SBF Didn’t Understand Risk-Reward

Just when it seemed there was nothing new we could learn from the SBF saga, the FTX founder's onetime deputy (and onetime romantic partner) Caroline Ellison testified in court on Tuesday. And her account of Sam Bankman-Fried’s attitudes toward risk, which helped set the stage for FTX’s bankruptcy, was truly mind-blowing. Whatever the outcome of the trial, anyone in the business of entrusting money to entrepreneurs should be sobered by this story.

Consider these statements, drawn from the court transcript of Ellison's testimony: At one point in late 2021, Bankman-Fried directed Ellison and others at his hedge fund, Alameda Research, to “borrow as much money as we could from whatever sources we could find at whatever terms we could get.” Among the collateral: FTX’s token, FTT, which let’s not forget is a made-up piece of junk. Ellison was conscious of the risk: If all those loans were called at once, she said, Alameda “might have to default on our loans or go bankrupt.” Of course, what happened is that Alameda used FTX customer money to repay loans, Ellison testified—$10 billion in total, part of $14 billion that Alameda took from FTX. What a business plan. (For more on the trial, see here.)