Financial Fraud Trial Begins: Who Is Sam Bankman-Fried?

BIANNA GOLODRYGA, HOST: Well, up next, to the trial of Sam Bankman-Fried. The former crypto wunderkind and CEO of the now bankrupt cryptocurrency exchange, FTX, is facing several criminal charges of fraud and money laundering. When his empire came crashing down last year, millions of people were left empty- handed and investors lost billions. Sheelah Kolhatkar profiled Bankman-Fried and his family for “The New Yorker” and joins Hari Sreenivasan to discuss her reporting.

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HARI SREENIVASAN, INTERNATIONAL CORRESPONDENT: Bianna, thanks. Sheelah Kolhatkar, thanks so much for joining us.

SHEELAH KOLHATKAR, STAFF WRITER, THE NEW YORKER: It’s great to be here.

SREENIVASAN: You spent time with Sam Bankman-Fried, also known as SBF. His trial is now starting. Tell me a little bit, for the audience that might not be paying attention to all of this, what is he charged with? What is he facing?

KOLHATKAR: Well, Sam owned two companies that were very interconnected. So, one was called alameda Research. It was basically hedge fund managing a private pool of money, investing almost exclusively in crypto related things, you know, tokens, currencies, crypto companies. And the other company was called FTX, and that was an exchange where people could send orders to buy or sell or borrow crypto assets and they would trade on that exchange.

And you know, customers would come to FTX. They would open an account there. They would deposit a bunch of money, just like you would at, you know, E-Trade or Charles Schwab or Fidelity, and then they would plan to use that money to buy or sell bitcoin or Ethereum of the dozens of other crypto, you know, tokens and currencies that were trading at the time.

And he’s basically accused of taking that customer money and using it for other things, mostly having to do with other parts of the company without the explicit permission of those customers. And the government is really alleging that this was going on from the time FTX was launched, which was in 2019. They are saying that from that time until it went under, you know, last fall, winter, he was misusing and mishandling customer funds.

SREENIVASAN: Give us an idea of how high the highs were for FTX and for Sam Bankman-Fried. I mean, this was a company that took out Super Bowl ads, it had enormous celebrity endorsements. And what was it worth at its peak?

KOLHATKAR: So, it was alleged to be worth $32 billion or thereabouts, depending who you asked. And you know, Sam himself appeared on the cover of “Forbes” and “Fortune” and he was declared the next Warren Buffet and the youngest multibillionaire. One of his investors said publicly in a profile published on the investor website, you know, he might be the first trillionaire that the world has ever seen. Investors were fighting to invest in the company. It was like this rocket ship. It was going to be the next Facebook. He ultimately raised $2 billion from venture capital investors, very experienced grown-ups who should know red flags when they see them.

SREENIVASAN: Yes.

KOLHATKAR: But did not pay attention. And yes, he was spending lavishly on Super Bowl ads, celebrity endorsements, general marketing, trying to bring more people into trading at FTX.

SREENIVASAN: And, Sheelah, he also got very involved in political contributions, right?

KOLHATKAR: He did. And there’s some confusion around exactly what he was trying to do politically. I mean, he came from a politically active family. He spent a lot of time on Capitol Hill meeting with members of Congress, their staffs, regulators, ostensibly to try and educate these people about crypto and why it should become fully legalized in the United States, which it still is not. He really — he said that he wanted to bring legitimacy to this industry. And so, that was a big part of his political activity.

Another part of his political activity involved funding people who he felt would help uphold democracy during the era when Donald Trump was running for president, and even after he became president, you know, there were a lot of concerns about Democratic institutions. So, he did fund some candidates in that realm.

And then, the last sort of bucket was philanthropic oriented political giving where he was giving money to candidates who he hoped would pursue causes in Congress that he thought were important to the future of humanity.

SREENIVASAN: You know, part of this ethos that you mentioned is also you write about effective altruism, something that Sam Bankman-Fried was a follower of this idea. Explain that for us.

KOLHATKAR: Effective altruism is this really interesting philosophical movement. It’s really based around the work of Peter Singer, an Australian philosopher who has recently announced his retirement from Princeton. And he wrote some very thoughtful thought-provoking things about, you know, the way we live in the West and questions of moral responsibilities.

So, if we are here in the West buying things that we don’t need, buying shoes, buying flat screen TVs, you know, taking cabs and we don’t need those things, and there are people in other places starving because they cannot buy food, he basically said, you know, we should be contributing. that money that we’re responsible. We’re contributing to that suffering.

So, this spun a whole movement called effective altruism. It seemed to really become very popular with a lot of young people who understandably were disaffected with the world and the impotence of our political institutions to tackle serious existential problems that we have such as poverty, inequality, climate, so on. And it appealed to a lot of people with quantitative, you know, kind of mathy interest.

So, yes. So, a lot of these young people were encouraged to go out into the world, earn as much money as they could, pursue high paying jobs and give away all of the money that they didn’t really need to survive to save lives in other places.

And you know, it’s a very interesting philosophy but there were some real weak spots, because it seemed encourage people to earn money doing all sorts of questionable things, but the ends justified the means, because they were to give the money away, it didn’t matter that they were working in this dubious industry or that they were working on Wall Street when they could have been working in public health or in education, helping people directly. You know, they were earning to give. So, that was that philosophy.

SREENIVASAN: Yes. You know, adding to kind of the interesting layers of this story is where Sam Bankman-Fried comes from. And I mean, his family. His dad and his mom are respected intellectuals at Stanford. Tell us a little bit about them. You got to spend some time with them for this story.

KOLHATKAR: His parents are both very interesting accomplished people. They are beloved on the Stanford campus. They’re both professors at Stanford Law School. You know, very steeped in the culture of Stanford. They, for decades, have had this sort of informal Sunday night dinners where other faculty members and guests would show up at their home and just have a big sort of meal and drink wine and talk about all sorts of things from, you know, democracy to Ancient Greece to movies and politics.

So, Sam and his brother, Gabriel, they grew up in that environment. They were at those dinners, you know, they loved talking with adults from an early age, almost more than they could relate to other kids. And one thing Sam’s parents said to me frequently when I was recording my “New Yorker” article was that, you know, Sam seems so intellectually sort of precocious, they spent a lot of time and energy trying to make sure that he had adequate intellectual stimulation.

So, they sought out special math classes, they — you know, they sent him to a special math summer camp in high school that you had to do a big really difficult test to get into. And they revered him. You know, they really did. They thought he was brilliant. And my sense is that they did not question his decisions. You know, he made his own decisions, he pursued his own path. Although they certainly helped him when they could, they did not intervene. And perhaps ultimately, they should have intervened more.

SREENIVASAN: You know, it’s interesting because you point out that his father took a leave of absence from his very respected job at Stanford to go to work for his son. And the father’s research and testimony in front of Congress talks about tax savings and how close tax loop holes, but here he is, sitting in the Bahamas with his son.

KOLHATKAR: Sam’s father is a very, you know, well-respected expert on tax law. So, when FTX was starting out, it was very — initially in Hong Kong and it moved to the Bahamas. There were all sorts of tax questions and other legal questions. So, yes, Joe Bankman, Sam’s dad, was — you know, rolled up his sleeves and was helping out as much as he could. And over time, you know, he became more involved. And as the company became so seemingly successful, and here Sam was pledging to give away billions of dollars through a foundation that FTX started, he ultimately, you know, attracted his dad to take time off from his job that he loved at Stanford and move to Nassau and help figure out how to find worthy charitable projects to invest to this FTX, you know, philanthropic money into. And to him, I think, at the time, it was sort of a dream job. Because who wouldn’t like to give away a lot of money to worthy causes? So, he embraced it.

SREENIVASAN: Yes. And you write that his mom is literally an expert on ethics and she is — you know, she is somebody that people all over the world request. And I wonder in your conversations with her, did you get a sense that she ever questioned the ethics of her son? I mean, did she ever — was she able to separate out fact that she has this maternal instinct to want to protect her child versus what Sam has been accused of?

KOLHATKAR: That’s a really remarkable thing about the family dynamic. I mean, the portrait painted of Sam by the prosecutors and even by the bankruptcy lawyers trying to sort through the company now is so different from the one that Sam himself portrayed and that his family holds of him.

And one of the most remarkable moments for me reporting on this was when I asked Sam’s mom, Barbara, who’s a very, very smart rigorous thinker, impressive woman, but I asked her, you know, did you read this indictment and have to kind of go to him and say, Sam, you know, did you do any of these things? What is the government accusing you of? How can they be saying this? And she said, no, she never even had to go and ask him about it.

She just knew. She knew his character. She knew he would never, you know, intentionally steal money or defraud anyone. And I did find that shocking. But she said no. And she very firmly believes that he is innocent. That he could have sorted all of this out if he had given a little more time to kind of sell some assets. He could have paid back his customers. Everything would have been fine.

Now, of course, legally, there’s a big question about whether — even if he had done that, whether that would have meant he had not committed a crime. I mean, certainly, many people think that even if you managed to pay the customers back in end, having done something with their money that they

weren’t expecting is wrong.

SREENIVASAN: Yes.

KOLHATKAR: So, that’s all that matter. But she’s convinced. And it seems like an example of — I mean, in a way, the story for me was an example of the power of maternal love and devotion, because she does not seem to be applying this — the ethical rigor and analysis that she does to most things in her life to her son.

SREENIVASAN: I wonder, right now, the parents are not criminally charged with him. But there are civil lawsuits against FTX, right, a they’re named the notes (ph).

KOLHATKAR: They are definitely not out of legal peril. And for starters, it’s not uncommon for government prosecutors who have an enormous amount of pressure they can wield on people to use family members as leverage on defendants, I mean, you know, either explicitly or indirectly. And it is notable that just a few days before Sam Bankman-Fried’s trial started, the bankruptcy estate filed a huge lawsuit against his parents, you know, they’ve had almost a year to just mind all of their personal e-mails, they printed all sorts of salacious stuff, it seemed partly intended to just really intimidate and embarrass them right before the trial, even though it made some very valid points.

And they — you know, in court, in Lower Manhattan, the prosecutor did say that Sam’s parents, Joe and Barbara, and his brother, Gabriel, could be called as witnesses. They were included on a long list of potential witnesses. So, we’ll have to see if that actually happens. Obviously, that would be a tricky position for them. But I think we won’t know until Sam’s trial is over.

SREENIVASAN: Yes.

KOLHATKAR: More lies in store for his parents.

SREENIVASAN: You know, I wonder if how much of is the government trying to make an example out of Sam Bankman-Fried?

KOLHATKAR: What FTX was doing was pretty much out in the open. And I thought interesting that in some court filings the new CEO of FTX described FTX before the collapse as a dumpster fire. And he said, oh, it was just like a disaster. Well, if that’s the case, why didn’t someone pick up on that sooner? Why didn’t government regulators notice if it was such a threat to American investors? Why didn’t the SEC do something? Why did they wait until this huge bubble blew up in this industry? And then, one after the other, these things collapsed like a bunch of dominos, create all this financial destruction, often are exposed by reporters, frankly, and then they decide to come in and charge everybody, it sort of — you know, it leaves me a bit wondering why — you know, why didn’t you become a little more proactive sooner?

SREENIVASAN: You write that Sam Bankman-Fried is basically was at his homeworking on his defense. I mean, he maintains his innocence through all  of this?

KOLHATKAR: He maintains his innocence. And from what I can tell, it is sincerely held. He is adamant that he did not intentionally defraud anyone or do anything he thought was improper. He seems to still think he can explain that to a jury and explain to that world and make everyone understand this was just sort of an innocent mistake. He was maybe in over his own head. But that has been his position from the beginning. And it’s remarkable because it’s — you know, we rarely see a trial, a case like this, this complexity —

SREENIVASAN: Yes.

KOLHATKAR: — of scale go to trial. Usually, defendants end up pleading guilty because a trial is an excruciating exercise. The odds are against you. And he has forged ahead into an absolutely challenging situation where he’s going to be there listening day after day to people saying he did terrible things.

SREENIVASAN: Yes. I mean, what do you make of that?

KOLHATKAR: He has spent his entire life being told that he is intellectually cognitively superior to most people. He was raised that way. He was always told he’s very special and brilliant. He was given all these opportunities. He was allowed to do — you know, not do things he didn’t want to do and just focus on cultivating his brain.

And even when he was running his business, I mean, people would tell me stories, you know, he would end up in meetings about some particular esoteric legal area, for example, or business area with a bunch of experts. And he would very quickly bone up on the topic and then, suddenly it seemed like, oh, he knew more than all the experts.

Now, whether that’s actually true, you know, I’m a little skeptical, but he really thinks he knows best. And it’s hard to see given what he’s facing that it will go the way he hopes. But we’ll see.

SREENIVASAN: Staff writer for “The New Yorker,” Sheelah Kolhatkar, thanks so much for joining us.

KOLHATKAR: Thanks.

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