In November 2022, the crypto world was rocked when FTX, one of the largest and most respected cryptocurrency exchanges, collapsed in a matter of days. Now, with founder Sam Bankman-Fried facing fraud charges and a trial set to start on January 3rd, 2023, new details are emerging about the mismanagement and dysfunction inside the company that led to its downfall.
In a new book titled “Going Infinite: The Rise and Fall of a New Tycoon,” journalist and author Michael Lewis provides an incisive look into Bankman-Fried’s failings as a manager and leader.
Lewis, known for books like “Moneyball” and “The Big Short” that take readers inside the workings of complex organizations, gained unprecedented access to Bankman-Fried and conducted over 100 interviews with him prior to FTX’s implosion.
The portrait that emerges is of a brilliant yet wildly disorganized founder who forewent basic management principles and created a company dangerously lacking in controls and accountability.
“It was all Sam’s world. And there was nobody there to say, like, ‘Don’t, don’t do that,'” Lewis commented in a 60 Minutes interview about the book. Even Bankman-Fried’s close associates admitted the young founder, just 29 when he started FTX in 2019, was “not built to manage people.”
According to Lewis, Bankman-Fried believed managers were unnecessary and people should manage themselves. But this hands-off idealism resulted in Bankman-Fried having little grasp of the internal operations of his own company.
Lewis writes that Bankman-Fried didn’t even know who was on FTX’s board of directors or what they did. “Their job is just to DocuSign whatever,” Bankman-Fried said dismissively in regards to the board.
Employees confirm that FTX was driven entirely from the top by Bankman-Fried’s whims, with no processes in place to reign in bad decisions. “The indulgence of stupid things was astronomical because there was no one willing to tell Sam no,” an executive is quoted by Lewis. Bankman-Fried hired inexperienced friends and family to key roles and trampled over seasoned executives.
Most alarmingly, Lewis details how the man once extolled as a crypto genius devoted little time to understanding risk management at FTX. Bankman-Fried admitted in an interview after FTX’s bankruptcy that the collapse could have been avoided “if I had spent an hour a day thinking about risk management.” But he viewed focusing on unlikely risks as unnecessary and counterproductive.
This extreme lack of oversight allowed a massive, hidden shortfall in FTX’s balance sheet to accumulate, fueled by Bankman-Fried allegedly transferring customer funds to his crypto hedge fund, Alameda Research.
Lewis writes that Alameda functioned as Bankman-Fried’s personal slush fund, describing it as “a kid flying an airplane who didn’t know how to land.” When the shortfall was revealed in November 2022, it triggered a liquidity crisis and customer run that cratered the exchange in a matter of days.
Lewis traces Bankman-Fried’s managerial philosophy back to his embrace of effective altruism, a movement focused on doing the most good possible on a societal level. Bankman-Fried believed his work could generate huge gains for humanity, which may have blinded him to basics like risk management. “Effective altruism can make people feel immune to standard rules,” Lewis commented.
Now the consequences of ineffective management at FTX are being laid bare. Up to a million creditors may have lost money in the company’s failure, and Bankman-Fried faces up to 115 years in prison if convicted on fraud charges. On January 3rd, 2023, the saga enters a new chapter as jury selection begins for his criminal trial.
The course of FTX’s rise and unprecedented fall in just three short years will undoubtedly be scrutinized by the crypto industry, regulators, and the public. But Lewis’ revelatory reporting in “Going Infinite” ensures that the central role of Sam Bankman-Fried’s mismanagement and hubris will be clear in the historical record. For an industry still struggling to establish trust and professionalism, the lessons from FTX’s calamity will reverberate for years to come.