FTX: SBF admits failure in managing conflict of interest

During an interview with The New York Times journalist Andrew Ross Sorkin, FTX former CEO Samuel Bankman-Fried — famous by his monicker SBF — said he had failed to prevent a conflict of interest between Alameda Research and his crypto exchange.

“A lot of what we ended up doing and focusing on was a distraction from one unbelievably important area that we completely failed on: that was risk,” SBF explained. “That was risk management, customer position risk, and frankly, conflict of interest risk.”

The 30-year-old admitted that he had not put anyone in charge to mitigate the risk. FTX’s bankruptcy court filing revealed that despite having a $32 billion valuation at the beginning of 2022, it had never owned a board of directors.

According to the news, there was an overlap between FTX and Alameda. Alameda, also founded by SBF, reportedly struggled to pay lenders back due to the falling crypto prices. SBF allegedly used FTX’s customer funds to boost Alameda’s standing, indicating the trading firm’s lack of assets.

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SBF argued that he did not “knowingly co-mingle funds” between his two firms. He explained that although that was not his intention, the position size made FTX and Alameda “ tied together substantially more than I would have ever wanted to be.” He said he was “shocked” by how November 2022 turned out.

Analysts said the FTX implosion had affected general trust in the crypto industry, which already bears the brunt of a prolonged winter due to the post-pandemic global macroeconomic situation. According to analysts, the participation of institutional investors in the risky market has become more unlikely unless regulations can protect them.

Sorkin questioned SBF about the possibility of FTX customers receiving their money back. Some customers came forward and said they had put their life savings in the defunct crypto exchange. SBF, who admitted that he only had little money left under his name, said he could not “make any promises” but referred to the Bitfinex case.

In 2016, a hacker stole 94,000 BTC units from the crypto exchange Bitfinex, causing its investors a significant loss. Bitfinex eventually filed for Chapter 11, and investors kept demanding their money to no avail. However, earlier this year, the Department of Justice managed to seize the stolen BTCs. Bitfinex is now working with U.S. financial authorities to recover customer funds.

Lawsuits against SBF

Financial regulators in countries where FTX ran operations have launched investigations on the crypto exchange and SBF, including the U.S. Securities and Exchange Commission (SEC).

There have been talks about whether SBF, a U.S. citizen living in the Bahamas, would be extradited to his home country to deal with the FTX fallout. When Sorkin asked whether SBF stayed in the Bahamas to avoid potential suits, the MIT graduate said he might return to the U.S.

BlockFi, a recently bankrupt crypto lender, also recently filed a suit against SBF. In June, the lending company received a $250 million loan from SBF for a bail-out, tying its fund with the FTX Group. According to BlockFi executives, Alameda had defaulted on a $680 million collateralized loan at the beginning of November. BlockFi’s exposure to FTX reportedly reached $4 billion.