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The Guardian - UK
The Guardian - UK
John Naughton

Why were the media hypnotised by Sam Bankman-Fried?

FTX founder Sam Bankman-Fried being arrested
FTX founder Sam Bankman-Fried was arrested by the Royal Bahamas police force on 13 December. Photograph: Mario Duncanson/AFP/Getty Images

So Sam Bankman-Fried (henceforth SBF) was eventually arrested at his multimillion-dollar residence in the Bahamas, a tax haven with nice beaches attached. The only mystery about this was the unconscionable length of time that it took the Bahamian authorities to measure him for handcuffs. The police said that he was arrested at the request of US legal authorities for “financial offences” under US and Bahamian laws connected with the FTX cryptocurrency exchange that he co-founded in 2019 and Alameda Research, a hedge fund that he set up in 2017. On Tuesday, a local court denied him bail, which suggests that an extradition request from the US will be granted and he will soon be appearing in a New York courtroom.

The grisly details of what SBF is alleged to be guilty of will emerge in forthcoming criminal proceedings. But already expectations are high: Amazon has announced that it is working on a series about the scandal in partnership with the Russo brothers, the makers of Marvel movies.

For the moment, though, a brief outline will have to do. FTX was a cryptocurrency exchange that provided an easy way for people to buy and sell these virtual currencies. Many people had invested billions of “real” money in it to facilitate their participation in the crypto casino. But in early November, rumours of problems with FTX surfaced after Binance, another crypto exchange, dramatically refused to bail it out, citing “corporate due diligence” and reports of “mishandled customer funds”.

There then followed, as the night the day, a run on FTX, as panicking investors tried to withdraw their money, which in turn led to its insolvency and a filing for bankruptcy. The big puzzle, though, was why couldn’t FTX have just given its investors their money back? The answer appears to be that it wasn’t there; in some way, SBF’s hedge fund had been treating FTX as its piggy bank, possibly even playing the hedge fund market with investors’ money.

Once it was clear that this particular game was up, SBF then embarked on an astonishing apology tour on every media outlet he could find. In almost every interview he was touchingly apologetic while at the same time maintaining that he had no knowledge of potentially fraudulent activities at his own company, including using billions of dollars of customers’ deposits as collateral for loans for other purposes. He had, he explained ruefully, been out of his depth. On some occasions, he also seemed to be trying to deflect blame on to Caroline Ellison, the former CEO of his other company, Alameda Research.

The biggest question prompted by this apology tour is: why did so many apparently serious media outfits let him get away with it? The interview questions were often softball ones, occasionally toe-curlingly so. Some interviewers confessed apologetically that they knew nothing about the complex businesses he had run and allowed themselves to be bemused by the incomprehensible bullshit he was emitting. Often, they seemed hypnotised, as many otherwise sensible people had been before the crash, by this tech wunderkind with big hair and baggy shorts who had, until recently, been promising to give away his phenomenal wealth to good causes, while in fact he had seemingly been presiding over the vaporisation of billions of dollars of other people’s savings.

But this embarrassing failure of mainstream media was really just the encore to an even bigger failure – their wilful blindness to what had been going on while SBF was in his prime. It turned out that earlier in the year the Securities and Exchange Commission (SEC) had written to FTX seeking to determine if the company was as flaky as some observers (mainly on the web) had suspected. As Cory Doctorow pointed out, the SEC never got an answer, because eight US lawmakers – four Republicans and four Democrats – wrote a letter to the SEC chairman demanding that he back off. And five of these eight, according to Doctorow, had received substantial case donations from SBF, his employees, affiliated businesses or political action committees.

There was a real story here, in other words, long before FTX imploded. But it wasn’t told because the mainstream media were so invested in the founder-worship that is the curse of the tech industry, not to mention some of those who cover it. The thought that “the poster child for the libertarian ethos that crypto profits accrued to those most capable”, as one commentator described SBF, might be as politically manipulative as any oil mogul or tobacco executive never occurred to the poor dears. Sometimes, societies get the mainstream media they deserve.

What I’ve been reading

Fake worlds
Your Platform Is Not an Ecosystem is Maria Farrell’s terrific assault on corporate cant about closed tech platforms being “ecosystems” on the site Crooked Timber.

What the poet said
James Parker has written a fabulous essay on the apocalyptic vision of TS Eliot’s The Waste Land in the Atlantic.

Tech finds a way
AI’s Jurassic Park moment is a really perceptive blog post by Gary Marcus on his Substack about the longer-term implications of generative AI.

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