SBF One-Hour Interview: FTX Still Has Financing Opportunities, Not Concerned About Criminal Liability, No Interference with Alameda Affairs

SBF has made several public statements, interviews, and comments since the incident, but seems to have already presented a set of explanations for the misappropriation of user funds, such as accounting confusion, insufficient data access permissions, deliberate manipulation of related assets, and even forgetting to delete the tweet on 11/6 emphasizing "FTX does not invest user funds." Therefore, there may be instances of evading questions during his interview at the DealBook summit, for which readers are asked to forgive.

Becoming a Mantra: I'm Sorry

Author of "Too Big to Fail," CNBC anchor Andrew R. Sorkin started off a recent interview by reading a letter from a user titled "SBF Stole 2 Million Dollars from Me":

Andrew, can you ask SBF why he stole my life savings and 10 billion dollars from all users to give to Alameda? Can you ask him why his hedge fund leveraged longs and introduced a bunch of garbage coins? For the sake of the children, I will remain polite, please ask him if he thinks this is fraud?

Andrew had teased this interview on Twitter, and as a result, he has been receiving similar emails continuously in the past few days. He inquired what SBF had to say to these users.

SBF expressed deep apologies and emphasized that FTX US is expected to resume withdrawals "today."

Forgetting about Deleted Tweets

11/7 You tweeted that FTX's funds were enough to cover all user assets, FTX does not invest user assets, and it will continue to process all user withdrawals. Then you deleted the tweet?

SBF mentioned that things changed rapidly; on 11/6, he still believed things would improve, but the beginning and end of 11/7 were vastly different. He began to worry about a severe liquidity crisis:

I don't remember where I said that. I tried to recall something I once believed but now seems contradictory. Shortly after, I no longer felt those words represented my thoughts. I don't remember when I deleted the tweet, but I remember at some point feeling that the tweet shouldn't exist.

How Did 10 Billion Evaporate?

When asked about the genesis of the funding gap, SBF attributed it to the following reasons but did not provide specific answers regarding how much user funds were misappropriated:

1. Past accounting chaos
2. Currently not the CEO, no data access.
3. Alameda bank accounts were mixed with user funds, resulting in accidental misappropriation of user funds.
4. Assets like FTT were potentially targeted for short selling, leading to a large-scale liquidation of assets.

SBF stated:

There have been multiple crashes in 2022, and as far as I know, our leverage was only two times, but looking at what happened in November, the "unknown" attacks led to a complete market collapse. I think over 10 billion dollars evaporated within a few days, and at that point, FTX could no longer liquidate positions and cover all debts.

About Alameda

Where did Alameda get the loan from?

SBF emphasized that he did not intentionally mix user funds but that on FTX, user margin loans were intertwined, with Alameda being one of them. However, he was shocked by the size of Alameda's position.

The Wall Street Journal claimed that Alameda CEO Caroline Ellison misappropriated FTX funds to deal with the Terra collapse-induced liquidity crisis. Is this also considered an accounting error?

SBF reiterated that he currently has limited access to data and minimal intervention in Alameda's affairs. He only knew that Alameda seemed to have leveraged mortgage loans in the middle of the year, which later turned out to be a highly leveraged position.

How close is the relationship with Alameda? Do you live together?

SBF admitted to living with a few Alameda members for a period. While Alameda's trading volume and liquidity on FTX decreased from 45% in 2019 to 2% in 2022, the amount of funds involved was much larger than in 2019.

SBF reiterated that he did not manage Alameda and was unaware of the size of Alameda's positions. He only started to realize that something was amiss in early November and began to investigate Alameda more closely. Over-involvement could lead to conflicts of interest, so he deliberately avoided getting involved in Alameda's affairs.

You said you weren't involved with Alameda, but you were a member of the Genesis board, and Alameda invested 1.15 billion dollars in Genesis. How could you not be involved?

I provided advice to a certain extent on "venture capital," including Genesis' investment, but I did not participate in Alameda's "proprietary trading."

Did you make Genesis go bankrupt?

"In August this year, Alameda borrowed 25 billion dollars from Genesis. What happened to your company?" Andrew asked.

SBF stated that it was Alameda's decision, and he was not aware of the specifics. However, he did not know what happened on Genesis' end; he only knew that Genesis was eager to retrieve a significant loan, ultimately leading to Alameda having to close positions at Genesis and many other places. Looking back, this also led to an increase in Alameda's positions on FTX.

About FTT

Were the acquisitions of platforms like BlockFi and Voyager to support the price of FTT?

SBF does not believe that BlockFi's closure would have a significant impact on Alameda or FTX. He clarified that the primary objective was to prevent a cryptocurrency market collapse.

Did you use tokens like FTT and SRM as collateral for loans on BlockFi?

It is possible? SBF stated he was unsure if this operation took place:

From your perspective, I guess it might have, but the amount spent on acquiring BlockFi was likely much higher than the amount Alameda lent out. But I'm not certain; I haven't even seen how much that figure is.

Legal Issues: SBF Believes He Can Enter and Exit the US

What advice did your lawyer give you?

SBF mentioned that the advice he received was to lay low and not say anything, but he did not want to do that. He felt obligated to explain the root causes of the events.

Can't you leave the Bahamas?

SBF claimed that the main operational entity, FTX Digital Market, is located in the Bahamas and that he needs to stay in touch with the local regulatory authorities. He believes he is still able to enter and exit the US.

Are you worried about criminal liability?

Initially, SBF said he wasn't worried, but then he admitted that this matter was not his main concern.

Original Note: I don’t think that I mean, obviously, I don’t personally think that I have, you know, but I think the real answer is it’s not. Sounds weird to say but, but I think the real answer is that’s not what I’m focusing on.

Using User Assets for Regulatory and Political Influence?

Andrew asked SBF if using money and influence to push for CFTC regulation and political lobbying was using user funds.

SBF initially responded by highlighting FTX's efforts in regulation and explaining that political donations were for public health policies, not directly answering the question. Only after Andrew pressed did he respond, "Basically, it's profit, and it's much less than what Alameda earned in the past few years."

Regarding whether the meeting with SEC Chairman Gary Gensler was through money, SBF stated that achieving this was not possible through money but required repeated participation in regulatory meetings.

Additional Note: Musk and former Facebook coin executive both complained: Does it not matter if FTX has regulatory relationships? Revealing SBF's strong background behind the scenes.

How did your parents react to FTX's situation?

SBF stated that he only mentioned to them about Alameda's positions collapsing, which could lead to liquidity issues. However, due to the many events that occurred, he does not quite remember what he told them. He expressed gratitude to those around him who have been supportive.

Explaining your parents' Bahamian vacation home

Reports indicated that FTX had purchased a significant number of properties in the Bahamas, including SBF's residence and even his parents' vacation home.

SBF clarified that he was not aware of the details of his parents' property but knew it was not a long-term asset and was rarely used. He explained that FTX aimed to encourage hundreds of Silicon Valley talents to move to the Bahamas, have a comfortable life, and develop good products; hence, indeed, hundreds of people bought a considerable amount of real estate. He expressed regret over their investments.

Striving for Compliance but Falling Short in Risk Management

SBF explained that FTX had made considerable efforts in compliance, which led to a diversion of attention and a failure in risk management. He admitted that the risk of user positions posed a conflict of interest risk but had no employees responsible for overseeing this part. He recalled that he founded FTX initially to reform the derivatives market due to many risk deficiencies, but never expected to end up in the current predicament.

Did Large Institutions Consider FTX's Risks?

Several super prominent venture capital institutions, including Sequoia and Paradigm, invested in FTX. Andrew asked, "Did they ever inquire about risk management issues?"

SBF stated:

"I don't think that's their responsibility. If you look at it from a venture capital perspective, the main consideration would be growth potential. What they would be concerned about is what FTX lacks for it to continue growing. If you dwell too much on what the flaws are, then you're not investing."

Does SBF use drugs?

Regarding rumors about SBF using a drug called EMSAM, an antidepressant that promotes dopamine, he responded.

SBF stated that he only had his first drink on his 21st birthday and only had half a cup a year. When hosting parties, they played board games and did not consume anything else. He also mentioned that he had legally obtained medication multiple times through prescriptions to aid in attention and focus and used them in compliance with regulations.

What Does the Future Hold for SBF?

"I don't know what my future holds. When you experience things quickly, I have no idea what I will do," SBF stated.

He mentioned that he would do everything in his power to assist regulatory agencies, government bodies, and FTX users. While he could not commit to anything, he believed there would be a way forward that would be more helpful than selling everything.

What is This So-Called Way Forward?

SBF cited Bitfinex as an example; after suffering a hacker attack resulting in fund losses, they issued debt tokens to allow affected users to exchange shares, leading to a resurgence. He believed that FTX's illiquid assets were still appreciating and that there would be many financing opportunities.

Additional Note: Former FTX executives expose the current asset-liability situation, initiating investigations: Should we learn from Bitfinex's debt token issuance?

How Do You View Asset Security?

SBF acknowledged the importance of compliance and reserve proof. In terms of corporate governance, the FTX group had many boards, but the responsibility was too dispersed. While financial audits were conducted on the company itself, less attention was paid to user risks and finances.

How Much Money Does SBF Have Left? 100,000 US Dollars

SBF mentioned that he had very little left, as everything had been invested in the company. He did not hide any funds and was transparent about it, with only one credit card and approximately 100,000 US dollars in his bank account. "I've put everything I have into FTX," he said.

At the end of the interview, Andrew asked, "Are all the things you said today true?" SBF agreed.