Going Infinite: The Rise and Fall of a New Tycoon

by Michael Lewis

Sam had a real shot at being the world’s first trillionaire. FTX’s revenues were growing at an astonishing rate: from $20 million in 2019, to $100 million in 2020, to $1 billion in 2021.

They didn’t know that inside Sam’s mind was a dial, with zero on one end and one hundred on the other. All he had done, when he said yes, was to assign some non-zero probability to the proposed use of his time. The dial would swing wildly as he calculated and recalculated the expected value of each commitment, right up until the moment he honored it or didn’t. “He’ll never tell you what he’s going to do,” explained Natalie. “You have to always be prepared it’s going to change every second.” Every decision Sam made involved an expected value calculation. The numbers in Sam’s mind were always shifting. One midnight, for instance, he had sent Natalie a message that read: “There’s a 60 percent chance I’ll go to Texas tomorrow.” “What does that mean, a sixty percent chance?” asked Natalie. “I can’t book sixty percent of an airplane and sixty percent of a car, or sixty percent of a hotel room in Texas.”

“Mass delusions are a property of the world, as it turns out,” he said. He had to accept that there was nothing he could do about this. There was no point in arguing with other kids’ belief in Santa Claus. Yet he didn’t feel the slightest need to pretend to agree. He simply came to terms with the fact that the world could be completely wrong about something, and he could be completely right.

There was no point in arguing with other kids’ belief in Santa Claus. Yet he didn’t feel the slightest need to pretend to agree. He simply came to terms with the fact that the world could be completely wrong about something, and he could be completely right. There could be a kind of equilibrium in which everyone in the world could remain wrong and he could remain right, and neither side would even try to change the other’s mind. “There are times when we’re just going to stare at each other,” said Sam.

“I objected to the fundamental reality of the entire class,” said Sam of English. “All of a sudden I was being told I was wrong—about a thing it was impossible to be wrong about. The thing that offended me is that it wasn’t honest with itself. It was subjectivity framed as objectivity. All the grading was arbitrary. I don’t even know how you grade it. I disagreed with the implicit factual claims behind the things that got good grades.” He’d sat through middle school in a stupor, but by high school he was sure enough of his own mind that he was willing to challenge his English teachers’ cherished beliefs on grounds unrecognizable to English teachers. Their belief, for instance, that Shakespeare was an especially good writer.

He’d learned to simulate responses to whatever other people had just done or said, so that they might read him better. All he’d really done was create a better mask, one that perhaps made it even more difficult for others to know whatever was actually going on behind it.

Sam. He hated the way inherently probabilistic situations would be interpreted, after the fact, as having been black-and-white, or good and bad, or right and wrong. So much of what made his approach to life different from most people’s was his willingness to assign probabilities and act on them, and his refusal to be swayed by any after-the-fact illusion that the world had been more knowable than it actually was. The missing Ripple reminded him of a favorite thought experiment. “You have a close friend, Bob,” he explained. “He’s great. You love him. Bob is at a house party where someone gets murdered. No one knows who the murderer is. There are twenty people there. None are criminals. But Bob is less likely in your mind than anyone else to have killed someone. But you can’t say that there is a zero chance Bob killed someone. Someone got killed, no one knows who did it. You now think there’s like a one percent chance Bob did it. How do you see Bob now? What is Bob to you? And there is no updating: there is no new information about Bob.”

they resumed making millions of dollars a month in trading profits. They weren’t the same company, however. They were no longer a random assortment of effective altruists. They were a small team who had endured an alarming drama and now trusted Sam. He’d been right all along! To those who remained—and even to some who had quit—Sam went from someone they weren’t quite sure about to a leader to be followed even if they didn’t completely understand what he was doing, or why. (“Ex post I was wrong and we should have been willing to have a higher risk appetite,” one of the departed members of the management team later said.) An odd company from the start had just become even more odd. The people inside were those most able to tailor their thoughts and feelings to those of its creator.

The whole thing was odd: these people joined together by their fear of trust erected a parallel financial system that required more trust from its users than did the traditional financial system. Outside the law, and often hostile to it, they discovered many ways to run afoul of it. Crypto exchanges routinely misplaced or lost their customers’ money. Crypto exchanges routinely faked trading data to make it seem as though far more trading had occurred on them than actually had. Crypto exchanges fell prey to hackers, or to random rogue traders who gamed the exchanges’ risk management.

In traditional finance, founded on principles of trust, no one really had to trust anyone. In crypto finance, founded on a principle of mistrust, people trusted total strangers with vast sums of money. The situation was less than ideal—and

If he seemed older than he was, it was because he was letting go of one of the things that defines youth: hope. “The smartest minds of our generation are either buying or selling stocks or predicting if you’ll click on an ad,” he said. “This is the tragedy of our generation.” The effect of the tragedy had been to shrink his ambition.

Seven months earlier, he’d testified about crypto regulation before the House Financial Services Committee. Someone snapped a close-up of his feet under the table: the laces of his new dress shoes were still swaddled and gathered off to one side, as they come in the box. Someone must have handed him the shoes and said, without further instruction, “You should put these on.”

It struck him as yet another strange and senseless feature of the grown-up world that the United States, which was otherwise willing to subject its poorest and most vulnerable citizens to state lotteries and casinos and other games of chance in which the odds were stacked against them, made an exception for securities, or anything that might be construed as securities. But those were the rules of this new game, and Sam had decided, with some doubts about their tractability, to try to change them—rather than do what the other crypto exchanges were doing, which was simply to ignore them.

At that moment, Sam was planning to give $15–$30 million to McConnell to defeat the Trumpier candidates in the US Senate races. On a separate front, he explained to me, as the plane descended into Washington, DC, he was exploring the legality of paying Donald Trump himself not to run for president. His team had somehow created a back channel into the Trump operation and returned with the not terribly earth-shattering news that Donald Trump might indeed have his price: $5 billion. Or so Sam was told by his team.

One day some historian of effective altruism will marvel at how easily it transformed itself. It turned its back on living people without bloodshed or even, really, much shouting. You might think that people who had sacrificed fame and fortune to save poor children in Africa would rebel at the idea of moving on from poor children in Africa to future children in another galaxy. They didn’t, not really—which tells you something about the role of ordinary human feeling in the movement. It didn’t matter. What mattered was the math. Effective altruism never got its emotional charge from the places that charged ordinary philanthropy. It was always fueled by a cool lust for the most logical way to lead a good life.

For every dollar’s worth of a stablecoin, there was meant to be a dollar held somewhere in a genuine Federal Deposit Insurance Corporation–insured bank. But again, there was no proof that these dollars were there. The whole edifice relied on a fantastic amount of trust. By late October that trust was gone, and crypto was in a souped-up version of an old-fashioned financial crisis.

Research, however, an exception had been made. Sam’s private trading firm was allowed to lose, in effect, infinity dollars before its trades were liquidated. “No one ever asked about liquidation,” said Constance. “And no one ever asked, ‘Is our money actually inside Alameda?’ ” Sam was right: People don’t see what they aren’t looking for.§

There had been two different ways that money that should have been in cold storage inside FTX instead wound up in Alameda’s hot little hands. The first was through Alameda’s normal trading activity. Like every other trader, Alameda had been allowed to borrow from the FTX exchange by posting collateral. As collateral, Alameda had used, among other things, FTT—the token that was, in effect, equity in FTX. The price of FTT had collapsed with FTX. The collateral was now worthless, and some of the loans remained unpaid. In Sam’s story, there was a reason that Alameda had been exempted from the rules that governed every other trader on FTX, and had liquidated their trades when the losses exceeded the value of their collateral. Back in 2019, when FTX was created, Alameda was by far its biggest trader. At the start, Alameda was on the other side of most trades that occurred on FTX. It helped the market on the exchange to work better if Alameda could occasionally run losses—for example, if they needed to step in and acquire another trader’s losing positions after FTX liquidated them.

The bulk of the customers’ money inside of Alameda that should have been inside FTX—$8.8 billion of it, to be exact—resided in an account that Alameda had labeled fiat@. The fiat@ account had been set up in 2019 to receive the dollars and other fiat currencies sent by FTX’s new customers. Alameda Research had created the account only after FTX had been unable to get its own bank accounts. Back in 2019, no real bank in the United States had been willing to offer its services to a new international crypto exchange. The crypto entities that they did bank, like Alameda Research, usually disguised their association with crypto. The biggest US crypto exchange, Coinbase, had by some miracle persuaded Silicon Valley Bank to give it an account—and thus a mechanism for Coinbase to receive US dollars from, and send US dollars to, its crypto trading customers. A US bank account had thereby given Coinbase a big advantage, but how exactly they’d obtained the account was a story for another day; the story for this day is how FTX failed to find its own US bank for sending and receiving dollars. From its founding in the spring of 2019 until July 2021, when it finally persuaded a bank in San Diego called Silvergate Capital¶ to open an account in its name, FTX had no straightforward way to accept dollar deposits. In Sam’s telling, the dollars sent in by customers that had accumulated inside of Alameda Research had simply never been moved.

At that point, in Sam’s telling, Sam thought that Alameda might be in trouble. He decided to dig into its accounts on his own and understand the problem. By October, he had a clearer picture. It was only then that he could see that Alameda had been operating as if the $8.8 billion in customer funds belonged to it. And by then it was too late to do anything about it.

Like Constance, I’d poke and prod and always come away with the sense that I’d learned less than I needed to know. But on that evening, Sam filled in one piece of this particular puzzle: FTX had lost a lot of money to hackers. To avoid encouraging other hackers, they’d kept their losses quiet. The biggest hacks occurred in March and April 2021. A lone trader had opened an account on FTX and cornered the market in two thinly traded tokens, BitMax and MobileCoin. His purchases drove up the prices of the two tokens wildly: the price of MobileCoin went from $2.50 to $54 in just a few weeks. This trader, who appeared to be operating from Turkey, had done what he had done not out of some special love for MobileCoin. He’d found a flaw in FTX’s risk management software. FTX allowed traders to borrow bitcoin and other easily sellable crypto against the value of their MobileCoin and BitMax holdings. The trader had inflated the value of MobileCoin and BitMax so that he might borrow actually valuable crypto against them from FTX. Once he had it he vanished, leaving FTX with a collapsing pile of tokens and a loss of $600 million worth of crypto.

The size of those hacks was an exception, Sam said. All losses due to theft combined had come to just a bit more than $1 billion. In all cases, Gary had quietly fixed the problem and they’d all moved on and allowed the thieves to keep their loot. “People playing the game,” was Sam’s description of them. (He really was easy to steal from.)

had been led to believe that whoever succeeded him as CEO would at the very least use him as a resource, to help find the missing money. That was never going to happen. In the early days of his career in bankruptcy, back in the 1990s, John Ray had learned a lesson the hard way. One of the crooks he’d replaced engaged him in conversation and then lied about what had been said. In the first few days after he signed the company over to Ray, Sam reached out to him, over and over, with these pitiful emails. Hey John, I’d really love to talk. Ray took one look at them and thought, No way, José.

Almost as soon as he became the new CEO of FTX, he took on a second, far more loosely defined one: helping US prosecutors make their case against Sam Bankman-Fried. “There’s people that are born criminals, and there’re people that become criminals,” said Ray. “I think he became a criminal. The how and why he became a criminal I don’t know. I think maybe it takes an understanding of this kid and his parents.”

days into his new job, Ray filed a report with the US Bankruptcy Court for the District of Delaware. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” he wrote.

John Ray expected to see evidence of a crime. To our meetings he always brought new and seemingly damning pieces. One time, he’d found Alameda Research’s US tax forms from 2021, for instance. Alameda had reported a loss of more than $3 billion. If it was what it seemed to be, it would help to explain the hole in my private balance sheet; but it was actually just a piece of a bigger and more complicated puzzle. That year, Alameda Research had sold short FTT at the same time an entity it controlled bought the same quantity of FTT. The price of FTT had gone up, a lot. Alameda Research suffered a multibillion-dollar trading loss; the second entity had taken in a precisely corresponding multibillion-dollar gain. The accounting rules for Alameda Research allowed it to report unrealized market losses as tax losses; the accounting rules for the other entity did not require that it do the obverse with its gains. Alameda’s tax lawyers, a group that included Sam’s father, had argued for taking the tax loss, as it could be offset against current gains. It was, as one of the lawyers put it, “a fake loss.”

US bankruptcy judges have sensational powers to determine which evidence to admit in a case.

Ray was inching toward an answer to the question I’d been asking from the day of the collapse: Where did all that money go? The answer was: nowhere. It was still there.