The crypto billionaire courting the establishment

One question to start: Is David Solomon a good DJ? FT Alphaville investigates the Goldman Sachs chief executive’s musical side hustle, with comical rigour.

‘Way too smart’: the crypto founder that regulators can talk to 

Sam Bankman-Fried isn’t one for first impressions.

The disheveled 30-year-old chief executive of crypto exchange FTX sported his signature uniform of shorts and a wrinkled T-shirt onstage opposite an impeccably dressed Alex Rodriguez at the International Futures Industry Association’s annual conference in Boca Raton last month.

Not long into their conversation, however, it was clear to the audience who the real heavy-hitter was, the FT’s Gary Silverman and Phillip Stafford report.

The man with the perma-bedhead — an inevitable result of sleeping on a beanbag chair next to one’s desk most nights — is one of the most aggressive players in the movement to break crypto into the mainstream. “This guy is way too smart,” Rodriguez gushed.

On Tuesday FTX took a stake in IEX, the upstart exchange that rocketed to fame in Michael Lewis’s 2014 book Flash Boys. The deal underscores FTX’s grand ambitions to encroach on the territory of mainstream finance.

If FTX became the biggest crypto exchange, overtaking rivals Coinbase and Binance, then buying a behemoth such as Goldman Sachs or exchange group CME would be “not out of the question at all”, Bankman-Fried told the FT last year.

These are lofty propositions for a company founded just three years ago. But so was selling some of the world’s largest investors and traditional financial institutions on the plumbing for a highly disruptive, unregulated market.

FTX has enticed investors ranging from risk-hungry SoftBank and Tiger Global to traditional institutional investors including Canada’s Ontario Teachers’ Pension Plan. Its international operation is now worth more than Deutsche Bank or Credit Suisse, based on a $32bn valuation in January.

The secret to the exchange’s appeal is its emphasis on working with regulators to create what it claims will be a less risky way to trade US futures, rather than focusing on the more controversial digital currencies that also flow across its platform.

Bankman-Fried spent much of the conference laying out his vision of a brave new world where traditional brokers would be replaced by computers, and machines would trade 24-hours a day, seven days a week.

His risk management pitch is to bypass traditional brokers by allowing retail investors to deposit collateral in FTX accounts — either in the form of cash or crypto — to cover margin requirements for highly leveraged trades. The company last year acquired LedgerX, a small US futures trading platform, ostensibly for that purpose.

The plan has gained support in Washington partly because of Bankman-Fried’s willingness to engage with government officials more than libertarian-leaning crypto cavaliers have done. US Commodity Futures Trading Commission chair Rostin Behnam called it an “innovative proposal that deserves careful consideration”. 

DD doubts a Goldman acquisition is on the near-term horizon. But the speed at which Bankman-Fried rose from relative obscurity to becoming a powerful crypto billionaire who’s got the attention of some of America’s top regulators makes it worth paying attention.

The autonomous carmaker that switched off the safety features

Companies developing the “future of transportation” have faced their fair share of drama, tragedy and downright farce.

Tesla was alleged in a New York Times report to have released a falsified video in 2016 that indicated its partially autonomous technology was more advanced than its tests had proven.

One of Uber’s autonomous vehicles was involved in a crash that killed a pedestrian in Arizona in 2018.

In 2020, electric vehicle manufacturer Nikola famously admitted it had rolled one of its trucks downhill in a marketing video — which made it appear to be driving.

It is now the turn of Chinese autonomous vehicle start-up AutoX to surprise us with its tactics to impress investors and the press.

During a demo ride at the 2019 CES tech conference in Las Vegas, the company’s founder and chief executive Xiao Jianxiong ordered his engineers to turn off all the safety features that would allow the driver to take the car out of autonomous mode if it encountered a problem, the FT’s Eleanor Olcott reports.

That meant the human driver would have been unable to instantly take control of the car in an emergency. “It was extremely dangerous, there were thousands of people on the streets that day,” a person with direct knowledge of the event said.

Xiao, who also goes by the name “Prof X”, wanted to display how well his company stacked up against western rivals in a global race to build autonomous technology.

Three months after Xiao pulled this stunt, he secured $100mn in funding from a consortium that included the Chinese ecommerce group Alibaba and the state-owned carmaker Dongfeng.

We know what DD regulars may be thinking: where was SoftBank in all of this? After all, the Japanese conglomerate’s Vision Fund has ploughed big bucks into China’s tech sector, including a bet on ride-hailing group Didi Chuxing.

Sure enough, it’s part of the story. The Vision Fund made a previously undisclosed investment in AutoX in 2020, Eleanor reveals. Delve into the full story here.

Wall Street’s police make private equity a priority

Odds are increasing that private equity fund managers will get a knock on the door from the US Securities Exchange Commission.

The SEC ’s latest annual to-do list highlighted the oversight of private funds — from private equity and hedge funds to venture capital and real estate groups — as a top priority, the FT’s Chris Flood reports.

“Private fund managers are now more likely to be examined than at any other time over the past five years,” said Igor Rozenblit, a former senior SEC regulator and founder of the Iron Road Partners consultancy.

Still, just 16 per cent of the 14,800 US registered investment advisers — a wider group than just private funds — were examined by the SEC in the latest financial year, and this is expected to decline given that the industry is growing far faster than the regulator’s staffing.

SEC chair Gary Gensler has appealed for more funding and hopes to employ 70 more examination staff.

But keeping pace won’t be easy. In the past eight months alone, the regulator has seen its three top leaders depart for better-paid jobs in the private sector.

Job moves

• Latham & Watkins has hired Makan Delrahim, former assistant attorney-general in the US Department of Justice’s antitrust division, as a partner in Washington, DC.

• Keurig Dr Pepper, which is controlled by JAB Holdings, has appointed Ozan Dokmecioglu, currently chief financial officer and president of international, as its next chief executive.

• General Atlantic has hired Cornelia Gomez as global head of ESG, based in London. She was previously head of ESG and sustainability at PAI Partners.

• Citigroup has hired Credit Suisse alum Sumit Khedekar as head of its North America healthcare group.

• Solomon Partners has elevated Rich Brail to chair of mergers and acquisitions along with a number of other senior promotions.

Smart reads

Holding grudges Morgan Stanley cut off funding to Volkswagen in the middle of its so-called dieselgate scandal. That could be the reason the Wall Street lender missed out on Porsche’s blockbuster listing, Bloomberg reports.

Below deck Oligarchs’ yachts run on more than just a boatload of oil. An FT investigation into Roman Abramovich’s shadowy fleet revealed a wider problem: how a convoluted web of offshore ownership structures have helped Vladimir Putin’s alleged enablers to avoid global sanctions.

There’s always a loophole Like many of his Russian oligarch peers, Alexei Mordashov has been scrambling to move billions in assets and multiple luxury vessels out of reach from western authorities. His progress reveals gaps in the regulatory system, the FT reports.

News round-up

US watchdog fines former KPMG audit boss $100,000 over tip-off scandal (FT)

UK government seeks first female chief executive for competition watchdog (FT)

1MDB trial hinges on competing portrayals of ex-Goldman banker (FT)

Credit Suisse found ex-investment bank chief violated code of conduct (WSJ)

Amazon inks deals to send its internet satellites into space (FT)

Channel 4 sale leaves potential buyers in a quandary (FT)

Tokio Marine accuses Greensill of ‘fraudulently’ obtaining policies (Nikkei Asia)

Evergrande agrees to pay advisory fees to international bondholders (FT)

Grant Thornton’s UK profits rise by more than a third (FT)

Murakami’s Cosmo Energy buy heralds sector consolidation (Nikkei Asia)

Jeffrey Epstein’s private islands in the Caribbean to list for $125mn (Wall Street Journal)

Brookfield billionaire Flatt reveals secret behind 3,700% return (BBG)