5 takeaways from Sam Bankman-Fried's surprising Substack blog post

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(NEW YORK) — Stuck in house arrest and awaiting trial, disgraced crypto executive Sam Bankman-Fried spoke out on Thursday with the most extensive remarks since his arrest a month ago.

The fallen former CEO of FTX issued a 2,300-word rebuke of fraud and conspiracy charges, replete with charts and graphs. He said that he didn’t steal customer funds, instead blaming the company’s woes on a sharp downturn in the cryptocurrency market.

“I didn’t steal funds, and I certainly didn’t stash billions away,” said Bankman-Fried, who pleaded not guilty last week. He’s tentatively scheduled to stand trial in October.

The account marked Bankman-Fried’s first post on the newsletter platform Substack, which prompts readers to subscribe to receive future messages from Bankman-Fried directly in their inbox.

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Federal prosecutors charged Bankman-Fried last month in an eight-count indictment for fraud, conspiracy and campaign finance violations linked to tens of millions of dollars in political donations.

He was released on a $250 million bond in late December, when he traveled to live at his parents’ home in Palo Alto, California.

Here are five takeaways from the account posted by Bankman-Fried on Thursday:

Bankman-Fried says he ‘did not steal’

In his post, Bankman-Fried contends that he did not steal customer funds, saying instead that he would have offered some of his own assets to help make investors whole before the company declared bankruptcy.

Federal prosecutors and government agencies accused Bankman-Fried of defrauding customers and investors in FTX as well as lenders to his hedge fund, Alameda Research.

Customers sent billions of dollars to FTX believing their assets were secure but, from the start, Bankman-Fried “improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC, and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations,” according to a civil complaint from the Securities and Exchange commission.

In response to such allegations, Bankman-Fried on Thursday denied taking customer funds for personal use.

Further, he said investments made by Alameda Research did not amount to an inappropriate use of customer funds. Instead, the conduct comprised an unsuccessful but legal form of margin trading, in which an individual or institution makes an investment using borrowed funds.

“All of which is to say: no funds were stolen,” Bankman-Fried said.

Customers can still recover their money, Bankman-Fried said

After denying wrongdoing, Bankman-Fried said that he could help undo the damage that resulted from the alleged fraud: Billions in customer losses.

If the company had tried to raise money from new investors before declaring bankruptcy, it could have restored funds to its customers, he said.

Gretchen Lowe, acting director of the division of enforcement at the Commodity Futures Trading Commission, estimated last month that FTX customers lost more than $8 billion.

According to Bankman-Fried, the company received billions in offers of additional liquidity when it declared bankruptcy in November, and more than $4 billion came in afterward.

Before FTX declared bankruptcy, Bankman Fried was willing to offer up some of his own wealth, he said. “Nearly all of my assets were and still are utilizable to backstop FTX customers,” he said.

“I think it’s likely that FTX could have made all customers whole if a concerted effort had been made to raise liquidity,” he said.

Bankman-Fried does not provide details of the supposed billions in potential investments.

Moreover, the reliability of Bankman-Fried’s account defies characterizations of shoddy record-keeping at FTX from current CEO John Ray.

Ray, who oversaw the dissolution of Enron, testified before House members on Tuesday that FTX lacked corporate controls to an extent he had never witnessed.

“I’ve never seen an utter lack of record keeping,” Ray said. “Absolutely no internal controls.”

A market crash brought down Alameda Research and FTX, Bankman-Fried said

Financial impropriety is not to blame for the downfall of Alameda Research and FTX, Bankman-Fried said on Thursday. Rather, a crash in the crypto market sent the firms reeling, exposing their leverage and forcing a series of losses that they could not reverse, he said.

“FTX International and Alameda were both legitimately and independently profitable businesses in 2021, each making billions,” Bankman-Fried said. “And then Alameda lost about 80 percent of its assets’ value over the course of 2022, due to a series of market crashes.”

Alameda Research failed to adequately hedge against such losses, leaving the hedge fund with no way to offset the crunch, he said.

While the market downturn likely hastened the demise of FTX, the issue stands apart from the alleged misuse of customer funds.

A tweet from a rival CEO delivered the final blow to FTX, Bankman-Fried said

Bankman-Fried attributed the ultimate failure of FTX to a post on social media from Changpeng Zhao, the CEO of rival crypto exchange Binance.

On Nov. 6, Zhao, often referred to as “CZ,” said in a tweet that he would sell all of the company’s holdings in FTT, a token created by FTX.

The major exit from a crypto heavyweight triggered a wider sell-off, akin to a bank run, placing immense pressure on FTX to meet the sudden demand for customer withdrawals. Due to a lack of funds, FTX halted customer withdrawals altogether.

In his remarks on Thursday, Bankman-Fried described the social media post from Zhao as “CZ’s fateful tweet.”

The message of caution from an industry titan brought about “an extreme, quick, targeted crash,” Bankman-Fried said.

Bankman-Fried did not run Alameda Research, he said

Bankman-Fried asserts that in recent years he did not run Alameda Research, which he founded in 2017.

The contention rebukes allegations that Bankman-Fried abused his role as the de facto head of Alameda Research, the hedge fund that traded with FTX customer money.

The statement from Bankman-Fried conflicts with testimony last month from Ray, the current FTX CEO.

Ray, who is overseeing the company’s bankruptcy proceedings, told House members that no separation existed between the operations of FTX and Alameda Research, a crypto hedge fund also founded by Bankman-Fried.

“There were virtually no internal controls and no separateness whatsoever,” Ray said.

“The owners of the company could run free reign,” he added, noting that Bankman-Fried owned 90% of Alameda Research.

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