His fall was as fast as his rise. Sam Bankman-Fried, out of nowhere, became a cryptocurrency billionaire in his twenties. He was a boy-genius with a mop of curly black hair. He slept on a bean bag chair instead of in a normal bed.
He seemed to represent the new generation of wealth: he was so smart that he could play video games while on important calls with investors. He was influential in Congress, donating vast sums to politicians and advocating for legislation. Throw out everything you thought you knew about banking and finance because the new man in charge doesn’t even wear long pants.
Well now, he’s facing years—possibly decades—in jail. And it all happened at lightning speed. His firm collapsed on November 11, 2022; on November 2, 2023, he was convicted of seven counts of fraud. On today’s Plain English, and also on Thursday, we’ll talk about this stunning story.
Lesson summary
Hi there everyone, I’m Jeff and this is lesson 628 of Plain English. You can find the full lesson transcript at PlainEnglish.com/628
Here at Plain English, we help you upgrade your skills in English with stories about current events. And the trial of Sam Bankman-Fried was a big one.
Now, a lot of you are not into crypto. You’re not into finance. You’re bored by banking. You’re not into technology and things like that. That’s fine. This is a human story. You might not understand all the crypto words, all the finance words—you don’t need to. This is a fascinating story and I’ll try to make it understandable even if you’re not into this stuff.
In the second half of today’s lesson, I’ll show you how to use the English expression “pay off.” And we have a quote of the week. Let’s dive deeper into the story of Sam Bankman-Fried.
The tragic downfall of Sam Bankman-Fried
Sam Bankman-Fried started his professional career at Jane Street Capital, a well-known hedge fund. Jane Street specializes in high-volume trading in the financial markets. There, Bankman-Fried’s talents were rewarded: he could search the markets for bets that would pay off for Jane Street.
He was good at his job, but he was an insufferable coworker. He looked for ways to outsmart the other traders, and when he found one, he made sure to humiliate his coworkers as publicly and as ruthlessly as possible. Even in the cutthroat world of financial trading, this was unusual, his former colleagues said.
Bankman-Fried followed a philosophy called “effective altruism.” The philosophy says this: if you really want to do good in the world, your obligation is not to volunteer at an animal shelter or advocate for human rights. Instead , your obligation is to make as much money as you possibly can, and then give it away to benefit humanity.
Bankman-Fried wasn’t a true believer in cryptocurrencies—at least not at the beginning. He only got into crypto because it matched his skill set, it was popular, and he saw that he could make a ton of money. So he left Jane Street to start his own firm and to take advantage of an opportunity in crypto.
Here’s the opportunity he spotted, and it was a good one: years ago, cryptocurrencies were trading at different prices in different countries. But a crypto coin is a digital asset. So in Asia a coin might be one price, in America, that same coin would be another price. Any time that happens, especially with a digital asset, there’s an opportunity to make money on the price difference. You buy the thing where the price is low, you sell it where the price is high, you pocket the difference. The word for that is “arbitrage.”
And Bankman-Fried, through his new firm, did that over and over and over, in high volumes, buying here and selling there for just a little bit more every time. And that’s how he started to make a lot of money from cryptocurrencies.
He and his colleagues would stay up all night and all day, searching for the exact right time and place to buy and the exact right time and place to sell in this 24-hour, global market.
As much money as Alameda—that was his trading firm—as much money as Alameda was making, Bankman-Fried spotted an even better opportunity. Back in those days—I’m only talking about like four years ago—but in those days, the world of crypto trading was dodgy. I mean, it still is. But Bankman-Fried, as a crypto trader, recognized that the world needed something.
It needed an exchange, like an online marketplace, where people could buy and sell crypto assets without worrying that their money would disappear. Grown-up people, who cared about things like security, financial statements, legal protections—they needed a place where they could feel safe trading crypto, because they weren’t feeling safe with the options that they then had.
So Bankman-Fried created FTX—a platform where customers could buy and sell derivatives related to cryptocurrencies. FTX was a separate business from Alameda, where he was doing his own trades. FTX was a neutral platform: they were sitting in the middle of two people making a trade with each other, taking a small commission on every one. And Bankman-Fried positioned FTX as the responsible, neutral trading platform, the place where your money would be safe.
But, as we later discovered, this was far from the truth.
Even as Bankman-Fried told the world that FTX was the safest place to trade, FTX didn’t have the protections he said it had. It didn’t have the protections that other trading platforms in traditional finance have. So customers were depositing their money, thinking that FTX had the necessary controls, procedures, structures, and protections in place, when really it did not.
And that would lead to FTX’s, and to Sam Bankman-Fried’s, spectacular downfall, as you’ll hear on Thursday.
All right, it’s not just Monday, it is “Cyber Monday.” And that means it is the end of a nice long weekend of holiday sales, and it’s no different here at Plain English. When you are listening to this—assuming you’re listening today—I’ll be welcoming a lot of new members into Plain English Plus+, all of whom joined over the weekend with our Black Friday – Cyber Monday special.
And those end today. They end today, Monday, November 27. So, wherever you are, just take a minute and go to PlainEnglish.com, where you’ll see the special sales for this Black Friday – Cyber Monday. They are on the home page. And they are only good until midnight tonight, Monday November 27.
And just as a reminder, that means half off your first six months as a member of Plain English Plus+, which is where we do our best work. If you like listening, then you’ll love being a member. Everything in the membership is just like what you get here in the podcast, only better and more. And now, it’s more affordable than ever to get started. So check out PlainEnglish.com before midnight Chicago time tonight. Get that done!
Quote of the Week
It’s Monday, so here’s a quote for you this week. “If you’re always trying to be normal, you will never know how amazing you can be.”
And that is by Maya Angelou, the poet. I certainly agree with that. “If you’re always trying to be normal, you will never know how amazing you can be.”
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