What Do Sam Bankman-Fried’s Weird Ideas About Risk Have to Do With FTX’s Collapse? Almost Everything.

James Surowiecki
5 min readDec 31, 2022
Sam Bankman-Fried speaking at the MIT Bitcoin Expo 2022 (MIT Bitcoin Club, via Creative Commons)

2022 was, you might say, the year when grifters got their just deserts. The year began with the conviction of Theranos founder Elizabeth Holmes, and ended with the arrest on fraud charges of FTX founder Sam Bankman-Fried, and the revelation that newly-elected Republican House member George Santos had essentially invented an entire life for himself when talking to voters. So perhaps it would be more accurate to call it the year of grifters getting caught (though Santos is still on track to be seated as a House member in a couple of days).

Of all these stories, the biggest, and strangest, was of course the collapse of FTX, the crypto “exchange” Bankman-Fried had somehow turned into a business that was valued at $32 billion at its peak. In one sense, FTX looks like a simple financial scam — according to the SEC complaint against Bankman-Fried, Alameda Research (the crypto hedge fund that Bankman-Fried owned and controlled, and which was run by his former girlfriend, Caroline Ellison) was dipping into FTX customer assets to fund its own trading, and was also funneling money to SBF and other FTX executives in the form of loans.

But that simple summary doesn’t really explain what happened at FTX, or why it collapsed. In a conventional scam — like, say, Bernie Madoff’s multi-billion-dollar Ponzi scheme — the scammer fraudulently uses new customer funds to line his own pockets and become insanely rich. But while there seems to have been some of that in SBF’s case — spending millions on Bahamian properties and the like — it appears that the vast majority of the money that was taken from customers went to making huge, reckless bets on various cryptocurrencies and crypto companies. That is, on the face of it, an odd thing to do with stolen money.

The FT, for instance, recently published a spreadsheet of the investments Alameda Investments (FTX’s venture arm) had made in what seem to be mostly crypto companies, almost none of which you’ve heard of. There were almost 500 of those investments, with a supposed value (as of early November) of $5.4 billion. That valuation was likely massively overstated. But even so, that’s a ton of money for SBF to be putting into illiquid investments, many or most of which were sure to…

James Surowiecki

I’m the author of The Wisdom of Crowds. I’ve been a business columnist for Slate and The New Yorker and written for a wide range of other publications.