The collapse of FTX and the founder’s apology: “I’m sorry, I’ll do everything possible to make it up to you”

While legions of lawyers and accountants delve into the digital rubble of FTX cryptocurrency pyramidthe exchange that turned out to be a simple Ponzi scheme that burned an amount exceeding 30 billion dollars (100 thousand customers were Italian), the text of the latest internal memorandum emerges with which the founder and CEO tried to explain what success.

Technically, FTX imploded in a massive cash crunch: it seems clear that FTX’s sister company, Alameda Research, a hedge funds run by his (perhaps ex) girlfriend, used FTX – and his customers’ money – as an ATM to do what he Forbes undiplomatistically defined: Playing roulette.

Now the exchange and its billionaire co-founder Sam Bankman-Fried are under investigation by the United States Department of Justice and the Securities and Exchange Commission for mismanagement of client funds (the headquarters of FTX and Alameda were in the Bahamas, to exploit the opaque local laws on banking transparency).

Bankruptcy trustee John Ray III which is trying to get to the bottom of the Chinese boxes on which FTX rested has so far found that at least 100 legal entities depended on the exchange, with 300 employees in all, a maze of interconnected companies, subsidiaries and affiliates that spans 27 regions. Here’s how Bankman-Fried, currently missing in thin air, allegedly moved funds from FTX clients who mistakenly thought they could count on the money deposited in their accounts.

All time Quartz has published the organization chart of the FTX group to print which in legible characters an A3 sheet is not enough, an impressive map that led the calm editor to explain that FTX had a deliberately convoluted structure now for the first time FTX will have competent governance, governance aimed at understanding whether there is money left somewhere or whether it has all disappeared into thin air between bad investments and embezzlements.

Here are the key passages from the latest memorandum by Bankman-Fried, a barely thirty-year-old child prodigy who had ill-advisedly appeared on the covers of famous American financial magazines:

Hello everybody –

I am deeply sorry for what happened. I’m sorry for what happened to all of you. And I’m sorry for what happened to the customers. You have given everything you could for FTX and stood by the company, and mine.

I didn’t want this to happen and I’d give anything to be able to go back and do it all over again, another way. You were my family. I lost you, and our house is now an empty warehouse where there are only monitors. When I turn around, there’s no one left to talk to. I have failed you all. When things started to go wrong I was unable to communicate with you. I got stuck, I was under pressure, from leaks… I lost control of the most important things, in the chaos of business growth.

I care deeply about all of you. You were my family, I’m so sorry.

I was the CEO, so it was my duty to make sure that, in the end, the right things happened at FTX. I wish I had been more careful.

Now I want to try to explain to you what happened…

I never wanted that to happen… I did not realize the full extent of the marginal position, nor did I realize the magnitude of the risk…

I am deeply sorry for my failure in supervision. I wish I had done many things differently. To name a few:

a) I should have been substantially more skeptical of positions with wide margins
b) I should have looked into stress test scenarios involving hypercorrelated crashes and subsequent bank runs
c) I should have been more careful with fiat currencies on FTX
d) I should have had continuous monitoring of available assets, client positions and other key risk metrics
e) I should have put more controls on margin management.

And none of that changes the fact that this all sucks.

It sucks for you guys, and not your fault, and I’m really sorry.

I’ll do whatever I can to make it up to you guys – and the clients – even if it takes the rest of my life. But I’m afraid I will never be able to do that.

I also want to thank those of you who have given me what I now believe is the right advice on the paths for FTX to follow after the crash.

You were right, of course… We could probably have raised significant funds; the potential interest on billions of dollars of funding came about eight minutes after I signed the bankruptcy papers. Between those funds, between the billions of dollars in collateral the company still held, and the interest we’d received from elsewhere, maybe that way we could have returned a lot of value to customers and saved the business.

There would have to be changes, of course: a lot more transparency and a lot more controls, including my own supervision. But FTX was something really special and you all helped make it that way. Nothing that happened was your fault. We had to make very difficult decisions very quickly.

I’ve been in that position before and I should have known that shitty things happen, because we all tend to make irrational decisions…

I wish I had listened to those of you who saw and still see value in the platform, which it was and my belief too.

Perhaps there is still a chance to save the company. I believe there are billions of dollars of genuine interest from new investors that could go into repaying customers. But I can’t promise it will happen, because it’s not my choice…

I am incredibly grateful for everything you have done for FTX over the years, and I will never forget it.

– SBF