The Gist

• Shattered illusions. Ex-girlfriend's testimony erodes Bankman-Fried's narrative of being just a "careless math nerd" and reveals calculated financial moves.
• Legal stakes. Plea deal incentivizes Ellison's cooperation, putting a new spin on the prosecution’s case against Bankman-Fried’s allegedly fraudulent empire.
• Moral questions. Bankman-Fried's "Effective Altruist" persona debunked, revealing utilitarian views that justify deceptive business practices.

I just spent two days in court at the Sam Bankman-Fried trial. The downtown Manhattan courthouse is just a few stops away on the subway, and I figured I’d stop by to see Caroline Ellison, Alameda Research’s ex-CEO and Bankman-Fried’s ex-girlfriend, testify about his alleged crimes. It was more revelatory than expected.

Ellison pleaded guilty to seven counts of fraud in exchange for a cooperation agreement from prosecutors, so she had an incentive to build up her case. Much of this story is based on her testimony, an important caveat. 

Billions Lost Due to Carelessness, Legal Team Claims

Bankman-Fried’s empire — which spanned FTX and Alameda — lost billions of customer money without dispute, but there’s a narrative that his simple carelessness might’ve been at fault. It was a whoopsie, you could say, from a guy with good intentions. High-profile writers including Michael Lewis seemed to buy the theory, and Bankman-Fried’s lawyers played off it. Sam was a “math nerd who didn’t drink or party” his legal team said. And well, “some things got overlooked.”

Shocked might not be the right word, but I was astonished to see the delta between that narrative and the reality in court. Speaking clearly, and with devastating precision, Ellison told jurors exactly how she and Bankman-Fried funneled FTX customer funds into Alameda Research, then spent the money even after FTX customers weren’t likely to get it back.

Related Article: 2022 Blockchain and Cryptocurrency Reality Check

Everything Laid out on Spreadsheets

The alleged crimes were no mistake. With everything laid out on spreadsheets, Ellison revealed how she periodically updated Bankman-Fried on how much money Alameda had taken from FTX customers, using the cryptic “FTX Borrows” as the line item. She admitted labeling it such in case the company landed in legal trouble. And even as Alameda drew more than $10 billion from FTX, more than FTX’s total remaining assets, Ellison said Bankman-Fried directed her to pay back loans to crypto lenders, like Genesis, leaving FTX depositors out to dry. 

As the crypto market deflated in late 2022, people began losing faith in the system, and FTX needed a miracle to stem an inevitable run on deposits. Much of the money Alamada had taken was either gone or illiquid. It made close to $5 billion in loans to Bankman-Fried and his associates, with little chance of recouping the money. When crypto stayed down, Bankman-Fried floated raising money from Saudi Prince Mohammed bin Salman, Ellison said. But no savior arrived and the operation collapsed. At the courthouse, people laughed and gasped at the brazenness. 

Related Article: Cryptocurrency and Bitcoin: Beware the Pitfalls

Testimony Likely Puts End to 'Careless' Claim

But the narrative of a bumbling, likable, and just-a-bit-careless Bankman-Fried is out the door. He lost $8 billion of client money, seemingly with full knowledge of his actions. 

How Bankman-Fried manipulated people so fully that the narrative still allows for his good intentions is remarkable. The money is part of it, of course. He and FTX sprayed cash everywhere, naming stadiums, paying off athletes like Tom Brady ($55 million for 20 hours of work?!, according to Michael Lewis' biography about Bankman-Fried), funding media companies, wallpapering cities with his face, and donating extravagantly to politicians. 

Bankman-Fried's 'Save-the-World' Narrative Offers Lesson

But Bankman-Fried’s save-the-world story, and our desire to believe it, offers a more important lesson. He professed to be an “Effective Altruist,” claiming he was making money to advance the greater good. The public bought his story, even though his business was an exchange for inflated and scam tokens. And behind closed doors, the truth came out, Ellison said.

Bankman-Fried told her his “Utilitarian” views meant he could lie or steal if it justified his ends. Juries are unpredictable and Bankman-Fried may walk, but we ought not be duped by this form of messaging again. "Visionary" leaders professing to save the world are probably just there to make money. The same applies to the entire Web3 grift, which was so transparently greedy, yet cloaked itself in the language of a better internet. Shortcuts are enticing, but the meaningful stuff often happens bit by bit — not in a flash. If anyone promises you otherwise, it’s worth some serious skepticism.

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