FTX appeared to be the golden player of the crypto space for the last three years, but some investors – including Alex Pack, who manages New York-based venture capital firm Hack VC – were never convinced of the company’s prowess, and they say the company showed serious “red flags” from the start.
Alex Pack Says There Were Issues with FTX from the Beginning
Pack first met Sam Bankman-Fried, the man behind FTX, roughly four years ago. At the time, Bankman-Fried had not created the now infamous exchange and was instead seeking additional startup funds for Alameda Research, another company he was creating at the time. When they met in 2018, Pack was running a crypto firm called Dragonfly Capital, and Bankman-Fried was seeking what he calls “single-digit millions” for his new enterprise.
In the beginning, Pack said he was “captivated” by Bankman-Fried. He said he had a lot of presence for such a young man, and he was impressed with his intelligence and business acumen, though he said this only lasted for about a month or so. In a recent interview, he commented:
I was captivated by him for the first month until he showed us everything.
He stated that he continued to meet with Bankman-Fried over the next five to six months. During that time, he performed due diligence on both the crypto founder and the company he was founding and claimed that there were simply too many holes in the game. He mentioned:
After spending months with him, we realized his risk-taking was catastrophic. We looked at it and saw red flags. Too much risk.
At the time, he said that Alameda was facing roughly $10 million in overall losses, which caused many alarm bells to ring with him and his partners. He commented:
We could never figure [it] out. Was it fraud? Was it massive risk-taking? Was it a bunch of honest mistakes?
He also said Bankman-Fried was “hemorrhaging” money to pay for what would eventually be FTX. He stated:
We asked him, ‘What’s going on here?’ Pretty nonchalantly, he said, ‘I can’t remember if I told you I had this idea for an exchange. For that reason, I’ve been spending most of my time on it, so we have been neglecting the core business.’ There was a lot he would or wouldn’t share. There was a clear pattern of hidden massive risk. He never really showed Alameda’s books to any future investor. That’s where all the bad stuff was happening.
Sam Bankman-Fried Tells His Side of the Story
Contrary to what Pack has stated, Sam Bankman-Fried recently posted a series of tweets discussing the encounters from his own point of view. The FTX founder said:
They expressed interest in Alameda and [a] desire to help it grow. They understood the business. Alameda has never taken an external investor, but this seemed like a good opportunity.