SBF key takeaways from conversation with New York Times

To the outrage of some, the disbelief of many, and the total frustration of his legal team, Sam Bankman-Fried, the shooting star of the FTX debacle, joined Andrew Ross Sorkin from the New York Times to continue is excruciatingly public mea culpa via video link from the Bahamas yesterday.

The beguiling innocence of SBF’s performance had the desired effect on observers like Bill Ackman and Kevin O’Leary, who both waxed sympathetic in tweets.

Now giving credit where credit is certainly due, its utterly beautiful to see a guy stand up and while facing into the shit-storm of hate mercilessly pummelling him via social media, take full responsibility for “fucking up”.

But, and this is the big but: to what extent are we witnessing the fine tuning of the aw-shucks persona that is a by-design bespoke strategy to paint himself as the quintessential ‘in over my head’ noble soul who was ensnared by forces larger than himself?

These public performances of alternatively looney-tunes lashing out at regulators to begging forgiveness and pledging to make it all right are contradicted by the actions that led up to this moment, at least as far as the evidence we can see points to.

But we are at the earliest stages of investigation, and the issue of criminality still remains nebulous as SBF hones his stagecraft in the court of public opinion.

Here are some observations through the lens of psychological ‘tells’ that lean toward a sociopathic interpretation of his actions to date, as exhibited during the interview with the New York Times.

The interview’s first 9 minutes are a ow-intensity and polite interchange, but Andrew Ross Sorkin then goes full confrontational to interrupt SBF’s convoluted abstraction answer to ask point blank: “Was there co-mingling of funds?”

It is at this exact moment that SBF’s body language changes abruptly. He cocks one shoulder forward and his eyes start to dart downward and upward, downward and upward, as his countenance towards the camera becomes suddenly guarded and defensive. Its like he is uncomfortably cornered and is aware that his control over the interview is prematurely lost, and he knows it.

SORKIN: Make this very straight: Was there commingling of funds? That’s what it appears like. It appears like there’s been a genuine commingling of funds that are of FTX customers that were not supposed to be commingled with your separate firm.

BANKMAN-FRIED: I didn’t knowingly commingle funds. And again, one piece of this, you have the margin trading. You have, you know, customers borrowing from each otherAlameda is one of those. I was frankly surprised by how big Alameda’s position was, which points to another failure of oversight on my part and failure to appoint someone to be chiefly in charge of that. But I wasn’t trying to commingle funds.

So he begins his defence with “I didn’t knowingly commingle funds”. But by the end of the discourse, realizing his error (perhaps) it changes to:

“I wasn’t trying to commingle funds.” This is the statement where his lawyers likely texted each other over the risk of proceeding with SBF as a client. He was the sole control over the transfer of funds from client accounts at FTX to Alameda Research, by his own admission. To state that, and to use the phrase “not trying” to commingle funds, implies a subconscious but embedded disregard for the legal foresight that should and would at all times be present in the mind of a CEO who had management discretion over diverse capital pools under his extended corporate umbrella.

Highly incriminating in terms of exhibiting latent criminal negligence, IMHO.

ARS then changes tack and references a Bloomberg exchange in which Carline Ellison, Alameda’s CEO and former SBF girlfriend, discloses that FTX client funds were being used to cover an Alameda position that was being margin called due to a “Luna-triggered credit crunch”. She tells the interviewer that she, SBF and “Gary were all aware of this.”

At this point, SBF reiterates a point of defence where he claims that due to his “limited access to data”, he couldn’t answer the questions definitively. It was the second time he made this point, which he subsequently never again mentions in the interview. It strikes me that he has a parallel internal analysis running in his head (as is not uncommon with individuals of substantial cerebral processing power) of what he is saying and how it is being perceived by his audience.

I think it occurs to him shortly after this exchange that this is not likely a believable defence, since, as the CEO, his access to data would be unlimited, not limited at all. That’s why he abandons that line subsequently, I think.

SORKIN: Let me ask you this. The Wall Street Journal reported that Carolyn Ellison told Alameda staffers that Alameda used FTX client funds to cover loans that were being recalled because of the Luna-triggered credit crunch. Carolyn says that she, Sam, Gary were aware of this. How do you square that with what you originally said over Twitter — that this was an $8 billion accounting mistake?

BANKMAN-FRIED: So, I will point to two things.

First of all, I obviously don’t know what anyone else is thinking here. I can only talk about it from what I know and from what I knew. A lot of this is reconstructing it over the last month. I have limited access to data. But what it seems like happened is in the middle of the year, a lot of — most of the borrow/lending desks in the space blew out or closed down. And it seems like Alameda had margin positions opened with them, and that it likely moved a bunch of that over to FTX this year when they shut down. And that means — I think it was overcollateralized positions, but positions that involved substantial size and substantial U.S. dollar size on the borrower side. In terms of the accounting mistake, again, looking through what happened, I think that there is a substantial discrepancy between what the financials were, what the auditing financials were, the true financials, what the exchange understood — all of that was consistent — versus what the dashboards that we had displayed for Alameda’s account there, which substantially underdisplayed the size of that position. That’s one of the reasons that I was surprised when we dug into everything — at how big that position had become.

This whole argument of his dashboards “underdisplaying” position sizes is extremely suspect. As if his tech stack or database integrity is somehow at fault?  This is where his defences start to deteriorate in terms of logic, which all along and thorughout the interview, in retrospect, are dicey at best.

But its at the end of the interview is where the really incriminating, pure unadulterated statements are that will be introduced as evidence at his criminal trial should they be found false.

SORKIN: Sam, how much money do you have left at this point?

BANKMAN-FRIED: I mean, to my, like, knowledge, close to nothing. Everything was in the company.

SORKIN: What does that mean? You didn’t put away some money somewhere?

BANKMAN-FRIED: No. I don’t have any hidden funds here. Everything I have I am disclosing and I am down to — I think I have one working credit card left. I think it might be $100,000 or something like that in that bank account. Everything I had, even all the loans I had — those were all things I was reinvesting in the businesses that I put everything I had into FTX.

SBF’s posture throughout the interview – leaning forward, looking up with a bowed head – is the classic posture of the perp who is convinced that he can portray, and you will believe, the sincerity of his exculpatory oration. It is this posture throughout the interview that causes alarm bells to ring.

So this is the most incomprehensible fact, if true, and goes a long way toward proving the utter absence of any criminal intent, which would be critical to prove in a fraud proceeding. It still leaves the question of criminal negligence open, though.

But if the guy wasn’t actively taking money off the table and putting it into assets outside of the corporate umbrella, then you have to concede, at least a little bit, that the kid’s intentions were somewhat pure.

Don’t forget, among SBF’s shortcomings, which only fall into the category of character flaw and not criminality, is that he had certainly developed a bit of a god complex as he fell under the intoxicating spell of “effective altruism”. If you don’t know, this is the cult of saintly aspiration whereby you consciously seek to acquire wealth for the purpose of charitable donation. The inherent infantilism of such a ridiculous notion is lost on its adherents. (If you want to leave more opportunity for others, then take less, is the simplest refrain). I prefer to think of it as “affected” altruism. Really, a cringey form of virtue signalling.

At the end of the day, SBF’s “good guy in over his head” approach might be good enough for Mr. Wonderful and  Bill Ackman. I doubt its going to sway the DOJ.

But what remains to be cleared up is, how do his parents acquire US$120 million in prime Bahamian real estate on professor’s salaries? And also, what happened to all of the money withdrawn that cannot be attributed to the Bahamian authorities?

It is these still-unanswered questions that leave the question of criminal culpability somewhat of an open debate at this point. What do you think?

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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