Sam Bankman-Fried Denies Knowing Scale of Bad Alameda Bets | Kanebridge News
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Sam Bankman-Fried Denies Knowing Scale of Bad Alameda Bets

FTX’s co-founder says he made mistakes during his tenure at the helm of the cryptocurrency exchange but didn’t ever try to commit fraud

Fri, Dec 2, 2022 8:55amGrey Clock 3 min

Sam Bankman-Fried said that he didn’t intend to commit any fraud or use customer funds to back leveraged bets that went wrong at Alameda Research, a cryptocurrency hedge fund attached to FTX that pushed the exchange to bankruptcy.

Mr. Bankman-Fried, speaking at the New York Times DealBook Summit in New York, denied knowingly commingling customer funds to back his crypto trading operation and tried to deflect some of the blame for FTX’s collapse away from himself, saying he was surprised at the size of Alameda’s bets that went wrong.

“I didn’t know exactly what was going on,” Mr. Bankman-Fried said via livestream from the Bahamas. “I learned a lot of these things as they were going on.”

The comments came at Mr. Bankman-Fried’s first known public appearance since he resigned from FTX and the firm collapsed into the largest-ever bankruptcy by a cryptocurrency platform.

FTX, long a chaotic mess despite its public image of stability, failed after dipping into customer funds to back billions of dollars in risky bets by Alameda, its affiliated trading firm. New managers hired to steer the firm through bankruptcy are only beginning to sift through FTX’s liabilities and hunt down assets that left it before it failed. The firm was plagued by an unprecedented lack of corporate controls, according to its new management, and cryptocurrencies deposited by millions of customers are still frozen on the exchange, with little indication of how much they will get back or when.

Appearing in a black T-shirt and drinking a LaCroix sparkling water during a roughly hourlong interview, Mr. Bankman-Fried repeatedly apologised for the collapse of FTX and acknowledged “core management failures” that led to a distraction from the basic business of ensuring that the exchange could protect customers’ money and had sufficient liquidity to meet withdrawals.

He also spoke about an extensive lobbying campaign in Washington designed to advance the firm’s interests, which has drawn scrutiny amid the firm’s collapse.

“There are things I felt like we needed to do for the business; there were things that were crucial for us to be able…to get regulated and get bank accounts,” Mr. Bankman-Fried said.

Responding to a question about whether FTX and Alameda were more closely connected than previously understood, Mr. Bankman-Fried said Wednesday that they were “tied together more than I would have ever wanted it to be.”

Mr. Bankman-Fried, however, maintained that he didn’t knowingly commingle FTX client funds. He said he started to get concerned late on Nov. 6 of problems with Alameda’s position on FTX and later that day started to get concerned that “things might end quite badly here.”

“Alameda’s position was big on FTX,” Mr. Bankman-Fried said.

Mr. Bankman-Fried had faced a rebellion from some Alameda employees years earlier in part over what they viewed as his cavalier approach to risk, The Wall Street Journal reported Wednesday. Since the firm’s collapse, he has maintained his residence in the Bahamas, where he relocated FTX in 2021, and is cooperating with local authorities over the wind-down of its operations in the country, according to court papers.

“Right now, I’m looking to be helpful anywhere I can with any of the global entities that want my help,” Mr. Bankman-Fried said on Wednesday about his cooperation with regulators over the collapse of FTX.

Customers of largely unregulated crypto platforms lack the safety nets such as deposit insurance that kick in when traditional banks and brokerages go under. The task of cleaning up after FTX and other recent crypto failures has largely fallen to U.S. bankruptcy courts, which have only begun to answer how crypto customers should fare in an insolvency.

Prosecutors in New York and the U.S. Securities and Exchange Commission are examining the firm’s collapse. The alleged misuse of customer funds has exposed Mr. Bankman-Fried, who also founded and owns Alameda, to potential criminal liability, according to experts in white-collar criminal law.

Mr. Bankman-Fried said Wednesday he believed most U.S. exchange customers should be able to recover their locked-up crypto but that FTX’s international customers may not be able to.

“I’m confused why FTX US isn’t processing withdrawals right now,” he said, adding that he believed it should be able to return all assets belonging to American customers.

Representatives for FTX’s new management didn’t immediately respond to a request for comment Wednesday. John J. Ray III, FTX’s new chief executive, has criticised Mr. Bankman-Fried for making “erratic and misleading” statements since he stepped away from the firm.

FTX suffered a “complete failure of corporate controls” according to Mr. Ray, who said in a bankruptcy-court filing that in his 40 years in the business of restructuring companies, including Enron, he has never seen anything as bad as FTX.

At FTX’s first appearance in bankruptcy court last week, lawyers for the company’s new management said Mr. Bankman-Fried ran FTX like a personal fiefdom that had little to no corporate governance or record-keeping.

Mr. Ray has also said that Mr. Bankman-Fried and his associates had used company money to buy themselves homes in the Bahamas and that management still can’t locate a substantial amount of FTX’s assets.

Mr. Bankman-Fried said his lawyers advised against him speaking in public on Wednesday, but he said he wanted to try to explain what went wrong at FTX.

“I have a duty to talk to people and to explain what happened,” he said. “I don’t see what good is accomplished by me being locked in a room pretending the outside world doesn’t exist.”


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China’s EV Juggernaut Is a Warning for the West

Competitive pressure and creativity have made Chinese-designed and -built electric cars formidable competitors

Thu, Jun 8, 2023 4 min

China rocked the auto world twice this year. First, its electric vehicles stunned Western rivals at the Shanghai auto show with their quality, features and price. Then came reports that in the first quarter of 2023 it dethroned Japan as the world’s largest auto exporter.

How is China in contention to lead the world’s most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese and South Korean nameplates? The answer is a unique combination of industrial policy, protectionism and homegrown competitive dynamism. Western policy makers and business leaders are better prepared for the first two than the third.

Start with industrial policy—the use of government resources to help favoured sectors. China has practiced industrial policy for decades. While it’s finding increased favour even in the U.S., the concept remains controversial. Governments have a poor record of identifying winning technologies and often end up subsidising inferior and wasteful capacity, including in China.

But in the case of EVs, Chinese industrial policy had a couple of things going for it. First, governments around the world saw climate change as an enduring threat that would require decade-long interventions to transition away from fossil fuels. China bet correctly that in transportation, the transition would favour electric vehicles.

In 2009, China started handing out generous subsidies to buyers of EVs. Public procurement of taxis and buses was targeted to electric vehicles, rechargers were subsidised, and provincial governments stumped up capital for lithium mining and refining for EV batteries. In 2020 NIO, at the time an aspiring challenger to Tesla, avoided bankruptcy thanks to a government-led bailout.

While industrial policy guaranteed a demand for EVs, protectionism ensured those EVs would be made in China, by Chinese companies. To qualify for subsidies, cars had to be domestically made, although foreign brands did qualify. They also had to have batteries made by Chinese companies, giving Chinese national champions like Contemporary Amperex Technology and BYD an advantage over then-market leaders from Japan and South Korea.

To sell in China, foreign automakers had to abide by conditions intended to upgrade the local industry’s skills. State-owned Guangzhou Automobile Group developed the manufacturing know-how necessary to become a player in EVs thanks to joint ventures with Toyota and Honda, said Gregor Sebastian, an analyst at Germany’s Mercator Institute for China Studies.

Despite all that government support, sales of EVs remained weak until 2019, when China let Tesla open a wholly owned factory in Shanghai. “It took this catalyst…to boost interest and increase the level of competitiveness of the local Chinese makers,” said Tu Le, managing director of Sino Auto Insights, a research service specialising in the Chinese auto industry.

Back in 2011 Pony Ma, the founder of Tencent, explained what set Chinese capitalism apart from its American counterpart. “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share,” he said, according to Fast Company, a technology magazine. “In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China—execution is.”

Thanks to that competition and focus on execution, the EV industry went from a niche industrial-policy project to a sprawling ecosystem of predominantly private companies. Much of this happened below the Western radar while China was cut off from the world because of Covid-19 restrictions.

When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of green plates, a sea of Chinese brands,” said Le, referring to the green license plates assigned to clean-energy vehicles in China. “They hear the sounds of the door closing, sit inside and look at the quality of the materials, the fabric or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”

Manufacturers of gasoline cars are product-oriented, whereas EV manufacturers, like tech companies, are user-oriented, Le said. Chinese EVs feature at least two, often three, display screens, one suitable for watching movies from the back seat, multiple lidars (laser-based sensors) for driver assistance, and even a microphone for karaoke (quickly copied by Tesla). Meanwhile, Chinese suppliers such as CATL have gone from laggard to leader.

Chinese dominance of EVs isn’t preordained. The low barriers to entry exploited by Chinese brands also open the door to future non-Chinese competitors. Nor does China’s success in EVs necessarily translate to other sectors where industrial policy matters less and creativity, privacy and deeply woven technological capability—such as software, cloud computing and semiconductors—matter more.

Still, the threat to Western auto market share posed by Chinese EVs is one for which Western policy makers have no obvious answer. “You can shut off your own market and to a certain extent that will shield production for your domestic needs,” said Sebastian. “The question really is, what are you going to do for the global south, countries that are still very happily trading with China?”

Western companies themselves are likely to respond by deepening their presence in China—not to sell cars, but for proximity to the most sophisticated customers and suppliers. Jörg Wuttke, the past president of the European Union Chamber of Commerce in China, calls China a “fitness centre.” Even as conditions there become steadily more difficult, Western multinationals “have to be there. It keeps you fit.”


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