A would-be investor said that there were serious red flags around Sam Bankman-Fried's FTX before it even launched.
Alex Pack, the managing partner of Hack VC, said he met Bankman-Fried. The founder of FTX was looking for funding for another company he started.
Bankman- Fried stepped down as CEO of FTX as the company filed for Chapter 11 protection. The company, once valued at $32 billion, collapsed in a matter of days due to a lack of funds and accusations of misuse of customer funds. According to The Wall Street Journal, the Securities and Exchange Commission and the Department of Justice are looking into the matter.
In his 40 years of legal and restructuring experience, John Ray III had never seen a complete failure of corporate controls.
Bankman-Fried was a founder looking for a deal in the emergingcryptocurrencies market.
Pack said Bankman-Fried was looking for millions of dollars in equity from his previous firm. At the time, a $100 million fund was being set up for the purpose of helping cryptocurrencies. Pack has nine years of experience in the space, having previously been director of network investing at Bain Capital and a partner at Angel List.
Pack said that at first everything seemed okay.
He was so smart and charismatic that I was enamored with him for a month.
Pack said that he and his team met with Bankman- Fried more than a dozen times. Pack said everyone came to the same conclusion after thorough research.
Pack told CNBC that after spending months with him, they realized his risk taking was catastrophic. Red flags were seen that were too much risk.
Pack gave CNBC copies of a history he had with Bankman- Fried that showed the two discussing a potential deal. He said that Pack's team did its due diligence. Pack said that Alameda's balance sheet showed a huge loss.
Pack said it appeared to be a trade mistake. There was uncertainty surrounding the losses.
We didn't know if it was fraud, massive risk taking, or a bunch of honest mistakes.
Pack said that Bankman-Friend hid the existence of the FTX exchange. Alameda was trying to pay for FTX.
Pack said that they asked him "what's going on here?" He said he couldn't remember if he told you about the exchange. The core business has been neglected because I have been spending most of my time on it.
He would or wouldn't give a lot of information. Pack said there was a clear pattern of huge risk. He never showed Alameda's books to any future investors.
Bankman- Fried appears to have told a different version of events in August 2020. The DragonFly deal was referred to by Pack.
Bankman- Fried said that they expressed interest in Alameda and wanted to help it grow. They were familiar with the business. This seemed like a good opportunity for Alameda.
The team that rejected the offer was Bankman- Fried.
They were surprised when we said no. We said no. The offer was only 1/3 of it's price. We said no to them after more talks. We stopped responding because we weren't sure how one would respond to them saying no.
A spokesman for Bankman-Fried did not reply to CNBC.
He said the rejection haunted him. He was not involved in future deals in which Bankman- Fried was involved. He told other firms about what happened, but he didn't tell anyone else.
Pack did not allow the experience to slow him down.
The $200 million "Crypto Seed Fund" was announced earlier this year.
Pack sees the collapse of FTX as a result of his dealings with Bankman- Fried.
Four years ago, this guy hid serious things and took huge risks with other peoples' money. He seems to have done the same thing on a much larger scale.
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