The S.B.F. Chronicles, Part 1: The Bridge Loan to Nowhere

FTX founder Sam Bankman-Fried is led away handcuffed by officers of the Royal Bahamas Police Force in Nassau, Bahamas. Photo: Kris Ingraham/AFP via Getty Images
William D. Cohan
December 21, 2022

Last September, Anthony Scaramucci’s SkyBridge Capital cut a deal with Sam Bankman-Fried’s FTX Ventures, the investment arm of his crypto exchange. S.B.F., then the richest Gen-Zer on Earth, agreed to buy a 30 percent stake in The Mooch’s hedge fund-of-funds for $45 million, valuing SkyBridge at $150 million, and giving him an option to buy up to 85 percent of SkyBridge after three years at a higher price. As I noted at the time, it seemed like a marriage made in crypto and SALT conference heaven.

And so The Mooch opened up his Rolodex to S.B.F, like any good business partner would. After all, The Mooch was 58 years old and had been working on Wall Street for 34 years, including two stints at Goldman Sachs, before venturing out on his own into the world of hedge funds. S.B.F., meanwhile, was just barely 30. He was allegedly long on wealth, but short on contacts and real-world experiences, after a short stint at Jane Street Capital, a relatively obscure but powerful hedge fund in downtown Manhattan. “He’s a DeFi guy who is probably going to move into some TradFi,” The Mooch told me a few months ago. “I’m a TradFi guy that’s moving into DeFi… almost like a chocolate and peanut butter, Reese’s Peanut Butter Cups sort of thing.”

This piece is the first in a series of articles about people who witnessed signs of S.B.F.’s folly early on. Like the other people you will soon meet, The Mooch had known S.B.F. for a while. Unlike the others, though, he didn’t see trouble coming until most of us did. He was, and remains, a crypto believer, and took much of Bankman-Fried’s infrastructure—the lawyers, the compliance pros, the financial docs—at face value. In exchange, The Mooch got a front row seat to the S.B.F. debacle as it was unfolding. The burn is still resonating. 

When S.B.F. Met M.B.S.

This past fall, The Mooch and S.B.F. traveled together to the Middle East. S.B.F. wanted to raise a new $1 billion round of financing for FTX at the same $32 billion valuation at which he had previously raised, nine months earlier, from a who’s who of Silicon Valley venture capital firms. S.B.F. positioned it as an extension of that January 2022 round of financing. 

The two men had dinner together with Mohammed bin Salman, the increasingly autocratic Crown Prince of Saudi Arabia. M.B.S., as it turned out, had recently caught crypto fever, and was sufficiently wowed to want to perform some additional diligence on S.B.F. The dynamic duo also met with the “senior people,” as The Mooch put it to me before Thanksgiving, in the United Arab Emirates. “I introduced him to the waterfall of institutions that I had built relationships with,” he continued. “He was raising an extension round and I said, ‘No problem.’” 

The Mooch told me that S.B.F. had—or appeared to have—the audited financial statements to back up the $32 billion valuation, too. His run-rate revenue for 2022, he said, was $1 billion. “The crypto markets were down 40 percent,” The Mooch said, “but he had increased his market share by 40 percent.” He quickly added, given the FTX World bankruptcy filing and S.B.F.s’ subsequent arrest on fraud charges, that maybe the accountants’ work for FTX should be “questioned.” In any event, he said, “It seemed like it made sense.” (A representative for Bankman-Fried did not respond to multiple requests for comment.)

According to The Mooch, S.B.F. said he had commitments from some of the original group of investors in FTX to participate in the new $1 billion round of equity financing but that they also wanted a new “anchor tenant” to come into the FTX picture. Hence the trip to the Middle East. “There was more than one group of people that wanted to do that,” The Mooch said. S.B.F. after all, “had reached an iconic status at a very young age.” There was S.B.F. on the covers of Fortune and Forbes, listed among the world’s wealthiest people. He was being regularly compared to Warren Buffett. “His demeanor, even though the T-shirt [attire was] a little quirky,” The Mooch continued, “it’s consistent with the whole Zuckerberg style of fashion in the last 20 years of young billionaires.”

The Middle East meetings were “preliminary,” The Mooch said, and the plan was to invite the interested parties back to the Bahamas to do an on-site “deep dive” due diligence session into FTX’s books and records with S.B.F. and his accounting and compliance teams. At the time, The Mooch didn’t think S.B.F. was “hiding anything” because he had previously raised money from sophisticated investors such as Temasek, Sequoia Capital and the Ontario Teachers’ Pension fund, who had done “a tremendous amount” of due diligence just months earlier (and who also seemed to have a fear of missing out). 

“He seemed very confident that whatever he was going to show these new investors was going to get them comfortable,” The Mooch continued. “Because he has evidence of that, right? He had 25 other investors that he showed information to that gave him money.” And, of course, The Mooch had trusted S.B.F. enough to sell him a piece of SkyBridge Capital with an option to buy up to 85 percent of it. “My point is, I’m not going to revise history and tell somebody like you that I didn’t like the kid,” he continued. “You know what I mean? People say to me, ‘How could you say you liked him? He did this, that, and the other thing.’ Well, actually, I did like him. I’m sorry to tell you that. But I would never have sold him 30 percent of my business if I didn’t like him.”

Don’t Mess with C.Z.

During their Middle East adventure, The Mooch told me that he was surprised about the way S.B.F. talked about Changpeng “C.Z.” Zhao, the C.E.O. of Binance, a rival exchange. During some meetings with investors, S.B.F. put down C.Z. Allegedly, word got back to C.Z. that S.B.F. had made those comments, and C.Z. was not happy. He started tweeting comments about S.B.F. and his courting of U.S. regulators. He also suggested that Binance was going to start selling some of the $500 million of FTT tokens that S.B.F. had given Binance in exchange for its early equity investment in FTX. That news eventually started the run on the bank at FTX that led to the FTX bankruptcy filing on November 9. 

“Weirdly our trip to the Middle East sort of hastened his downfall,” The Mooch speculated, “because had he not gone to the Middle East with me, he probably wouldn’t have been in those conference rooms saying nasty things about C.Z., right? So he’s saying some nasty things about C.Z. and C.Z. gets wind of it. Doesn’t like it. Puts as much out on Twitter: You know, ‘You’re going behind my back with regulators,’ ‘No need to make love after divorce, here’s your $500 million of tokens.’ I’m only speculating. I don’t think C.Z. thought that was going to put him out of business. I thought that was C.Z. just trying to fire a cannon shot across the bow of the ship. But it hit the ship and the ship started sinking.”

The next thing The Mooch knew, in and around November 7, he got a call from Joseph Bankman, S.B.F.’s father and an august and beloved Stanford University law professor. They had known each other a little since the spring. Back then, The Mooch and S.B.F. had done a charity event together in Miami at the soon-to-be-renamed FTX Arena, where the Miami Heat play. Joe Bankman had also been there, while working with Gisele Bündchen on her foundation. “We had all these young kids, they’re talking about entrepreneurship,” The Mooch remembered. “His father was there gleaming, super excited.” They got to know each other better, a month later, at the Crypto Bahamas event that The Mooch and S.B.F. convened together in Nassau. “Incredibly nice man,” The Mooch said of S.B.F.’s father.

He thought the call from Joe Bankman in early November was to get The Mooch’s help with “a rescue finance situation,” in The Mooch’s words, involving S.B.F. and FTX. “That can happen in life,” The Mooch told me. “You get an imbalance: I’ve got long-term assets but I have short-term liabilities. Okay? You get bridge loans for things like that.” 

What started as an effort to raise $1 billion to meet some redemptions because “we have some assets that are locked up,” turned into a more serious and existential second call from Bankman to The Mooch. It was 10 p.m. on the night of November 7, as The Mooch recalled. The “goalposts started moving,” The Mooch continued. He remembered Bankman describing the gap as being as much as $3 to $4 billion. The Mooch decided to take the 6:35 a.m. JetBlue flight between New York City and Nassau, the next morning, to talk to S.B.F. and his father in person. He got off the plane and went to the FTX office. “They weren’t there,” he said. (A spokeswoman for Bankman declined to comment on his conversations with The Mooch.) 

He then went over to the Albany luxury apartment complex where S.B.F. and the FTX crew lived and hung out, after dropping millions of dollars to buy up a large pad. “It became clear that we’re talking about [needing] more than even $3 billion or $4 billion,” The Mooch told me. There was a fair amount of chaos. S.B.F. was keeping only a small group of his closest circle fully informed about the desperate situation; other FTX employees were clueless and kept in the dark. Concurrent with his arrival at the Albany came the news that C.Z. was thinking about buying FTX. The run on the FTX “bank” was in full swing by then. “I was a little relieved,” The Mooch said. “I was like, ‘Okay, there’s a problem but it’s manageable.’” 

By the time he left Nassau later that day, it was clear to The Mooch that the problem was too big and too complex for him or anyone he knew to solve. FTX’s compliance and legal teams resigned. He could see that C.Z. was not going to buy FTX, which C.Z. announced the next day. “That’s when I realized there’s something wrong,” he said, with some considerable understatement. “Are you going to call it fraud? I don’t know. Are we gonna call it misappropriation of funds? Which I guess is fraud.” 

“It’s Tragic Either Way…”

Since our conversation, the Southern District of New York, the Securities and Exchange Commission and the Commodities Futures Trading Commission have called it fraud. S.B.F. has been indicted and arrested, without bail, and has now agreed to be extradited to the United States to stand trial. He is trying to negotiate a bail agreement with the U.S. government, not unlike the one Bernie Madoff got before he pleaded guilty and was sentenced to 150 years in Butner.

The Mooch, meanwhile, has had plenty of time to think about S.B.F. and his experience with him. He’s still kind of shocked, to be honest. “I interacted with him for two years,” he said. “We’re talking about somebody that was a de-materialist. No clothing. Shorts, T-shirts, white socks and sneakers. There were no social-status totems that he was going for, right? Bernie Madoff had yachts and cars and a Rolex watch and a Park Avenue apartment.” (Alas, Madoff was actually on 64th off Lex.) 

In a bizarre case of verbal diarrhea that even his own attorneys advised him against, S.B.F. has admitted he “fucked up” bigtime but not that he committed any crime, at least knowingly (even though the preponderance of the evidence seems to indicate that he knew exactly what he was doing and that it was wrong). The Mooch thinks that S.B.F. is being advised to plead guilty to the charges against him and that’s what he will do. “The evidence now is overwhelming,” he wrote me in an email on December 19.

But, in many ways, The Mooch remains thunderstruck by it all. “If you called me a month ago, and said to me, ‘Okay, listen, Sam Bankman-Fried is going to collapse, there’s going to be a run on him, he’s not going to have the capital, there’s going to be a violation of his terms of service so it’s not going to be one-for-one inside of his account system and he’s going to collapse,’ I would have looked at you and said, ‘Bill, no way.’ He’s got Sullivan & Cromwell partners working on compliance. He’s got top people that are working in regulatory and legal. He’s got the best government affairs guy in Washington, D.C. How is that going to happen? It’s not going to happen.” 

He was contrite. “So, not only did I get this wrong,” he continued, “which I obviously have to accept alongside some of the smartest investors in the world, but also there’s a sadness, because I liked the kid. Now if it turns out that he’s a total fraud and a sociopath, then you have to say, ‘Okay, well, I ended up liking him and he was able to deceive me.’ But if it turns out that he’s just an accounting buffoon… It’s tragic either way.” He paused for a moment and said, “What do you and I know about Wall Street? Anything that you think cannot happen, ends up happening.”

The good news for The Mooch, if there is any in this fiasco, is that SkyBridge is not a creditor of FTX, nor was it a customer of FTX. He did invest a small amount of his money in an early round of the FTX equity. He’s written that off to zero. Some $10 million of the money that FTX Ventures invested in SkyBridge was used to buy FTT tokens, which are now nearly worthless. The Mooch has been in touch with Perella Weinberg, the M&A advisory boutique that is handling the FTX asset sales, to try to buy back the FTX Ventures stake in SkyBridge, hopefully on the cheap. 

It’s been a rough year. His Series G hedge fund-of-funds is down 31 percent in the past year, ending September 30. And he has put up some gates on investor redemptions. “This was a blow,” The Mooch concluded. He then started rattling off other notable financial disasters. “I had worked at Lehman but I wasn’t there when it went under,” he continued. “I knew about Long-Term Capital Management. It certainly affected my business, but I wasn’t inside of the perimeter of the blast zone. This one, I’m inside the perimeter of the blast zone.”