Inside FTX’s crypto empire in the Bahamas

Fortune reporter Leo Schwartz spent most of last week down in the Bahamas—debunking a fake listing for said penthouse, visiting an abandoned construction site, exploring the crypto exchange’s ties to the Bahamian government, and revealing FTX employees’ lavish lifestyles. 

In the midst of his rapid-fire reporting, I called Schwartz for a few minutes yesterday to talk about what he’s uncovered. We discussed the “hypocrisy and dark secrets” of SBF’s crypto empire, how the crumbling of FTX may impact locals in the Bahamas, and how Twitter and crypto sleuths have helped propel the FTX story. (Some parts of this Q&A have been edited for clarity and/or brevity)

Term Sheet: You spent last week down in the Bahamas reporting on FTX. What was the energy there? Were people talking about FTX and its collapse wherever you went?

Schwartz: My main takeaway—especially talking with everyday Bahamians, and also Bahamian entrepreneurs in the crypto space—was almost a resignation. I think a lot of people who are familiar with Bahamian politics and news were obviously pretty shocked that a $32 billion company evaporated overnight, and it happened in their backyard. But at the same time, something that I tried to convey in this story, is I think this happens a lot in places like the Bahamas, which are offshore countries that try to attract companies like FTX to move there. As a lot of Bahamians told me, they’re used to very wealthy people moving there for their own motives or needs, taking what they need, and—as one person told me—either shitting the bed and leaving, or making a lot of money and staying. So, again, I think it was almost a sense of resignation, that this is something that happens a lot, though obviously not at this level of what seems to be fraud and evaporation of money overnight. 

I was surprised by the amount of people that I talked to who hadn’t heard about it, also. They’d be like: What’s FTX? And I would have to explain it was this company that was based here that went from being worth over $30 billion to being worth zero overnight. I think their first reaction was shock. And their second reaction was, ‘That’s really sad. It’s a stain for our country.’ But this is sort of business as usual, as one software developer told me. It’s just another day in the Bahamas.

A lot of people have been wondering whether Sam Bankman-Fried, a self-proclaimed effective altruist, was living a life of luxury down in the Bahamas. And your reporting bears that out. As you put it in one of your stories, you “came to learn of the rife hypocrisy and dark secrets that compose the crypto tycoon’s island world.” Tell us about what you found while you were there.

There was rampant spending by FTX—and Sam Bankman-Fried, I would say—in two ways. Again, the Bahamian government was trying to attract companies like FTX, especially in the digital asset space. So they passed legislation in 2020 that would allow digital assets companies to move there. That’s ultimately why FTX moved to the Bahamas from Hong Kong. And I think SBF and FTX were able to sort of learn the rules of the game really quickly. There’s a lot of speculation among politicians and inside power players that there were a lot of political donations going on, although that hasn’t been disclosed yet. 

But even so, there was money being spent. For example, renting out a ballroom for the royal visit of Prince William. Something interesting that I found out is that their director of corporate [social] responsibility was the daughter of someone who is a major power player in the ruling political party. So obviously there’s just a lot of machinations that went around and then spending money in the right places to be able to get favorable treatment. 

And as you said, Sam Bankman-Fried gives off this persona of being super thrifty. He’s given interviews where he says, you know, I’m not much of a consumer. I don’t really need a fancy car or anything. But at the same time, he was living in this luxury resort called Albany, which has a private mega yacht slip. It has 11 restaurants that are completely closed to the public. It hosts golf tournaments with Tiger Woods, and [SBF] lived in a $30 million dollar penthouse with his buddies. And as I learned from a former FTX employee who was Bahamian, FTX employees would get anything they needed or wanted at a whim. They had a whole host of Bahamians that they hired in logistics roles, and this employee told me that, for example, one thing [they] saw in Slack is someone requesting toenail clippers, and it was brought to them immediately. So this is the type of lifestyle they lived, with parties and comped food and any groceries they wanted. So it certainly wasn’t the frugal life that [SBF] conveyed in public.

You went and visited the resort yourself, right?

I tried to. Again it’s closed to the public. And I think this week, in particular, they’re on edge because there were a lot of journalists in the Bahamas and they were all trying to get access. And that’s something that rich people generally do not like: a bunch of journalists taking pictures and asking questions. I went up to the gate. I made a lot of calls to try and make it happen. Some journalists were successful in getting in. But when I went up to the gate in a taxi, the security guard just shook her head and told my taxi driver you should know better.

How important was FTX specifically to the Bahamian crypto ecosystem in general?

Keep in mind that pretty much globally there are no countries that have robust crypto regulation, with a few exceptions, so the Bahamas really tried to plant a flag and be one of the first countries to do so. They passed [legislation] in late 2020 and then pretty quickly were able to attract FTX. And again, I found out that the way they did that was through this former minister of the ruling party. Interestingly, the month that [FTX] came to the Bahamas, which was in September, was the same month that the current prime minister came into power. But when they came, they were really the first major global digital assets or crypto company to come to the Bahamas. Until November, the Bahamas really touted this as the reason for the country becoming the next global crypto hub to compete with other countries trying to have the same title like Singapore or the UAE.

FTX promised that they were going to build this massive headquarters—a $60 million headquarters. The prime minister was on hand for that. They hired a bunch of Bahamian firms. The prime minister said that it would result in having hundreds of jobs. I found out that construction never actually happened on it. I was able to talk with the local construction company that was hired as the management company to prove that. But over the past year and a half, the ruling party certainly touted FTX as the Bahamas coming to this global scene. And FTX was the first major company. The second company was the exchange OKX which just established an outpost in the Bahamas, but now there are a lot of questions as to whether this will obviously set the country back and hurt its reputation moving forward.

What kind of impact do you think this is going to have on the Bahamian crypto business ecosystem—looking a couple of years down the road?

There’s a reason that FTX chose the Bahamas, right? And they were allowed to do a lot of the aspects of their business that made them successful for a while, like being able to do the derivatives-type trading that they did. And I think that type of looseness in regulation will probably continue to attract companies. But at the same time, as people said, this really does put a stain on the country and I think the Bahamas will be associated with FTX for a while…I think the Securities Commission of the Bahamas, which is the main regulator, is doing a lot to try and shore up its reputation. You can see that in the fact that they’re engaging in this jurisdictional battle right now with the United States, which is pretty wild to see.

You had found out that the real estate listing for SBF’s penthouse at the Albany that was posted had actually been fake. Anytime something like this blows up, there’s a lot of misinformation online and I think we’ve been seeing that in this case, too. What advice do you have for people trying to follow along with the fallout from FTX? How can they verify what is true and what isn’t?

I think something that a lot of people have correctly pointed out is that a lot of this story is happening before our eyes on Twitter. There are a lot of people who obviously aren’t journalists—from crypto founders to blockchain analysts and anonymous sleuths—who are coming out with incredible information that’s really pushing the story forward. 

At the same time, I think, as we saw with this story, there is a lot of misinformation and current information that’s being spread. So this [real estate listing] story was initially posted by an anonymous account on Twitter that’s been getting a lot of attention and doing some really impressive work named ‘Autism Capital.’ It went viral for obvious reasons. You know, it went inside Sam Bankman-Fried’s flashy lifestyle, and also there is the element of schadenfreude that he had to sell his beloved penthouse. But there were also plenty of warning signs that it wasn’t true. For example, the Securities Commission of the Bahamas had frozen assets belonging to FTX, and a lot of the real estate was owned by FTX. So how can this actually be put up for sale? And that’s one of the reasons that I started digging into it, and through some reporting, I was able to figure out that the listing was fake. 

I think the lesson is that, obviously, Twitter is an incredible resource. And there’s a lot of commendation for the people on Twitter who are doing a lot of the work that journalists can’t or aren’t. But at the same time, journalists have a really important role in this story in being able to actually verify information, and a lot of this story has been driven by terrific journalism. Obviously, everything was precipitated by a story in CoinDesk on FTX’s balance sheet and we’re seeing some of the best information on financials and inside accounts coming out of outlets like the Wall Street Journal, the Financial Times, Bloomberg, and of course, Fortune. I think, for readers, it’s really important to understand that the role of journalists is to verify information, and obviously to find information that other members of the public aren’t able to. I do think it’s fascinating that it’s happening in both these arenas of Twitter and journalism, and I hope they continue to operate symbiotically.

Please note…In observance of the Thanksgiving holiday, Term Sheet is taking a couple of days off. You can expect this newsletter back in your inboxes fresh and early on Monday, Nov. 28. May the rest of your week be filled with an overabundance of mashed potatoes.

Until Monday,

Jessica Mathews
Twitter: @jessicakmathews
Email: [email protected]
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VENTURE DEALS

– WorkJam, a Montreal, Canada-based digital frontline workplace, raised $50 million in Series D funding. The Fonds de solidarité FTQ and Inovia Capital co-led the round and were joined by investors including Blumberg Capital and Demopolis Equity Partners. 

– Novo, a Miami-based fintech platform for small businesses, raised $35 million in Series B extension funding from GGV Capital. 

– Popup, a remote-based e-commerce platform, raised $3.5 million in pre-seed funding. Accel led the round and was joined by investors including Seedcamp, 20VC, ex-Shopify CMO Jeff Weiser, and Hopin CEO Johnny Boufarhat.

PRIVATE EQUITY

– Motive Partners agreed to acquire embedded/capital, a Berlin, Germany-based venture capital platform. Financial terms were not disclosed.

PEOPLE

– Arena Investors, a New York-based asset management firm, hired Edward Ho as managing director of business development. Formerly, he was with Mercury Capital Advisors.