{"id":70276,"date":"2022-11-18T12:59:12","date_gmt":"2022-11-18T10:59:12","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=70276"},"modified":"2025-09-08T01:07:27","modified_gmt":"2025-09-07T22:07:27","slug":"investor-describes-sam-bankman-frieds-catastrophic-risk-appetite","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/investor-describes-sam-bankman-frieds-catastrophic-risk-appetite\/","title":{"rendered":"Investor describes Sam Bankman-Fried&#8217;s &#8216;catastrophic&#8217; risk appetite"},"content":{"rendered":"<p>Serious concerns about the methods of operation of the founder of the failed FTX exchange Sam Bankman-Fried emerged even before the platform&#8217;s founding. CNBC told Hack VC managing partner Alexander Pack about it.<\/p>\n<blockquote class=\"twitter-tweet\" data-lang=\"en\">\n<p lang=\"en\" dir=\"ltr\">I was the first VC to try to invest in SBF, 4 years ago, well before FTX had even launched. I shared some of my story with CNBC, but there is more \u2014 a lot more. <\/p>\n<p>Here\u2019s what I learned, and why I passed on investing based on suspicion of deception and reckless risk-taking. <a href=\"https:\/\/t.co\/nnXEVGjoud\">https:\/\/t.co\/nnXEVGjoud<\/a><\/p>\n<p>\u2014 Alexander Pack (@alpackaP) <a href=\"https:\/\/twitter.com\/alpackaP\/status\/1593308236568055808?ref_src=twsrc%5Etfw\">November 17, 2022<\/a><\/p><\/blockquote>\n<p> <script async=\"\" src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>The investor met Bankman-Fried in 2018. The entrepreneur was then seeking external financing for the trading firm he had founded, Alameda Research. Pack was the co-founder of Dragonfly Capital \u2014 a well-known venture capital firm in the crypto industry with a $100 million fund.<\/p>\n<p>The investor described the founder of Alameda and FTX as &#8216;incredibly smart and charismatic&#8217;:<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u00abI was charmed by him during the first month [of our interactions], until he showed us everything\u00bb.<\/p>\n<\/blockquote>\n<p>According to Pack, he and his team, over roughly six months, met with Bankman-Fried more than ten times. But after thorough due diligence they all came to a single conclusion:<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u00abHaving spent months with him, we understood that his risk appetite was catastrophic. We looked at it and saw warning bells \u2014 the risks for investments were too high\u00bb.<\/p>\n<\/blockquote>\n<p>One of the &#8216;red flags&#8217; for them was the Alameda balance sheet showing &#8220;unusually large losses of $10 million, and in a short period&#8221;. Pack said they could not determine the nature of the losses: whether it was a trading mistake, a string of misses, or fraud.<\/p>\n<p>Another troubling warning for the investor was that Bankman-Fried concealed the existence of the FTX exchange. He and his team discovered that Alameda &#8220;is burning through significant financial resources to fund&#8221; the platform. In response to the question, the entrepreneur replied rather flippantly, recalls the investor:<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u00abI don\u2019t remember telling you that I have an idea for an exchange. So I spend most of my time on it, neglecting the core business\u00bb.<\/p>\n<\/blockquote>\n<p>Pack stressed that overall for the proposed investments a &#8220;picture of enormous risk&#8221; was emerging \u2014 Bankman-Fried disclosed or withheld large amounts of data at his discretion.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u00abHe never showed Alameda&#8217;s books to any potential investor \u2014 that&#8217;s where all the bad things happened\u00bb, \u2014 said the Dragonfly co-founder.<\/p>\n<\/blockquote>\n<p>In the August 2020 thread, Bankman-Fried laid out his version of events. Pack confirmed that the entrepreneur had in mind the deal they discussed.<\/p>\n<blockquote class=\"twitter-tweet\" data-conversation=\"none\" data-lang=\"en\">\n<p lang=\"en\" dir=\"ltr\">3) They expressed excitement about Alameda, and desire to help it grow. They understood the business. Alameda has never taken an external investor, but this seemed like a good opportunity.<\/p>\n<p>So the talks went on for a few months, and finally got to terms.<\/p>\n<p>\u2014 SBF (@SBF_FTX) <a href=\"https:\/\/twitter.com\/SBF_FTX\/status\/1291231306299277312?ref_src=twsrc%5Etfw\">August 6, 2020<\/a><\/p><\/blockquote>\n<p> <script async=\"\" src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u00abThey showed interest in Alameda and a desire to help it grow. They understood the business. Alameda has never taken external investor, and this seemed like a good opportunity\u00bb, \u2014 commented the founder of the trading firm.<\/p>\n<\/blockquote>\n<p>According to Bankman-Fried, the investors&#8217; final offer amounted to a third of the project&#8217;s valuation, and the team rejected it.<\/p>\n<p>Pack said that after the deal collapsed Bankman-Fried did not allow his involvement in investments in his projects. He shared the story with some VC colleagues, but did not bring it to light.<\/p>\n<p>Looking back on his dealings with the entrepreneur, Pack noted a premonition of the FTX collapse:<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u00abIt was clear four years ago \u2014 the guy was hiding serious things and taking great risks with other people\u2019s money. Now he seems to have done the same on a larger catastrophic scale\u00bb.<\/p>\n<\/blockquote>\n<p>FTX, Alameda and about 130 affiliated firms<a href=\"https:\/\/u1f987.com\/en\/news\/ftx-group-files-for-bankruptcy-sam-bankman-fried-resigns-as-ceo\"> filed for bankruptcy<\/a> on November 11.<\/p>\n<p>The liquidity crisis at the exchange emerged after Binance CEO Changpeng Zhao announced <a href=\"https:\/\/u1f987.com\/en\/news\/ftx-token-falls-nearly-30\">liquidating the company&#8217;s position in the FTX token<\/a> (FTT). The decision was reportedly taken after CoinDesk\u2019s investigation, which found a large share of the digital asset on Alameda&#8217;s balance sheet.<\/p>\n<p>Coin Metrics experts suggested that a possible cause of the collapse could be <a href=\"https:\/\/u1f987.com\/en\/news\/coin-metrics-identifies-possible-cause-of-ftx-crisis\">&#8216;large financial support&#8217;<\/a> that it provided to the trading company in Q2 2022.<\/p>\n<p>The new FTX CEO John Ray <a href=\"https:\/\/u1f987.com\/en\/news\/ftx-ceo-accuses-former-leadership-of-favouring-alameda-research\">blamed the former leadership of the exchange<\/a> for concealing the illicit use of customer funds, &#8216;a complete failure of corporate governance&#8217; and granting Alameda &#8216;secret&#8217; preferences.<\/p>\n<p>According to Bankman-Fried, the assets of FTX and Alameda are valued at $1 billion, and <a href=\"https:\/\/u1f987.com\/en\/news\/bankman-fried-discloses-asset-values-at-ftx-and-alameda-research\">liabilities amount to $8 billion<\/a>.<\/p>\n<p>Bloomberg\u2019s analysts previously described a similar valuation and <a href=\"https:\/\/u1f987.com\/en\/news\/bloomberg-says-customer-recovery-of-ftx-funds-unlikely\">deemed it &#8216;unlikely&#8217;<\/a> that customers&#8217; and investors&#8217; funds could be returned.<\/p>\n<p>Read ForkLog&#8217;s Bitcoin news in our <a href=\"https:\/\/telegram.me\/forklog\" target=\"_blank\" rel=\"nofollow noopener\">Telegram<\/a> \u2014 cryptocurrency news, rates and analysis.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Serious concerns about the methods of operation of the founder of the failed FTX exchange Sam Bankman-Fried emerged even before the platform&#8217;s founding. CNBC told Hack VC managing partner Alexander Pack.<\/p>\n","protected":false},"author":1,"featured_media":70277,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[3],"tags":[1435,83,1236,1403],"class_list":["post-70276","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-and-analysis","tag-alameda-research","tag-business","tag-ftx","tag-sam-bankman-fried"],"aioseo_notices":[],"amp_enabled":true,"views":"30","promo_type":"1","layout_type":"1","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/70276","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/comments?post=70276"}],"version-history":[{"count":1,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/70276\/revisions"}],"predecessor-version":[{"id":70278,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/70276\/revisions\/70278"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media\/70277"}],"wp:attachment":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media?parent=70276"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/categories?post=70276"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/tags?post=70276"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}