Aditiya Baradwaj joined crypto trading company Alameda Research when it was run from an anonymous first-floor office in downtown Berkeley, California. It was September 2021, and on the day Baradwaj arrived, Sam Bankman-Fried, the company’s founder, was sitting in the middle of the trading floor playing League of Legends. At that time, Bankman-Fried was already more than a crypto billionaire. Alameda was a whale in the crypto markets; FTX, the exchange that Bankman-Fried launched in 2019, had more than a million customers. FTX’s last funding round, in July 2021, raised nearly $1 billion from high-profile investors including Sequoia and SoftBank.
Bankman-Fried was an unlikely poster boy for the industry: mop-haired, academic, exuding a kind of nerdy anti-charisma on screen that set him apart from the sass of the crypto world. He was also famous for being a proponent of effective altruism, a philosophy of earning money to give it away. He wasn’t just a crypto booster; he was making billions of dollars to save the world, and Baradwaj found that convincing. “It’s a pretty noble mission,” Baradwaj says. “And that’s contrary to the mission of many business companies… where, you know, the goal is just to ‘make money.’
A few months later, Baradwaj was aboard FTX’s rocket. Alameda’s headquarters were in Hong Kong; Bankman-Fried and FTX were in the process of moving their operations to the Bahamian capital, Nassau. Staff moved freely between the two. There were parties and conferences with celebrities and political leaders that helped solidify the companies’ status. “Sam’s face was on the cover of Forbes. And you know, everyone called him a genius,” Baradwaj says. “It was very easy to believe that we were part of something really unique and special, and that it was going to continue and it was never going to end.”
But according to a U.S. Department of Justice complaint, by the time Baradwaj joined Alameda, the company was already using customer deposits to fund its own transactions — behavior that, as crypto markets collapsed in 2022, would ultimately lead to the bankruptcy of FTX. to the hundreds of thousands of customers who lost their investments and the criminal charges against Bankman-Fried, Alameda CEO Caroline Ellison, and other top officials at both companies. Behind the stock market collapse is believed to be one of the biggest financial frauds in history, one in which Bankman-Fried and his entourage deceived not only ordinary gamblers, but investors as well. in venture capitalists, institutional investors and sovereign wealth funds – and the people who worked for them. Several Alameda and FTX executives have already pleaded guilty to various fraud and conspiracy charges. Bankman-Fried will go on trial tomorrow in New York. The trial will likely focus on whether he and others knowingly misled their investors. What he doesn’t answer is why these investors were so easy to fool.
“It’s natural to ask the question: how could Sam, Caroline and the others fool so many people, including their loved ones?” Baradwaj said. “I mean, think about the investors who invested in FTX, with access to every document they could want about the company’s financials, and still invested hundreds of millions of dollars in that company. I think that tells you something about the reality distortion field that a lot of these characters may have around them.
Silicon Valley could we can say that it is a case of distortion of reality. Fundraising for startups can be as much about storytelling as it is about economic fundamentals. Most venture capital portfolios are full of companies that will fail because their model is wrong, their product won’t succeed, and their vision for the future won’t come to fruition. The high abandonment rate means everyone is looking for the one thing that will reach escape velocity. Everyone is looking for historic success: a Steve Jobs, a Jeff Bezos. This creates a certain level of hunger, even desperation, that can be exploited by someone who comes along with a great story at the right time.
