How Sam Bankman-Fried thought he could win it all back

As Sam Bankman-Fried’s criminal trial gets back underway on Thursday, things feel oddly settled on the legal front. The prosecution and its array of insider witnesses have established beyond any reasonable doubt that Bankman-Fried coordinated the frenetic embezzlement and misuse of customer funds. Barring some truly dramatic revelation or supremely canny tactic by a defense that has so far shown no such capacities, Bankman-Fried will likely be found guilty by a jury of his peers within no more than a few weeks.

But the very certainty of the legal case invites a much more difficult question: what was Sam Bankman-Fried’s plan?

Bankman-Fried spent, invested, gave away, or otherwise disposed of a gargantuan portion of the funds customers had entrusted him with. While crypto market volatility helped expose that activity, what could have possibly been his goal in flinging assets into the ether with such seeming abandon? What, even in an ideal world, was the FTX endgame?

One of the clearest glimpses so far of what Bankman-Fried was thinking came in testimony from former FTX General Counsel Can Sun on October 18. Under questioning from Assistant US Attorney Danielle Sassoon, Sun recounted a conversation with Nishad Singh:

“[Nishad] said that he found out about the hole, basically that Alameda was taking FTX customer assets in late summer of ’22, so August or September of 2022. He said that he talked to — he confronted Sam directly about it, and Sam told him back then that it is what it is and there is nothing we can do about it. The only thing we can do is to grow the company and fill in the hole.”

This strikes me as the very definition of hearsay, but it was admitted in court, so I’m going to take it as an accurate representation of what Bankman-Fried said.

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Risk on

And “grow the company and fill in the hole” was not just how Bankman-Fried hoped to address the fallout from his actions: it also seems to be how he rationalized them in the first place. In essence, it appears that his plan was to spend customer funds to make FTX so huge and influential that it could repay Alameda’s extensive fraudulent borrowing of customer funds, or perhaps even become ‘too big to fail.’

The fact that those funds were not his to use seems to have been absent from his moral or strategic calculations. And of course, Bankman-Fried’s seeming belief that a crypto exchange could generate infinite money speaks to his total lack of any deep understanding of crypto itself — but that’s a topic for another day.

This leverage-long, risk-on mindset seems to come largely from the tenets of utilitarianism and effective altruism — or, at least, from Bankman-Fried’s understanding of them. As Michael Lewis puts it in Going Infinite — a catastrophic failure of a book that nonetheless contains some incredibly interesting moments — “people able to calculate the expected value of complicated financial gambles were the same people drawn to the belief that they could calculate the expected value of their entire lives.” (Of course, believing this about yourself is in itself borderline sociopathic, and taking such claims for granted is where Lewis fails most dramatically.)

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More specifically, Bankman-Fried seems to have come to believe that taking high-risk, high-return bets was almost always the right decision. During the trial, we’ve heard this described as an ‘expected value’ calculation, a practice that made up the core of utilitarian and effective altruism thinking as understood by the FTX squad.

Sam himself got early lessons in expected value at Jane Street, where he traded before founding Alameda. Michael Lewis recounts that interns at Jane Street were encouraged to place bets with each other constantly. Soon, as a source told him, “the interns are all addicted to gambling, and to positive expected value gambling more than anything in the world.”

At a high level, this appears to have been Bankman-Fried’s rationalization for using customer funds to buy political influence through donations, and social influence through endorsement and advertising deals with people like Tom Brady and Larry David.

While according to traditional accounting standards FTX couldn’t afford these exorbitant outlays, in Sam’s mind, the certainty of his own infallibility made using customer funds to pay for them the best possible plan, because it generated maximum ‘expected value.’

At least as deployed by Bankman-Fried, these calculations were often absurd on their face. One gobsmacking early example laid out by Lewis involved $4 million worth of Ripple (XRP) tokens going missing fairly soon after the creation of Alameda Research. Sam “told his fellow managers that in his estimation there was an 80% chance it would eventually turn up. Thus they should count themselves as still having 80% of it.”

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This moment embodies the absurdity of expected value calculations in two ways. On the one hand, it leads to absurd ways of thinking about the world. But more to the point, what Bankman-Fried here seems to think is some sort of “rationalism” is actually nothing more than a feeling — where, after all, did that 80% number come from? Not, at least as told by Lewis, from any specific process of thought. Sam just estimated the odds.

Bankman-Fried even seems to have been aware of how absurd such arguments seemed to other people. Lewis quotes Sam saying, “The place I am strongest is the place where you have to do things other people would find shocking.”

Shocking, in retrospect, seems to have at least in part meant ‘irresponsible and immoral.’ Basing decisions on long-term oddsmaking would strike most people as both morally and scientifically incoherent. On the one hand, it presumes that the individual making decisions — in this case, Bankman-Fried — has superior judgment to everyone else who might have something to say about the situation. Let’s take Bankman-Fried’s effective altruism at face value, just for a moment. Given that, his entire quest to make money via FTX, then donate it to ‘effective’ causes, depended on the idea that he, in his late twenties, knew what was right for the world better than all living government and civil society figures.

Immoral calculus

Moreover, in his apparent belief that normal standards of morality didn’t apply to him — a view Caroline Ellison testified to hearing him express — Bankman-Fried seems to have assumed he knew what was right for the world better than all of the major social figures who had come before him in the history of mankind. This callow, Holden Caufield-esque rejection of everything the world of adults stood for seems to have been the closest thing to a genuine ethos Bankman-Fried possessed.

Part of the same infinite self-regard was, apparently, the belief that he would inevitably succeed in business. This seems implicit, first, in his use of customer funds in the first place. It returned in far more pathetic form in his whining insistence after FTX’s collapse that, if he had not been forced to declare bankruptcy, he could have gotten his customers all of their money back.

Of course, these are all merely Bankman-Fried’s possible conscious thoughts. But whether he was capable of acknowledging it or not, he was also driven by the base desires that drive all humans. As insider Nishad Singh said in reference to Bankman-Fried’s insistence on buying a $36 million penthouse for his leadership team, “Sam is a fan of views.”

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On a similar note, but much sadder, is FTX bankruptcy CEO John Ray III’s assessment of Sam’s motivation for spending utterly absurd sums to hire celebrity influencers. “For the first time in [Bankman-Fried’s] life,” Ray said, “everyone ignores the fact that he’s a fucking weirdo.” Or, as Lewis puts it, “Sam was buying himself some friends.”

Of course, he would never in a million years have admitted that. Instead, as Lewis himself describes, Bankman-Fried had a superficially rational argument that influencers like Tom Brady had a unique power to draw in customers to FTX.

In a nutshell, this is the Shakespearean tragedy of Sam Bankman-Fried as a person. Brought up on the ideology of ‘expected value’ and making odds on coin flips, he came to see himself as someone who always knew the odds. This made him comfortable risking other people’s money, even without their permission. He was sure he was going to win, so why not bet it all?

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