FTX Was The Family Business

Let's look at some dots and see if we can connect them.

Dot one: as we saw yesterday, there was a contentious sitdown that lasted into the early hours on November 11, during which prominent stakeholders at FTX induced Sam Bankman-Fried to resign as CEO. The only individual mentioned specifically among them was Sam's dad, Prof Bankman. White-shoe firm Paul, Weiss had somehow been induced to represent Sam, but they dropped him after a week due to "conflicts". I speculated that only Prof Bankman would be at a level to engage Paul, Weiss for this job at all. Once they dropped Sam, Prof Bankman induced a Stanford Law colleague to represent him. As far as I can see, both these moves were intended to keep Sam's legal defense under Dad's control.

Meanwhile, after being pushed out as CEO, Sam has been anything but under control. Both new CEO Ray and Paul, Weiss have variously denounced his "incessant and disruptive tweeting" and "erratic and misleading public statements". While I continue to assert that I have neither a law degree nor a license to practice, I can say with some confidence that a lawyer would advise a client in Sam's postion, facing almost certain indictment, not to make public statements. Instead, Sam says he plans to speak with Andrew Ross Sorkin at the annual New York Times Dealbook Summit today.

Recall that there's widespread opinion that Sam suffers from ADHD, which means at minimum that he is not well equipped to sit through meetings with attorneys nor effectively plan on the basis of their advice This again confirms my previous observations to that effect.

Dot two: Stanford Law Prof Barbara Fried, Sam's mom, "has stepped down from her role at the Democrat-aligned dark money group Mind the Gap, according to a report by investigative journalist Theodore Schleifer published by Puck News Tuesday [November 15]." The story continues,

Both Fried, who founded Mind the Gap and served as the chair of board of directors, and Bankman-Fried’s brother Gabe Bankman-Fried, who served in an undisclosed role, have resigned from the organization, with Fried’s resignation email containing a defense of her son, according to Schleifer.

I discussed what was known about Gabe Bankman-Fried on November 25, but all we knew then was that he was Sam's philanthropic surrogate as Director of Guarding Against Pandemics, from which he resigned November 14. Now we learn that he held another, undisclosed role with his mom's philanthropic surrogate, Mind the Gap, from which he resigned, with Mom, the following day. It appears that both Guarding Against Pandemics and Mind the Gap acted in a major way to funnel donations to causes and candidates that would benefit FTX, and the resignations of Gabe and Prof Fried would be necessary to insulate those organizations from the resulting taint.

Dot three: Sam's father, Prof Bankman, appears to have played a shadowy role with FTX even before the November 11 meeting. As CoinDesk reported November 10,

Bankman-Fried’s father, Stanford Law professor Joseph Bankman, also plays a role at the company. He appeared on an episode of the "FTX Podcast" in August, describing charity and regulation-related projects in which he was involved.

That podcast can be found on YouTube below:

I watched it so you don't have to. His delivery is remarkably unimpressive, high-pitched and glib, and what he says is at the level of a law professor addressing college sophomores on why they should consider going to law school. Rest assured, he reveals no inadvertent company secrets in this podcast. Nevertheless, his interlocutor, who is apparently an FTX employee, is remarkably deferential to the degree that I'm tempted to use a vulgarity related to kissing someone's posterior. That may be an indication of Prof Bankman's actual standing in the company. I suspect he's the real man behind the curtain, which we might also infer from his role in the November 11 meeting.

Dot four: this small remark in the Palo Alto Daily Post:

A profile by the Menlo Park-based venture capital firm Sequoia Capital in September talked about Bankman-Fried’s upbringing on Stanford’s campus.

“His parents raised him and his siblings utilitarian — in the same way one might be brought up Unitarian — amid dinner-table debates about the greatest good for the greatest number,” the profile said.

This makes the conventional account, that he somehow picked Effective Altruism up at MIT, questionable:

It’s important to understand that Bankman-Fried is not just a freak accident for EA, someone who made his billions and then became enamored of the movement. He’s a homegrown EA billionaire. In many ways, EA is what made him “SBF,” as he’s now known within the movement and the media.

When Bankman-Fried was in college, he had a meal that changed the course of his life. His lunch companion was Will MacAskill, the Scottish moral philosopher who’s the closest thing EA has to a leader. Bankman-Fried told MacAskill that he was interested in devoting his career to animal welfare. But MacAskill convinced him he could make a greater impact by pursuing a high-earning career and then donating huge gobs of money: “earning to give,” as EA calls it.

No, he was apparently groomed as some kind of a utilitarian cultist from early youth by his parents; lunch at MIT had nothing to do with it.

My view is increasingly that, especially with ADHD, he was emotionally and intellectually stunted, as was likely his brother Gabe. Both he and Gabe seem to have advanced in pseudo-careers largely arranged by their parents -- I would certainly ask whether their network somehow involved Jane Street Capital as well as the various non-profits and the congressional office that also briefly employed them. Finally Sam struck gold when, suffering from ADHD, remember, he came up with a brilliant scheme to arbitrage bitcoin between the US and Japan. After careful study and research. With ADHD. And that started everything. Cough, cough. The Japan deal needed seed money, no matter who dreamed it up -- but keep in mind, that was the phony "investment" that made the Ponzi credible.

I said yesterday that Sam's defense counsel (remember, I'm a legal strategist at the level of Dick Deguerin) could make a case that Sam wasn't mentally all there, and in building FTX, he'd simply been doing what his parents groomed him to do. A Dick Deguerin might succeed with this -- though he'd have to keep his client quiet. On the other hand, this would be a legal strategy Prof Bankman would not support, to say the least. But then, things are headed south for that whole family business Ponzi no matter what.