Crypto ‘smart’ money? Big traders fell for Sam Bankman-Fried

I was shocked when I first learned how a mess like Sam Bankman-Fried got away with convincing so many seemingly smart people—big money managers, venture capitalists, and all those celebrity ambassadors—that he was an investment genius, that they should turn over a lot of money for him to play with.

That is, until I saw what went down on Wednesday after the fallen crypto star tried to explain his side of the FTX disaster to reporter Andrew Ross Sorkin. The missing billions in customer funds, ruined lives, etc., was not illegal, just a big, innocent mistake, or in his words, he “screwed up,” the result of a “bad month.”

Sounds absurd, right? Believe it or not, many sophisticated financial types say they still believe SBF’s latest pitch, further proof that suckers are born every minute, many of whom occupy the C-suites of Wall Street.

Of course, not everyone in high finance bought SBF’s shtick even when he was driving high. Veteran trader Marc Cohodes and Chicago Mercantile Exchange CEO Terry Duffy were early skeptics of his business acumen and how Bankman-Fried claimed to have dedicated his entire life outside of crypto to a vigilante fad known as “effective altruism” — where he made money for to give everything away.

Sam Bankman-Fried's minions gambled away customer funds in the global cryptocasino.
Sam Bankman-Fried’s minions gambled away customer funds in the global cryptocasino.
Tom Williams/CQ-Roll Call/Sipa USA

But they were among the lonely few who saw signs that something was wrong. Most of the media, and far too many Big Finance types, didn’t seem to mind his jealous looks and odd behavior. They thought it was loving. They didn’t think twice that he had become a relatively overnight billionaire and Democratic mega-donor, giving big bucks to pols overseeing crypto.

Buying influence is OK, I guess – as long as it involves Democrats.

Conflict-filled business

They certainly didn’t take into account his conflicted business model: the Alameda Research hedge fund — known for taking too much risk — linked to his FTX crypto exchange that was supposed to keep client deposits safe. It’s something that was almost designed to fail, and that’s exactly what happened when SBF’s minions gambled away customer funds in the global crypto casino.

Sam Bankman-Fried
Sam Bankman-Fried claimed he “miscalculated” $8 billion in FTX funds.
via Reuters

Even worse, some members of the so-called “smart money” set still eat up his snarky explanation of one of the biggest scandals in recent market history without a hint of indigestion or indignation.

Bill Ackman is one of the leading hedge fund managers. He is known to “short” or bet against stocks he believes to be scams, and once went on a year-long campaign to prove (albeit unsuccessfully) that the nutritional supplement company Herbalife was one big pyramid scheme.

But Ackman was so sold on SBF’s apology — that its crypto sibling “never tried to commit fraud” by assembling a house of cards that failed to meet minimum risk compliance requirements — that Ackman tweeted: “Call me crazy, but I think @sbf is telling the truth. ”

I don’t know if Ackman is actually crazy, but if he believes SBF’s explanations of how he created a financial firm without even basic risk management plumbing, he might be a real sucker.

Kevin O'Leary takes part in a panel discussion of ABC's "Hai tank" during the 2013 Winter Press Tour for the Television Critics Association on January 10, 2013 in Pasadena, California.
Kevin O’Leary is said to have lost millions as a result of the FTX collapse.
Tom Brady meets with reporters on November 27, 2022 in Cleveland.
Tom Brady was a “brand ambassador” for FTX.

Also consider Kevin O’Leary of “Shark Tank” fame. This is a guy who bills himself as someone who has been around the block enough times to tell good business ideas from the dogs. A real shark.

O’Leary is said to have lost millions of dollars in the FTX collapse. He, along with NFL legend Tom Brady and other celebrities, were so-called “brand ambassadors”, part of the crew that appeared in the slick advertisements that SBF put out to sell investors that FTX was a safe place to trade crypto.

Not a good look, but even worse is that O’Leary is still not suspicious of SBF’s motives.

After watching SBF’s Wednesday performance with Sorkin, O’Leary, known as “Mr. Fantastic,” tweeted: “I lost millions as an investor in @FTX and got sandblasted as a paid spokesperson for the firm, but after listening to that interview me in the @BillAckman camp about the kid!”

Who was responsible?

First, the “kid” is 30 years old. This is a grown man who admitted to Sorkin “there was no one person primarily responsible for the positional risk to customers at FTX,” who is the functional equivalent of a doctor who performs surgery without attending medical school.

SBF also told Sorkin that he is speaking publicly about what went down against his lawyer’s advice because he wants to do the right thing and help make everyone who lost money whole. Maybe that’s what sold Ackman and O’Leary.

I bet the Manhattan US Attorney’s Office, which is investigating this sordid mess, won’t be such an easy mark for SBF’s excuses.

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