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February 9, 2023

September 16, CNBC’s “Squawk Box” airs segment on Sam Bankman-Fried – then-CEO of cryptocurrency exchange FTX – and his recent acquisition spree following the industry downturn. “They call him the JPMorgan of crypto, right?” the host asked, likening Bankman-Fried to a financier with so much money backing countless failing banks to stabilize the entire financial sector. “White Knights of Crypto”, read the text at the bottom of the screen.

In footage of Bankman-Fried trotting through a parking lot in the Bahamas, a reporter repeats what I believe to be Sam Bankman-Fried’s Precrash Litany: He’s a 30-year-old billionaire who drives a Toyota Corolla, lives in the Bahamas with nine roommates, and has a golden retriever. He started his most famous company in 2019, becoming richer and faster than almost anyone in history. In an interview, he sat on a stool to talk about a move on par with Morgan: his firm’s self-sacrificing investments to save the larger crypto “ecosystem,” in his words.

Two months later, the “White Knight” narrative was thrown in the office trash can and set ablaze.encrypted publication CoinDesk had reported the document This shook people’s confidence in Bankman-Fried’s company, and soon most everyone except Jintian—investors, customers, employees—flocked to it. For a while, Bankman-Fried was dismissed and FTX filed for bankruptcy.this The November 11th edition of “Squawk Box” features Anthony Scaramucci, whose SkyBridge Capital sold a 30% stake in its fund to Bankman-Fried during the White Knight bailout. “I don’t want to call it fraud right now because it’s actually a legal term,” he said. But you get the sense that he’s very tempted to call it fraudulent, the legitimate word.

The speed of this shift, especially in the financial media, is enough to surprise the casual observer.exist In 2021, Forbes Featured Bankman-Fried On the cover of its 400 Richest Americans list, the lively image inside focused on the young billionaire’s pledge to give away his growing fortune.Switching to last fall, the magazine published a piece called “‘The Devil in Nerd Clothes’: How Sam Bankman-Fried Fooled Everyone.”

On YouTube, popular comments about Bankman-Fried’s pre-failure coverage are now often sarcastic allusions to the shift. (“Thanks to CNBC for recognizing a solid trader!”) On Twitter, angry FTX clients berated crypto journalists for what they considered a failure. But the media isn’t the only one quickly changing its tone. Almost no one tells a consistent story before and after the crash. Even among the angriest commentators, few have noticed such details as Bankman-Fried’s relative lack of philanthropy, compared with all the stories about his grandiose philanthropic plans. Far from being isolated, gullibility abounds.

All this opacity messes with our ability to tell accurate stories, allowing only two speeds: full throttle and a car on fire on the side of the road.

Bankman-Fried insisted on keeping the story’s protagonist long after lawyers objected, conducting numerous public interviews and appearing on The Times’ DealBook Summit. The saga of his ascent and decline has grown, in part because it tells a rare crypto story: one that is legible and accessible to those uninterested in crypto. On the way up, he was a budding philanthropist. On the way down, he proved to those who wanted it that the crypto business was nothing more than a scam. The blockbuster financial thriller is about to become legal when he was arrested in the Bahamas in mid-December and charged with various fraudulent acts in the United States.

Theranos, WeWork, and the list goes on Early dot-coms and pre-2008 financial instruments: Almost all of the beginnings are exciting business stories about individuals and companies that seem poised to reshape their industries in innovative ways, with capital, growth or return, indicating that they might be on to something. These articles continue until the business collapses through fraud, incompetence, or brazen recklessness. “Who the gods are going to destroy,” Paul Krugman wrote in a 2001 Times column on Enron, “was first on the cover of BusinessWeek.”

These tantalizingly optimistic possibilities—promises like painless blood tests or office spaces that build community—naturally attract attention, but they’re also at the heart of deceit and fraud. The worst narrative implosion may not be about the bad guys, but how easy it is to hide important information that might help reveal the difference. Public companies based in the U.S. are required to regularly open their books to investors, but private companies have no such obligation — especially one based overseas like FTX. Private wealth has soared over the past two decades, as has the number of private companies, leading an SEC official to recently warn that fast-growing parts of the economy are “going dark.” This can lead to dangerous negligence or fraud. John Jay Ray III, the man who was brought in to clean up after Bankman-Fried — he had the same mandate in the Enron bankruptcy — said he had never before seen “such a utter failure of corporate control and such a complete missing”. reliable financial information. ’ On the one hand, people outside the company may not have done their due diligence; on the other hand, it’s impossible if they tried.

All this opacity messes with our ability to tell accurate stories, allowing only two speeds: full throttle and a car on fire on the side of the road. Few people know that FTX supports the story the company tells in a very real way; that people literally entrusted Bankman-Fried with billions of dollars, and it really gave him newsworthy power and influence. It was when the public stopped believing the story that the money poured in. His power rests on conviction, an all-or-nothing proposition that media coverage fails to reflect. Bankman-Fried said it’s not surprising that he’s opposed to filing for bankruptcy, given the sheer amount of information the process would reveal in public filings; he’s rightly convinced that if he can somehow regain people’s trust, things will go ahead.

Bankman-Fried now looks less like the main character in his own story and more like an empty vessel into which people pour loads of cash in hopes of creating the crypto dream world they want. The thing we have to consider is that even if the stories people tell about him are inaccurate, there is indisputably a story to tell — that his success and impact were real enough to change the world while they existed. Yet few have access to the information needed to make the story more accurate or reveal the foundations of success. So we got a laudatory story, followed by a slew of schadenfreude platters. There is always a next time, right?


Credit photos: Jeenah Moon/Bloomberg via Getty Images; Alex Wang/Getty Images





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