Fresh out of college, Sam Bankman-Fried had a trading job at Jane Street Group in New York. As he would later tell it, he looked for assets that were trading at slightly different prices in different places. With enough dollars and lots of repetition, the firm could make big profits exploiting price differences of even a hundredth of a percentage point.

But soon, Bankman-Fried discovered an arbitrage trade with approximately 1,000 times the potential upside: buying Bitcoin in the US and immediately selling it in Japan, at what he said could be a 10% markup.

The price difference was so stark because Japanese regulations and banking laws made the trades next to impossible. Bankman-Fried set out to try to make it work at a new crypto trading firm, Alameda Research, that he founded with a former head of the Centre for Effective Altruism, Tara Mac Aulay. And he used this discovery to recruit one of his former Jane Street colleagues named Caroline Ellison.

The Japan trades were initially profitable. But there were other losses, and mistakes. And before long, Alameda executives and staff began to ask questions. The effective altruism adherents among them were frustrated by losses and lapses that undercut their mission of making money to give away.

The employees gave Bankman-Fried an ultimatum. That would create an opportunity for a new trader at Alameda Research: Ellison. And soon, Bankman-Fried would be at work on a new company, a crypto exchange called FTX. But as he tried to raise money from new investors, old questions about his behavior at Alameda continued to swirl. Listen to Spellcaster: The Fall of Sam Bankman-Fried, Episode 3: Deleted From Reality.

Author: Hannah Miller, Max Chafkin and Annie Massa