Original article by Max Chafkin Hannah Miller, Bloomberg

Original compilation: Felix Joy, PANews

At the Sam Bankman-Fried (SBF) house, Larry David (Note: American comedian) is a family favorite. So when parents received an email from their son, Sam, they were understandably excited. SBF writes that his company, FTX, will air a commercial during the 2022 Super Bowl in which David will star.

The grumpy comedian has played a series of skeptics throughout history, essentially a Neolithic and Elizabethan version of Davids character on the HBO series Curb Your Enthusiasm. Curb Your Enthusiasm is a comedy written and performed by Larry David based on his life in the Los Angeles film industry). In the video someone would demonstrate an invention - the wheel, the light bulb, the Walkman, and finally the FTX. And David would dismiss each invention one after another. The ad will warn viewers that if they don’t invest in cryptocurrencies, they are missing out on a historic opportunity to get rich. The slogan is: Dont be like Larry.

SBF parents love it. Surreal, wrote SBFs mother, Barbara Fried. SBFs father, Joseph Bankman, gushed about how happy and proud he was. A few days later, the staff received some additional feedback from Sams brother, Gabe. He asked his father if he could play a role in the commercial, saying his father was too modest to make the request himself. In a sense, this request is strange. Joseph Bankman had no official position at FTX at the time, and neither did Gabe. Gabe runs an FTX-powered nonprofit dedicated to pandemic prevention.

Soon after, Joseph Bankman showed up on the set to film a scene in which David vehemently opposes the Declaration of Independence. When told that people should have the right to vote, David responded incredulously, Even stupid people? Joseph Bankman, wearing a powdered wig, yelled, Yes! FTX spent approximately $20 million to produce and play this 60-second ad. Around the same time, Joseph Bankman joined the company as an employee.

Screenshot from FTXs Super Bowl commercial with Larry David. Source: YouTube

A person familiar with the ads production said the decision to have the bosss father play a role made sense in FTXs topsy-turvy logic. Like most people interviewed for this story, the person requested anonymity to avoid being associated with the messy bankruptcy, numerous class-action lawsuits and several criminal cases. In a way, Joseph Bankman is the founder of the company.

Both parents had distinguished careers long before their son was accused of fraud. They met at Stanford in the 1980s and taught at the law school for more than three decades, living on campus and raising two sons. Joseph Bankman is a tax expert known for his work to make the U.S. tax code more friendly to low-income citizens. Barbara Fried is an authority on legal ethics and is well-known in progressive politics.

The ad aired as critics warned that FTX was luring uninformed investors with risky financial instruments that are mostly banned in the United States. The money disappeared when it was transferred to a hedge fund owned by SBF without their knowledge. FTX went bankrupt in November 2022 and filed for bankruptcy.

Bloomberg Businessweek cover

The person who led the FTX bankruptcy proceedings was John Ray III. He had previously been in charge of Enrons bankruptcy case, but he said this case was even worse (Note: The Enron incident refers to the Enron bankruptcy case that occurred in the United States in 2001. Enron was once One of the worlds largest energy, goods and services companies, however, on December 2, 2001, Enron filed for bankruptcy protection in the New York Bankruptcy Court due to a financial scandal. The case became the second largest corporate bankruptcy case in U.S. history). SBF is accused of using client funds to benefit itself, family members and other insiders and is seeking to recoup some of the funds. Even more ominous for the SBF is the criminal case, which will begin on October 2 in New York City. Prosecutors did not accuse SBFs parents of wrongdoing but brought charges including fraud, money laundering and bribery against SBF, whose net worth at its peak was estimated at $26 billion. The case could see SBF spend the rest of his life in prison. But he has previously pleaded not guilty and blamed the losses on mismanagement but not crime.

Joseph Bankman and Barbara Fried have avoided much of the scrutiny surrounding FTX. Thats at least in part because they havent yet fully explained the roles they played in helping their sons build a vast conglomerate of business and political influence. Instead, they are often portrayed as spectators, often in tears, providing emotional support to their son during his frequent court appearances. But their names will almost certainly come up during the trial. The defense team said the teams strategy may depend in part on the advice SBF receives from attorneys, including his parents.

Risa Heller, a spokesperson for the couple, declined to make Joseph Bankman and Barbara Fried available for an interview. Risa Heller has previously stated that the two dont have much to do with FTX other than being supportive parents. Risa Heller said Barbara Fried never worked at the company, and Joseph Bankmans brief tenure was focused on philanthropy. Last year, SBF told The New York Times that his parents were not involved in any relevant part of his company.

Former employees and business associates say they were not under the impression that was the case at the time, and legal documents reveal that Joseph Bankman and Barbara Fried were crucial to their sons transformation from bumbling entrepreneurial nerd to cryptocurrency tycoon. The couple has made huge profits from FTX, netting $26 million in cash and real estate in 2022 alone. They are regular visitors to the companys offices, encourage employee morale, and are included in internal company communications. Their reputation and connections are critical to FTXs success.

As a complimentary article from Sequoia Capital, one of FTX’s largest investors, put it, their child seems “born for the role of crypto exchange founder and CEO.” The article attempts to explain why one of Silicon Valleys most respected venture capital firms chose to give $150 million to a young man who played computer games at an investor pitch, and provides two pieces of evidence to support his claim. First, SBF worked briefly at a Wall Street trading firm. Second, his parents are law professors at Stanford University.

In Silicon Valley, no one wants to think they are privileged. Venture capital companies and entrepreneurs who read the works of Ayn rand (Note: Ayn rand, a famous philosopher in the 20th century. Her philosophy and novels emphasize the concept of individualism, rational self-interest, and a completely laissez-faire market economy) often would be offended by the suggestion that their decisions were not based on calculated reasoning. Yet Silicon Valley’s reflexive elitism is so obvious that it doesn’t need mentioning. Investors overwhelmingly favor companies run by white men whose founders often come from a small group of elite universities, while shunning anyone who deviates from their superficial idea of ​​what a successful founder should look, talk and act like. Some people blatantly discriminate against entrepreneurs over 30 years old, against entrepreneurs with accents, and against anyone who acts as if they are not already rich.

In this ultra-privileged world, the most privileged place is Stanford University—the birthplace of companies like Hewlett-Packard, Sun Microsystems, Cisco, Yahoo, Google, and PayPal. Barbara Fried has a background at Harvard University, Harvard Law School, the U.S. Court of Appeals for the Second Circuit, and the law firm of Paul, Weiss. In 1987, Barbara Fried came to Harvard as a tenured professor and rented a house on campus. A year later, she met Joseph Bankman. Joseph Bankman graduated from the University of California, Berkeley and Yale Law School. After working as a tax lawyer in Los Angeles, he came to Stanford to teach trial. Barbara and Joseph (as they were called on campus) went public with their relationship after Joseph Bankman received tenure the following year. They moved in together and bought Barbara Frieds rental house when it came up for sale in 1991.

Bankman and Fried House on the Stanford University campus

The home where SBF grew up, and where he was under house arrest in the first half of 2023, is located at the end of Cooksey Lane. Its worth $3.6 million, but thats more a result of Palo Altos decades-long real estate boom than a comment on its luxury. The house is a fairly ordinary gray Craftsman building with four bedrooms, three bathrooms, a spacious porch and a swimming pool, and sits on a large open lot surrounded by towering trees. Behind the property is the Lou Henry Hoover House; this modernist building was once the home of former President Herbert Hoover and is now the residence of the president of Stanford University.

During SBF’s childhood, he was surrounded by a group of young intellectuals – law professors and law students, of course, but also sociologists, engineers, artificial intelligence researchers, classicists and social scientists. On Sunday nights, Joseph Bankman would order takeout or make something simple like pasta, and then theyd have 15 guests come into the restaurant to sit and chat, often about philosophy and politics. SBF and Gabe, even as teenagers, would sometimes join in the conversation. Joseph Bankman and Barbara Fried are proud and committed do-gooders. The couple did not get married, as they told friends it was unfair that same-sex couples couldnt get married. They feel they shouldnt take advantage of something thats not open to others, said Paul Brest, former dean of Stanford Law School. They are very ethical people.

Joseph Bankman at Stanford Law School in 2021

As a young man, Joseph Bankman had curly black hair, which his son inherited, and a likable attitude that his son did not possess. The couple sent their children to Crystal Springs Uplands, a $60,000-a-year prep school filled with kids from Silicon Valley. By then, Joseph Bankman had become one of the foremost experts on American tax policy. He suggested that California implement a pilot program to have the state collect taxes for them. The plan sparked fierce opposition from tax preparation companies and small-government authoritarians, and made Joseph Bankman a hero to reform-minded liberals.

To other scholars, Joseph Bankman was a compassionate and forgiving mentor. Rutgers University professor Jay Soled recalls Joseph Bankman comforting him after his presentation failed. Thats who Joseph is, he said. There will be a next time, and you just get better. In 2009, while still teaching all courses, Joseph Bankman entered medical school to become a clinical psychologist. After his internship, he began working part-time as a cognitive behavioral therapist while teaching an elective course he developed with Barbara Fried to help law students manage anxiety.

Barbara Fried was a smarter intellectual than her husband, and although she was popular on campus, she had a reputation for inducing anxiety in her students as much as she helped them manage it. Her academic research focuses on the branch of ethics known as consequentialism, the idea that the consequences of actions are more important than abstract concepts of right and wrong. These thoughts became something of a family belief. The idea is to do good for as many people as possible, but a less charitable way to sum it up is the end justifies the means.

Barbara Fried

Barbara Fried is best known for her paper focusing on the trolley problem, a famous thought experiment involving a train that is doomed to tragedy. Its mostly used by philosophers to debate moral choices: should you redirect a train and kill the people standing on the next set of tracks, or do nothing and let a group of people on the main road die? Barbara Frieds paper argues that this question is nonsense and obscures the real-life moral choices policymakers face—for example, how much aid to give to the poor, or how much health care to provide to the uninsured. “There are hundreds of thousands of pages on this,” said Paul Brest, former dean of Stanford Law School. My feeling is that after Barbara Fried solved the trolley problem, there was nothing left to say.

SBF puts his mothers self-righteousness at the center of FTXs marketing. His company may officially be in the business of selling cryptocurrencies, but its just a way to generate revenue for a life-saving cause. In an ad campaign published in major fashion magazines, starring SBF and Brazilian supermodel Gisele Bndchen, the FTX founder is quoted as saying: “I am involved in cryptocurrencies because I want to always generate the largest Global impact. Barbara Frieds work recurs in her sons biography, often used to suggest that SBF was a less cynical billionaire.

Barbara Frieds second most famous article is more relevant to her sons current situation. The article, published as a cover story in the quarterly Boston Review in 2013, argued for a more lenient attitude toward lawbreakers. The philosophy of personal responsibility has destroyed criminal justice, wrote Barbara Fried. The title of her article is: Beyond reproach.

 SBF

Beyond the promise of doing good, running a cryptocurrency business is always legally complex. SBF founded a hedge fund called Alameda Research in 2017 to take advantage of price differences between cryptocurrencies traded in Asia and the United States. Soon, the fund was moving huge sums of money across continents in a way that looked (as he boasted on the podcast) exactly like money laundering. Alameda has difficulty opening a bank account.

SBF needs lawyers. Fortunately, there is someone who is a perfect fit. In August 2022, Joseph Bankman said on the FTX Podcast: From the beginning, whenever I could be useful, I would lend a hand. He added that the company did not have lawyers at the time, I think my role was obvious .”

Former Alameda staffers said Joseph Bankman helped draft early legal documents. Invoices from Alamedas law firm Fenwick West show that Joseph Bankman was an attendee at the meeting, suggesting that he was involved not only in tax matters but also in the development of marketing materials for FTX and FTT.

FTX was based in Hong Kong until 2021 when the Hong Kong government started cracking down on cryptocurrencies. A person familiar with FTXs business said Joseph Bankman played a key role in the decision to move to the Bahamas, which has few restrictions on digital currencies. The details were arranged by a lawyer hired by Joseph Bankman himself - Daniel Friedberg, a former lawyer at Fenwick West who later became FTXs general counsel.

To employees, SBF gave the impression that he consulted his father regularly. One former staffer said that when someone offered legal advice, the SBF would often say it sounded good, but the SBF wanted to phone Joseph Bankman first. The employee also said that nearly all of the attorneys working for Alameda seemed friendly to Joseph Bankman.

Other former employees said SBF sometimes struggled to make eye contact when dealing with employees and could be blunt, bordering on cruelty, while his father had a way with people. His training as a psychotherapist made him an excellent listener, and he was also an energetic conversationalist. Joseph Bankman asked employees about their personal lives, attended cricket matches (a sport that employees were passionate about), and attended company dinners. Barbara Fried also attends FTX dinners, but rarely appears in the office. They are all mediators between staff and children. If the SBF says something mean or difficult to understand, his father will try to explain or just say that he understands that his son may be difficult to deal with. Another employee recalled that Joseph Bankman was viewed as “a lovable old man, a capable but non-threatening figure who kept his son from spiraling out of control.

But the most important role played by Joseph Bankman and Barbara Fried was in giving their son the trust of people who might not otherwise be inclined to do business with a sketchy upstart. When SBF approached Sequoia Capital for a large investment in 2021, the firm was interested in backing a global cryptocurrency exchange but was concerned about potential legal and regulatory risks, according to two people familiar with the matter.

FTX is based overseas and operates on the fringes of the law. The founders of many competing companies appear to be morally flexible, to put it mildly. Binance’s Changpeng Zhao is under investigation by U.S. and other local authorities. He has denied wrongdoing but declined to reveal the exact location of his companys headquarters. BitMEX co-founder and then-CEO Arthur Hayes was sued for failing to prevent money laundering on the platform. According to a federal criminal complaint, he boasted that he based BitMEX in the Seychelles, a small East African archipelago, because bribing regulators there would only cost a coconut. He resigned and eventually turned himself in to authorities before pleading guilty.

FTXs basic business is the same as Binance and BitMEX, but SBF firmly believes that its long-term goal is to obtain approval from US regulators. Plus, he has something no other company has: the endorsement of a former commissioner of the U.S. Securities and Exchange Commission. Sequoia Capital was persuaded to invest after a phone call from a prominent former SEC official, people familiar with the matter said. The former SEC official, who has informally negotiated with the company on previous deals, now teaches at Stanford University. The former official spoke in support of FTXs legal strategy - which involves operating overseas while working to win approval from U.S. regulators - and said SBF also happens to be the son of a friend of his.

Such endorsements are one way Sams parents definitely opened the door for him, said one person involved in SBFs efforts to get U.S. politicians to accept his company.

By then, Barbara Fried had already formed a left-wing super PAC called Mind the Gap, which positioned itself as the Silicon Valley faction of the resistance movement. The group has advised prominent tech donors, including former Google CEO Eric Schmidt and LinkedIn co-founder Reid Hoffman, on where to spend their campaign donations. The elite circle of donors gained a new member in 2020: the son of Barbara Fried, who gave more than $5.5 million to Democrats and Democratic-aligned groups that year, instantly making him a fixture in Washington, D.C. In 2022, he donated about $40 million.

Barbara Fried provides funds directly to candidates recommended by Mind the Gap. Former FTX executive Nishad Singh admitted funneling FTX client money to political causes backed by Barbara Fried and donated $1 million to Mind the Gap in 2021, making him the PACs largest donor in recent election cycles. Mind the Gap has not been accused of wrongdoing.

 Joseph Bankman

Meanwhile, Joseph Bankman often accompanied his son to meetings with regulators and elected officials. Joseph Bankman also appears at FTX events as a spokesperson for the companys philanthropy. He still advocates tax reform, but now he sometimes brings up a new interest: cryptocurrencies.

During an appearance on the FTX Podcast, Joseph Bankman promoted a pilot project he is running in South Florida that will provide poor people with digital currency wallets in lieu of bank accounts. If youre not part of the financial system, everything becomes more difficult, he said. “The cost of cashing a check is high. The cost of moving money is high. So it’s a national disgrace.” Joseph Bankman promised that FTX would solve this problem.

In magazine profiles and TV interviews, SBF comes off as down-to-earth. He wears beat-up sneakers, lives with roommates, drives a Toyota Corolla and donates all his savings to charity. In early 2022, SBF told a Bloomberg reporter: Youre going to quickly run out of really effective ways to spend money to make yourself happier. I dont want a yacht.

In fact, SBF and his inner circle actually enjoy a life of excess, with the office feeling like the Emerald City from The Wizard of Oz, as the crew for the Super Bowl ad described it. The company has purchased hundreds of millions of dollars worth of luxury real estate, including a $30 million penthouse in the Bahamas most luxurious resort, where SBF and his partners live. They chartered private jets for themselves and, since Amazon.com didnt always serve the island, they also rented online packages. And — as the bankruptcy filing revealed — they even purchased a 52-foot yacht. It was purchased by Alameda for then-company co-CEO Sam Trabucco.

SBF’s parents also seemed to share in the “spoils.” They fly first class, sometimes on private jets. After arriving in the Bahamas, they often stayed in a $16 million oceanfront condo. FTX spent approximately $250 million to purchase the home and more than thirty other residences on the island. SBFs parents said through their spokesman that they considered the house to be company property, not theirs.

SBF expressed similar sentiments in an interview at the New York Times conference. I know this is not their long-term property, he said. I dont know how this was written.

A bill of sale obtained through a Bahamian public records request reportedly showed SBFs parents signed on as co-owners of the condo on April 7, 2022, with a Bahamian notary public as a witness. The filing makes no mention of FTX and refers to the property as a vacation home. The house was used as temporary housing while Joseph Bankman was working in the Bahamas, a spokesperson for the couple said in a statement. Outside counsel confirmed to Joseph Bankman and Barbara Fried that FTX would have all beneficial ownership of the property and agreed to document this in writing.

Around the same time, Joseph Bankman received a $10 million gift from his son. FTX insolvency chief Ray filed the lawsuit, claiming that SBF obtained the money by borrowing money from accounts containing client funds. He did so after consulting with his father, who at the time had become a senior adviser on personal and professional legal matters, according to the complaint. The loan was never formalized — there was no loan agreement, promissory note or other indication that SBF took the funds from Alameda other than to benefit his family, the lawsuit says. His father transferred nearly $7 million to himself bank account; the rest he keeps on FTX.

Considering the rising prices of digital currencies at the time, it seemed like a logical decision for Joseph Bankman to leave part of his savings in FTX, not to mention it was an opportunity to live out his newly adopted values, but a few months later Within a year, the market-wide sell-off cost him $1 million and ultimately jeopardized FTX itself. When the company was on the verge of bankruptcy, SBF publicly claimed that all was well while seeking help from his father to minimize losses. “FTX’s assets are sufficient to cover all customers’ assets,” he wrote (later deleted) on Twitter, a social media platform now known as X. “We do not invest (misappropriate) customer assets.”

Behind the scenes, his father had a very different but ultimately more honest message: FTX was in trouble and needed cash. When SBF released the false information on Nov. 7, he and his father went into hiding with other executives the next day to try to deal with what they said was a run, a person familiar with the situation said. Joseph Bankman relayed the same message to investors, including Trump White House press secretary and financier Anthony Scaramucci, who said he first heard about FTXs troubles on Nov. 7.

Scaramucci said Joseph Bankman described a liquidity mismatch of about $1 billion in a call that morning. But in a second conference call later in the day, Joseph Bankman said the number was actually $4.5 billion. Eventually, Scaramucci learned from another FTX employee that the actual amount was $7 billion. I think Joseph Bankman wanted to help his son, but he was caught up in what happened, Scaramucci said. You want to think about the absolute best for your child.

SBF and his mother

Over the next few days, Bankman appeared in emails to the Bahamas attorney general and the countrys top securities regulator, who were tipped off about possible misappropriation of funds and sent increasingly frantic messages. In other words, ask what happened. SBF CCd his father in an attempt to postpone their trip. He cited a liquidity gap and promised that the company was doing its best to find investors. In a subsequent email, to which his father was copied, he offered to repay Bahamian investors before anyone else — an offer that federal prosecutors viewed as essentially an attempt to buy money in the country influence.

Just before the bankruptcy filing, Bankman urged regulators and creditors to avoid rushing to judgment. His initial position was that FTX managers were just kids who made mistakes, people familiar with the matter said. He explained that they would return the money and everyone could move on with their lives.

However, the SBF parents made no attempt to return the cash. They didnt explain why, but a lawsuit filed by Ray on behalf of FTXs creditors suggests one reason is that they needed the money to fund their sons criminal defense.

SBF was arrested in mid-December and later extradited to the United States, where he was released on bail. The $250 million bail was secured by two of his parents Stanford colleagues and the deed to the familys home. SBF was ordered to live in the home while awaiting trial. The sudden turn shocked friends and Stanford faculty who had just gotten used to the kid they saw at Joe and Barb’s being a crypto billionaire. Now, he is the mastermind behind one of the largest frauds in American history. As SBF was returning home, security barriers were erected, blocking the road home. Students and members of the media stopped to watch; SBF parents told friends they bought a German shepherd out of fear for their safety.

All of these are sick conspiracies, said Tim Rosenberger, who graduated from law school earlier this year. Are they going to hire a new professor? Whos going to teach tax law?

In a group chat for former FTX employees, debate rages over whether their parents were aware of the alleged crimes. Meanwhile, friends of the couple have struggled to understand how two men with a reputation for morality could have made such a serious moral lapse. In August, prosecutors accused Ban SBF of leaking damaging information about a former employee in an attempt to intimidate witnesses. His attorney denied the accusation, but he was transported to the Metropolitan Detention Center in Brooklyn.

As her son was being detained, Barbara Fried tearfully tried to approach him in the audience. Thats my son! she said when a U.S. Marshal stopped her. She watched as SBF followed the standard procedure of taking off his jacket, taking off his tie, and bending down to untie the laces of his dress shoes. As his mother sobbed, his father put his arm around her shoulders.

Friends said they were worried about the couple. Neither parent has taught since SBFs arrest. Joseph Bankman canceled his classes, and Barbara Fried retired from school and resigned from her political nonprofit two months before FTX collapsed. “When something like this happens to a family that is so intelligent and public-spirited,” said John Donohue III, a Stanford University professor and a long-time family friend, “it’s devastating.”

Its hard to think, How could they not know? said another friend who spoke on condition of anonymity. The best I can understand is that its blind faith. They dont have the full picture.

This is certainly reasonable. If the prosecutors account is accurate, SBFs deception was sociopathic—defrauding not only investors but also business partners and even his own employees. It is no exaggeration to say that he may have used his parents—and their illustrious academic careers—to build an exploitative enterprise. SBF has repeatedly claimed to be a billionaire. Why doesnt he buy a good house for his parents? Why cant his dad join Larry David in a Super Bowl shoot?

But critics say parents should bear some responsibility even if they were unaware of the alleged misappropriation of funds. FBarbara Frieds moral compass could explain how her son was able to overlook obvious moral flaws in order to serve what he believed to be the greater good. Along these lines: What does a little misappropriation count if the end result is billions of dollars going to charities that save the world?

Meanwhile, Joseph Bankman was involved in providing legal advice, but that now seems at least less than reasonable. He was involved in decisions including the launch of FTX, the creation of FTT, the company’s courting of politicians and its dealings with regulators in the Bahamas, all of which were criticized by regulators and prosecutors as potentially illegal. Joseph Bankman was also involved in the hiring of FTXs general counsel, Friedberg, who is accused of condoning the fraud and working to cover up efforts to expose the fraud, including bribing potential whistleblowers. The accusations, made in a lawsuit filed on behalf of FTXs creditors, include a quote from Joseph Bankman to his son, urging him to rely on Friedberg so that we only have one person in charge of everything. Friedberg denies wrongdoing and has not been charged with a crime, but critics say his background is enough to make people think twice - including a stint at a Canadian online poker site that was accused of defrauding players during his tenure.

And then theres Stanford itself. SBFs arrest comes just a month after Elizabeth Holmes was sentenced to 11 years in prison for fraud at medical device company Theranos Inc. She started the company on campus while she was a student and recruited prominent faculty. Serve as an employee and director. The Holmes case, coupled with the resignation of Stanford President Mark Tessier-Lavigne amid allegations that data in multiple academic papers was manipulated, has some professors and students questioning why the school doesnt identify cases of misconduct more quickly.

Defenders of Stanford, including Donohue, point out that Stanford is not the reason for SBFs alleged crimes; it is at most a background to them. But context matters. Coming from a place like Stanford and having high-achieving parents changes the way the world views your shortcomings. Something that might be seen as unserious, such as playing video games during a meeting, becomes clear evidence of brilliance.

SBF has spent the past 10 months trying to shift blame to former employees, lawyers and corporate rivals, insisting its mistakes were the result of carelessness rather than malice. I screwed up, were his exact words in a congressional testimony he wrote before his arrest. He seemed to be saying that he was just a kid well beyond his capabilities.