- Investor Bill Ackman's theory is that Sam Bankman-Fried was embarrassed about admitting he'd failed.
- Rather than admit to losses, he attempted to "fix" FTX's problems, leading to the exchange's collapse.
Sam Bankman-Fried's rapid rise to success gave him a fear of failure — and that could explain why FTX collapsed so spectacularly last month, billionaire investor Bill Ackman has suggested.
The crypto exchange cofounded by Bankman-Fried seems to have been profitable and backed by top venture capitalists, Ackman said Friday. Now the former CEO is facing criminal charges and allegations he misused customers' funds.
"Why would SBF commit fraud at Alameda and blow up FTX and risk a lifetime in jail? This reminds me of Madoff," tweeted Ackman, the founder and CEO of hedge fund Pershing Square Capital Management.
"Neither SBF or Madoff have the typical profile of a crook," he said. Instead, they had fallen into taking significant legal risks rather than admitting their companies were failing, his theory goes.
US authorities have charged Bankman-Fried with eight counts of fraud. The Securities and Exchange Commission alleges the former crypto billionaire moved FTX customers' funds onto the balance sheet of sister trading firm Alameda Research, so it could pay off some of its loans.
Convicted fraudster Bernie Madoff was sentenced to 150 years in prison in 2010 after masterminding the largest Ponzi scheme in history, which robbed investors of nearly $65 billion.
"A theory: both lost money and were embarrassed," Ackman said. "Rather than acknowledge the losses, they assumed that they could 'borrow' customer funds, invest them and earn back the loss, and then repay the borrowed funds."
"But then the market crashed and the losses were too large to recover from. At that point, they were stuck."
Young Wall Street trader Bankman-Fried went from relative obscurity to the head of crypto empire FTX in just four years. He amassed a personal fortune that topped $20 billion at one point, making him one of the history's wealthiest people under 30.
That runaway success soon after leaving a top college sheltered Bankman-Fried from learning how to cope with failure, Ackman suggested.
"The problem with MIT grads with wildly successful startups and acclaim is that they never had an opportunity to fail before," he said.
"Failure is so frightening that they can't acknowledge it and they do stupid sh-t to avoid the embarrassment and the come down. The lesson is to treasure mistakes and failure and to learn that lesson early."
This isn't the first time that Ackman has commented on Bankman-Fried.
"Call me crazy, but I think SBF is telling the truth," he tweeted on November 30, after Bankman-Fried told the New York Times' DealBook Summit that he had never knowingly committed fraud. Two weeks later, Bankman-Fried was arrested in the Bahamas.