A crypto security CEO did business with Sam Bankman-Fried and sent a team to the Bahamas. He was shocked by the lack of interest in security controls and FTX’s great ideas: “Maybe we buy Goldman Sachs”

In mid-July 2021, Pascal Gauthier called the 29-year-old who had wowed investors and the media with building a major trading platform at warp speed and emerged as the crypto industry’s most charismatic lobbyist: Sam Bankman. Fried.

“I wanted to know what his secret recipe was to grow his business so quickly,” recalls Gauthier, CEO of Ledger, a leading provider of hardware wallets for securely storing digital currencies. (You can read more about that rapid growth and the documents showing how Bankman-Fried sold his vision to VCs here.) But as their conversation progressed, Gauthier became startled. SBF described a model for scaling a business that, looking back, contradicted everything Gauthier had learned in over two decades as a successful serial entrepreneur. “It all sounded like a classic recipe for disaster,” he recalls. “I’ve been wondering, ‘He’s a myth; it is backed by the best investors; it has a valuation in the tens of billions. What I do not understand?’ But it looked like he was going to build a great business and we loved working with them.”

Gauthier referred the incident to wealth this week in a hotel meeting room in Manhattan’s Nolita neighborhood, visiting from Ledger’s Paris headquarters. “I could tell he was playing with his computer or doing something else while we were talking, but he also told me clearly about his own business; it was obvious that he could multitask,” says the black-bearded, burly CEO, with folkloric rings on his eight fingers. “He showed no curiosity about Ledger or me when he called. He shared his story of building a great company super fast.”

But Bankman-Fried, or “SBF” as he’s known in crypto circles, described how he was able to accomplish something Gauthier had never seen before — running a large financial institution as a kind of permanent startup. “He had a firm belief that he could do it with the very few people he already had; The number I remember was about a hundred,” says Gauthier. “He said he could set up a business with far fewer people than his competitors. That was my number one surprise.” Shocker number one: SBF’s claim that “maybe one day we’ll buy Goldman Sachs,” a boast he also made public. Gauthier was thinking, here’s a guy with $1 billion in revenue and he’s going to buy one of the largest investment banks in the world with a market cap of over $100 billion and $50 billion in revenue?

Many months later, Gauthier had even more reason to ponder how such an unorthodox, unproven approach could apparently work so brilliantly. “I later read that Sam was leading investors to build a global financial super-app where people could do anything with their money, and maybe that’s why he hit the $32 billion valuation came. And apparently he’s going to do it with so few people! I thought, ‘You need thousands of people to do that!’” Gauthier notes that he didn’t predict FTX’s collapse. He was simply amazed at the gap between SBF’s ambitions and the number of people he put behind this over-ambitious execution.

For his part, Gauthier took a more traditional route in building his own companies. He had grown Criteo of France into a major online advertiser, which went public in 2013 at a valuation of $1.7 billion, and in 2015 he helped found Ledger, a fast-growing company with 800 employees and has had strong returns for most years. So the wild plans of the SBF left a lasting impression. “If I said Ledger was considering buying Goldman Sachs, people would laugh,” Gauthier notes. “But somehow, when SBF said it could buy Goldman, the financial world nodded and thought it was possible.”

Ledger engineers visit FTX in the Bahamas and get a jolt

In mid-2022, Gauthier dispatched a team of engineers to install the systems at FTX’s offices in the Bahamas that would allow its clients to trade on SBF’s burgeoning platform. Ledger’s product is a wallet that runs on a piece of hardware the size of a butane lighter called the “Ledger Nano” sold at Best Buy that plugs into your smartphone or connects via Bluetooth. To send crypto to another wallet or an exchange — to activate the “key” that unlocks the coins — customers need to enter a private “PIN code,” just like you slap a pad to buy things with a bank card . The Ledger wallets are designed for individuals only. They are a long-established platform for keeping customers’ bitcoin and other crypto holdings safe. Unlike trading platforms that hold coins, Ledger operates a decentralized system.

The engineers reported a system and culture that was the opposite of the rigorous environment Gauthier created at Ledger. “We found that their business practices were much looser and very different from ours,” he says. “What I saw before the fall was an organization that just worked very differently than anything I’ve ever seen.”

Gauthier notes that neither FTX nor SBF would allow his team to have in-depth discussions about security and specifically the type of governance that would be appropriate for a large exchange. Ledger offers a proven product for the institutional market called Ledger Enterprise. But Gauthier and SBF never entered what Gauthier called “an informed discussion” about security. “I was surprised they failed, but I was also amazed that they couldn’t have real conversations about the security of the exchange and the security of its governance.”

A major lesson from the meltdown, according to Gauthier, is that security is even more important in the crypto world than it is for banks and brokers. And yet, digital players are far more blase about protecting clients’ wealth than they are in mainstream finance. “The crazy kids in the garage approach doesn’t work well with blockchain technology,” he says. “You need governance and risk management and all those things that crypto people think are boring.” SBF’s appeal diverted the world’s attention away from the prominent role of these security measures. For Gauthier, the missing billions will be an enduring reminder – the reminder that needs to be heeded for crypto to prove a force for the future.

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