Sam Bankman-Fried’s $2 Billion Venture Fund Raises Questions

FTX CEO Sam Bankman-Fried’s $2 Billion Venture Fund Raises Concerns About Funding Source

On January 14, 2022, former crypto mogul Sam Bankman-Fried made an announcement that caught the attention of the cryptocurrency world. He revealed plans for FTX Ventures, a $2 billion venture fund aimed at supporting other founders in creating great companies. However, the source of the fund’s capital raised eyebrows, as it was revealed that Bankman-Fried used money from third-party lenders, including Genesis Global Capital, that had initially gone to Alameda Research, Bankman-Fried’s cryptocurrency trading firm.

The revelation came from Caroline Ellison, the former CEO of Alameda Research, who testified as a witness in Bankman-Fried’s trial. Ellison alleged that Bankman-Fried had directed her to commit fraud and money laundering crimes. According to her testimony, Bankman-Fried wanted to significantly increase the funding for the venture fund, even though Alameda had already made some venture investments. He expressed concerns about the potential risks in the crypto market, envisioning a scenario where Alameda’s investments plunged and the company’s net asset value turned negative.

Ellison shared her concerns with Bankman-Fried and explored alternative scenarios, including raising more equity, investing less in ventures, and selling more FTT (FTX’s crypto token). However, Bankman-Fried insisted on exploring the possibility of changing Alameda’s loans from open-term to fixed-term, despite most of the loans being open-term and subject to being called at any time.

Ultimately, Bankman-Fried settled on investing $2 billion into venture investments, backed by FTX rather than limited partners (LPs). However, the concerns about the funding source and the risks involved still remain. Ellison’s testimony and cross-examination will continue in the coming days as Bankman-Fried’s trial progresses.