Hack VC partner recounts the experience of investing in SBF: Four years ago, I knew he was recklessly risking other people's money

Source: Alexander Pack tweet

Compiled by: Qianwen, ChainCatcher

Four years ago, I was the first venture capitalist to try to invest in SBF, even before FTX was launched. I shared some of my stories with CNBC, but there’s much more. Here’s what I learned and why I walked away from investing based on my suspicions of deception and reckless risk-taking.

But first, how do I know I was one of the first venture capitalists to talk to Sam? Because Sam anonymously complained on Twitter about the "horror stories" of interacting with me, and we are the G he referred to.

I have been in cryptocurrency venture capital for 9 years, providing seed funding for about a dozen of the largest cryptocurrency exchanges and trading firms. So when I heard about a hot trading firm called Alameda Research, I was very interested.

My first impression of Sam was that he was one of the smartest people I had ever met. He was ambitious, good at making money, and unafraid of taking risks. Perhaps too unafraid.

We reached a high-level agreement to become the first investor in Alameda and then proceeded with due diligence. That’s when things changed.

A few months into our investigation, Alameda began to lose money—fast. We were shocked and asked what was going on. Sam calmly said he was incubating an unknown cryptocurrency exchange (later FTX), which was consuming all of his team's attention and resources.

Well, that’s fine, although Sam didn’t disclose his thoughts about the new exchange beforehand. But we liked supporting founders with new ideas! However, Sam said Alameda and FTX were two separate companies…

Alameda and FTX used the same employees, the same computers, and Alameda paid for FTX's startup costs… but Sam thought this should be a separate deal, priced differently.

This created a significant conflict of interest: in 2018, Sam tried to leverage our investment in Alameda to launch FTX, an entity we neither knew about nor owned, which is quite ironic! And last week, Sam was caught doing the opposite: pulling over $10 billion from FTX to bail out Alameda—his private company.

While investigating Alameda, we also learned about other questionable matters:

1. In the months before we met Sam, Alameda lost $10 million due to a "trading error"—a significant amount of their assets. We could never figure out whether this was intentional fraud, incompetence, or just carelessness.
2. After Sam's $10 million "trading error" (internally referred to as the "April disaster"), Alameda's co-founder—who might also be Sam's girlfriend?—left along with about half the team, which later disbanded.
3. Alameda obtained startup loans from several wealthy individuals in the effective altruism community. Sam was concerned they might not want him to accept new investments, so he proposed to hide our status as investors from them. But I thought this was inappropriate, as he was not being honest with his supporters.
4. We hesitated to invest, so Alameda decided to try to continue raising funds. They bought a booth at a cryptocurrency conference and distributed flyers promoting "high returns, no risk" and "flawless."

Ultimately, I decided not to invest in FTX. I later also didn’t want to invest in all of Sam's other token projects, like Serum and FTT, which are now well-known to be collateral for his leveraged trading.

Even back in 2018, we were well aware that Sam was recklessly risking other people's money and wanted to use our funds to finance his secret projects.

Sadly, after we left, Sam found other support for his shell game. Today, FTX's investors, customers, and even employees are discovering that their money was funneled into a "unrelated" private high-leverage trading company (Alameda) that they knew nothing about.

I sympathize with everyone affected by this disaster. Cryptocurrency is a liberating technology that makes it easier for people to do good, but also easier to do bad. For the community to thrive, we need cryptocurrency to get better, and we need to find and catch the bad actors before they become supervillains.

I should also take action myself. I have not told this story because I feared Sam's retaliation. I think that’s a reasonable concern. I mean, look at their original tweets! They were very nasty.

However, my "horror story" with Sam pales in comparison to the millions he has harmed today.