Cents-less.

By now, people have reached the height of exhaustion or disbelief when the demise of FTX, the cryptocurrency exchange, was publicly reported. Once heralded as the next Mark Zuckerberg, FTX founder Sam Bankman-Fried disgracefully fell off the startup world after a mindblowing $32 billion valuation of his company at their last raise this year. Skeptics of decentralized finance underscore the negative repercussion of loose regulation and oversight. Proponents touted crypto as the new counter-culture revolution bypassing establishments. Whether crypto investors were really investing or trading many have lost money from regular retail investors to athletes like Tom Brady, Steph Curry, and even smart investors like Kevin O'Leary.

Fraudulent activities in the investment world, public or private, are not uncommon. In fact, cheating without being caught is one way of winning. Immoral? Yes. Illegal? No, if you can get away with it. What Mr. Fried did was both. He is a thief who knowingly siphoned client money to fund his trading activities. But how did he get away with this?

Mr. Fried was born in Stanford, CA where his father is a lawyer and law professor at Stanford University as is his mother. He graduated with a physics and mathematics degree from the Massachusetts Institute of Technology. With the crypto wave over the past 5 years and proximity to Silicon Valley VCs, FTX was able to raise enough money in three years to command a $32 billion dollar valuation this year. Strategically, FTX was domiciled first in Hongkong then in the Bahamas where laws on start-ups are lax. He is a major donor to the Democratic party donating almost $45 million since 2020. FTX also created a philanthropy cause with the intention of helping charitable grants.

But in one day, his once $16 billion fortune dwindled down by 94% after news of fraud and lack of oversight within FTX and Alameda, a trading firm majority owned by Mr. Bankman-Fried. Allegedly, FTX was directing client money to Alameda and using FTT coins as assests on their balance sheet. While the price of bitcoin plunged this year, Alameda invested billions of dollars on venture capital deals. Among them was to Sequoia Capital's coffers from whom he received venture funds. It seems like 'you scratch my back, I scratch yours'. Sequoia has since written off some $240 million dollars of investments related to FTX to zero. Many more investors including pension funds have been affected by Mr. Bankman-Fried's temerarious behavior. The repercussions will reverberate throughout the asset management world and could implode some smaller funds with heavy exposure to crypto.

It will never be known why sophisticated investors believed in Mr. Fried as a person of integrity. But it looks like people in the same backyard do protect their neighbors. Just like Adam Neuman and Travis Kalanick, Sam Bankman-Fried will be back with a new venture funded by his Stanford neighbors. It doesn't make any sense. Or, is it cents?