Earlier this year, as the crypto meltdown was draining the industry of liquidity, FTX executives were begging company founder Sam Bankman-Fried to preserve cash and stop spending hundreds of millions of dollars on celebrity endorsements.
But the 30-year-old billionaire, who’d relied on branding and hype to rapidly take his crypto exchange from upstart to stalwart, was set on signing up one more big name.
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Three people close to FTX and Bankman-Fried told CNBC that the former CEO lobbied aggressively for a partnership with 11-time Grammy Award winner Taylor Swift. The deal, which would have cost the now-bankrupt company more than $100 million over three years, was close to coming to fruition before it fell apart in the spring, said the people, who asked not to be named because of confidentiality agreements.
The former executives, who had direct knowledge of the negotiations, said the partnership would’ve been a disaster for FTX because of the steep price tag. Bankman-Fried’s commitment to getting the Swift deal done despite the deteriorating business environment fit a pattern of ignoring his lieutenants and going it alone, a half-dozen former company insiders and business partners said.
The Financial Times reported earlier that FTX held talks with Swift about a potential sponsorship.
Bankman-Fried’s overconfidence was embedded into an organization that had few checks on its leader and no board of directors to hold him accountable. Meanwhile, Bankman-Fried portrayed a very different persona to the public, showing himself as a quirky young genius comfortable in shorts and a T-shirt or in a suit in front of Congress who repeatedly professed his belief in effective altruism, a philosophy that promotes the idea of earning a lot of money in order to donate it to the most important causes.
Valued at $32 billion earlier this year by private investors, FTX spiraled into bankruptcy last month after skepticism emerged about the health of the crypto exchange’s financials and customers began demanding withdrawals only to be told their money wasn’t available. Even facing potential criminal charges and the possibility of years in prison, Bankman-Fried has continued to shun advisors by speaking publicly, offering press interviews and tweeting his defense.
“I have a duty to talk to people; I have a duty to explain what happened,” Bankman-Fried said in a video interview at The New York Times DealBook Summit last week, acknowledging that his lawyers are opposed to his current tactics. “I don’t see what good is accomplished by me just sitting locked in a room pretending the outside world doesn’t exist.”
Between his DealBook appearance, an interview with ABC’s “Good Morning America” and his commentary on various podcasts, Bankman-Fried has repeatedly claimed that FTX’s downfall was the result of sloppy management and excessive risk.
Bankman-Fried has denied committing fraud and said he was unaware of much of the intermingling of funds that took place between FTX and Alameda Research, Bankman-Fried’s hedge fund. At least $8 billion in FTX customer funds are now unaccounted for and were used to backstop billions in loan losses at Alameda.
Pursuing Swift NFTs
Bankman-Fried also ran fast and loose with company cash. Within just over two years of starting FTX in 2019, Bankman-Fried signed a $135 million, 19-year deal with the NBA’s Miami Heat for naming rights on the team’s arena. He also signed sponsorships with the Golden State Warriors, Major League Baseball and Formula One, and got Larry David to promote the company in a Super Bowl ad. Gisele Bündchen, Tom Brady, Shaquille O’Neal, Stephen Curry, David Ortiz and Naomi Osaka were among the brand’s ambassadors.
Part of the Swift deal would have included the production by the singer of a collection of non-fungible tokens (NFTs), or digital items that can rise and fall in value. Beyond that, there was a lack of clarity over what Swift would be doing for the company, sources said. After the Swift agreement fell apart, talks emerged internally over a deal with Katy Perry as recently as August, one person said.
Representatives for Swift declined to comment, and Perry did not respond to CNBC’s request for comment.
FTX insiders said that while some people in and around the company questioned Bankman-Fried’s decisions, he surrounded himself most immediately with a crew of yes men. Two sources used the word “insular” in describing his leadership style. Bankman-Fried mainly sought advice from a tight-knight group in the Bahamas, where he lived and where the company was headquartered, sources said.
One former FTX executive said Bankman-Fried had a tendency to chew out employees who disagreed with him in a way that deterred others from speaking up. When Bankman-Fried was angry, sources said his knee-jerk reaction was to immediately blame underlings. Some former insiders said Bankman-Fried put on an act for the public, portraying himself as an easygoing CEO.
Bankman-Fried said in a message to CNBC that he disagrees with the characterizations provided by those former employees. He declined to comment on details of the Swift negotiations.
“Partnerships were an area that was more contentious and on the margin I originally was in favor and ultimately started pushing back on new ones,” Bankman-Fried said in the message.
John Ray III, the new CEO tapped to restructure FTX said in filings that in his 40 years of legal experience, which includes Enron’s liquidation, he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
One of Bankman-Fried’s closest confidants was Caroline Ellison, the ex-CEO of Alameda Research, who he once dated. The pair would often go on lunch walks around FTX’s fenced-in Nassau headquarters, one FTX executive said.
Outside of his Bahamas cohort, Bankman-Fried went to great lengths to avoid speaking to others and he stayed away from face-to-face confrontations, preferring the encrypted messaging app Signal or Slack, one top deputy said. He frequently ignored messages from C-level executives if he disagreed with them.
Another former insider said employees were afraid of Bankman-Fried, adding that “there were very few people who were willing to challenge Sam.”