Was FTX a Lehman or an Enron?

Sam Bankman-Fried
Federal prosecutors are determined to prevent any resurrection of the S.B.F. legend. Photo: Tom Williams/CQ-Roll Call/Getty Images
William D. Cohan
November 13, 2022

The first entry in Sam Bankman-Fried’s multi-tweet apology summed it all up perfectly. “I fucked up, and should have done better,” he wrote on Thursday, shortly after a liquidity crisis caused his crypto exchange company, FTX, to collapse. You can say that again, Sam. I’ve seen a few stunning implosions in my day—Drexel Burnham, Enron, Worldcom, Bear Stearns, Lehman—but the financial disaster that is, or was, FTX, is one for the ages. On Friday, FTX—the brainchild of the 30-year-old wunderkind, who was once worth $25 billion and supposedly the richest person under 30 years old, less than a year ago!—filed for bankruptcy in Delaware. FTX and its associated maze of more than 100 affiliates and subsidiaries was worth more than $30 billion as recently as January. 

The story is still unfolding and will continue to unfold. Reuters reported on Saturday morning that “at least $1 billion” in customer funds had “vanished” and the loss could be as much as $2 billion, after Bankman-Fried “secretly transferred” $10 billion of customer funds to his hedge fund, Almeda Research, through a “backdoor” channel. (Sam texted Reuters that FTX did not “secretly transfer” any money and claimed that it was an “internal labeling” issue.) 

With a little luck, the bankruptcy court will appoint an examiner, as it did in the Lehman bankruptcy, and then we’ll know for sure what happened to FTX and its supposedly once-in-a-generation founder. But that will be months away, at the earliest. In the meantime, billions of dollars have already been lost. That means all those supposedly brilliant venture capitalists, hedge fund investors, and celebrities around the world, such as Paradigm, Sequoia Capital, Softbank, Temasek, Dan Loeb, Paul Tudor Jones, Tiger Global, Ontario Teachers’ Pension Plan—and yes, Tom and Gisele and Steph—who collectively ponied up a total of $1.8 billion, at various valuations, will likely lose it all. The investors in FTX’s $8 million seed round, in August 2019, were the relatively obscure Race Capital, Consensus Lab, FBG and Galois Capital. “Sam has assembled a fantastic team of experienced Wall Street traders and Silicon Valley alumni,” gushed Chris McCann, at Race Capital, at the time. That turned out to be a questionable observation at best.