How the media fell for SBF’s deceptions

It’s not a good feeling. In July, I sat down with Sam Bankman-Fried for over an hour at a hotel overlooking Central Park, a meeting that would be the basis for a Fortune cover story. I was charmed by his nerdy affect as SBF, unkempt in a T-shirt and bushy hair, as he twirled a fidget spinner and rattled off tidbits about everything from M&A strategy to the macroeconomy to the importance of trust in business deals. It was all bullshit, of course, and I didn’t see through it.

Today, SBF’s name is mud, and his crypto empire—valued at $32 billion only a week ago—is in shambles. FTX customers and investors are out billions of dollars, and, if the worst allegations are true, SBF could go to prison. The question is how almost no one saw this coming. The media missed the story (until CoinDesk’s Ian Allison got hold of a key clue) but so did venerable investment firms like Sequoia Capital and Ontario Teachers’ Pension Plan, which rushed to throw hundreds of millions at SBF’s feet.

The answer is that, like any good con man, SBF told us a story we wanted to hear and were eager to believe. He styled himself as a trading genius who outgrew the elite quant firm Jane Street Capital, and who appeared to run circles around everyone else in the industry. His pedigree was immaculate with a degree from MIT, parents who both teach at Stanford Law School, and personal connections to top power brokers in Washington, D.C. SBF also discussed philosophy and poetry and took thoughtful positions on current issues like climate change and animal welfare—offering a more likable, human alternative to other crypto CEOs, whose libertarian views can come across as stark and unsettling.

Nearly everyone came to share the view that SBF was a unique, transformational figure who could bring crypto into the mainstream, and at some point, we all stopped checking references. In hindsight, there were red flags aplenty—FTX using cutesy numbers like 69 and 420 in its funding announcements, the lack of a board or any other oversight, a CEO who played League of Legends instead of working—but we ignored them.

Sure, a handful of people saw through him, and they will come to receive the same accolades as those who foresaw and bet against the subprime mortgage boom in 2007. And in the coming days, many others will join Elon Musk and Mark Cuban in claiming they knew SBF was a fraud all along—even though they didn’t say a peep until last week.

The lesson here for me and others is the old adage “trust but verify.” I should have pushed SBF and his company harder to show me documents proving FTX was what he said it was, and not assumed that the likes of Sequoia would never back a house of cards. Finally, in business as in life, beware of messiah figures. This caution extends to the crypto community that, time and time again, rushes to build cults around leaders rather than to stay true to blockchain’s core ideal of decentralization.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

DECENTRALIZED NEWS

An unconfirmed report says SBF and two FTX execs are “under supervision” in the Bahamas and that they hope to flee to Dubai, which has no extradition treaty with the U.S. (CoinTelegraph)

Crypto.com transferred over $400 million in Ether to another exchange instead of to cold storage; it recovered the funds, unlike last month when it sent a customer a refund of $7.2 million instead of $68. (The Verge)

The Securities Commission of the Bahamas said it did not order FTX to process local withdrawals, contrary to FTX assertions last week that regulators forced it to allow locals to pull funds. (CoinDesk)

An FTX investment deck showed it had $9 billion in liabilities but only $900 million in assets that could be quickly sold. (FT)

In the wake of FTX’s meltdown, Binance and others are touting “proof of reserves” as a way to prevent such debacles—what exactly does that mean? (Fortune)