How Stanford Professors Joe Bankman And Barbara Fried Enabled Their Son Sam's Crypto Empire

Bloomberg Businessweek, How Sam Bankman-Fried’s Elite Parents Enabled His Crypto Empire:

Joseph Bankman and Barbara Fried, both renowned Stanford scholars, opened doors for their son and provided a halo effect for his company.

Around the Bankman and Fried house, Larry David was a family favorite. So the parents were understandably excited when they got the email from their son Sam. He wrote that his company, FTX, would be airing a commercial during the 2022 Super Bowl and that David was starring in it.

The curmudgeonly comedian would play a series of skeptics throughout history, basically Neolithic and Elizabethan versions of his character from HBO’s Curb Your Enthusiasm. Someone would present an invention—the wheel, the lightbulb, the Walkman and, finally, FTX—and David would dismiss each one in quick succession. The ad would warn viewers that if they didn’t invest in crypto, they were missing out on an historic opportunity to get rich. The tag line: “Don’t be like Larry.”

Sam Bankman-Fried’s parents loved it. “Surreal,” wrote Barbara Fried. His dad, Joseph Bankman, gushed over how happy and proud he was. A few days later, employees received some additional feedback from Sam’s younger brother, Gabe. He asked if his dad could have a role in the commercial, saying he was too humble to make the request himself.

The request was odd in a sense. Bankman had no formal role at FTX at the time. Nor did Gabe, who was running an FTX-backed nonprofit dedicated to preventing pandemics. But executives at FTX understood that corporate roles, especially as they related to the co-founder and chief executive officer, were much blurrier.

Not long afterward, Bankman showed up on set for a scene in which David vehemently opposed the Declaration of Independence. When told “the people shall have the right to vote,” David responded incredulously: “Even the stupid ones?” Bankman, wearing a powdered wig, shouted, “Yes!” FTX paid roughly $20 million to create and air the 60-second spot. Around the same time, Bankman joined the company as an employee.

A person familiar with the commercial’s production—who, like most people interviewed for this story, requested anonymity to avoid being associated with a messy bankruptcy, numerous class-action lawsuits and several criminal cases—says the decision to give the boss’s dad a role made a certain sense within the upside-down logic of FTX. In a way, Bankman was the company’s founding father.

Both parents have distinguished careers that long precede their son’s alleged fraud. They met in the 1980s at Stanford University, where they taught at the law school for more than three decades, living on campus and raising two sons. Bankman, an expert on taxes, is renowned for his work making the US tax code friendlier to lower-income citizens. Fried, an authority on legal ethics, was prominent in progressive political circles.

At the time the ad aired, critics were warning that FTX was luring naive investors with extremely risky financial instruments that were mostly banned in the US. Those investors would see their money vanish when the funds were diverted, without their knowledge, to a hedge fund that Bankman-Fried also owned. FTX collapsed and filed for bankruptcy in November 2022.

Leading the bankruptcy process is John Ray III, who did the same for Enron and has described this case as worse. He’s accused Bankman-Fried of using customer funds to enrich himself, as well as his family members and other insiders, and is seeking to reclaim some of that money. More ominous for the Bankman-Frieds is the criminal case, set to begin in New York City on Oct. 2. Prosecutors haven’t accused the parents of wrongdoing, but charges against their son, whose net worth at its height was estimated at $26 billion, include fraud, money laundering and bribery. The case could send Bankman-Fried to prison for the rest of his life. He pleaded not guilty and has characterized the losses as the result of inept, but not criminal, management.

Bankman and Fried have steered clear of much of the scrutiny that’s enveloped FTX. That’s at least in part because they’ve yet to deliver a full accounting of their roles in helping their son build a sprawling business and political-influence operation. Instead, they’ve generally been portrayed as spectators, who, often in tears, offer emotional support to their son at frequent court appearances. But their names will almost certainly come up during the trial. The defense team has signaled its strategy may, in part, rest on advice Bankman-Fried received from lawyers, including his parents.

A spokeswoman for the couple, Risa Heller, declined to make Bankman or Fried available for interviews. She’s said previously that neither one had much to do with FTX beyond being a supportive parent. Fried never worked for the company, and Bankman’s brief tenure mostly focused on philanthropy, according to Heller. Last year, Bankman-Fried told the New York Times that his parents “weren’t involved in any of the relevant parts” of his company.

Former employees and business partners say this wasn’t the impression they had at the time, and legal filings suggest Bankman and Fried were crucial to their son’s transfiguration from schlubby startup nerd to hyperconnected crypto mogul. The couple profited tremendously from FTX, netting $26 million in cash and real estate in 2022 alone. They were regular fixtures at the company’s offices, offered words of encouragement to employees and were included in internal company communications. Their reputations and connections were essential to FTX’s success. ...

No one in Silicon Valley likes to think of themselves as privileged. ... The most privileged place within this world of extreme privilege is Stanford—the birthplace of companies such as Hewlett-Packard, Sun Microsystems, Cisco, Yahoo!, Google and PayPal. Fried—a product of Harvard, Harvard Law School, the US Court of Appeals for the Second Circuit and the law firm Paul, Weiss—arrived in 1987 as a tenure-track professor and rented a house on campus. A year later she met Bankman, a graduate of the University of California at Berkeley and Yale Law School who’d come to Stanford on a trial teaching gig after practicing as a tax lawyer in Los Angeles. Barb and Joe, as they’re known on campus, went public with their relationship after Bankman secured a tenure-track job the following year. They moved in together, and when Fried’s rental came up for sale in 1991, they bought it. ...

During his childhood, Bankman-Fried was surrounded by a revolving group of youngish intellectuals—law professors and law students, of course, but also sociologists, engineers, artificial intelligence researchers, classicists and social scientists. On Sunday nights, Bankman would order takeout or cook something simple like pasta, and they’d cram 15 guests into the dining room and sit and talk, often about philosophy and politics. Sam and Gabe, even as teenagers, sometimes joined in the conversation. Bankman and Fried were proud and committed do-gooders. The couple didn’t marry because, as they told friends, it was unfair that same-sex couples couldn’t do the same. “They felt that they should not take advantage of something that wasn’t open to others,” says Paul Brest, a former dean of Stanford Law School and a longtime friend. “They’re deeply ethical people.”

In his younger days, Bankman had a mop of dark, curly hair, which his son would inherit, along with an ingratiating manner, which his son would not. The couple sent their kids to Crystal Springs Uplands School, a $60,000-a-year prep school packed with Silicon Valley’s nepo babies. By then, Bankman had become one of the foremost experts on American tax policy. He advised California’s government on a pilot program to let the state do people’s taxes for them. The program attracted fierce opposition from tax preparation companies and small-government absolutists and made Bankman something of a hero to reform-minded liberals.

To fellow academics, Bankman was an empathetic and forgiving mentor. Jay Soled, a Rutgers University professor, recalls Bankman comforting him after he fumbled a presentation. “That was the kind of guy Joe was,” he says. “There would be a next time, and you could only improve.” In 2009, while still teaching a full course load, Bankman enrolled in medical school to become a clinical psychologist. After completing his internship, he began moonlighting as a cognitive behavioral therapist while teaching an optional class, developed with Fried, to help law students manage anxiety.

Fried was an even bigger intellectual than her husband and, though well liked on campus, she has a reputation for provoking anxiety among students as much as for helping them manage it. Her academic work centers on a branch of ethics known as consequentialism, or the idea that the results of our actions are more important than abstract notions of right and wrong. These ideas became something of a family religion. The philosophy is about doing good for as many people as possible, but a less charitable way to summarize it is “the ends justify the means.” ...

Defenders of the university ... Donohue, point out that Stanford wasn’t the cause of Bankman-Fried’s alleged crimes; it was, at most, a backdrop for them. But backdrops matter. Coming from a place such as Stanford and having parents of high achievement changes how the world sees your shortcomings. What might be perceived as a sign of unseriousness—playing video games during a meeting, say—becomes unmistakable evidence of brilliance.

Prior TaxProf Blog coverage:

• Stanford Law Profs' Son Is A 'Vegan Crypto Billionaire' (Apr. 19, 2021)
• Stanford Law Profs' Son — A 'Vegan Crypto Billionaire' Megadonor — Seeks To Change Washington, D.C. (Aug. 13, 2022)
• NY Times: The Stanford Law Prof Parents In The Middle Of FTX’s Collapse (Dec. 13, 2022)
• Sam Bankman-Fried’s Parents Used Their Stanford Home To Bail Him Out (Feb. 4, 2023)