SORKIN: But there were people who were telling you that you needed more compliance, no?
BANKMAN-FRIED: There were, but I think compliance — we were spending an enormous amount of our energy on compliance. We were spending an enormous amount of energy on regulation, on licensure. We were getting licensed in dozens of jurisdictions. I, I think, frankly, we’re spending probably too much of our energy getting licensed in retrospect.
You know, there were some places where I think that the reporting and transparency obligations from that licensure actually did help. I think when you look at I mean, FTX U.S. derivatives. When you look at FTX Japan, which I think is fully solvent, which I think could make all customers whole tomorrow if the teams were to allow it to. I am confused why it hasn’t. But you know, I think that a lot of what we ended up doing and focusing on was a distraction to some extent from one unbelievably important area that we completely failed on. And that was risk. That was risk management. That was customer position risk. And frankly, conflict-of-interest risk. And you know, there, there was no person who was chiefly in charge of positional risk of customers on FTX. And that feels pretty embarrassing in retrospect because that was, you go back to 2019, even 2018, ask me, why am I starting to build out FTX? What’s the point of it?
And what I would have said was, look, existing crypto derivatives exchanges have large risk-management failures, that every day there are millions of dollars that are being lost by customers because of risk-management failures, that these contracts are paying out 75 cents on the dollar week after week after week because of risk-management blowouts and that, that needs to be overhauled. And that was what I was focused on for the beginning of FTX. I was not focused on that for the last year or two. I got less grounded from that, and I started focusing on the bigger picture on, on known future business avenues, on, on licensure, on a lot of things. And I mean we, we lost track of a really important part of the business and of the product. And so there absolutely were management failures, huge management failures. I bear responsibility for that. There were oversight failures, transparency failures, reporting like so many things we should have had in place. I think that a lot of it was on the risk-management side.
SORKIN: Let me ask you about that. We had Larry Fink here today, and he had a stake in FTX. And Sequoia, Paradigm, very big venture capital firms had given you money. I’m curious if they ever asked you questions about this risk management. Whether they bear any responsibility?
BANKMAN-FRIED: I don’t think they bear responsibility. Put yourself in the eyes of an investor, a venture capital firm, what you’re thinking about primarily is upside. What you’re thinking about primarily is investing in a private company and thinking, “Might this 3X, might this 5X, might this even 10X in the upside cases?” And yeah, there’s some chance that it might go down, some chance it will go down to zero, but it’s counterbalanced by the upside propositions here. Most of what they were focused on was, I think, what might FTX become, what’s the pathway to get from here to there. What would it take? What are the missing pieces? At the point where you are dwelling on all of the various precise downside scenarios and risks for a prospective venture investment, that means you are not investing. If that is where your head is at, and you think the odds are that is where you’ll end up, why would you do that investment?
SORKIN: Can I ask you about the drugs? You have tweeted about it, Caroline has tweeted about it. Others have tweeted about uppers and downers and all sorts of things. There have been pictures taken of something called Emsam, which apparently increases levels of dopamine to the brain. It’s actually for Parkinson’s. Were you taking that? It’s a patch.
BANKMAN-FRIED: It’s funny hearing this. I had my first sip of alcohol after my 21st birthday. I think I maybe have half a glass of alcohol a year, roughly speaking. There were no wild parties here. When we had parties were we played board games. Twenty percent of people would have a quarter of a beer each or something like that, and the rest of us would not drink anything. I didn’t see any illegal drug use at the office or at these parties. And when I say parties, I mean having people over for dinner, that’s what that meant.
