Michael Lewis first heard about Sam Bankman-Fried at the end of 2021. A friend had asked Lewis to figure out who he was. The friend was about to do a big deal with Sam that would bind their fates, by an exchange of shares in each other’s companies worth hundreds of millions of dollars. The friend had asked around, but no one knew much about Sam. People knew about crypto and FTX, but not about Sam. Sam came to the author’s house, they took a walk, and Sam explained FTX to him. The growth rate was astonishing.
Michale Lewis is one of my favorite authors. I like some of his books more than others, but at their best, his books are wonderful. In the case of Sam Bankman-Fried, he didn’t know whether there was a story to tell, but he was intrigued by the guy. He had a character study, but he wasn’t sure there was a story.
The book doesn’t start at the beginning. It starts with the example of a woman who went to work for FTX, Natalie Tien. She had worked at a couple of crypto companies and learned a bit about crypto. She took a job offered by FTX. She started working in PR despite having no experience in PR. Sam gave television interviews with his mess of hair, dirty cargo shorts and a wrinkled tee shirt. He played video games while being interviewed. He also answered emails and edited texts.
In November 2021, Forbes listed Sam’s net worth at $22.5 billion.
In Chapter 2, the author goes back to the beginning of Sam’s life and the rest of the book unfolds in chronological order. Sam’s childhood was weird. He thought school was stupid. He didn’t have friends. His family couldn’t figure him out. This continued into his days as a physics major at MIT. Sam just didn’t seem to fit in on planet Earth.
Religion seemed absurd to him. Nothing gave him pleasure or made him happy. He was always depressed. The only thing he liked were games, especially the game Magic: The Gathering.
After a life of nothing, in 2012, two big things happened to Sam. It turned out that high frequency trading firms recruited physics majors from the best schools. Three firms offered Sam interviews to be a trader. They all offered him a job too.
His in-person interview at Jane Street Capital consisted of a full day of playing games and puzzles. There were weird card games, coin flipping games where the coins were weighted. Within the games were other games and circumstances changed. Plus, there was competition and time pressure. It turned out, Sam was really good at this. In the presence of strange new games, the relevant thought processes just seemed to come to Sam. He took a summer internship with Jane Street.
The second odd thing that happened about this same time. Sam got into what would eventually become known as effective altruism. The idea was to live one’s life to maximize the benefit that a person could provide to all mankind over the course of their lifetime. All of life’s big decisions were viewed through this lens.
Sam excelled at Jane Street, becoming one of their rising starts despite a lack of social skills. Jane Street made money by making trades faster than others or seeing patterns that others did not, all to find inefficiencies in the marketplace. Jane Street would fight over a few basis points.
Sam’s idea for FTX was to take the Jane Street approach to the cryptocurrency market, which was wildly inefficient. For example, crypto in South Korea was selling at 20% more than the rest of the world. If one could buy in other countries and sell in South Korea, there was 20% to be made. That’s 2,000 basis points.
The story of the book had no end point until FTX went broke and then the penultimate part of the story unfolded. The company was placed into bankruptcy, all the principals were arrested, and the trial started on the day the book was released. So, I read the entire story as the trial was happening in real time. And then, last Friday, Sam was found guilty on all counts.
Simple story, right? The guy was a fraudster. A criminal who got what he deserved. I’d caution people to not rush to judgement. The story is a lot more complicated than we are led to believe in the press.
The bankruptcy was a mistake that Sam was pressured into by the lawyers who stood to make multiple hundreds of millions of dollars by running the bankruptcy. The interim CEO put in place to run FTX during the bankruptcy was an old-fashioned guy who didn’t understand modern business. And, it turns out, FTX probably isn’t insolvent! The money that was supposedly lost is right there according to Lewis.
A lot of reviewers of this book have been critical of the author, for a lot of reasons. But mostly, they say that Lewis was fooled by Sam and Lewis fell for it. But Lewis says he knows a lot more about this story than his critics and he’s uncertain about how to judge Sam, while his critics are certain Sam was a crook, despite the fact they don’t know anywhere near as much as Lewis.
How about me? I think Sam was guilty of the charges. His accounting was terrible and he mixed client funds with Almeda (his hedge fund) and the bets they were making. And he spent money in ways that seems foolish. But he also invested in about 300 businesses, about one every three days, and many have performed well.
FTX, the crypto exchange made a lot of money. In one of life’s little ironies, Sam was trying to make FTX the first crypto exchange to make crypto trading legal in the U.S. He wanted to make FTX the squeaky-clean alternative to the other crypto exchanges. That was one of the reasons he spent so much on lobbying. The other reason he spent a ton of money on lobbying was to try and prevent Donald Trump from getting back in office. Sam saw Trump as an existential threat. Sam even offered to pay Trump not to run again! Trump’s price was $5 billion.
Another reason that this book has received some poor reviews is, I think, jealousy by some of the reviewers. Writers don’t make much money. Lewis’s career has been one of amazing good fortune. From his first book, Liar’s Poker, through The Blind Side, The Big Short and Moneyball, he seems to have lived a charmed life. For this book, he received $5 million for the movie rights before the book was finished.
Should you read this book? Absolutely. It is a crazy story, an amazing character study, and entertaining like few books are. I think you’ll find, as I did, the story isn’t as simple as you’ve been led to believe. It’s 255 pages and it goes fast. I think you’ll love it. And if you don’t want to read it, I’ll offer my reading notes, which are only eight pages long. Just hit Reply and I’ll send them along.
What will happen to Sam? He’ll go to prison, probably for life. He has already been quoted as saying that, if that happens, there is no way to ever make up for this and that his life, on balance, will be net negative. I think he’ll commit suicide.
No comments yet.