SBF Offers ‘HOOD’ Shares to Make Clients Whole, Labels CZ as Straw that Broke FTX, and Corroborates Conflict of Interest with S&C in ‘Pre-Mortem Overview’

Sam Bankman-Fried is back, sharing his recounting of the events which transpired leading up to the collapse of FTX.  While we won’t go in to the finer points of how SBF claims FTX found itself in its current situation (since he himself states that any financial information he has is piece-meal and incomplete), the following is a brief breakdown of a few take-home points shared in the 2000+ word communication that he is calling an ‘FTX Pre-Mortem Overview‘.

A Trio of Factors

Right off the hop, SBF makes it clear that in his pre-mortem he is discussing FTX International because FTX US is, and always has been, solvent.  With that in mind, he states that the implosion of his empire in late 2022 was caused largely by three factors.

• A snowballing balance sheet held by Alameda
• Poor hedging strategies by Alameda resulting in massive losses after ‘broad market crashes’ over 2022
• A targeted attack by Binance CEO, Changpeng Zhao or ‘CZ’

While these are widely known to be the major factors which led to the demise of FTX, SBF attempts to fill in the gaps, discussing how each came to be.

Conflicts of Interest

Only yesterday, the Judge presiding over the FTX bankruptcy proceedings chastised multiple Senators that submitted a letter questioning a potential conflict of interest in the case due to the past relationship between FTX and the legal team now representing it.  In his response, Judge John Dorsey referred to the letter as an ‘…inappropriate ex-parte communication’.

The issue being raised by the Senators was a simple but valid point – the current legal team has a long-standing, documented relationship with FTX, and is quite possibly partly responsible for the situation in which FTX is now in.  This narrative is now being echoed by SBF in his pre-mortem.  Referring to Sullivan & Crowel (S&C), he states,

“…they worked with FTX US in its most important regulatory application, they worked with FTX International on some of its most important regulatory concerns, and they worked with FTX US on its most important transaction. When I would visit NYC, I would sometimes work out of S&C’s office.”

Death by Binance

Prior to its collapse, FTX and Binance were essentially jockeying for the two spots atop the worlds crop of centralized exchanges.  SBF alleged that, apparently set on eliminating its rivals, the death of FTX finally came at the hands of a ‘fateful tweet’ issued by CZ after an “…extremely effective months-long PR campaign against FTX.”

Whether this is true or not is irrelevant.  Although it may speak to the character of those at Binance, it was FTX and its cohorts that put themselves in such a compromising position that their empire could be taken down by a tweet of all things.

Making Amends

For the past few weeks, there has been a battle brewing over ownership of over 56M shares in Robinhood (HOOD) – valued at over $450M.  With ownership unclear, these shares were recently seized by the US Department of Justice.

Interestingly, SBF addresses these shares in his communication, stating that he is willing to offer them up in an attempt to make customers whole.

“I have, for instance, offered to contribute nearly all of my personal shares in Robinhood to customers–or 100%, if the Chapter 11 team would honor my D&O legal expense indemnification.”

Although this may be an admirable sentiment on the surface, it is an easy one to share and essentially a moot point when the assets have already been seized.

Final Word

Unfortunately, there are so many conflicting reports about what actually transpired behind the scenes at FTX, that we may never truly know the truth.  Is SBF lying in an attempt to save-face?  Is he honest, and simply collateral damage in a situation that needed someone to take the fall?

At the end of the day, much of the pre-mortem is simply conjecture.  It is full of maybes and what-if scenarios that can no longer come to pass, in an attempt to paint FTX in a brighter light.  For now, the pre-mortem should at least provide onlookers with a different perspective into the situation.  True or not.