increasingly irritated with the 30-year-old founder.

Throughout, Bankman-Fried appeared deluded about FTX’s prospects, insisting that he could find a way to keep the company running, the documents show. A day before the bankruptcy filing, he told employees that he was trying to raise new funding, and as recently as last week he said he regretted authorizing the bankruptcy.

The messages reviewed by The Times and interviews with insiders show how a small group of lawyers and executives struggled to get through to Bankman-Fried, even appealing to his father as they pressed their case. While Bankman-Fried was scrambling to line up investors, Miller sent a text to top staff describing the prospect of a fundraise as “0% likelihood.”

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The push and pull continued into the early hours of Nov. 11, when Miller sent a series of messages urging Bankman-Fried to sign papers so the company could file for bankruptcy.

“Please can you sign the document,” he wrote at 2:29 a.m.

FTX’s implosion has set off one of the worst upheavals in the history of crypto. Until this month, Bankman-Fried was regarded as one of the few trustworthy figures in a freewheeling, loosely regulated industry. He built a business empire, invested in smaller crypto firms and lobbied aggressively in Washington.

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Now his actions are devastating the industry. Hundreds of thousands of customers stored their funds on FTX, which provided a marketplace for people to buy and sell digital coins; the exchange owes its creditors an estimated $8 billion. And since the implosion, several major crypto firms with close ties to FTX have come under mounting financial pressure, as fears grow that the collapse could cause other companies to fail. On Monday, the crypto lender BlockFi filed for bankruptcy, citing the fallout from FTX’s disintegration.

The legal ramifications are only beginning to take shape. Justice Department prosecutors are investigating FTX’s downfall, focusing on whether the exchange broke the law by lending its customers’ funds to the hedge fund Alameda Research, which Bankman-Fried also founded and owned. In bankruptcy court, FTX’s new chief executive has harshly criticized Bankman-Fried’s management of the company, calling it a “complete failure of corporate control.”

Reached by phone Sunday night, Bankman-Fried declined to address the messages that top executives exchanged leading up to the bankruptcy filing. But he said that even after FTX’s collapse, he had found “numerous parties” willing to invest funds. He declined to name any of the possible investors.

Miller and an FTX spokesman declined to comment.

The crisis began Nov. 8, when Bankman-Fried announced that a run on deposits at FTX had forced him to sell the company to one of its bitterest rivals, Binance. For about a day, the deal raised the prospect that FTX could survive as part of a giant exchange run by Binance. But after reviewing FTX’s financial records, Binance pulled out of the agreement, citing issues with “corporate due diligence.”

“Sam, I’m sorry,” Binance’s founder, Changpeng Zhao, wrote in a text message to Bankman-Fried. “But we won’t be able to continue this deal. Way too many issues. CZ.”

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With FTX swiftly unraveling, Miller tried to seize control of the situation. A former lawyer for the Commodity Futures Trading Commission, Miller had served as general counsel of FTX’s U.S. arm since August 2021. While he never belonged to Bankman-Fried’s main circle of advisers in the Bahamas, where FTX was based, he had accompanied the young executive in meetings with regulators in Washington.

Early in the crisis, Caroline Ellison, the chief executive of Alameda, wrote in a group chat with Miller that she was “kinda worried that everyone is gonna quit/take time off,” adding an emoticon of a sweating face. Miller responded Nov. 9 that FTX needed “a professional manager vested with decision-making authority.”

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That afternoon, Miller asked Bankman-Fried and two other executives to shut down trading on FTX’s platforms

“Who can turn off the websites?” he asked in a group chat at 4:41 p.m.

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Two minutes later, he got a response from Constance Wang, FTX’s chief operating officer and one of Bankman-Fried’s top lieutenants.

“Ryne, I love you,” she wrote, “but I don’t want to stop trying yet.”

Miller and other FTX executives also urged Bankman-Fried to give up some control of his business empire. At one point, Zach Dexter, an executive who worked on FTX’s American business, asked Bankman-Fried to delegate authority over U.S. operations to him and Miller. In an exchange on the messaging system Slack, Bankman-Fried at first appeared to dodge Dexter’s question. Instead, he responded with proposed language for a banner on FTX’s U.S. website.

Soon other FTX officials joined in, urging Bankman-Fried to forgo some control.

“You can trust us,” Brian Mulherin, an FTX lawyer, wrote in a Slack message. “The public perception of having you and the other founders at the helm at this moment (especially but not exclusively in the U.S.) is not likely to produce good outcomes.”

Privately, senior FTX staff also pressed the case with Bankman-Fried’s father, Stanford Law School professor Joe Bankman, a person familiar with the matter said.

But Bankman-Fried seemed convinced he could save FTX. In a message to employees Nov. 10, he announced that he was hoping to secure new financing from crypto entrepreneur Justin Sun. FTX had “a lot theoretically in and/or potentially for the raise,” he wrote.

Behind the scenes, pressure was growing to appoint a new executive to lead the exchange. On the night of Nov. 9, Andrew Dietderich, a lawyer at Sullivan & Cromwell, sent FTX executives the resume of John Jay Ray III, a corporate turnaround expert who had led the unwinding of Enron after the energy company’s collapse in an accounting scandal in 2001.

“Sam this is an excellent pick and I wholeheartedly hope you sign this tonight,” Dexter wrote in an email on the evening of Nov. 10. “The faster John is in place, the faster the company can resolve issues that require urgent progress.”

A flurry of emails followed. In a message at 3:38 a.m. on Nov. 11, Miller asked for an update on Bankman-Fried’s decision.

“I am chatting with Sam,” responded Ken Ziman, a lawyer at the firm Paul Weiss who was representing Bankman-Fried.

Ten minutes later, Ziman confirmed that Bankman-Fried had signed the document, authorizing Ray to take over FTX. The company filed for bankruptcy a few hours later.

The filing was hardly the end of the chaos. The court submission listed more than 130 corporate entities tied to FTX, including its U.S. arm and Alameda, the hedge fund. But the filing was inaccurate: Some of the entities were not owned by the exchange. They belonged to AZA Finance, a separate company that had recently become partners with FTX to promote crypto in Africa.

FTX later acknowledged the error. But in a Nov. 11 Slack message to Miller and other officials, Elizabeth Rossiello, the chief executive of AZA Finance, called the mistakes in the bankruptcy filing “a storm of wild irresponsibility.”

“This is hurting 9 years of work we have done to create this platform!!” she wrote.

Miller responded defensively.

“We had no cooperation of the founders in preparing this week,” he said. “It was unfortunate.”

Bankman-Fried was also frustrated. Despite giving up control of FTX, he continued contacting possible investors about new funding for the exchange. In a letter to former colleagues last week, he said he regretted filing for bankruptcy, claiming that “potential interest in billions of dollars of funding came in roughly eight minutes after I signed the Chapter 11 docs.”

He presented no evidence for that claim, and in any case, FTX was no longer his company to run. On the morning of Nov. 11, Miller moved quickly to make that clear, requesting the deletion of information about the firm’s old leadership from its website.

“Who can go to FTX.com and FTX US and remove the pictures and bios of the people under ‘about,’” he asked in a group chat with other executives.

This article originally appeared in The New York Times.

First published on: 30-11-2022 at 12:48 IST
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