Sam Bankman-Fried is under arrest in the Bahamas
Despite everything SBF did, it’s almost a surprise that he’s finally been arrested.
“The Bahamas and the United States [are] holding accountable all individuals associated with FTX who may have betrayed the public trust and broken the law,” Prime Minister Philip Davis said in a statement.
“While the United States is pursuing criminal charges against SBF individually, The Bahamas will continue its own regulatory and criminal investigations into the collapse of FTX, with the continued cooperation of its law enforcement and regulatory partners in the United States and elsewhere.”
It doesn’t sound good for the disingenuous boy wonder of the crypto world. But he still has friends in high places, so who knows how this will end?
“I didn’t ever want to commit fraud on anyone,” he said during an interview with Andrew Ross Sorkin at a conference put on by The New York Times in November. “I was shocked at what happened this month.”
I find it impossible to believe a word that he says. And yet its very preposterousness, combined with his air of jejune earnestness, almost pulls it off successfully.
SBJ exudes a very different air from the sophistication sported by another youthful entrepreneur who conned people into investing big bucks and later ran afoul of the law, Elizabeth Holmes. She founded her company Theranos in 2003, when she was 19 years old and a student at Stanford. It’s instructive to take a look back:
In 2003, Holmes founded the company Real-Time Cures in Palo Alto, California, to “democratize healthcare”. Holmes described her fear of needles as a motivation and sought to perform blood tests using only small amounts of blood. When Holmes pitched the idea to reap “vast amounts of data from a few droplets of blood derived from the tip of a finger” to her medicine professor Phyllis Gardner at Stanford, Gardner responded, “I don’t think your idea is going to work”, explaining it was impossible to do what Holmes was claiming could be done. Several other expert medical professors told Holmes the same thing. However, Holmes did not relent, and she succeeded in getting her advisor and dean at the School of Engineering, Channing Robertson, to back her idea.
In 2003, Holmes renamed the company Theranos (a portmanteau of “therapy” and “diagnosis”). Robertson became the company’s first board member and introduced Holmes to venture capitalists.
Holmes was an admirer of Apple founder Steve Jobs, and deliberately copied his style, frequently dressing in a black turtleneck sweater, as Jobs did.
I’ve long thought “Theranos” to be an odd name for such a company, because to me it conjures up the word “Thanatos.” The naysayers who said what Holmes was trying to do was impossible turned out to be right, of course, and Holmes is now in prison for fraud [CORRECTION: on her way to prison].
Perhaps SBF will end up the same way; perhaps not. I’m not even going to guess at this point.
But I have a gut feeling that for both SBF and Holmes – and maybe even for someone like Bernie Madoff, who knew exactly what he was doing and was not the least bit young – it helps to have an element of self-deception, if only a little. If the con artist believes the con even a tiny bit, it helps make the pitch seem more sincere, doesn’t it?
and luggage expropriator Sam Brinton has been relieved of their duties at DOE.
I’ve long thought “Theranos” to be an odd name for such a company, because to me it conjures up the word “Thanatos.”
neo:
Me too!
We definitely went to different schools together.
Neo, I think my impression about that company name was similar to yours. Rather ironic considering the Greek root of ‘therapy’.
He’s the left’s cannon fodder.
On a more serious real world note; “Who Is Purposely Sabotaging Power Plants All Over America?”
“Someone has been attacking power plants all over the country… During the first eight months of this year, there were a total of 106 attacks on the electrical grid in the United States, and that represents the highest number ever recorded in a single year.”
http://endoftheamericandream.com/who-is-purposely-sabotaging-power-plants-all-over-america/
Is it plausible that in 106 attacks over 8 months, the feds haven’t a pretty good idea of who’s responsible? However, no one is better able to keep information from Americans than the US Federal Government. And given the ongoing duplicity of the leftists running the Federal Gov. I wonder, could this be a series of attacks orchestrated by the Deep State leading to a false flag partial collapse of the electrical grid? Long ago I would have discounted that scenario as fantasy. But the left’s actions have demonstrated that there is no limit to the depravity of which they are capable. Plus, as of late, too many conspiracy theories have proven to be real, so its possible, if not proven.
Consider; if the electrical grid goes down, it will give the Biden regime the perfect excuse to declare nationwide Martial Law for the ‘duration of the national emergency’. Which, since there’s a two year window for the sole supplier China to build the replacement electrical sub-station transformers… it would mean that the 2024 elections couldn’t be held…
““If you once forfeit the confidence of your fellow citizens, you can never regain their respect and esteem.” Abraham Lincoln
May I be the first one here to say “Sam Didn’t Kill Himself”. Oh maybe it should be “The Sams”
To small victories, even if SBF doesn’t go to prison.
However I suspect enough people got hurt, some of whom our Overlords may care about, that SBF could learn that orange is the new black.
Bankman-Fried should probably request he be put on suicide watch.
The arrest was probably ordered by the Biden Administration to stop him from yapping at tomorrow’s hearing. They tried to tell him to shut his mouth all week long, but he wasn’t listening apparently.
Regarding the power plant attacks: when the incident in North Carolina happened a week or two ago there was a 24-hour buzz about it having been done by right-wingers objecting to a drag queen story hour. Then the story just disappeared from the national news. I guess the right-wing terror narrative must have collapsed.
Speaking of miscreants, this just in:
Biden’s non-binary (they/them) pup handler out at DoE
Partly handled. Tracking…
I’m thinking the analogy is that capo SBF paid plenty of his criminal booty up to the various underbosses. So he’s still a made man in good standing. Unlike a Jeffrey Epstein, I suspect he doesn’t know where any major bodies are buried.
He will probably get the John Corzine treatment; a slap on the wrist. It’s not like this is difficult for the underbosses and don to arrange.
https://en.wikipedia.org/wiki/Caporegime
The media is trying to make this story about youth and drugs and sex, to cover up the real story, which is fraud and corruption involving themselves and their political allies.
Exactly right that the media is changing and avoiding the topic of the actual. As with Holmes, the media was one of the mindless cheerleaders for this obviously suspect enterprise. On top of that, FTX funded their fave pols.
It’s tragic that consideration of double standards in the application of the law in this case are the first thing we consider.
I also thought Theranos was a terrible name and sounded like Thanatos.
Yancey Ward @ 11:15: What you said. We will be told that the whole thing is under investigatory blackout. Congress will express frustration and disappointment. And the caravan moves on.
Neo: agree that self-deception can help sell the con. Actors work hard to get into character. Athletes try to get into the “zone,” where you don’t need to think about your moves. I think that self-hypnosis improves with practice (it may help to be something of a sociopath) and may become part of one’s persona (literally “mask”) or “game face” when “winning isn’t everything, it’s the only thing.”
A monster like Holmes is hardly unique, just an extreme form. …rather Greek in her made-up corporate name, and very Greek in the hamartia of her tragic arc.
Looks like SBF’s BFF at the SEC might have some ‘splainin’ to do…(Jus’ kiddin’….)
“SEC Chairman Gensler Scrubbed Evidence Of Clinton, Soros And Pelosi Meetings: FOIA Lawsuit”—
https://www.zerohedge.com/political/sec-chairman-gensler-scrubbed-evidence-clinton-soros-and-pelosi-meetings-foia-lawsuit
These guys are SO FIIIINE! They do what they want. And what they want…therefore…MUST BE “legal”. Yep, all on the up ‘n up!
(For further entertainment, the SEC dude’s Wikipedia entry informs us of his extraordinary commitment to financial law ‘n order—truly a Great Man!)
I also wonder if the technical absurdity of Holmes’ business model factored into her ability to convince others. Deep down she knew that she was making it up: wishing it into being: invoking a kind of magic where, if only she mixed enough “smart money” and “smart people” with her Break The Paradigm idea, why, a miracle would occur.
In order for that self-deception to operate, she needed not to ask anyone, especially herself, too many questions. …I read “Bad Blood,” the excellent account of her rise and fall, and I kept shaking my head at her ability to evade and misdirect every “due diligence” query from investors and board members and employees and customers. Every single one; for a long long time; from people who should have known better; who *did* know better.
Self-deception helps the con artist sell the con, but ultimately the mark makes the sale —on himself.
The very first thought that popped into my head over SBF’s arrest in The Bahamas was, as Yancy Ward suggested, “well, isn’t it convenient that he won’t be able to testify to Congress, and the USG (FBI and White House in this case) will not be able to comment on an “ongoing investigation” so there will be a great opportunity for the FTX scandal to just disappear. Justice will never be served because any one who knows anything will be unable to comment and the MSM will just ignore the whole thing. Memory holed once again. Who says you can’t put the toothpaste back in the tube? Particularly timely for all the elected officials (D) who took large sums of money from SBF. And for Gensler.
And yes, I too noted the similarity of Theranos and Thanatos. If Holmes wanted to make a company out of “therapy” and “diagnosis”, perhaps she should have reversed the order: “diagnopy.” Actually including the word therapy in the name of a diagnostic tool seems to betray the fact that this was a con from the beginning. Like snake oil, this device tells you what is wrong and treats it at the same time? Let me think about that a minute. Yep, sounds like a scam.
I am an outsider to crypto and I’m not buying no tulip bulbs. But if depends on people never doubting, then perhaps you can convince yourself that people will never doubt. Or at least not before you, being closest to the thing, can bail.
I agree that self-deception is key. Some people seem to be very good at that. Holmes was an absolute champ. I’m not sure I agree that “deep down she knew she was making it up.” I think she was downright delusional — in the videos of her pitches at the time, she seems quite crazy to me. I read Bad Blood and think it’s a great book. The fact that Homes refused to be interviewed for it is the one thing that suggests to me that she did know she was doing something wrong. And the fact that she built a board of directors entirely of bigwigs who knew nothing about biology is also highly suspicious. But I think early on she may simply have been mistaken about the difficulty of the task. I think she completely misunderstood the nature of what she was trying to do. She seems to have likened it to a difficult technology problem — she saw people in Silicon Valley solve lots of seemingly impossibly technical issues and just assumed that if she found the right people they could create the breakthrough she envisioned. But biology is nothing like technology. Anyone who was paying attention to reality could see she was wrong and the firm was going nowhere — but she was not paying attention to reality! Can self-deception turn into delusion, or was she crazy all along? I would be interested in hearing more from neo about this aspect of the Holmes story. Crazy, or crazy like a fox? Or perhaps both?
Scamanos, indeed.
– – – – – – – –
And in related “news”, it looks like Gensler may have finally concluded that the optics aren’t exactly smiling favorably upon him.
Time to show ’em who he REALLY is (or can be)…and how quickly he can be that person once he makes a decision! (How many weeks is it now?)
‘ SEC Files Separate Charges Against FTX CEO SBF For “Massive Years Long Fraud” ‘—
https://www.zerohedge.com/crypto/sec-files-separate-charges-against-ftx-ceo-sbf-years-long-fraud
OTOH, maybe he just wants to be more able to control the way this “thing” is going to develop—a counterweight(?) to the Bahamas side of things…
Put me in Yancey’s camp. This guy can’t stop running his mouth, what better way to silence him than locking him up? Yet another “suicide” or “accidentally falling out a window” would be too much at this point.
Dejavu
http://www.jabezcorner.com/Grand_Bahama/Informal4.html
Bcci any big wigs go to jail altman clifford et al enron they indicted many of the wrong parties global crossing that was a split grift between mcauliffe and the bushes you note a pattern
Schumer was a major player either as ranking member or chairman throughout madoffs looting party
This SBF kid reminds me of Barry Minkow for some reason.
Miguel Cervantes @ 9:25, 9:30, 9:37: You are a gold-mine of relevant histories and context. Thanks for these contributions (and many others over the years), which remind me of other scandals past and present.
Thanks when ‘dials past the ambient noise’ one discovers how rare law breakers are held accountable
If youre innocent its anothet matter
I came to write what Yancey and Owen already put out. It may be frustrating to see SBF not arrested, but the guy was singing like a canary. Arresting SBF forces him to shut-up.
He was just the piano player in the saloon his parents mccaskill that goldman veteran were the big dawgs
Regarding FTX,
What they were doing was massively illegal, but it’s possible SBF and the others at the top weren’t greedy, or insane. There was a chance it could work. And nothing succeeds like success. Investors who are getting good returns don’t tend to order audits.
I think they knew what they were doing; it’s well structured and deliberate. But I also think they may have be trying for a short term play on a huge gain, and if successful, they could have propped the whole thing up with the value they had engineered.
FTX created a crypto coin, FTT and used it as their own fiat currency to prop up other investments. Yes, they told a lot of lies about that coin in order to jack up the perceived worth, but then they used the overly inflated coins to invest in other things. If successful, it boosts the image of the FTT coin and eventually the coin actually does meet their initial, inflated value. A scam/scheme like theirs, at this stage of cryto-currency markets, could have worked and the bogus value they put on their books could have actually materialized. And if that happened they could have trued up the balance sheet and made a ton of money. At that point the money would have been legitimate. The path was crooked as hell, but the end result could have been valid.
Now, they are so disorganized and lazy I doubt they could have pulled it off. Even if Binance’s CEO Changpeng Zhao hadn’t called them out, initiating FTX and Alameda’s collapse, I doubt the folks running FTX and Alameda could have successfully engineered the migration to a legitimate exchange and investment house. But the scheme itself had a chance.
I hear a lot of folks calling it a Ponzi scheme. It wasn’t a Ponzi scheme. More of a shell game and the pea they were using under the shells was their own token, the value of which they had grossly exaggerated. However, in the crypto future that inflated value could have been realized. If that had happened, and under better management, the thing could have stabilized and become a going concern. What they did with the token and lying to investors about their holdings was illegal, and immoral, but, unlike a Ponzi scheme, it could have actually become what they were pretending it already was. In a Ponzi scheme you use a continual flow of new investors’ money to prop up earlier investors’ holdings. FTX had their own crypto coin to do that with, FTT.
I agree with some of what Rufus says.
The thing about the FTT tokens (technically not a “coin?”) is that they were essentially commodity futures and yet there was no collateral posted in individual accounts. Instead, the publicly disclosed system was to skim cash off of each FTT into an insurance account which was used to cover trading losses. Or rather the failure to cover trading losses.
So instead of the traditional system of each trader guaranteeing that their losses would be covered, uncovered losses were socialized across all investors. Who wants to pay for someone else’s screwups?? Any smart investor who understood this would run far away from it. But people didn’t understand. And FTX then had a slush fund that they call insurance.
However, it looks like there was considerable criminality aside from the above possibly legal but stupid design. The latest one I heard was the FEC is now after SBF for campaign finance violations. Using straw donors, I believe.
Moral and emotional support from the media (and possibly the government) helps reinforce the long con entitlement mindset. Instead of doing their jobs and investigating or at least questioning, the media dove right in and loved this guy up. Nobody protected the consumer. Nobody. Consumers (customers, clients, patients, the people who pay for everything) used to be a category that was protected, and now they’re (we’re) just pawns in a larger game if considered at all.
What happens instead is snotty retroactive scolding of the consumer, for making a bad choice. Clearly, this was a super risky investment, but where were the voices of sanity explaining, clearly, for people who didn’t understand the scope of the risk?
During the 70s there was a whole industry around suing on behalf of consumers. There was talk (and lawsuits) during the last big financial disaster of suing banks for misleading consumers into risky mortgages. Mortgages! Where are these consumer activists today? Probably all working for the states which bring lawsuits “on behalf of” consumers and grift all the money (after lawyer fees) for themselves.
NPR is all over this story. This morning they reported that Sam Bankman-Fried’s company had made “substantial political contributions”!
I just can’t wait until they reveal how much and to whom, ending the agonizing suspense being experienced by Karens and Kenneths all over the country!
Rufus — Thanks for a great explanation. What caught my eye was your comment that “Yes, they told a lot of lies about that coin in order to jack up the perceived worth, but then they used the overly inflated coins to invest in other things.” The key is the inflation of assets and then the outflow to investments. And then the inevitable bankruptcy. Sorry. All gone. Sounds a lot like the Mafia to me.
Two things I feel are lost in the FTX “scandal:”
1. The U.S. Federal government does everything FTX did, AND MORE!
This is not a hyperbolic statement made by a guy on the Internet who shouts at clouds. It is true.
The Treasury prints money not tethered to a commodity, just like the FTT coin. The Treasury digitally moves the “value” they created to other ledgers to legitimize the fraud through the system of Federal Banks. The U.S. government spends money it doesn’t raise on things it doesn’t have authority to purchase or do while deflating the holdings of its investors (us, the taxpayers). The U.S. government creates and issues bonds it then “buys” from itself at a value it determines…
2. A reiteration of my prior comments; FTX was not a Ponzi scheme and the long term goal of a high value exchange and investment firm may have been attainable.
Similar things happen in business all the time. Joseph P. Kennedy, Sr. anyone? Made a fortune on insider training then became a U.S. Ambassador and head of the SEC.
Most of you are probably familiar with the accounting term goodwill. Or, look at a company like Tesla or Apple. Multiply their stock price by the number of shares outstanding and the valuations are multiples beyond any summation of their tangible assets. The intangible value of those firms, and many others, is way beyond the tangible value; assets on a spreadsheet. So was FTX’s FTT coin that different? Elon Musk and Stephen Jobs were people who could take tangible things of a certain value and use them to create things worth much, much more. “Satoshi Nakomoto” did the same thing with a hard drive and some code. Total value of all bitcoins in circulation is over $300Bn and it’s still nothing more than electrons on hard drives.
DJT and other real estate investors do this all the time. Use the “perceived” value of a property to secure loans to develop new properties and hope the entire portfolio eventually becomes worth what you claim it is.
So, yes, the leaders at FTX were doing some outlandish things and got caught. But it’s not the first company to do these things, nor will it be the last. If FTT was trading at $300Bn+, like Bitcoin, there would be no FTX scandal. The ledgers would balance.
Jeff Carter, an experienced commodities trader, is worth following on this matter. His latest here:
https://jeffreycarter.substack.com/p/the-feds-head-off-the-republicans
Rufus T. Firefly on December 13, 2022 at 3:50 pm
Total value of all bitcoins in circulation is over $300Bn and it’s still nothing more than electrons on hard drives.
Strictly speaking, it is nothing more than ions on neurons in brains that believe Bitcoin is worth $300Bn overall. Commodity backing for money or similar “tokens” only provides a false sense of security. That is the belief that something besides the human social agreement to use that commodity (physical or digital) as money is available as “collateral”. The supposed collateral is intended to backstop the value assigned to said money or tokens. But the assignment of value to the collateral is no more or less outside of the social agreement made to use the money itself. Bottom line: it is all neurons.
@ Rufus > “Now, they are so disorganized and lazy I doubt they could have pulled it off.”
Your explanation of how FTX could have succeeded was good, but there was no possibility of it happening.
And it is beyond believable that the people behind SBF running the scam didn’t know that.
They were embezzling. Period. For personal and partisan gain.
https://nypost.com/2022/12/13/ftx-ceo-john-ray-iii-grossly-inexperienced-execs-used-quickbooks/
I doubt any of you here need to read the article to realize what that implies.
However, reflecting on the probably-correct speculations that the arrest was made to short-circuit his testimony to Congress, and immunize the investigation against any actual success, there was some unintentional humor in the event.
Somebody didn’t get the memo, probably on purpose.
AesopFan,
I believe the people beyond SBF thought they could succeed.
I google’d “failure rate of startups.” The Internet says it’s 90%. That seems generous to me, I’d guess 99%, but let’s go with 90%. 100% of start-up founders believe they will succeed.
Any start-up that seeks investors believes his or her company has tremendous, future worth. Initial investors know it is not currently worth that value, but choose to fund it if they agree with the founder that it may obtain that future value.
FTX was founded in early 2019. At that time there was obvious potential for a crypto exchange (or several) that could attain huge value. Others were doing similar things at the same time and those others had financial backers rolling the dice on their play.
There was also potential for new crypto coins to follow bitcoin, become viable, stable and increase tremendously in value; etherium, doge coin, binance, tether… All started basically at zero and are now valued at tens or hundreds of billions.
It was a very high risk gamble. Every start up is, except the ones that succeed don’t look as high risk once they are a going concern. All start ups create future value out of thin air, an idea, and some eventually achieve that value, or more.
I believe that was the plan of the founders of FTX and Alameda.
Neither Holmes nor SBF were criminal masterminds. They, especially Holmes, were supported and bankrolled by very powerful people and it is not plausible these people were all conned.
When George Schultz’s grandson told him that Theranos had nuttin’, George Schultz said the grandson ought to resign from Theranos if he felt that way and by the way there’s some Theranos lawyers upstairs ready for you to sign an NDA.
Bullshit was Holmes the mastermind behind Theranos.
RTF…it is true that startups have a very high failure rate. But part of the value added by venture capitalists is supposed to be at least some ability to ‘bet on the jockey, not just the horse’, as the saying goes, which requires some reasonable level of judgment about the startup’s leadership.
The fact that SBF was playing video games during an investor discussion should have been a huge red flag to Sequoia and others.
Re: Holmes and delusion, etc.
An enormously important cultural shift has taken place during my lifetime. We have preached self-esteem so much that we have reversed the process of moral judgments. We are no longer considered a good person because we do good things and live a moral life. We consider ourselves morally good as a starting point. And morally good people don’t do bad things.
I wouldn’t be surprised if Holmes started out with a belief that she was a good person who sincerely wanted to believe her BS. At some point, she had to start cutting corners on the truth. As with most people who slowly slide into embezzlement, she probably felt like the lies were really okay because it was all going to work out and she just needed some time, some space to get there. See e.g. Fred Smith and his experience with Fed Ex. She was still a “good person.” She probably started down her path thinking she was merely engaging in noble cause corruption.
We have seen an epidemic of such noble cause corruption in science. See e.g. climate scientists lying relentlessly as they scrambled to try to make the science line up with their genuine beliefs. I suspect that the bogus studies on masks, etc. that we saw during covid might have been similarly motivated.
At some point, she’s so far down the path that there’s no way out. And she just keeps the con going as long as possible because she’s trapped by it and in it. I suspect that her behavior and motivations gradually worsened over time.
stan:
Agreed.
Frederick et alia (regarding Theranos’ true mastermind):
Ramesh Balwani: https://en.wikipedia.org/wiki/Sunny_Balwani
David Foster,
I don’t disagree with you or anyone else here, it’s just when I hear a lot of people discuss this the attitude is; SBF, Ellison and others were grifters out to bilk as many people of as much money as possible. That’s not what I see. I see shrewd people who understand business, investment and crypto recognizing there was a huge potential play at creating a legitimate crypto, playing fast and loose with investment and accounting laws and rules to aggressively build a large portfolio which, in turn, inflates your crypto, making everything balance.
I agree they knowingly violated accounting and investment laws, BIG TIME, but I don’t agree they were doing it solely for short term, personal gain. If FTT was the next Etherium it would have worked. I still think these particular people still would have screwed it up; they were too disorganized. But the facts point to them having a well thought out, viable plan and its execution worked for awhile.
FTT traded around $30/share for seven of its eight months of existence. (It’s still around and being traded.) Real trading started around $1.20 and grew to over $60 and there are about 320 million tokens in circulation.
@Rufus T. Firefly: Ramesh Balwani
He’s not the mastermind either. He’s the one-level-up who brought Holmes in. Theranos’ Board of Directors contained the masterminds (or more likely, the people are one degree of separation away from the masterminds)–people like Henry Kissinger and George Schultz and Jim Mattis, RINO Bill Frist…
Nineteen-year-olds with untried ideas, no credentials and no track records of success cannot get meetings with such people, unless those people already want to see them.
The original narrative was “Steve Jobs but a WOMAN who’s not just making toys for nerds but revolutionizing health care”. When that blew up, the new narrative became “She tricked all of us, and btw here’s this crypto genius in a hoodie who’s going to change everything by giving away all his money”.
I doubt we will ever get to the truth behind any of it. “Bad Blood” is the “modified limited hangout.”