In today’s episode of The Dark Side of Finance, Darryl Lyons dives into the fascinating and shocking story of Sam Bankman-Fried, the crypto wunderkind whose fall from grace has rocked the financial world. Once hailed as a visionary in the world of cryptocurrency, Sam went from rubbing shoulders with celebrities like Tom Brady to serving time in prison for one of the largest embezzlement scandals in recent history.
This episode uncovers how Bankman-Fried, founder of Alameda Research and FTX, embezzled billions of dollars from unsuspecting investors under the guise of innovation and philanthropy. From cozying up to politicians and manipulating the public’s trust, to creating a culture of secrecy and deception within his firms, this real-life tale of crypto fraud highlights the dangers of unchecked influence and financial mismanagement.
Key show highlights include:
- The rise and fall of Sam Bankman-Fried and his $8 billion crypto embezzlement.
- How Sam used his charm, celebrity endorsements, and altruistic claims to manipulate investors and the media.
- The inner workings of FTX and Alameda, including how he diverted funds and concealed his actions.
- Why this case is a cautionary tale for anyone entrusting their money to influential figures.
Join Darryl as he explores the dark side of crypto, where promises of revolutionary wealth gave way to one of the most significant financial crimes of the modern era. Don’t miss this episode if you’re interested in learning how to spot fraudsters in an ever-evolving financial landscape. And as always, remember to keep your head on a swivel as we navigate the dark side of finance together.
Transcript:
Hey, this is Darryl Lyons, Co-Founder of Pax Financial Group, and you’re listening to The Dark Side of Finance. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit Paxfinancialgroup.com for more information. So, who was Sam Bankman-Fried? By the way, Sam Bank-man Fried or Fried? Sam Bankman-Fried. That’s the spelling of his name phonetically.
Who was he? What did he do? How do you know him? How have you heard his name? Can I admit that many people in Texas really didn’t care? Many people around me in my community could care less about this guy named Sam Bankman-Fried. Yet. This is one of the top fraudsters in the history of our world. But most conservative folks could care less about him.
He was a crypto Silicon Valley snake oil salesman, and he gives us a real-life story of good old-fashioned embezzlement wrapped in modern day cryptocurrency. So, what is embezzlement? Embezzlement, defined by Webster, is to appropriate something such as property entrusted to one’s care, fraudulently to one’s own use. So how did he do it? How did Sam do this?
How did he embezzle? But first, let me tell you a little bit about this guy right now. Where is he right now? Right now, he’s in prison in a brown jumpsuit. And last I heard; he was in prison in Brooklyn. MDC Brooklyn, incarcerated. Number 372444510. And his professor parents, both professors, visit him every Tuesday from California, make sure he has his meds and his peanut butter sandwich.
He was moved to a female section of the prison. Not sure why. Still has no remorse and has a little bit of a side. I believe he’s going to share a hallway with P Diddy very soon. What did he do? He embezzled $8 billion, is what he did. Other people’s money for his own use. And he still claims he did nothing wrong.
Three years ago, Sam Bankman-Fried was hanging out with Tom Brady and getting celebrity endorsements from Shaq. He had an office in the Bahamas and a romantic relationship with a 28-year-old corporate executive named Caroline Ellison. And people absolutely loved Sam. They called him SBF because he was smart. I very likely genius, very quirky, and made a claim that his money was going to change the world and make this world a better place.
He was going to give away 99% of his wealth. This worldview was called effective altruism. When he moved to the Bahamas, he even made the claim publicly that he was going to pay off the country’s $9 billion in debt. Yes, he was that rich. He was that rich before the age of 30. He was on the cover of Forbes magazine worth over $20 billion.
Very, very rich. And if you had any money, you want to be around a genius who has a good heart. You want to trust somebody who has integrity, and you want to trust someone who has competency. And if you have the money, you bet on him. Or you just bet with him. But he was a liar, and he was a crook.
Embezzlement. So how did he do it? Well, a few years after he graduated MIT, he started a firm called Alameda Research. It was a crypto firm. And if you think about it, though, why would he name it Alameda Research? Well, he named it a research firm because banks and lenders don’t necessarily like to lend money to crypto firms.
But if you’re a research firm, you might get a bank loan. So, Alameda created cryptocurrencies. And they also placed bets on the direction of where cryptocurrencies were going. And bets is for me the best word to use because they were gamblers, gamblers and speculators. But if you think about it, Sam wasn’t satisfied just being a gambler. He wanted to own the casino because yes, you can make money on the direction of cryptocurrencies.
He did that actually in a way that he legitimately made money on buying U.S. crypto and selling it in Japan. It’s called arbitrage. He found it. He legitimately pulled that off. I say legitimate with air quotes. I still believe there was some cutting of corners. But that wasn’t good enough. Being a gambler, owning the casinos is what he wanted.
And so he started his own exchange, which is another word in the crypto space for casino, where people all around the world could place bets on crypto currencies and traders, people who love trading cryptocurrencies. They loved FTX. This was the new cryptocurrency exchange of the future. The cost structure was right on. The user interface was well done. The speed was good. If you did enough trades.
Even if you did enough trades, enough business on there, they would actually bonus use some cryptocurrency called FTT, which was simply a cryptocurrency that they manufactured and made up at Alameda. Just made it up. But this whole thing fell apart.
Not just because Alameda created its own coins, and not just because they manipulated the price. But because of embezzlement. All those other things are bad. Don’t get me wrong, but it was embezzlement. See, if you had an account at FTX and you’re a crypto trader and you’re in your flip flops and you have your PlayStation four, PlayStation five, Fortnite on one desk, a pizza on another, and you’re trading cryptocurrency, you’re trading it through FTX.
You open an account with your own money, put in FTX, you’re trading. Sam took that money and did something else with it. And I’ll tell you what he did within just a second. But he did something else. You saw your statement, you saw your balance online, and it said that your money was still there, but it wasn’t. He transferred it over to Alameda, his with air quote, research firm.
There. He did all kinds of things. Spent some of the money. He used it to borrow money regardless of everything that he did. He embezzled. He took somebody else’s money in FTX and then transferred it over to Alameda. Oh, and I forgot to tell you that his 28-year-old girlfriend, she was also the CEO of Alameda.
Did I tell you that Alameda had no board of directors to hold Mr. Sam Bankman-Fried accountable? Did I tell you that they had no human resources department, no CFO, no compliance department? And if you asked enough questions, his team would tell you to f off.
No one asked any of the tough questions. Why? The guy was hanging out with celebrities. Why would I question his integrity?
This is how you win friends and influence people, right? But how do you take this influence to the next level? You develop a common enemy. And who is this common enemy? None other than Donald Trump. According to author Michael Lewis, Michael Lewis wrote Liar’s Poker. If you haven’t read that book, it’s a wonderful book, especially for finance nerds.
Michael Lewis picked up Sam from the airport, and they were going to go meet Senator Mitch McConnell. When he picked Sam up, Sam had this wad of blue cloth, a big ball of blue cloth that he was holding in his arms. Michael goes, what was this? What is that? Yeah, this is my suit. I heard we’re meeting with Mr. McConnell. He likes suits.
Odd guy. Yes, but the question is, I thought he hated Donald Trump. Why was he meeting with Mitch McConnell? What he was trying to do was trying to get Mitch McConnell to encourage all of the Republicans who hated Trump to join with him, to take Trump down. He actually was trying to figure out a way to pay Trump directly, $5 billion, not to run.
Now, when you have a common enemy like that, people tend to not question your integrity. They tend to rally around you. So, Tom Brady did. So, Shaquille O’Neal did. And that’s what hundreds of others crypto traders did. Now one company actually started digging into FTX. Sam let them behind the curtain, this firm was called Binance. Now Binance was thinking about buying FTX, but when they started digging, they said, we can’t do this.
There’s clearly mishandling of funds. When word got out that Binance identified that there’s mishandling of funds, that was November 8th, 2022. On November 11th of 2022, three days later, FTX and Alameda filed for bankruptcy.
So, this whole idea of being a free market, I want to give an altruistic.
He gave $39.8 million to the Democratic Party, second only to Soros. He only gave a fraction to Republicans. And he like I said, he did that because his intent was to take down Trump. And he didn’t tell his friends that he was doing that because, well, in his air with air quotes, actually, these are his words. They were super liberal friends.
You would never want to tell him that you gave money to a Republican. He was convicted on November of 2023, and at his peak, he was the 41st richest American in the Forbes 400. Ended up getting charged with seven crimes – wire fraud, commodities fraud, securities fraud, money laundering, campaign finance law violations. 300 illegal political donations. And on March 28th, 2024, he was sentenced to 25 years in prison.
In an interview with Vox over private Twitter messages, Sam Bankman-Fried said that his ethics stuff was mostly a front. And he described ethics as a dumb game we woke Westerners play so people will like us. And his hair. You can look him up if you haven’t seen him before. His hair and his clothes. According to his girlfriend, were just a well calculated image.
I know my friends generally are old fashioned investors. They buy good stocks, they buy bonds, they buy real estate cash. This crypto stuff, that’s not for me. But there are lessons to be learned here. And I think if you think deeply about the way he manipulated people.
This is a life. This is the lesson of using your influence so that people don’t ask the tough questions is a strategy that is often used by con artists. And he just took it to a whole another level. Yes. Brilliant. But he was a liar and a fraud. And yes, it might not apply to you because you hear about it, and you think it’s crypto.
It doesn’t apply to me. But the lessons here about how somebody uses their influence leveraged peers and famous people and common enemies so that you would look away from the fraud. This is the point of Sam Bankman-Fried that I want you to remember and be aware of as you are.
Investing in somebody else, believing in them and walking alongside of them. Continue to trust, but verify. And remember. Always keep your head on a swivel not just for you, but your family and your community. Have a great day!
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