Why were so many people blindsided by Sam Bankman-Fried?

By 2021, the ‘crypto-king’ looked to be not only the youngest billionaire in history but also threatened to become the world’s first-ever trillionaire. In a swift and dramatic downfall in November 2022, his crypto company, FTX, collapsed and left thousands unable to withdraw their investments. SBF himself is now on trial, charged with seven counts of fraud; these have already been corroborated by his closest colleagues. 

His trial began last week and will be covered by all major news outlets; such is the public interest. While the sun still shone on SBF, he was courted by the wealthy and powerful, including Tony Blair and Bill Clinton. He was regarded as a genius with noble intentions to ‘get filthy rich, for charities’ sake’ and was a public proponent for the Effective Altruism movement, with its founder, William MacAskill, becoming his personal advisor.  

The dramatic story of SBF and his downfall runs deep, and its various threads wait to be explored in the months and years to come. Though perhaps one of the more obvious questions to ask is, what factors led to so much faith and money invested so unwisely? Of the many answers to this, the most basic one strikes at the heart of the problem – the optics were seductive.  

SBF is the child of two Stanford Law professors, and he himself was a maths prodigy whose genius was nurtured at the Massachusetts Institute of Technology (MIT), seamlessly fulfilling the archetype of a gifted savant. Despite being incredibly young and inexperienced, it was taken for granted that SBF had a natural flare for his trade – an inference drawn from his esteemed lineage. The uncomfortable question is whether it is conceivable that FTX would have taken off in the same way, without the necessary due diligence, if its founder was from a different socio-economic background. 

SBF’s desire to ‘do good’ in the world also played into the kind of blindness that comes from wishful thinking. His plan to give away all his wealth was a hugely inspiring prospect; he appeared to be an idealistic young man uncorrupted by the wealth he was amassing. SBF’s spending habits, however, seemed to belie this virtue – having spent upwards of 40 million in just nine months on luxury living arrangements for him and his inner circle. Even if one could overlook that indulgence and say that the ends did justify the means, his ethical intentions now appear like a ruse. In this interview with Vox, SBF admitted his public image was a lie, a ‘shell game’ of which the ethics was to disguise the fact that, as this FT article points out, ‘there is no moral absolutism in finance, just Machiavelli.’ 

SBF and his company, FTX, were also endorsed by trusted celebrities. Not only was he courted by heads of state, he was also explicitly endorsed by celebrities advertising FTX trading. Tom Brady, the NFL quarterback, and comedian Larry David are now facing lawsuits for lending credibility to a company which bears responsibility for billions of dollars in damages. Having others who are trusted backing a product gives implicit permission to switch off the analytical mind; these people have done your thinking for you, is the assumption. 

The heartbeat of the scandal is the product being traded – cryptocurrency, behind which lies the promise of unimaginable passively amassed wealth. After the 2008 financial crash, blockchain technology emerged as a resilient alternative to government-regulated financial markets. There was a stratospheric growth, which was fed by FOMO (the fear of missing out), as crypto investigator Jamie Bartlett pointed out. With crypto seeing ballooning value in 2020-2021, no investor wanted to be left behind. FTX and the ‘more resilient currency’ it traded in was a house of cards built on the changeable winds of confidence. In 2022, the prevailing wind changed direction.  

SBF’s operation was populated and endorsed by a rarified intellectual elite, yet its rise and fall can be explained best through its visceral appeal to human greed. There was a blindness by many to what was going on with FTX, perhaps because of the tantalising promise of wealth, influence and status. Greed has a long history of skewing moral judgement, which is one reason the first of the Bible’s ten commandments is ‘do not covet’; greed is a doorway to all sorts of other kinds of mischief. The demise of FTX is an illustration of the way greed clouds judgment. To overcome it, one needs to look beyond self-interest.