The rise and fall of FTX
MICHEL MARTIN, HOST:
If there's one crypto bro who broke out into popular culture, it's 30-year-old Sam Bankman-Fried. He was on billboards in major cities, on the cover of Forbes and Fortune magazine. His company FTX ran a Super Bowl ad starring Larry David and others with Giselle Bundchen and Tom Brady. A couple of weeks ago, he was worth $16 billion, on paper at least. And then his whole empire collapsed. Nick Fountain from our Planet Money podcast has been tracking this story, and he's with us now to tell us more. Nick, thank you so much for joining us.
NICK FOUNTAIN, BYLINE: Oh, you bet.
MARTIN: So we're going to get to how his empire collapsed and what it all means. But first, just remind us, who was Sam Bankman-Fried? Who is Sam Bankman-Fried? He's still alive.
FOUNTAIN: Fair enough.
MARTIN: He's still with us. So who is he?
FOUNTAIN: Yeah. As you mentioned, he was crypto's breakout star. He was a nerdy kid who liked playing video games, other games. He went to MIT. He worked in finance. And then he realized he could make boatloads of money in crypto. And what's really interesting about Bankman-Fried is that, according to him, he got filthy rich not for himself but for others. He said he was planning on giving away 99% of his wealth. Before everything went south for him, he was giving away a lot of money. He was a huge donor to Democratic candidates this year, and he gave a lot to animal rights and pandemic preparedness organizations.
MARTIN: I do remember seeing him testifying in front of Congress. Would you just remind us what was that about?
FOUNTAIN: It's interesting. Whereas most crypto people despise regulation - it's kind of their whole thing - he was happy to testify in front of Congress about exactly the types of regulations that he wanted to see in the world. He really seemed like he was the adult in the crypto room, even though he was just 30 years old. To both politicians and to traditional Wall Street institutional investors and, more and more, to the public, he was the face of crypto.
MARTIN: So as we said earlier, a few weeks ago, he was still riding high. How did this all come crashing down and so quickly?
FOUNTAIN: Yeah. Like all things in crypto, it's a little confusing, but very, very simply, a couple of weeks ago, someone leaked the balance sheet, the financial diary of one of Sam Bankman-Fried's companies, and the balance sheet revealed that the foundation of his empire was not actually very solid. It was actually very precarious. And what happened next was kind of like a classic bank run. Customers get nervous, try to take their money out. At the end of the day, Bankman-Fried did not have enough money on hand to pay them out, and he declared bankruptcy. All his companies declared bankruptcy.
MARTIN: You know, things in this kind of brave new world - startups do fail all the time. The question I think I would have is, does this matter for the rest of the economy?
FOUNTAIN: I mean, the good news - I don't like to make predictions, but the good news is that the world of crypto is mostly separate from the, I don't know, "real economy" - with scare quotes. So it's unlikely to cause contagion. But for the crypto world, this is pretty bad. This guy was a big deal. People trusted him a lot. And now that he and his empire have fallen, the crypto world is asking themselves, can we even trust anybody? And for Bankman-Fried's customers, it's looking especially bad. There are allegations that their funds were misappropriated, and for now, they cannot get their money out of his exchange.
Michel, just one final detail for you - I mentioned that his company has filed for bankruptcy this week. The bankruptcy expert hired to take over Bankman-Fried's empire, he filed the document in bankruptcy court, and usually bankruptcy court proceedings are very boring. This one is an amazing document. The expert has seen a lot of messy bankruptcies. He was the person in charge of the Enron bankruptcy. And in this court filing, he said Bankman-Fried and his lieutenants, quote, "were inexperienced, unsophisticated and potentially compromised individuals" and said that "never in my career have I seen such a complete failure of corporate controls." This is the guy who did the Enron bankruptcy. If he says it's bad, it is really bad.
MARTIN: Sounds bad. Nick Fountain of our Planet Money podcast. Nick, thank you.
FOUNTAIN: You bet. Transcript provided by NPR, Copyright NPR.