Is Sam Bankman-Fried Losing His Mind?

The alleged fraudster's latest blog post shows a man completely divorced from reality.

AccessTimeIconJan 13, 2023 at 7:47 p.m. UTC
Updated Jan 20, 2023 at 3:15 p.m. UTC
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The American Psychiatric Association in 1973 instituted what’s known as “The Goldwater Rule.” This then-novel principle of medical ethics held that psychiatrists should not make diagnoses of public figures at a distance, for instance based on public statements.

Luckily, I’m not a psychiatrist or a medical practitioner of any kind. So I’m free to say that, based on his most recent public statements, Sam Bankman-Fried seems to be losing his mind.

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I make this claim not as a professional psychologist but as a professional reader and writer and financial de-mystifier. Bankman-Fried’s latest effort at public self-exoneration, the first blog post for his newly created Substack, will strike the informed reader as the fizzling, semi-coherent ejection of a mind trapped in a closed and degrading orbit around itself.

Despite what financier Bill Ackman seems to think for some cockeyed reason, Bankman-Fried’s lie-packed and subtly unhinged disquisition is not worth your time to read, except as a set of symptoms manifesting from a psyche teetering along the event horizon of a black hole.

So I read it for you.

Bankman-Fried’s “FTX Pre-Mortem Overview” repeats the same ham-fisted evasions and outright lies that marked his pre-arrest public apology tour. The repetition yet again of these claims and evasions, so manifestly divorced from clear public knowledge, is a strong enough sign of some manic decoupling. But the writing itself, with its wandering need and scattered malapropisms, also hints at something beneath the surface.

Above all, Bankman-Fried’s version of events, seemingly unchanged since before his arrest, is premised on one key omission. This glaring blind spot is obvious to those living in reality but seems completely invisible to him: the corrupt nature of the relationship between Alameda Research and FTX.

The new post maintains Bankman-Fried’s unwavering focus on the meltdown of Alameda Research, the supposedly unrelated hedge fund that he founded before FTX, as the determining factor in the entire affair. Bankman-Fried describes in great detail the decline in Alameda’s balance sheet amid the crypto market crash of 2022, and claims that Alameda’s failure “to sufficiently hedge against the risk of an extreme market crash” was fundamental to his downfall.

This leaves out at least three simple and crucial facts that enabled the FTX fraud.

First, Bankman-Fried still acts as if Alameda was an entirely separate operation guided by decisions that remain some sort of vague mystery to him. But the apparent reality, already reported to law enforcement by former Alameda CEO Caroline Ellison, is that Bankman-Fried continued to have direct and overriding control of Alameda’s operations after formally stepping down as CEO in 2019.

Second, Bankman-Fried omits that Alameda had a “secret exemption” from margin collateral and liquidation requirements on FTX. This was a likely criminally fraudulent insider arrangement, and effectively gave Alameda’s operators free rein to dip into FTX spot market user funds – funds that FTX explicitly promised users never to lend out in any form – to continue their losing trades.

Finally, Bankman-Fried omits that FTX never took proper custody of customers’ fiat deposits, instead leaving $8 billion of free, unaccounted money in the infamous “hidden, poorly internally labeled fiat account” controlled by Alameda. Bankman-Fried had previously acknowledged this move, which he characterized as an $8 billion “accident.”

Head like a hole

The same lies of omission have been repeated by Bankman-Fried so often now that they’re almost boring. They certainly shouldn’t be convincing to anyone paying the slightest bit of attention. That’s why Bankman-Fried’s apparent belief that they should be persuasive invites speculation about his state of mind – it’s hard to imagine a fully sane and rational person in Bankman-Fried’s position continuing to insist on this sort of alternative reality.

I’ve written several times before about my diagnosis of the specific variety of Bankman-Fried’s break from reality: elite delusion. Sam Bankman-Fried was born and bred in a cosseted environment that assured him he could do no wrong. (His mother, Barbara Fried, seems to literally doubt that any such thing as “wrong” exists.)

Bankman-Fried likely rationalized his crimes along the way as a mix of improvisational growth-hacking and temporary shortcuts to a long-term good – one of the implicit pillars of the effective altruism he espoused, however cynically. He is now being confronted with the reality of his actions. Instead of acknowledging and processing that reality, he is escaping into a fantasy world in which all the nice things his mommy and daddy and professors and investors told him about himself are still true.

The latest post also hints, though, that not even the few people still close to him remain committed to Bankman-Fried’s counterfactual belief in his own faultless goodness. The post is so poorly organized, argued and written that it doesn’t even seem to have been proofread. Certainly not by his lawyers – like his frenzied media tour ahead of his arrest, the blog post was almost certainly published without or against the advice of whoever is still willing to represent him.

It doesn’t seem likely it was reviewed by Bankman-Fried’s law-scholar parents, either – at one point the post misspells the name of Sullivan & Cromwell, a well-known law firm Bankman-Fried worked with for years (“Sullivan & Crowell”). This isn’t a direct index of Bankman-Fried’s mental state – we all make mistakes. But that a man who faces spending literally the rest of his life in prison would dribble out such a half-baked attempt at self-exoneration, without anyone close to him being willing or able to mitigate its rangy sloppiness, implies an extreme isolation that can only divorce him further from reality.

Lie-ghtning round

Finally, here are a few highlights of other bits of the post that are simply false, or otherwise hint at an extreme break with reality.

  • Bankman-Fried claims that he didn’t steal any money and that “nearly all of my assets were and still are utilizable to backstop FTX customers.” Meanwhile, in reality, he has argued that he should be able to retain his personal $450 million stake in Robinhood Markets to pay for his legal expenses. That’s despite the fact that the stake was acquired through a seemingly fraudulent conveyance: a personal loan from FTX to a Bankman-Fried-co-owned holding company.
  • Bankman-Fried claims that “FTX International and Alameda were both legitimately and independently profitable businesses in 2021, each making billions.” Here again we seem to be in Sam’s personal mind-palace for special accounting. In the real world, we know that Alameda and FTX claimed losses of $3.7 billion over the course of the pre-2022 bull market, the rare case of an under-performance so bad it smacks of fraud.
  • Bankman-Fried cites “billions of dollars in funding offers” from interested FTX buyers that “could have made all customers whole” if only his pesky lawyers hadn’t forced him to declare bankruptcy for FTX. This is simply laughable: Bankman-Fried seems to genuinely believe that he could have enticed someone to spend $10 billion paying back the money he stole. Meanwhile, the only publicly acknowledged buyout offer, from Binance, was withdrawn as quickly as a hand burned by a hot stove as soon as the buyer got a look at the books (which were probably more like a wad of napkins).
  • Bankman-Fried repeatedly refers to “illiquid assets” on the FTX balance sheet. Given what we know about how Bankman-Fried thinks about finance, this likely includes fraudulently marketed “assets” such as FTX’s own FTT token and Serum’s SRM token. These are not “illiquid” – they’re worthless.
  • Bankman-Fried cites Alameda’s declining share of FTX’s pre-collapse trading volume and liquidity as evidence of a potential FTX comeback. This is pure howling madness, like saying you can rebuild your car company because only 5% of the cars you made exploded on ignition and killed everyone inside.
  • Bankman-Fried descends even further into conspiracy theories about other people’s responsibility for his own actions. Again he targets his bankruptcy counsel, hinting that Sullivan & Cromwell pressured him into the bankruptcy filing for their own (unclear) benefit. This again directs attention away from the simple fact that he stole billions of dollars.

There’s plenty more where that came from – the entire thing is a tangled mess of self-deception, underwritten by the even deeper self-deception that anyone will take it seriously.

The only truths it conveys were already obvious: That Sam Bankman-Fried is an inveterate liar, and that he is his own most gullible mark.


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David Z. Morris

David Z. Morris was CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

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