====== Sam Bankman-Fried (SBF) ======
Sam Bankman-Fried (often known as SBF) is the American founder and former CEO of the [[cryptocurrency]] exchange [[FTX]] and the crypto trading firm [[Alameda Research]]. Once hailed as a visionary wunderkind and a philanthropic billionaire, he became the central figure in one of the most spectacular and rapid corporate collapses in modern financial history. In late 2022, his crypto empire imploded amid revelations that he had secretly and illegally funneled billions of dollars in FTX customer funds to his trading firm, Alameda, to cover its massive losses. The saga serves as a monumental cautionary tale for investors, highlighting the dangers of hype, the necessity of [[due diligence]], and the timeless wisdom of focusing on fundamentals over narrative. SBF's fall from grace culminated in his conviction on multiple counts of fraud and conspiracy, cementing his legacy not as a financial innovator, but as the architect of a colossal deception.
===== The Rise of a Crypto King =====
SBF’s journey began in the world of traditional finance. After graduating from MIT, he worked as a quantitative trader at the prestigious firm [[Jane Street]], where he honed his skills in identifying and exploiting market inefficiencies. In 2017, he left to found Alameda Research, a trading firm designed to capitalize on [[arbitrage]] opportunities in the nascent crypto markets, such as price differences for [[Bitcoin]] between Asian and American exchanges.
His most ambitious project, however, was FTX, a cryptocurrency derivatives exchange launched in 2019. FTX grew at a breathtaking pace, differentiating itself with a wide range of complex trading products and a slick marketing machine. SBF cultivated an image of a quirky, brilliant, and altruistic leader, championing a philosophy called "effective altruism"—the idea of earning vast sums of money in order to give it away effectively. This narrative, combined with celebrity endorsements and high-profile sponsorships, helped FTX attract billions from both retail customers and sophisticated venture capitalists, catapulting SBF to billionaire status seemingly overnight.
===== The Spectacular Collapse =====
The house of cards began to wobble in November 2022. A leaked report revealed that a significant portion of Alameda Research's balance sheet consisted of [[FTT token]], a cryptocurrency created and issued by its sister company, FTX. This incestuous financial loop meant Alameda's stability was dangerously dependent on a volatile, self-created, and illiquid asset with no real [[intrinsic value]].
The news spooked the market. When rival exchange Binance announced it would liquidate its massive holdings of FTT, it triggered a full-blown [[bank run]] on FTX. Customers rushed to withdraw their funds, but the money wasn't there. It soon became clear that FTX had been lending customer deposits to Alameda to fund its risky bets, a cardinal sin in any financial institution. Within days, FTX, Alameda, and over 100 related entities filed for bankruptcy, wiping out an estimated $32 billion in value and leaving over a million customers unable to access their money. The subsequent investigation uncovered a shocking lack of [[corporate governance]], with a new CEO describing the situation as a "complete failure of corporate controls."
===== Lessons for the Value Investor =====
The SBF and FTX saga is a masterclass in what //not// to do. For value investors, it reinforces several core principles.
==== The Perils of Hype and FOMO ====
The crypto boom was a textbook speculative bubble fueled by a powerful narrative and intense [[FOMO (Fear Of Missing Out)]]. Investors, both large and small, were drawn in by the promise of quick, astronomical returns and the charismatic story of SBF. A value investor, by contrast, trains themselves to be a skeptic when euphoria reigns. The key lesson is to separate a compelling story from a sound investment. When an asset's price seems detached from any underlying reality of [[cash flow]] or [[earnings]], it's a sign to be wary, not to jump in.
==== "Trust, But Verify": The Importance of Due Diligence ====
Even seasoned venture capital firms failed to conduct basic due diligence on FTX. They were swayed by SBF's reputation and the fear of missing out on the next big thing. They invested billions without demanding audited financials or scrutinizing the company's opaque structure. For the ordinary investor, the lesson is even more critical:
  * **Demand Transparency:** Never invest in something that is intentionally opaque or overly complex. If you can't get clear, audited financial statements, walk away.
  * **Question Everything:** Be skeptical of unaudited claims and promises that seem too good to be true. A healthy dose of professional paranoia is an investor's best friend.
==== Circle of Competence and Real Value ====
Warren Buffett famously advises investors to stay within their [[Circle of Competence]]. The world of crypto derivatives, bespoke tokens, and interconnected offshore entities that SBF built was far outside the understanding of most people who put money into it. They were betting on the jockey, not the horse, without understanding how the racetrack even worked. A value investor focuses on simple, understandable businesses that generate predictable profits. The FTT token had no claim on real assets or earnings; its value was purely based on faith in the FTX ecosystem—a faith that proved to be entirely misplaced. The ultimate lesson from SBF is a timeless one: stick to what you understand, and never mistake a speculative token for a valuable business.