How to scam investors — 4 easy steps Part 2 (FTX)

Yrjö Ojasaar
8 min readNov 14, 2022


The FTX story is just so apropos of the issues discussed in my September 2022 post How to scam investors — 4 easy steps, that I had to write this update to add FTX to the WeWork, Theranos, Wirecard and Nikola stories.

FTX — Sam Bankman-Fried

Investors: Sequoia, Lightspeed Venture Partners, SoftBank Vision Fund,

Peak Valuation: $32 billion in 2021

Total Funding: $1.8 billion

Step 1. Turn up your charisma game (project an image of a “cool” and strong leader for your space):

Like Holmes, Neumann, Braun and Milton, Sam was a master actor in crafting and presenting his altruistic crypto genius persona. Regardless of how formal an occasion, he always wore rumpled shirts and shorts, his curly black hair was unkempt, and he was often impatiently tapping his foot and playing with fidget spinners during interviews. Everything about him exuded the mystique of a selfless nerdy genius.

This hard-working “mad scientist” costume was key to the role he was playing in the media and to investors:

Before one of his first TV appearances, Andy Croghan, a colleague at Alameda and FTX, urged him to clean up his look.

“I was like, ‘Sam, you’ve got to cut your hair, dude — it looks ridiculous,’” Mr. Croghan said. “And he said, ‘I honestly think it’s negative EV for me to cut my hair. I think it’s important for people to think I look crazy.’”

FTX would plan and arrange for VIP visitors and investors to visit FTX offices while Sam was sleeping. The visitors could be taken to the conference room with a view of the sleeping CEO, who would then soon awaken to join the meeting in hisw shorts and T-shirt.

The aim, Mr. Croghan said, was to cultivate a mystique. “Sam and I would intentionally not wear pants to meetings,” he said. “Sam literally said to me, ‘The only people I think I’d wear long pants for are Congress.’”

Step 2. Pitch a strong future vision (promise big changes in a big market):

Sam was an outstanding spokesman for the future of cryptocurrencies. His empowerment of the individual, end/utility justifies the means philosophy spoke directly to the Silicon Valley VCs visions of the ideal CEO.

Sam painted a future vision where crypto assets will rival and then overtake “unreliable” traditional fiat currencies like dollar and euro. His neo-utilitarian message promised a new generation of wealth creation for Gen-Z without traditional banks — “the future of money.” Sam pitched VCs a Total Addressable Market (TAM) of every human being on the planet. As a business model — this would be worth trillions of dollars for his startup FTX.

He promised to change US regulation of crypto to allow more freedom and easier trades for various crypto assets — making crypto mainstream, and allowing fully leveraged trades for every retail investor. FTX platform allowed retail customers (average joes) to make massively leveraged investments into speculative crypto assets .FTX moved its headquarters to the Bahamas largely because “80 percent of its $1.1 billion in global revenue stems from a trading instrument that remains illegal in the United States.

Step 3. Create and display “social proof” (perceived evidence of support for your startup):

A child of two Stanford Law School professors Sam was brought up as part of California’s upper class. As a startup CEO, he further enhanced his status surrounding himself with the rich and famous such as NFL quarterback Tom Brady and model Gisele Bündchen who became investors and promoters in FTX, partied with actors Orlando Bloom and Katy Perry, joined on stage and at events with Tony Blair and Bill Clinton, made donations to Joe Biden’s campaign, bought the naming rights to the Miami Heat’s NBA arena, premiered an ad with Larry David for FTX during the NFL Super Bowl.

In the media Sam was actively promoting to the public a selfless ethical philanthropist image (A 30-Year-Old Crypto Billionaire Wants to Give His Fortune Away,” Bloomberg story said that “Sam Bankman-Fried drives a Corolla, sleeps on a beanbag, and has a Robin Hood-like philosophy.”) However, at the same time just like Holmes, Neumann, Braun and Milton, upon first success Sam immediately bought a $35M penthouse (the Orchid) to be neighbors with wealthy investor types and get instant admission into the right circles (he also purchased through FTX various luxury properties worth more than $300M).

To further cement his positive public image, Sam was donating to political action committees ($10 million contribution), President Biden’s campaign ($5.6 million contribution), supported pandemic-related causes and research into artificial intelligence ($50 million), testified at a congressional hearings about crypto, and lobbied congress to have a hands-off approach in regulating crypto investments. The patina of legitimacy was further enhanced by FTX registration in Gibraltar where the regulators quickly approved FTX’s a crypto derivatives exchange license. FTX also strengthened its image and position by acquiring competitors like Voyager ($1.3B), Blockfolio ($150M), Bitvo, LedgerX and others to become the #2 crypto exchange in the world. To top it off, Sam purchased a 7.6% holding in Robinhood, and invested over $500M into Sequia, Altimeter Capital, Paradigm and other venture capital funds. On paper, he looked like the master of the universe. As a Sequoia partner said after the meeting with Sam “After my interview with SBF, I was convinced I was talking to a future trillionaire.

Step 4. Create FOMO (manufacture a sense of urgency and artificial scarcity):

By 2021, 3 years after launch of FTX (and a $1 billion series-B round), investors were fighting each other to get in on FTX series-C investment round. Everyone saw FTX as a hot investment and tried to get an allocation. Finally 69 investors got to put $420M into FTX. Sequoia and Lightspeed Ventures were the big “winners” in the competition getting to invest over $200M in this round.

Sam was able to create a feeling that FTX did not need the investors’ money — which of course made every VC want to desperately throw money at him. Michelle Bailhe a partner on Sequoia’s growth team admitted “I thought they were just minting money and had absolutely no need for investors.” Once she got word that there was a possibility of investing in FTX, Bailhe immediately got her partners on a Zoom call at 4 pm in July “Im like ’No its worth it, Cancel your afternoon.’” Sequoia partners loved Sams quirky but confident show and were super excited to get a chance to invest in FTX as can clearly be seen from the Zoom comments from the pitch call:


Partner: I am 10 out of 10

Male Sequoia partner: “I have a throbbing erection”

Female Sequoia partner: “You could drown a toddler in my panties”

Meanwhile, Sam was playing League of Legends mobile game throughout the entire meeting with Sequoia.

“I sit ten feet from him, and I walked over, thinking, Oh, shit, that was really good,” wrote Sequoia head of product Ramnik Arora of his meeting with Mr Bankman-Fried. “And it turns out that that fucker was playing League of Legends through the entire meeting.”

Sequoia absolutely loved Sam’s outrageous confidence (and perhaps the ability to multitask between playing a mobile game and answering VC questions). In fact, they were all so excited that they agreed for FTX to continue without any corporate governance from a supervisory board. The excitement must have also translated directly into their instructions to their lawyers doing due diligence — as the deal quickly passed without any problems. after the fact Sequoia has nonsensically stated that “we ran a rigorous diligence process.”

Apparently the rigorous due diligence did not see a problem with:

Sam having a backdoor built into FTX accounting software, so he could move billions without triggering alerts to other staff or accountants;

FTX having the ability to freely mix customer funds with counterparties and trading them without explicit consent;

the arrangement where Alameda Research (hedge fund and FTX sister company) was allegedly dealing with high-frequency trading as frontrunner to FTX;

the arrangement where Alameda Research main asset (€1B+) to back its leveraged trades was the FTT tokens of FTX;

Sam’s 28 year old girlfriend getting appointed the CEO of Alameda Research; (before running this billion dollar quant fund her experience was 19 months as a junior trader at Jane Street)

a 40 person company having a corporate structure that looks like this:

Step 5. (optional) If you get caught — blame everything on your hustler culture (you are gritty, move fast and break things)

From May to June 2022 Sam’s hedge fund Alameda Research, suffered a series of losses from various crypto deals. Sam used at least $4 billion of FTX customer’s money to prop up Alameda Research. When this news leaked out in the media in November, customers withdrew $6 billion is assets in 72 hours, and the whole house of cards started coming down.

On Nov 7th Sam was telling everyone on twitter that “FTX is fine” and its “assets are fine” and that the leak was a strategy by Binance (a competitor) “trying to go after us with false rumors” (tweet has now been deleted). However, on Nov 9th Sam sent a new tweet saying “sorry I fucked up and should have done better.” His reason for the fuckup of allegedly illegally commingling assets, violating securities laws, unlawfully covering another company’s losses with customer’s money, and other crimes was simple:

“A poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users’ margin”

he also concluded his apology with the disclaimer:


It is fascinating how similar are the stories of WeWork, Theranos, Wirecard, Nikola, Light Sail, Fab, NS8, Luckin Coffee,, Juul and many others. VCs have an image in their mind of the “perfect” startup CEO. So when a good actor (or sociopath) shows up in the right clothes and saying the right things — their pattern recognition heuristic overpowers logic and common sense. The two primary forces then drive the investment process — Greed and FOMO.

Every one of these scams could have been uncovered with standard due diligence. However, when investors are afraid of losing a deal to their competitors they make shortcuts, excuse various faults/eccentricities of founders, ignore problems, and direct their lawyers to limit the scope of DD and just get the deal done quickly.

VCs claiming to have duped by founders, or decrying “how could we have known” remind me of the Pardoner in Chaucer’s The Canterbury Tales preaching “Radix malorum est cupiditas,” while admitting “I preach for money, and for nothing else."