Michael Lewis is a celebrated author whose work has repeatedly topped the best-seller lists. His most famous book is Moneyball, which chronicles the analytics revolution in baseball. But his most controversial – perhaps even his most hated – book is also his most recent: Going Infinite, which chronicles the rise and fall of the cryptocurrency exchange FTX and the exploits of its founder, Sam Bankman-Fried.
The book begins with a brief look at Bankman-Fried’s childhood. He is the son of two Stanford Law professors. He was always bright but related poorly to people and found school boring. He nonetheless went to MIT for college, where he became interested in effective altruism, a movement that encouraged him to make as much money as possible and to use the money to solve the world’s problems.
Apparently driven in part by this philanthropic motive, Bankman-Fried joined the world of finance after graduation. He eventually started a cryptocurrency trading company called Alameda Research, believing that the nascent crypto market had huge inefficiencies that he could exploit. Shortly thereafter, he founded a crypto exchange called FTX. He tried to position FTX as the honest, legitimate outpost in the Wild West of crypto. It was supposed to be legal, licensed, regulated, and to keep each customer’s assets safe. However, the whole operation was run by a bunch of inexperienced twentysomethings, apparently with virtually no accounting, auditing, legal compliance, or oversight.
Bankman-Fried became an oddball celebrity, jet-setting around in rumpled cargo shorts, giving interviews while playing video games, and capturing the imaginations of a certain segment of society. He was, for a time, the wealthiest person in the world under 30. He moved FTX from California to Hong Kong to the Bahamas. Michael Lewis started tagging along with him as a chronicler, eventually spending more than a year in close contact with Bankman-Fried and others at FTX.
Should Michael Lewis have noticed that Bankman-Fried’s multibillion dollar companies didn’t have meaningful boards? That they were paying unreasonable amounts of money for influence, like $55M to Tom Brady for 20 hours of consulting? That they were spending vast sums on ill-conceived political projects, like the $10M they blew in a failed attempt to impact the Democratic primary for a seat in the House of Representatives? Given Lewis’s expertise in finance, it is tempting to think that he should have noticed. Given the billions of dollars of customer deposits at stake, it is tempting to think that he should have done something. Of course, that may implicate questions of journalistic ethics that are beyond my expertise.
In any event, it all went bad very quickly. Someone posted on Twitter that a lot of the supposed assets held by Alameda Research were basically equity in FTX, and the owner of a rival crypto exchange said on Twitter that he didn’t like that and was going to sell his equity in FTX. FTX depositors were spooked and started to pull their deposits. But it turned out that their deposits hadn’t been segregated and kept safe. They had been handed over to Alameda to trade, possibly because Alameda had lost billions of dollars.
Bankman-Fried and his team tried to pull money out of Alameda – or anywhere they could find it – to pay off the run on FTX, but they couldn’t find enough in time. Their books were a mess and no one knew what all their assets were, where they were, or how to access and liquidate them. Some assets had been stolen by hackers. FTX stopped paying depositors and filed for bankruptcy. Exactly how much money actually went missing was unknown when Going Infinite went to press, and as far as I can tell, remains unclear. Lawyers in the FTX bankruptcy are looking for funds and continue to unearth assets, but may still be several billion short. (The legal fees for the bankruptcy are estimated to approach a billion dollars as well.)
During all these events, Lewis depicts Bankman-Fried as a brilliant but naïve and unfocused person. Lewis’s portrayal is compatible with the idea that Bankman-Friend couldn’t or didn’t pay much attention to the “details” of exactly where and how customer funds were held. That was essentially Bankman-Fried’s defense at trial: that he may have been a sloppy accountant but lacked the criminal intent required to make him guilty of wire fraud. People who disliked the book see Lewis as a little more than a shill for the defense. The fact that the book came out on the same day the trial began may have added to the perception. The Guardian opined that Lewis “can’t bear to think ill of his subject.” The New York Times was more cutting, stating that Lewis “had, in the months leading up to the disaster, a front-row seat — from which he could apparently see nothing.” To my mind, the book doesn’t go quite so far as defending Bankman-Fried, but it does tend to repeat, rather than interrogate, Bankman-Fried’s characterizations of why he did things.
Bankman-Fried’s protestation that he lacked criminal knowledge or intent seemed doubtful to me from the outset. He was the unquestioned leader of FTX and its related enterprises. His central business goal was to position FTX as the honest crypto exchange. The idea that someone would have transferred billions of dollars of customer deposits out of FTX without his knowledge and approval seems unlikely on its face. Further, although the book ends before Bankman-Fried’s criminal trial began, the evidence at the trial – including testimony from cooperating insiders – supports the idea that Bankman-Fried was not merely aware of but also directed the misuse of customer funds.
Of course, the story isn’t over yet. Bankman-Fried is now in federal custody, awaiting sentencing on wire fraud and related charges. His sentence may not be “going infinite,” but it seems likely to be long. He’s facing a maximum of 110 years in prison and the predictions I’ve seen regarding his advisory sentencing guidelines suggest that they may be in the 20-40 year range. Sentencing is scheduled for March 28. An appeal is sure to follow. Perhaps Michael Lewis will write a sequel.