I quite like this bit:If a troubled company has a few days to beg potential investors for a bailout before it files for bankruptcy, and it sends those investors its balance sheet so they can consider investing, and they all pass, and then the company files for bankruptcy, of course the balance sheet was bad. That is not a state of affairs that is consistent with a pristine fortress balance sheet.
But there is a range of possible badness, even in bankruptcy, and the balance sheet that Sam Bankman-Fried’s failed crypto exchange FTX.com sent to potential investors last week before filing for bankruptcy on Friday is very bad. It’s an Excel file full of the howling of ghosts and the shrieking of tortured souls. If you look too long at that spreadsheet, you will go insane.
(Vox)If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?”
A week ago, Sam Bankman-Fried was the boy-wonder face of crypto: A 30-year-old who founded one of the biggest cryptocurrency exchanges in the world, a celebrated philanthropist worth an estimated $16 billion, and a major Democratic donor who quickly found favor in Washington. By Friday, he was at the center of an epic flameout that left his empire and his image as an uncannily sharp, altruistic billionaire in ruins.
In the annals of crypto disasters, the tale of Bankman-Fried may go down as one of the most jaw-dropping. He resigned from his crypto exchange, FTX, as it collapsed from a domino effect of a surge in customers trying to withdraw their funds, and the company filed for bankruptcy. The Wall Street Journal has reported that Bankman-Fried may have illegally taken about $10 billion in FTX customers’ funds for his trading firm, Alameda Research, whose future is also in peril. And Bankman-Fried is now worth close to nothing.
The downfall of FTX isn’t a typical story of crypto’s volatility or investor risk-taking; it didn’t crumble due to bad luck, but what now appears to be unsustainable layers of deception. On the surface, FTX appeared to be thriving — in the past year, it made several high-profile acquisitions and bailed out other failing crypto companies. In reality, it was drowning in debt. At least $1 billion in customer funds is reportedly missing. The stunning contrast between image and reality has resulted in Bankman-Fried facing a reputational fall from grace swifter than any in recent memory. According to reporting from several news outlets, the DOJ and SEC are investigating FTX, and his friends and admirers in crypto, philanthropic, and political circles have quickly begun distancing themselves from the man widely dubbed the king of crypto.
A senior Democratic strategist who wished to maintain anonymity to protect their clients told Vox that politicians who’ve received donations from Bankman-Fried, who spent around $40 million during the midterm election cycle, are considering returning that money.
Oh dear, that's a lot of money to give away, but apparently that's not what bankrupted them. It was the misuse of customer funds.In the last year, Bankman-Fried had soared to buzzy prominence as a paragon of how the ultra-rich, who have seemingly endless wealth, might use it for good. He’s been the subject of countless profiles; he was on the cover of Fortune’s September issue. The media portrayed him as an unassuming, nerdy savant, frequently noting his down-to-earthness, his messy mop of hair, his penchant for wearing T-shirts and shorts, his Toyota Corolla. Investors were enamored of the fact that he wasn’t a buttoned-up entrepreneur; he played computer games during pitch meetings, and like other modern-day founders, his eccentricities were taken as proof of his distinct genius.
Bankman-Fried, meanwhile, came off as a billionaire refreshingly unimpressed by the glitz and pomp of a typical billionaire’s lifestyle. The FTX Foundation, Bankman-Fried’s philanthropic arm, says it has donated over $190 million to date. (Disclosure: Future Perfect, Vox’s effective altruism-inspired vertical, received a grant in 2022 from Building a Stronger Future, the Bankman-Frieds’ family foundation.)
Apparently, until all this went down, he had a sterling public image. Sort of like Barry Madoff. Madoff at least managed to make his Ponzi scheme last quite a bit longer I think.