The FTX Disaster is Deeper Than You Think

If Sam Bankman-Fried goes to jail, many executives should be his roommate.

I don't think Sam Bankman-Fried should be jailed.

If Sam Bankman-Fried is guilty, every executive in Silicon Valley Bank is guilty, too. If Sam Bankman-Fried goes to jail, Greg Becker, Silicon Valley Bank CEO, should be his roommate.

Sam Bankman-Fried and Greg Becker had good intentions but found huge holes in their balance sheets, so they tried to cover them by taking bigger risks, and before they knew it, the world had Bernie Madoff-type Ponzi schemes on its hands.

Sam Bankman-Fried's Road to Riches Is Filled With Deception.

Sam Bankman-Fried, often referred to online as "SBF," attended Crystal Springs Uplands School, an expensive private school in California, before graduating from the Massachusetts Institute of Technology in 2014 with a bachelor's degree in physics and a minor in mathematics.

Soon after graduating, he became a finance and cryptocurrency entrepreneur and co-founded the now-bankrupt crypto exchange FTX and the crypto trading company Alameda Research. At one point, his wealth exceeded $26 billion.

SBF made money by purchasing Bitcoin and other cryptocurrencies in one part of the world and selling them in another, pocketing the difference. When crypto prices declined dramatically in 2022, SBF ran out of money to support his other business ventures and lavish purchases.

After the crypto prices declined, CoinDesk issued a report highlighting possible leverage and solvency problems involving FTX-affiliated trading firm Alameda Research. Binance, the rival exchange company, considered buying portions of the company but quickly backed out. At that point, SBF was forced to step down, and the company filed for bankruptcy.

These issues led the federal prosecutors to step in and investigate SBF. The investigators discovered that SBF used much FTX investors' money to support his luxurious lifestyle, buying homes in the Bahamas and funding favored political causes. He was later arrested in The Bahamas and deported to the United States, where he maintained his innocence from all criminal charges.

SBF's story is no different than the story of Silicon Valley Bank's CEO Greg Becker, which led me to believe that taking down SBF was a calculated, intentional move. No one wanted Crypto to become the dominant currency, so SBF was a convenient, corrupted target to take down, "For the first time, Congress and regulatory agencies seem collectively energized about making a real example out of someone. Lawmakers, like their constituents, are visibly, viscerally annoyed."

Some regulators think Crypto is the world's greatest scam, and they are ready to take it down, so SBF gifted them a great gift to make their political point. Let me explain why I believe that SBF's and SVB's stories are very similar.

Silicon Valley Bank's Road to Bankruptcy Is Full of Contraction.

Silicon Valley Bank failed for similar reasons as FTX, and Greg Becker, the Bank CEO, is almost identical to Sam Bankman-Fried; both are more incompetent than crooked.

I will tell you Greg Becker's story, and you will decide if Greg Becker was incompetent or corrupt.

Gregory W. Becker grew up on his family's 300-acre farm in Indiana. His father was a successful businessman who was able to send Greg to Indiana University, where he graduated with a bachelor's degree in finance. His first job out of college was at a Comerica bank in Detroit. A few months after working at Comerica, he learned that the Human Resources department at the bank showed that he had an MBA.

This mistake was eventually corrected, and soon, he was asked if he would move to the bank's California office for a year. At the end of his assignment in 1993, he refused to return to work in Detroit and joined a newly formed bank called Silicon Valley Bank (SVB).

CEO Greg Becker Was There for Svb's Quick Rise and Even Faster Fall

At the SVB, he moved up the corporate ladder until he became the CEO of Silicon Valley Bank and a board member of the Federal Reserve Bank of San Francisco before SVB's collapse in 2023.

The abundance of cash caused Silicon Valley Bank's failure. The federal government gave businesses and individuals near-zero interest rates that the federal government kept low to stimulate the economy's growth in 2020. So, when most banks in the U.S. refused to loan money to tech companies, Becker doubled down and built his entire business to focus on the tech industry and new startups with big potential but little profit.

Some industries benefited more than others, "The technology sector benefited handsomely from the cheap money that was sloshing around and fueling sky-high valuations that analysts warned may have been exaggerated." Since SVB primarily served the tech industry, the bank and its CEO, Greg Becker, found themselves with billions of dollars to invest in tech companies.

It is important to mention that the bank was doing all that without a risk manager for most of last year after its risk manager stepped down, and the bank hid this fact for a long time, similar to FTX. SBF didn't have a risk manager at the time of its collapse.

Too Much Money Can Be as Bad as No Money For Banks.

When inflation was rising higher and higher every day, the Federal Reserve had to start raising rates at its fastest pace in decades, making investors risk-averse and less willing to take any risk, which dried the IPO market, creating the same ambiance at Wall Street similar to the conditions we witnessed in 2008 financial crisis.

The Fed ignored the unintended consequences of raising rates, leading to the failure of many regional banks and tech companies that couldn't keep pace with raising interest rates and persistent inflation that refused to go down.

Svb CEO Greg Becker and Sbf Are Very Similar

Both CEOs credit their success to technical expertise, the ability to recognize market trends, and the willingness to take risks. That's why both have been vocal about believing that the federal government should regulate or deregulated their industry.

However, while SBF faces a long jail sentence, Greg Bekcer gets away with his crimes or incompetence. Greg Becker could fly first class to Maui to live in his luxurious three-bed, three-bath townhouse while "lawmakers on both sides of the aisle seemed eager to nail Bankman-Fried to the wall." Why not Greg Becker?

Sam Bankman-Fried and Greg Becker have been faulted for their lack of transparency and communication with their clients and investors. Both of them limited their communication with their customers to maximize their competitive advantage in the market. For example, "Becker cashed out $ 3.57 million of stock just weeks before the bank folded." Had the bank client known that on time, they would have seen something coming.

However, their lack of transparency is a symptom of their incompetence rather than their crookedness. Both have demonstrated they lack the necessary skills to lead a successful company in an uncertain financial environment.

Another area where both have shown incompetence is risk management. FTX suffered a massive loss due to a sudden drop in the value of Bitcoin, and SVB suffered the same fate when the Fed raised the interest rate. While every business has profits and losses, both failed to mitigate the risk or hire competent risk managers to help them through the uncertain financial crisis.

The bottom line is that both of them have prioritized their interests over those of their customers and investors and short-term gains over long-term success, so they failed and bankrupted their own companies. So, it is clear that both are incompetent first and corrupt second.

Your thoughts?