The more Sam Bankman-Fried talks, the easier it is to comprehend how his crypto exchange once valued at $32 billion could fall apart in a span of 10 days.
The founder and former chief executive officer of FTX has been characteristically outspoken over the past week about what went wrong to lead his company to the Nov. 11 bankruptcy filing that rocked the cryptocurrency world. In a parade of media and speaking appearances—apparently in defiance of his legal representatives—Bankman-Fried has been contrite in accepting the blame for his failings and the damage he’s done.
The sincerity of such an approach will always be questioned, but in taking his words at face value, the biggest surprise might be Bankman-Fried’s exchange even managed to last the three years it did. His discussion of his approach to risk management at FTX during a lengthy interview for “Good Morning America” is enough to make any compliance officer cringe.
“I wasn’t spending any time or effort trying to manage risk on FTX,” Bankman-Fried said, adding the topic wasn’t seen as a “core business driver.”
How about a business stabilizer? When the downward spiral at FTX began, risk management controls could have been enough to avert disaster. Bankman-Fried acknowledged as much in hindsight.
“If I had been spending an hour a day thinking about risk management on FTX, I don’t think [the collapse] would have happened,” he said. “I don’t feel good about that.”
The assessment of others suggests an hour a day alone still might not have been enough. The new CEO of FTX charged with overseeing its bankruptcy, John Ray, told the court, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
This from the man who oversaw Enron’s bankruptcy. Talk about something to not feel good about.
The cryptocurrency industry as a whole has had an inconsistent relationship with compliance and risk management. While some firms have splurged to recruit experienced compliance professionals to their ranks, others have thumbed at the notion of oversight. Exchanges like FTX are carried by the perceived brilliance of a visionary leader that could do no wrong—until they do.
Bankman-Fried is human. He’s made as much clear through his ongoing barrage of public mea culpas. But while that might work to draw praise from some—Rep. Maxine Waters (D-Calif.) on Friday told Bankman-Fried on Twitter she appreciated his candid discussions about what happened at FTX—it won’t help the many exchange users who lost their money because of Bankman-Fried’s mistakes.
Preventing that would have been a job for risk management.