FTX collapsed into bankruptcy and over a million people lost their money. Former CEO Sam Bankman-Fried has been going on a media tour, saying that everything was an honest mistake. We are going to answer the question, is he lying? Or is he telling the truth?
Truth Social: https://truthsocial.com/@FinanceWolves
NY Times transcript
Caroline Ellison spotted in NY
Forbes – SBF Net Worth
Chamath Palihapitiya Statement
Original Bankruptcy petition
Amended Bankruptcy filing 11/14/22
Banktrupcy filing 11/17/22
I am not going to go through the whole FTX scandal here. There are a lot of great videos on YouTube that give a thorough description of what happened at FTX. And there is a lot that we do not know yet. Instead, I want to take a look at all the information we know so far, and answer a simple question: “Is Sam Bankman-Fried a liar?”
This is an important question. It is not a crime for a business to go bankrupt. Businesses go bankrupt all the time. It is a crime to lie to investors, and then lose their money in a bankruptcy. The lie is the deception.
- If Sam Bankman-Fried did not lie to investors, and the business went bankrupt, then it is an honest mistake.
- If Sam lied, and the investors relied on that information, then it is a crime.
Sam has been doing all these interviews, claiming that he is innocent. Should we believe him or is he lying? I have listened to all these interviews over an over again, and I looked for two things:
- statements Sam made that either contradicted other statements he made, or
- facts that we know to be true.
I am also not going to focus on the incriminating statements about drug use, sex, and parties, because, while that is important, I want to focus instead on the money. Here is what I found.
Let us start with the lies that Sam admits. In his recent interview with the NY Times, Sam responded to the criticism he was not being genuine about ESG. In the interview, he says, “There is a bunch of bullshit that regulated companies do to try and look good. And these are things that everyone who does them basically knows they’re kind of dumb, that these are not things that are making a large impact on the world.”
This is a horrible statement where he admits to being a liar. He is saying he was being deceptive to the public. He was saying things he thought people wanted to hear, while doing something different behind the scenes. Now lying about ESG is not a crime, but it shows Sam’s approach to running his business. He is admitting to this very dishonest way of doing things. Sam wants everyone to believe that he only lied about this one aspect of the business, but anything dealing with people’s money, he is telling the truth.
- Political Donations
Another lie Sam admits deals with political donations. He was a highly publicized donor to the Democrat party. But now he is claiming, “It was on both sides of the aisle.” We cannot verify this, or how much was donated. But the point is that this was another deception. He was saying one thing to the public and doing something else behind the scenes.
At the NY Times interview, Sam was asked, “Where did the money come from for those donations?” Sam replies, “Basically, profits.” I’m not sure what “Basically, profits” means. Either it was profits or it wasn’t. But even if it was profits, this is also a lie. You cannot take money from a company right before it declares bankruptcy and call it profits. Those are not really profits. Those are mislabeled funds that should have stayed in the company to keep it from going bankrupt. It was reported that Sam Bankman-Fried gave at least $40M to Democrats for the 2022 election. For Sam to say those funds came from profits, is a lie.
- No Board
In the NY Times interview, Sam was asked about lack of oversight of the company. The company had no CFO and no board of directors. In response to this, Sam said, “Interestingly, in some ways we had too many boards.”
This is an extremely deceptive response. Sam wants people to believe FTX had safeguards in place, when they clearly did not. The most telling response to this is an interview given by investment banker Chamath Palihapitiya who led an investment firm that was considering investment in FTX. He says “After hearing their pitch, they [Chamath] submitted a few recommendations in order to proceed, including forming a board of directors. The person that worked there [FTX] called us back and literally, I’m not kidding you, said, ‘go fuck yourself.”
This shows that people were telling Sam to put safeguards in place. Sam knowingly ignored those requests. The statement from Chamath shows that the attitude at FTX was very different from the one Sam is describing in these interviews. For these reasons, the statement Sam made that he had too many boards, is a lie.
- Commingling Funds
Sam has maintained in multiple interviews “I didn’t knowingly commingle funds.”
Just this week in a video posted by YouTuber Coffeezilla, Sam made the statement that as people were withdrawing funds, that he knew it was all coming out of the same account. This confirms what everyone already thought, that all the company money was mixed in one bank account, a direct violation of the terms of service FTX promised to customers. Sam obviously knew how the bank accounts were set up. It is unbelievable that he did not know he was commingling funds. Sam’s statements about commingling funds is a lie.
One of the biggest questions, was whether Sam knew whether Alameda was insolvent. Sam claims that Alameda was a separate entity, and he did not know what they were doing. So, it was a surprise to him that they did not have enough money to pay people. Therefore, it is not his fault. This conversation usually centers around a tweet he sent on Nov 7, just days before declaring banktrupcy. Sam said “FTX is fine. Assets are fine.” He further explains, “FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries).” The question everyone is asking is, “Was Sam lying when he tweeted this?” It is telling that shortly after Sam posted the tweet, he deleted it.
Let us look at how FTX was set up. FTX created their own tokens. Alameda was a hedge fund that was collateralized with those tokens. There was no gold. No dollars. It was just tokens. So, if tokens crashed, and Alameda had made any bet that went wrong, Alameda would collapse. There is nothing else of value to pay off bad debts. Sam knew this. That was the whole business model. Honestly, that is the same business model that most crypto companies use. Sam was doing the same thing that everyone else does, creating tokens out of thin air, and then borrowing against those tokens.
The reason Sam gives that he was unaware that Alameda was not collateralized was because there was an accounting error that misstated available funds by $8B. If it was Sam’s accountant’s mistake, how could Sam be held responsible? The problem with Sam’s explanation is that the accounting error does not really matter. It is a distraction. Sam still understood the business model. There are only three things Sam has to know to be lying:
- He knew Alameda was collateralized with tokens.
- He knew that Alameda had lost money on positions on FTX.
- He knew that the value of tokens was crashing.
We know that Sam knew that Alameda was only collateralized with tokens because he sent Forbes magazine in August a detailed list of his net worth in order to get on their annual Billionaires list. The spreadsheet includes crypto tokens and equity stakes. There is nothing else. No gold. No dollars. Nothing that Alameda could use as collateral.
Now let us look at the timeline.
- Nov 2 – There are leaked financials that show that Alameda is collateralized by FTT Token
- Nov 6 – Binance announces it will sell off FTT Token
- Nov 7 – Sam tweets “Assets are fine.”
- Nov 10 – SBF announces a problem. The Bahamas seize FTX assets. There is an anonymous hack.
- Nov 11 – Bankruptcy
Sam was asked about the Nov 7 tweet at the NY Times interview, and Sam explains that Nov 7 was the day when he started to worry about not meeting financial obligations. He claims the statement was true when he posted it, but Sam discovered it was untrue later in the day when he deleted it. But given this timeline, Sam knew otherwise. Before Nov 7, Sam knew Alameda was only collateralized with tokens. He knew Alameda lost positions on FTX. He knew that tokens were crashing. So, it is unbelievable that Sam was unaware that Alameda was insolvent, when he tweeted out “Assets are fine.” In fact, it is more unbelievable that he saw an $8B accounting error of extra collateral and didn’t ask where this extra collateral came from. This evidence shows that Sam’s tweet about FTX assets was a lie.
- FTX US is solvent
Sam keeps repeating in interviews that FTX US is solvent, and that there is no reason the company cannot payout funds to US customers. This statement is trying to shift the blame to the bankruptcy attorneys who are running the bankruptcy process. He is saying, “It’s their fault you are not getting your money. Don’t blame me.” These statements by definition are a lie. Bankruptcy is a legal process. The lawyers cannot just pay out certain people, and ignore the other creditors of the company. That is what Sam already did to get FTX in this situation. It is extremely misleading for Sam to blame the attorneys, when Sam is the person who filed for bankruptcy. Sam’s name is on the petition that was submitted to the court. It is no one else’s fault but Sam’s that US investors are not getting their money. Just so you understand what is likely to happen, if we look at the Enron bankruptcy, investors received their money back after eight years at 52 cents on the dollar. Sam’s statements that US investors haven’t lost any money is a lie.
It is also worth noting that the bankruptcy lawyer, who is the only person who has access to the information about what happened, has been making scathing remarks about Sam Bankman-Fried. He says in a court filing, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” He continues… “Mr. Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements.”
Just to be clear, the bankruptcy lawyer is telling everyone, do not believe what this guy is saying to you.
In the last week, Sam has been tweeting a new excuse for the collapse of FTX. He says it was the fault of his competitor, Binance. Sam claims that Binance, exited their equity position in FTX in an unfair way. It was Binance dumping their assets that caused the FTX collateral problems. This is a lie. It was not Binance running FTX. Sam was the CEO. Binance did not make Sam comingle customer funds. Binance did not make Sam under collateralize his business. Sam has no one else to blame but himself.
I think it is important to look at one other point. Sam was directly asked in the NY Times interview, “Were you truthful with us today?” Sam’s response was, “I was as truthful as I am knowledgeable to be.” What kind of answer is that. Why not answer, “Yes, of course I am telling the truth.” Given the facts that I have shown in this video, this response by Sam was also a lie.
Let me explain why it is so important to identify these lies. Sam is basically blaming the fraud on his girlfriend Caroline Ellison, who ran Alameda. Sam is saying that he knew nothing about what was going on, so therefore, everything is Caroline’s fault.
Last Sunday, Caroline Ellison was photographed in New York City. The likely reason Caroline Ellison is in New York, is because she is probably making a deal with the FBI and the Justice Department. If Caroline has any evidence (emails or text messages) that show that Sam was aware of what was happening at Alameda, she can trade her testimony for a reduced charge. She can negotiate to avoid prison, by sending Sam to prison. So, while Sam is going around doing interviews trying to convince everyone he is innocent, Caroline and others could be using all his statements to work against him. Every time Sam lies, it is an opportunity for one of his employees to submit a contradicting statement as a get out of jail free card. Then Sam would be facing criminal charges, with everyone testifying against him.
Sam is scheduled to testify in front of Congress this coming week on Tuesday. I hope the committee asks him about these lies.
Personally, the lesson I learn from this is how important it is to always tell the truth. Make it part of your approach to life to stand up for what is right. There are people in life who are just pathological liars. They lie all the time. It is like little kids on the playground, who get in trouble and point to other people and say, “It is their fault. They did it.” Even if they are caught red handed. Only now we are talking about adults running large companies who are the liars. When people are lying, they are trying to benefit themselves by hurting other people. In the case of FTX, more than a million people lost their money. That is why it is important to call out lies when you see them, and simply say, “No, that is not correct. Here is the truth.”
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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.