Today, it’s part two of the sad story of Sam Bankman-Fried
Lesson summary
Hi there everyone, this is Plain English, where we help you upgrade your English with stories about current events and trending topics. We’re already up to lesson 629, so that means you can find the full lesson resources at PlainEnglish.com/629.
Coming up today, it’s a continuation of Monday’s story about Sam Bankman-Fried. Today, you’ll hear about what went wrong at FTX, what the prosecution said, and what the defense said at the trial. If you haven’t listened to Monday’s lesson, you can check that out at PlainEnglish.com/628.
In the second half of the lesson, I’ll show you what it means if something is “in tatters.” And JR has a song of the week. Let’s get going.
Sam Bankman-Fried is found guilty on all charges
Cryptocurrencies, since their beginning, have always been risky. If you lose the key to your bitcoin wallet—the money is gone. There is no password reset function. You can’t go to a branch and talk to a manager. If you lose the key, the value is gone. It can be lost, it can be stolen. And crypto is frequently stolen.
Add to that, a lot of businesses in crypto are not exactly safe businesses. There are no regulations; that’s one thing its fans love. For a long time, though, some people wanted to participate in crypto, but they were forced to do so on platforms and with companies that did not have great reputations. Every so often, an exchange or a wallet would get hacked or just blow up. That made a lot of people nervous.
Sam Bankman-Fried was an active crypto trader at his company Alameda. And Sam Bankman-Fried spotted an opportunity. The opportunity was to create a company that would be like, the responsible, respectable place to trade crypto. And so he created a company called FTX. And FTX put a lot of effort into being seen as the safest, most respectable, most legitimate, place to trade crypto assets—unlike some of the dodgier places that were available at the time.
FTX made friends in the U.S. Congress. FTX sponsored conferences. Sam Bankman-Fried went on podcasts, spoke on stage, and advised legislators. FTX produced television commercials and sponsored a sports arena—they did all the things that responsible, mature, stable, safe, secure companies do. The trouble is that behind the scenes, the company didn’t have the tools to keep the platform safe. The truth was, FTX was anything but a safe place for people to trade.
There were many problems, but one got FTX in big trouble. Remember Alameda, Bankman-Fried’s trading firm? It was supposedly a separate company. But it got special, secret privileges on FTX, the trading platform; it got privileges that no other company could get. And one of the privileges was, Alameda could borrow unlimited money from FTX customers, make risky trades with them, and not tell anyone about it. It’s like Alameda got a no-limit credit card to go to the casino.
This was fraud. Customers thought their money was on deposit, that it was safe. FTX told them that it was safe. FTX told them that nobody was taking their money and lending it out or doing anything else with it.
That was far from the truth. Instead, Alameda (Sam’s other company) was sneaking in, borrowing customer money secretly, and making bets with that money. And then the predictable thing happened. Alameda lost a lot of bets; it lost at the casino. And that meant that FTX customer money—supposedly safe—that FTX customer money was gone forever.
At the trial, the prosecution called several former FTX employees to the witness stand. They each testified that Bankman-Fried told them to commit a fraud. One witness testified that Bankman-Fried told him to modify computer code to allow Alameda to borrow unlimited FTX customer money. The witness said Bankman-Fried knew what he was doing and gave direct orders.
Caroline Ellison was another witness. She was the CEO of Alameda, the trading firm that Bankman-Fried also owned. Alameda had borrowed money from banks and they occasionally had to send those banks a balance sheet, basically a truthful financial statement of Alameda’s assets and its debts.
The banks had a right to accurate information. But providing accurate information became increasingly difficult as Alameda lost more and more FTX customer money, money it shouldn’t have had.
Here’s a story Ellison told. She said that one time, she prepared a balance sheet that showed how much money Alameda had secretly borrowed from FTX. It was bad. They owed way more than they had. And if that balance sheet ever became public, then it would expose the fraud.
So at Bankman-Fried’s direction, Caroline Ellison said, she created six more versions of Alameda’s financial statements, getting progressively less truthful each time. Bankman-Fried was happy with the seventh version of the balance sheet—the least truthful. He ordered her to send that to Alameda’s banks. That was also fraud.
The balance sheet is supposed to tell an accurate, truthful story about a company’s assets and debts. There shouldn’t be a second version of a balance sheet: if there are seven, then that is a real problem.
The defense told another story. The defense said that this wasn’t a crime, this wasn’t a fraud. This was a bunch of young people who just got in over their heads. Bankman-Fried didn’t know what was going on; he was too busy. Sure, he made mistakes. Sure, he should have had better controls. Sure, he would have done it differently today. But this wasn’t stealing. This wasn’t fraud. Look at him. He’s not a villain. This was just a careless and tragic mistake.
My opinion is that this isn’t much of a defense—not that the defense lawyers had any other option. But being careless with deposits, not paying attention, not having controls, making up the numbers, while telling other people that everything was safe: that is the definition of fraud! That right there is what he was charged with. Saying he was careless is not a defense. That. Is. The. Crime.
The trial lasted a month. After it was over, the jury needed just five hours to return a verdict: guilty on all seven counts. This was not a difficult decision.
Sam Bankman-Fried faces decades in prison; sentencing is in March. His family is destroyed. His parents—I didn’t even mention this. His parents were law professors at Stanford University; his mother was an expert in ethics, of all things. They both worked with FTX; they themselves were caught up in the scandal.
They had built long and distinguished careers as academics; as teachers, they touched hundreds of lives. Their reputations are now in tatters .
Thousands of customers lost almost nine billion dollars, combined; they may not get any of it back. The other executives—that’s not even the word—the other people who worked at FTX: some of them might serve jail time, too.
People were looking for a villain—certainly the prosecution painted Bankman-Fried as a villain. I don’t see it quite that way. I do think Sam Bankman-Fried is guilty of the charges. The evidence against him was just overwhelming.
But I don’t think he’s a greedy villain. I don’t think he’s evil. I think he has very high raw intelligence, but a serious deficiency of emotional intelligence. And that’s a dangerous combination.
In any other industry, in any other time, he would have been part of a system that controlled his worst instincts, that kept guardrails on him. He would have been part of a system that kept things safe. But he wasn’t in any other industry. He was in crypto in 2020 and 2021, the worst time and the worst place for someone like him. And there were no guardrails, no safeguards—not even his law-professor parents—and this is the tragic result.
JR’s song of the week
It’s Thursday, so JR has selected a song of the week for us. It’s called “You Could Start a Cult” by Niall Horan. A cult is like, a group of people who have a religious-like devotion to just one person. So, “you could start a cult” is a sort of compliment? That you’re good enough to be the figure of devotion. I don’t know if that’s the kind of compliment I would want! But it’s a good song, with good vocals. “You Could Start a Cult” by Niall Horan is the song of the week, thank you JR.
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