Bankman-Fried: I Did Not Know Exactly What Was Happening

Former FTX CEO Sam Bankman-Fried participated in an interview with the New York Times during the DealBook Summit yesterday.

During the conversation, Bankman-Fried provided NYT interlocutor Andrew Ross Sorkin with deeper insight into the collapse of his crypto exchange.

Bankman-Fried began the interview by explaining that Alameda Research, FTX’s sister company, operated as a margin trading or derivatives platform.

He stated that Alameda had approximately 10 percent leverage last year, but that market downturns reduced the value of its assets. Although Alameda was still using double leverage a month ago, Bankman-Fried said that more than $10 billion was wiped out in a matter of days, which is why FTX could not liquidate that position and generate debt.

When asked how this affected FTX and whether the funds were ‘mixed’ between the two companies, Bankman-Fried insisted that he did not knowingly mix the funds.

Instead, he said he believed that Alameda had margin positions with various crypto lending and borrowing companies. After many of those companies collapsed this summer, Alameda moved those positions to FTX.

Bankman-Fried also acknowledged a ‘significant discrepancy’ between financial audits and the actual situation of the company. He said that the two companies were ultimately connected much more than he would have ever wanted.

He also added a disclaimer statement.

– I did not run Alameda, I did not know exactly what was happening – noting that he learned many of those details in the last month.

When asked about the $515 million in funds that disappeared shortly after FTX filed for bankruptcy, Bankman-Fried said he was cut off from the system at that moment and therefore did not have complete knowledge of the situation.

However, he speculated that one part of the funds was seized by the FTX.US team and put ‘in a safe place’, and that another part was taken by the Bahamian regulator. He stated that a third part was improperly accessed by individuals who are still unknown.

Regarding whether his company received instructions for further compliance with regulatory guidelines, Bankman-Fried admitted that such instructions exist. However, he said that FTX was already spending ‘a huge amount of energy’ on compliance before it collapsed, and that the fundamental issue was instead risk management.

About residency in the Bahamas

Bankman-Fried also commented on his decision to stay in the Bahamas and discussed whether he believes he is allowed to leave the country and return to the U.S.

– As far as I know, I could – said Bankman-Fried.

He stated that he had watched various government hearings and that he ‘would not be surprised’ if he traveled to the United States to speak with representatives.

He added that he is not immediately concerned about criminal liability.

– Millions of users are important here… I do not think what is happening to me is an important part of that – said Bankman-Fried.

He commented on his personal relationship with other employees in his network, stating that Alameda’s staff knows ‘reasonably well’. He denied living with those individuals in a shared penthouse in the Bahamas for any significant time.

– Most of Alameda was not there. I do not live there now and I did not live there most of the time. For some time I lived with one or two members of Alameda – he stated.

Bankman-Fried also denied recreational drug use among employees.

– There were no wild parties here. When we had parties, we played board games – he said, noting that some people drank a small amount of beer.

He emphasized that he does not see illegal drug use in the office or at parties, but he stated that he personally used prescribed medications for focus and concentration.

Bankman-Fried on his future

Bankman-Fried acknowledged that his lawyers advised him not to speak to the public.

– The classic advice is, say nothing, you know, retreat into a hole – he said, while explaining that he feels a duty to talk to people and a duty to explain what happened.

Although Bankman-Fried insisted that he has always been honest, he admitted that there were moments when he acted as FTX’s showman, presenting the exchange as exciting without fully disclosing the risks.

He concluded that his future is uncertain, but that his goal is to be as helpful as possible to users and regulators.

– I cannot promise anyone anything. I think there is a chance that customers will eventually be paid back… if there was a really strong collective effort… I think there is a chance for real value – he admitted.

Bankman-Fried added that he now owns ‘almost nothing’ in terms of finances, with one credit card plus personal assets amounting to $100,000 in his bank account. He said he has no hidden funds.

Bankman-Fried has also at various times suggested that FTX’s U.S. subsidiary should be operational.

– As far as I know, it is fully solvent. I believe it could open withdrawals today – he said.

However, the exchange shows no signs of reopening its services.