Feb 2, 2023
Former FTX Executive Harrison Is Getting Ready For His Next Act
(Bloomberg) -- It’s been less than three months since FTX collapsed in what US prosecutors called one of the biggest financial frauds in American history — and a former top executive is eager to get it all behind him and move on to his next big thing.
Yes, Brett Harrison acknowledges, he led FTX US, the crypto exchange’s American arm, and was one of its public faces before stepping down in September. But no, Harrison insists, he didn’t have a clue that Sam Bankman-Fried and his inner circle allegedly gambled away customers’ funds in the market. In fact, Harrison says he’s a victim just like more than a million other creditors lined up in bankruptcy court, frustrated that he, too, may never get back any of the money he invested with the exchange. He told Bloomberg Television’s Sonali Basak on Thursday that he had purchased a few hundred thousand dollars worth of crypto in 2021 that he’s unable to access.
Now, the 34-year-old is stepping back into the spotlight to drum up interest in his new startup, a software company that aims to make it easier for big Wall Street firms to trade crypto. So far, he’s only managed to raise a pittance compared with the multibillion-dollar valuation FTX once commanded — $5 million from investors including Coinbase Ventures and Circle Ventures out of $10 million he had hoped to attract. But the fact he’s raised even that much speaks to the willingness of some in the crypto community to offer a fresh start — and it’s something, considering that venture-capital investments in crypto have fallen to the lowest level in almost two years.
“It’s been a pretty chilly crypto winter for everyone and seeing a raise get done — and seeing excitement from larger well-known crypto investors — has given people hope,” Harrison said in an interview earlier this week.
It takes a certain degree of audacity, or perhaps even denial, to try and turn the page even as the shock waves of FTX’s sudden implosion continue to reverberate months after its November downfall, and as prosecutors widen their dragnet. It was a seminal event for cryto, one that tainted its image, burned investors and left some of the industry’s biggest companies teetering on the brink. Last month, Genesis Global, once one of the biggest crypto lenders, filed for bankruptcy. Others are retrenching and cutting staff.
There’s also uncertainty about how many were responsible for what happened at FTX, which collapsed after customers’ money was allegedly used to cover bad bets by Bankman-Fried’s hedge fund, Alameda Research. Bankman-Fried is awaiting trial on fraud charges after pleading not guilty.
Other top executives in Bankman-Fried’s orbit have taken different paths. Former Alameda Chief Executive Officer Caroline Ellison and FTX co-founder Gary Wang have both admitted to participating in fraud. Former FTX Digital Markets co-CEO Ryan Salame and Nishad Singh, who oversaw engineering at FTX, have both worked with authorities, accounting to court records and people familiar with the matter. Harrison declined to comment on whether he was aiding investigators.
“I’m very happy to help and cooperate with the investigation in any way that I can,” he said.
Harrison, who worked in Chicago, has not been charged with wrongdoing and said he was unaware of what was happening in Bankman-Fried’s inner circle in FTX’s Bahamas headquarters. In a lengthy thread on Twitter in mid-January, Harrison said he clashed with Bankman-Fried months into his tenure and “never could have guessed” that the company’s disorganized structure was rooted in a “multi-billion-dollar fraud.”
In response to the thread, Bankman-Fried said in a statement to Bloomberg that he strongly disagreed with what Harrison said, but that he did not wish to get in a public argument with him.
Harrison said in an interview that he hasn’t spoken to Bankman-Fried since months before his September departure from FTX US. He said he wasn’t even involved in key deals made by FTX US, including when the company extended a $400 million credit line to troubled crypto lender BlockFi Inc. and secured the option to buy the company during Bankman-Fried’s billion-dollar bailout spree last summer.
“There were a number of different acquisitions or deals in which I would find out about them from the news, rather than find out from them internally and that was very frustrating,” Harrison said.
He said he pushed for greater separation between FTX and FTX US and fought for dividing legal and compliance teams, as well as software developers. He said the companies had servers at different locations, as well as separate bank accounts and crypto wallets, and that customer accounts were kept apart from the company’s operating accounts.
He told Bloomberg TV’s Basak that internally, Alameda and FTX were portrayed as completely separate entities. Ellison and Bankman-Fried also reiterated this message publicly, telling Bloomberg last summer that there were strict barriers in place between the two companies.
Read more: What FTX’s Bankman-Fried Said When We Asked Him About Red Flags
Harrison said he didn’t publicly raise his concerns about FTX because he attributed the company’s organizational problems to startup “growing pains.”
“Those weren’t concerns that something nefarious was going on,” Harrison said.
It’s been difficult to move past the stigma of FTX so soon. Several venture capitalists who were pitched on the new company, called Architect, passed because of risks of being associated with a former FTX executive, despite speaking positively about Harrison.
“You can’t have it both ways,” said Cory Klippsten, the CEO of Swan Bitcoin, a financial-services startup, who is dubious of Harrison’s efforts to move beyond FTX. “It’s extremely weird to on the one hand claim to be a competent person of high integrity, and on the other hand not do anything whatsoever to raise a flag publicly about the obvious massive dysfunction at FTX.”
Harrison was recruited to FTX by Bankman-Fried in 2021 as the cryptocurrency bubble was peaking. Harrison, with bachelor’s and master’s degrees in computer science from Harvard, had known the FTX co-founder from Jane Street Group, the quantitative trading firm where Harrison became the head of trading systems technology. At the time, Harrison was overseeing a technology group at Citadel Securities, one of the world’s biggest market makers.
After becoming president of FTX US that May, Harrison quickly turned into one of the company’s most visible faces as spot crypto trading on the platform surged to more than $67 billion that year. It expanded into NFT trading under his watch and acquired LedgerX, a crypto derivatives exchange that’s one of the few remaining solvent pieces of FTX and was a large part of the company’s regulatory push to change derivatives trading in the US.
But Harrison said he clashed with Bankman-Fried and unsuccessfully pushed for the US operations to have more independence from the Bahamas headquarters. In April 2022, he said he made a formal complaint about the firm’s organizational structure and decided to leave soon thereafter. He stepped down that September.
Since then, Harrison has founded Architect, a crypto-trading software company he’d hoped would be valued at some $100 million, only to dial back that target. Among the investors was SkyBridge Capital founder Anthony Scaramucci, who sold a 30% stake in his company to Bankman-Fried weeks before the crypto exchange’s collapse.
“I think we’ll have a long-term positive effect on the industry,” Harrison said of his new venture.
--With assistance from Sonali Basak.
(Adds comments from Bloomberg Television invterview.)
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