What went wrong at Sam Bankman-Fried’s FTX? Bill Ackman has a theory

Sharing his theory on the crisis, well-known American Investor and hedge fund manager Bill Ackman in a series of tweets said, “It appears that FTX was a legitimate profitable exchange started by an MIT grad with backing from top VCs at a massive valuation. Why would SBF FTX commit fraud at Alameda and blow up FTX and risk a lifetime in jail? This reminds me of Madoff.”

Explaining further, he said that Madoff had a profitable trading operation that generated more than he could ever spend on his lifestyle. “Why would he get involved in a ponzi scheme? A theory: Both lost money and were embarrassed. Rather than acknowledge the losses, they assumed that they could ‘borrow’ customer funds, invest them and earn back the loss, and then repay the borrowed funds,” Ackman said.

“All to avoid embarrassment and admission of failure, but then the market crashed and the losses were too large to recover from. At that point, they were stuck. If you admit the loss and the theft, you go to jail, so you kick the can down the road hoping that things will turn, but then you lose more and get into a deeper hole until the blow up occurs. The problem with MIT grads with wildly successful startups and acclaim is that they never had an opportunity to fail before,” he said.

Bankman-Fried is charged with using money, illicitly taken from crypto exchange FTX’s customers, to enable trades at Alameda, as per various reports.

“Rather it appears, they were unwilling to accept the consequences of failure and bet they could ‘fix’ things with temporarily ‘borrowed’ funds until they dug too deep a hole and were outed. Again, just a theory, but both the Madoff and SBF stories don’t make sense otherwise,” Ackman added.

(With inputs from agencies)