More Things That Don't Fit

Here's more of the conventional FTX narrative that just doesn't fit. Remember that new CEO Ray's big complaint about FTX was that not only did they not keep payroll records, they basically didn't have an organization chart. It was just a bunch of millennials with ADHD playing video games in a luxury condo. Right? Here's FTX skeptic Marc Cohodes's take, as quoted by Alex Berenson:

They were glorified interns, they had no experience, they had no exchange experience, they had no capital markets experience. . . which led me to believe this is a giant fraud. . .

This is the basic media narrative and the received explanation, it was all Sam and Caroline and the others makin' whoopie in a yellow submarine. No org charts. No wonder! But wait a moment.

The demise of cryptocurrency exchange FTX has brought an end to FTX Arena in Miami, or at least its name. Naming-rights deals, in which companies spend up to $500 million to put their names on sports facilities, have captured the interest of fast-rising financial technology companies in recent years.

. . . In March 2021, FTX struck a 19-year, $135 million deal with the Miami Heat NBA team and Florida’s Miami-Dade County, which owns the stadium, to put its name on what previously was known as the American Airlines Arena in Miami. The stadium was renamed FTX Arena in June 2021.

Are you trying to tell me that Sam and Caroline somehow just DMed somebody at the Miami Heat and cooked up a $135 million naming rights deal with an NBA team and Miami-Dade County? They just sorta-kinda took a break from League of Legends to do a naming rights deal? Well, how about this?

Sam Bankman Fried a.k.a SBF-led crypto exchange firm FTX and NBA team Golden State Warrior announced a ‘first-of-its-kind cryptocurrency partnership in professional sports.’ As revealed in the press release, the 10 billion contract would enable FTX to be Warriors’ Official Cryptocurrency Platform and NFT Marketplace.

Or this?

The FTX collapse that is ballooning into arguably the biggest financial story of 2022 is worsening for Tom Brady, Steph Curry and other major endorsers of the now-bankrupt cryptocurrency platform.

Well, maybe Sam and Caroline just DMed Tom Brady and Steph Curry, too, huh? Or maybe they were poppin' Adderall with their agents or something. Or somebody told them at a party this'd be a great thing, and they could hook up with Caroline on top of it?

No, let's face it, there were power-player agents, publicists, entertainment and sports lawyers, and any number of other experienced professionals setting up those deals. The link above says a class action suit has already been filed against Brady, Curry, and many other celebrity endorsers, and that says that the identities of the actual fixers who set all these deals up will eventually come to light. And as an Aristotelian who looks for causes, I expect there will be a prime mover who set all this in motion, and it will be neither Adderall-addled Sam nor the beautiful Caroline.

There's a hint in the photo at the top of this post, which shows Sam with his arms around Congresswoman Waters on one side and -- wait, who's the old guy to Sam's right? Oh, that's Stanford Law Prof Joseph Bankman, Sam's dad. Just a moment. Doesn't he have classes to teach, papers to grade, articles to write, faculty meetings to attend? What on earth is he doing in Washington?

Sam, to tell the truth, looks kinda woozed out in the picture. He's got a perfunctory simper on his face, but the guy who's almost literally grinning from ear to ear is Prof Bankman. Do you think for an instant that Sam set this meeting up? Not on your life, it was dad Joe. Sam is there like a guy wearing a Mickey Mouse costume who poses with his arms around tourists at Disney World. He's the hired help. Maxine Waters is fully aware of this; she's only slightly more engaged than Sam. It's Joe who tells Sam what checks to write, if Sam is involved at all.

New CEO Ray isn't going to make a big point of all the agents and publicists and fixers; they have nothing to do with the salvage value of FTX, and he's just going to quietly lay them off. No sense adding to the class action feeding frenzy, and the media isn't going to focus on them, either, because that would just expose its role in enabling the whole swindle.

FTX didn't have an org chart. That was by design. The guy who really ran the operation was Joseph Bankman. Darn right he's trying to return the deed to the vacation home in the Bahamas.

The Legend Of "SBF"

Media accounts continue to be generous to Sam Bankman-Fried on the FTX scandal. This piece, I think, gives the overall current dimensions of the Overton window:

In the weeks since Sam Bankman-Fried’s cryptocurrency empire was revealed to be a house of lies, mainstream news organizations and commentators have often failed to give their readers a straightforward assessment of exactly what happened. August institutions including the New York Times and Wall Street Journal have uncovered many key facts about the scandal, but they have also repeatedly seemed to downplay the facts in ways that soft-pedaled Bankman-Fried’s intent and culpability.

The writer in the piece comes down on Sam Bankman-Fried as the architect of a fraud:

At the heart of Bankman-Fried’s fraud are the deep and (literally) intimate ties between FTX, the exchange that enticed retail speculators, and Alameda Research, a hedge fund that Bankman-Fried co-founded. While an exchange ultimately makes money from transaction fees on assets that belong to users, a hedge fund like Alameda seeks to profit from actively trading or investing funds it controls.

Bankman-Fried himself described FTX and Alameda as being “wholly separate” entities. To reinforce that impression, Bankman-Fried stepped down as CEO of Alameda in 2019. But it has emerged that the two operations remained deeply tied. Not only did executives at Alameda and FTX often work out of the same Bahamian penthouse, but Bankman-Fried and Alameda CEO Caroline Ellison were romantically linked.

Sam himself seems to minimize this, for what that's worth, but in any case, watching Caroline Ellison in videos creates a picture of someone with the social awkwardness of a 12-year-old, when according to Wikipedia, she's 28. A cosmetic makeover could well radically improve her looks, but it's almost as though nobody ever told her how to do hair or makeup.

I simply can't imagine what a "romantic" relationship with somebody like that would be like, and when Sam was worth billions, he was in a league to date someone like Amber Heard at least. Why would he settle for such an unattractive, socially and emotionally stunted woman? (My wife elbows me when I ask about Caroline's hygiene, but there you are.) I don't believe that stuff, like I don't believe a lot of the rest.

Not only that, but this account of Sam's New York Times interview yesterday suggests he intends to put the blame on Caroline:

SBF tries to distance himself from the trading firm, claiming he did not have the bandwidth to run two companies (FTX and Alameda).

. . . Clearly SBF is attempting to throw Caroline Ellison, the former CEO of Alameda under the bus as responsible for the downfall.

I'll certainly grant that Sam has been remarkably disingenuous in his post-bankruptcy public remarks, but I would place it in the venial realm of pettifogging and tergiversation. I think he's found himself in a set of circumstances that he himself didn't originate, never controlled, and whose outcome for him was a surprise. The same account of his New York Times interview goes on,

Asked when he knew there was a problem, he responded "Nov 6th", which just happens to be the day that Changpeng Zhao, also known as CZ, publicly tweeted he’d be liquidating Binance’s holdings of FTT.

When they looked at the data, they realized “there was a potential, serious problem there,” he says. Alameda’s position was huge on FTX, and it had just taken a huge hit.

. . . SBF framed the whole debacle as a risk management problem that got out of hand in what he calls a "run on the bank," and that he was unaware of any actions taken by Alameda.

The former White Knight notably squirmed uncomfortably when asked if he is concerned about criminal liability, stuttering the comment that "there's a time and a place for me to think about myself and my own future. I don't think this is it."

My own reaction here is that a criminal mastermind would be taking the advice of his attorneys, which he acknowledges in his interview he isn't following, to maintain a low profile and make no statements. I continue to think ADHD is a factor in his makeup, and he does indirectly acknowledge this in the interview:

On reports of drug use at FTX, SBF says “there were no wild parties. At our parties we play board games. Twenty percent of people would have a quarter of a beer each and the rest of us would not drink anything.”

A big reason not many drank, of course, is that mixing alcohol with amphetamines, which they'd been prescribed for ADHD, is dangerous. SBF acknowledges his own amphetamine prescription:

He says he has been prescribed various things to help him concentrate. “I think they help me focus a little bit,” he says.

My own view continues to be that Sam, whom I would surmise is as much socially and emotionally stunted as Caroline Ellison, isn't capable of the planning needed to create a Ponzi scheme, which FTX is clearly turning out to be. He's a creation of someone else, unlike, say, Bernard Madoff, who had the smarts and social skills to create his own ultra-respectable phony character. The FTX scandal wasn't built on a Madoff-like smoothie, it was built on the image of a quirky, countercultural boy genius, one step beyond a Steve Jobs. Sam was quirky and countercultural, but he wasn't a genius.

My money's on his parents, who'd set him up for this his whole life. Major crimes were committed, but Sam was just a tool.

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.

Who Is Mr Ray Working For?

I'll preface this with my usual caveat, I'm not an attorney, and all I really know of business is what I learned from reading people in my career in tech. However, I pointed out yesterday that although most commentators, if they mention new FTX CEO John Ray at all, seem to see him as some sort of corporate Dudley Do-Right of the Mounties who fixed Enron and will now fix FTX. Little as I know, I do know that Mr Ray is a lawyer (and a highly capable one), but lawyers work for clients and are obligated to promote their clients' interests. So who are Mr Ray's clients?

This sent me to the FTX bankruptcy filing, available on line, readable, and as far as these things go, informative. Mr Ray identifies himself at the start:

I am the Chief Executive Officer of the above-captioned debtors-in-possession (Collectively, the "Debtors"), having accepted this position in the early morning hours of November 11, 2022. I am administering the interests and affairs of the Debtors from my offices in the United States.

So his clients are the debtors-in-possession of FTX. Investopedia describes debtor-in-possession as:

a person or corporation that has filed for Chapter 11 bankruptcy protection but still holds property to which creditors have a legal claim under a lien or other security interest.

So Mr Ray has been designated CEO by otherwise unidentified debtors-in-possession who hold FTX assets. His job is basically to maximiize those assets and establish their value in preparation for a sale to satisfy FTX creditors. This leads to another puzzle, which is who those unidentified debtors are. As Ferdinand Lundberg pointed out in The Rich and the Super-Rich (1968), ownership of stock and securities at the large investment level is often concealed via devices like street names, and clearly entities that have made bad bets on failing companies would prefer to avoid the publicity.

We can surmise from what's public knowledge, however, that Sam Bankman-Fried himself held a large ownership stake, about 50%, in FTX. As Forbes put it,

Most of his wealth, which peaked at an estimated $26.5 billion, was tied up in ownership of about half of FTX and a share of its FTT tokens.

This would have made it difficult to remove him as CEO, which had to be done to bring in Mr Ray. Mr Ray himself gives an intriguing account in the bankruptcy filing of how this happened:

. . . negotations were being held between certain senior individuals of the FTX Group and Mr Bankman-Fried concerning the resignation of Mr Bankman-Fried and the commencement of these Chapter 11 cases. Mr Bankman-Fried consulted with numerous lawyers, including lawyers at Paul, Weiss, Rifkind, Wharton & Garrison LLP, other legal counsel and his father, Professor Joseph Bankman of Stanford Law School. A document effecting a relinquishment of control was prepared and comments from Mr Bankman-Fried's legal team incorporated. At approximately 4:30 AM EST on November 11, 2022, after further consultation with his legal counsel, Mr Bankman-Fried ultimately agreed to resign, resulting in my appointment as the Debtors' CEO. I was delegated all corporate powers and authority. . .

Oh to be a fly on the wall at that meeting, huh? Mr Ray is being highly circumspect; he doesn't idenfify "certain senior individuals of the FTX group", nor "other legal counsel", but what sticks out is Sam's father, Prof Bankman. I can only infer that Prof Bankman was the most influential person overseeing developments as FTX's finances collapsed, and I would go a little farther to offer him as the answer to the question I had yesterday: who was the person at FTX who could bring white-shoe Sullivan & Cromwell on board? Indeed, who was the person who could influence equally white-shoe Paul, Weiss, Rifkind, Wharton & Garrison LLP to represent his hippie son Sam in this all-night sitdown?

However, Paul, Weiss lasted only a week representing Sam the hippie altruist.

Paul Weiss said Friday [Nov 18] it has stopped representing embattled crypto mogul Sam Bankman-Fried, citing conflicts of interest.

Bankman-Fried, the former CEO of bankrupt crypto exchange FTX, is losing the firm’s help as US lawyers for the platform claim he is disrupting reorganization efforts through “incessant and disruptive tweeting.”

“We informed Mr. Bankman-Fried several days ago, after the filing of the FTX bankruptcy, that conflicts have arisen that precluded us from representing him,” Paul Weiss counsel Martin Flumenbaum said in a statement.

Ethically, Paul, Weiss is required to say nothing in such an announcement that would damage the client's interests, though citing "incessant and disruptive tweeting" is going pretty far in itself. But although mentioning "conflicts" is extremely broad and generic as a reason to withdraw, it suggests to me that there's a basic problem for any counsel that gets involved in this case: Sam Bankman-Fried resigned as CEO, but he still controls about half of FTX, and that makes him a major debtor-in-possession. But now it looks like his father, Prof Bankman, is acting as a proxy for Sam as well. Are Sam's interests the same as the other debtors-in-possession? Almost certainly not. The same applies to Prof Bankman, who seems to be acting as both a proxy for Sam and a key leadership figure for the other debtors -- but their interests are also not the same. No wonder Paul, Weiss skedaddled.

But the plot thickens. Once Paul, Weiss withdrew due to its conflict, Prof Bankman stepped in again:

Former FTX CEO Sam Bankman-Fried will no longer be represented by his legal counsel at Paul, Weiss, Rifkind, Wharton & Garrison, a white-shoe law firm, less than a week after retaining the firm to represent him.

Semafor reported on Thursday that Bankman-Fried will now be represented by David Mills, a criminal law and white-collar crime professor at Stanford University’s law school – where Bankman-Fried’s father, Joseph Bankman, also teaches law.

Mr Ray, who it seems clear was appointed FTX CEO by a group of Debtors led by Sam's father, Prof Bankman, is also caught in this dilemma. The bankruptcy filing concludes with these words:

[T]he Debtors have made clear to employees and the public that Mr. Bankman-Fried is not employed by the Debtors and does not speak for them. Mr. Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements.

Darn right they'd better make things clear; hippie Sam is headed for court, and the other Debtors have to get as far away from him as they can -- except that Sam's dad seems to be running the show. I would assume, though, that if Prof Bankman has had the foresight to line up a defense attorney for his hippie son, he knows he'd better be planning for his own defense as well. But shouldn't he then be backing out of any involvement with the FTX Debtors? Well, it may not be that simple, huh?

Nevertheless, even if Sam is not employed by the Debtors, he continues to be one of them, and he's making erratic and misleading public statements on his own behalf and in conflict with the interests of the other Debtors -- of whom his father, Prof Bankman, appears to be a leading figure, who however himself now has a conflict.

All these data points suggest to me that there are other reasonable inferences to make about who was running the FTX swindle from the start. My position all along is that an adult with a serious case of ADHD is simply not capable of the detailed planning and consistent execution needed to run a $50 billion Ponzi scheme. In fact, I wouldn't rule this out for him as a legal defense, especially if his defense can point to someone else as a more credible perp. I'll get to this tomorrow.

There's Starting To Be A Received Narrative Here, And I Don't Believe A Word Of It

The narrative of Sam Bankman-Fried and the Alameda-FTX bankruptcies has been settling into consensus, but as I've said here all along, I'm an Aristotelian as well as a contrarian, which means in this case that I look for causes, and I'm likely not to be satisfied with conventional answers. I think the conventional version boils down to this: Bankman-Fried and his enablers were quirky geniuses who had brilliant ideas but maybe got themselves in too deep. But they were effective altruists, so maybe their hearts were in the right place. Anyhow, crooks or not, the Establishment has come to the rescue, and John H Ray, III, who solved Enron, is on the case:

John H. Ray, III is the principal of Ray & Counsel, P.C. He is an experienced Harvard Law School graduate and Harvard Law Review editor with over 20 years of complex business and class action litigation, as well as appellate experience, with special expertise in securities litigation, officer and director liability, closely held corporation sharedholder disputes, First Amendment and intellectual property/media litigation, discrimination and substantial practice in labor and employment class actions. He served as a law clerk in the United States Court of Appeals for the Seventh Circuit, and worked in large national law firm environments for over 10 years, at Cravath, Swaine & Moore LLP and Jenner & Block LLP.

So, as an Aristotelian, I've got to ask who hired Ray? This story says,

Ray had been chosen as the new FTX chief executive officer and chief restructuring officer during late-night talks that led, at 4:30 a.m. Nov. 11, to Bankman-Fried’s exit.

Fine, but note we have the passive "had been chosen", and we don't know by whom. We also know from the same story,

Financial publications said Ray’s compensation includes a $200,000 retainer and a $1,300 hourly fee.

But from Ray's public statements, the company has no board of directors, and there are no board meetings. Ray is an attorney and is working for pay on behalf of clients, but we don't know who the clients are, nor what their interests are. But never fear, Ray solved Enron, whatever that means, except Kenneth Lay, just like Jeffrey Epstein, left this mortal coil before everything Enron could be solved. The United States Department of Justice issued a statement saying it remained committed to pursuing all available legal remedies for victims of the fraud. So it's all gonna work out, huh?

YouTubers are already thinking SBF may wind up like Jeffrey Epstein. He'll need at least to make sure the cameras near his cell are all in working order. However, I do not endorse wild and completely unfounded conspiracy theories.

Anyhow, the received narrative goes on to say that FTX was run by a dozen or so polyamorous hippie-style geniuses who suffered from ADHD, lived communally in a luxury penthouse in the Bahamas, and had their own doctor-therapist who prescribed amphetamines for their ADHD. The only female in the group I'm aware of was Caroline Ellison, so according to that doctor, there wasn't really that much action. Nevertheless, it was the synergy between Beanbag Boy Bankman-Fried and Queen Caroline that drove the whole enterprise, or something like that. But they let Caroline lose $10 billion in unsupervised trading, and John Ray III says he's nver seen anything like it.

Never underestimate what a beautiful woman can do.

But by early November, this had gotten out of hand, and both Bankman-Fried and sexy siren Caroline had to resign, and at 4:30 AM the same day, "they", whoever "they" is, hired John Ray III, caudillo of Enron, to fix things for them at $1300 an hour. But with no company board that holds no meetings, we don't know who "they" are, except "they" had also engaged white-shoe law firm Sullivan & Cromwell to work for FTX even before the bankruptcy, and Sullivan & Cromwell has also been brought in again to straighten things out.

Sounds like some very important people want things straightened out by some very expensive lawyers. The altruistic hippies who were thought to be running things in the penthouse are nowhere to be seen, and New York lawyers hired by someone else with a checkbook are on the case like white on rice. In fact, I doubt if the altruistic hippies ever had much to do with the company.

Just for starters, FTX had an app. Adults with ADHD, which the received narrative of the penthouse hippies claims they had, suffer from carelessness and lack of attention to detail, inability to focus or prioritize, and poor organizational skills, just the people you need to manage an app and its servers. Somebody else, almost certainly not in the penthouse, was running the app and its servers. Someone else had to tell the app not to authorize withdrawals when things got tight. The techies had to be paid, they had to have someone set their piorities and keep them focused. Almost certainly these people also were not in the penthouse, and they weren't working for pep pills or sack time with Caroline. Who and where were they, and what do they know? (Hint: Sullivan & Cromwsell are getting them to sign non disclosure agreements.)

In fact, someone, and that was before the bankruptcy, hired Sullivan & Cromwell to do FTX's legal work. Remember that adults who suffer from ADHD have difficulty keeping quiet, speak out of turn, are edgy and irritable, and forgetful. Who among those in that penthouse has even the basic button-down style to hire or manage people like white-shoe lawyers? Someone else involved with FTX had to have the legal expertise to know they needed a Sullivan & Cromwell and the credibility to convince Sullivan & Cromwell to work for FTX. An altruistic hippie who forgets what he wanted yesterday isn't that guy. And that person had, and still has, a serious checkbook, no matter $50 billion of someone else's money is down the drain.

Someone else was behind FTX. John Ray III and Sullivan & Cromwell are working for them, and they're closer to the Aristotelian cause of what's going on here. Beanbag Boy and Hornrim Girl are distractions.

And people ask why I think Ferdinand Lundberg had a point.

There's Too Much That Doesn't Add Up With FTX

At this point, there's a lot that isn't adding up in the current FTX-Bankman-Fried narrative, even among the more skeptical commentators. Let's just start with John Ray III, the new CEO of FTX who is to supervise its liquidation, whom I quoted yesterday as saying, “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

More succintly, he's saying the Bankman-Fried-Ellison clique who putatively ran the company couldn't organize a two-car funeral. So let's ask a very basic question. The evidence we have is that they suffered from serious cases of ADHD, which simple research shows renders its victims incapable of planning complex tasks, conducting sustained research, or even sitting still for fairly minimal periods. Sixty years ago, I went through five years of the Ivy admissions rat race.

I don't know how much of it has changed, but at least back then, you had to sit for a lot of exams, and the SATs were just a start. I remember another one where I had to sit in a classroom for several hours on a sunny Saturday doing sight translation of Latin. I think there were other SAT-like exams for the National Merit Scholarship. And of course, you had to take advanced placement courses. Based on the minimal research I did via web search, an adolescent with ADHD would not only be incapable of the sustained learning effort required to do well on such exams, but wouldn't even be able to sit still long enough to fill in all the circles with a number 2 pencil.

Now, I was flying coach, I've got to acknowledge. As Jerome Karabel pointed out in The Chosen, the Ivies have different admissions "baskets" for different kinds of candidates, but the airline analogy breaks down. If I get on a Delta flight, I know exactly how many "baskets" there are, first, business, and coach, and their relative sizes. At Harvard, nobody knows just how many "baskets" there are for an entering class, nor how many are in them, and that's in fact a closely guarded secret. I assume I was in a "basket" for white gentile public school kids from Northeastern suburbs, and I had to pay full coach fare, which included high GPA, high SAT scores, prestigious extracurriculars, alumni recommendations, and so forth.

If elite-school admissions are anything like they used to be in my case, there were and probably are additional "baskets" for kids like the Bankman-Fried clique, offspring of influential people who wouldn't remotely qualify for the SAT-plus-GPA "basket". That's the only explanation I can see for Ellison and the Bankman-Frieds, who simply don't come off as the usual kids with enough talent to finish at an Ivy and go on to law school, medical school, business school, engineering school, or a PhD. But that simply leaves us with the question of who got them into the other "basket" -- they didn't make it on their own.

And let's keep in mind Mr Ray III's assessment, they were "a very small group of inexperienced, unsophisticated and potentially compromised individuals". They were doofuses, but he threw in the word "compromised" on top. "Compromised" how? Who owed what to whom? If they weren't capable of running a two-car funeral, who was actually running the show? This was a scam in the $50 billion range. SBF looking cute in the obviously posed shot above snoozing in a beanbag chair is just window dressing. If he wasn't even capable of organizing something on that scale, somebody else was.

The Enron and Madoff swindles, comparable in size to FTX, required a lot of window dressing to convince investors they were legitimate. Enron had a phony trading floor where employees had to sign up for shifts where they looked like they were trading electricity and natural gas for the benefit of visitors. Madoff had two separate floors in his building where employees made up fictitious account statements that purported to show non-existent stock and options trades. Let's face it, FTX had to have an equivalent operation, and it wasn't the one in the posed photo with SBF in the beanbag chair. Someone was running it who could indeed organize a two-car funeral, and we so far know nothing about him.

Next piece that won't fit in this puzzle: just this morning I caught up with some legal developments in the case:

According to Reuters, Sullivan & Cromwell has been named as one of the advising law firms to the disgraced crypto exchange, FTX, in its bankruptcy proceedings. . . . The selection of Sullivan & Cromwell as a bankruptcy advisor to FTX might be problematic for some of its looted investors and customers, given Sullivan & Cromwell’s past work for FTX.

The General Counsel of FTX.US, the FTX exchange serving customers in the U.S., is former Sullivan & Cromwell partner, Ryne Miller, who had co-chaired the law firm’s commodities, futures and derivatives group and worked at the law firm for eight years prior to joining this speculative, upstart crypto exchange. Miller had previously served as legal counsel for the current SEC Chair, Gary Gensler, when Gensler was Chair of the Commodity Futures Trading Commission. FTX.US is also included in the recent bankruptcy filing of FTX, despite Bankman-Fried Tweeting that the firm was fine just days before the bankruptcy filing.

Another Sullivan & Cromwell partner involved with FTX is Ken Li, who represented FTX.US last year in its acquisition of crypto derivatives firm, LedgerX, which provides trading in crypto futures, options and swaps to both retail and institutional clients.

But of greatest significance was Sullivan & Cromwell’s representation of both Alameda Research and FTX in their joint bid to purchase the assets of bankrupt crypto exchange, Voyager Digital Holdings, last year.

Sullivan & Cromwell appears in Wikipedia's entry for "white shoe firms", of which it says,

The term originated in the Ivy League colleges and originally reflected a stereotype of old-line firms populated by White Anglo-Saxon Protestants (WASPs). . . . In the 21st century, the term is sometimes used in a general sense to refer to firms that are perceived as prestigious or high-quality; it is also sometimes used in a derogatory manner to denote stodginess, elitism, or a lack of diversity.

So here we have Sullivan & Cromwell, among the whitest of white-shoe institutions, knee-deep in the non-WASP mud of a $50 billion scandal, not only hired to clean it up, but cleaning up a mess it was at least partly responsible for creating.

It's hard not to think the prior associations of many background figures, for instance the parents of the Bankman-Frieds and Caroline Ellison, weren't just random. Isn't it odd that both sets are married to each other on prestigious faculties, Stanford and MIT, at highly selective schools, Stanford and MIT, that somehow mutually accepted their underperforming kids? Pure concidence. How come all three of those kids then worked together at Jane Street Capital, a quantitiative trading firm, when the ADHD disabilities of all three presumably would have prevented them from doing precisely the same sort of complex mathematical calculations that would normally be required of traders there? Pure coincidence, and I'm sure they did quite well there.

Maybe I just don't understand David Brooks's new meritocratic American upper class. I guess there is in fact much to learn.

ADHD At FTX

There have been persistent stories that Sam Bankman-Fried, Caroline Ellison, and other key people at FTX were being treated for Attention-deficit/hyperactivity disorder (ADHD), and they were apparently being prescribed amphetamines to treat it. The tweet above from Caroline Ellison at least suggests this. On the other hand, this is difficult to confirm for several reasons. Diagnosis of ADHD must be done by a medical or mental health professional, and nobody can diagnose it from a distance in any case. Medical records are highly confidential (unless they relate to COVID vaccination, in which case they are completely public). In addition, statements from John Ray III, FTX's new CEO, indicate that company records are so poor that nobody is quite sure who even worked there.

My own interest in the question stems from my research into public information on the minimal job histories of those key people, Caroline Ellison and the Bankman-Fried brothers, and their vapid public personas. If they were such prodigies from such privileged backgrounds, why did they need to be such crooks? And why have they turned out to be incompetent even as crooks? Their peers, Kenneth Lay and Bernard Madoff, kept their scams running for a decade and more, while the elite graduates of Stanford, Brown, and MIT could manage it for only a few years.

I'm inclined to accept the ADHD hypothesis, at least until a better one comes along. According to the National Institute of Mental Health,

Attention-deficit/hyperactivity disorder (ADHD) is marked by an ongoing pattern of inattention and/or hyperactivity-impulsivity that interferes with functioning or development. . . . Many people experience some inattention, unfocused motor activity, and impulsivity, but for people with ADHD, these behaviors. . . [i]nterfere with or reduce the quality of how they function socially, at school, or in a job.

More specifically, the site goes on to say that adults with ADHD have difficulty sustaining attention during tasks such as conversations, lectures, or lengthy reading; have difficulty organizing tasks and activities, doing tasks in sequence, keeping materials and belongings in order, managing time, and meeting deadlines; and avoid tasks that require sustained mental effort, such as preparing reports, completing forms, or reviewing lengthy papers.

All of these qualities are apparent in accounts of Sam's behavior even in important meetings with investors, where he is reported to have fidgeted, fiddled with toys, and played video games. He is reported to have said few books are worth reading. Caroline Ellison's video accounts of her duties disparage tools like stop-losses or tasks like technical analysis or use of math above the elementary school level. But it's worth pointing out that new CEO John Ray III's published analysis of Alameda Research, where Ellison was previously CEO, indicate that it was owned 90% by Sam and 10% by another of Sam's cronies; she had no ownership stake and probably had few actual duties as "CEO".

This story in the New York Post is suggestive as much for what it doesn't say as for what it reports:

Dr. George K. Lerner, a psychiatrist, reportedly served as a therapist to disgraced FTX CEO Sam Bankman-Fried and an adviser to many of the firm’s employees. Bankman-Fried and his ex-lover Caroline Ellison were reportedly part of a 10-person group that ran FTX and its sister cryptocurrency trading firm Alameda Research from a “luxury penthouse” in the Bahamas.

“It’s a pretty tame place,” Lerner told the New York Times. “The higher-ups, they mostly played chess and board games. There was no partying. They were undersexed, if anything.”

Lerner told the outlet he moved in June to the Bahamas, where he served as an adviser at FTX for 32 hours per week and also maintained a “small private practice.” The performance coach asserted the FTX executives were workaholics with little in the way of social lives.

. . . Lerner also addressed viral rumors about the alleged use of stimulants by FTX executives. Ellison, the CEO of Alameda Research, admitted to “regular amphetamine use” in an April 2021 tweet, while Bankman-Fried has openly discussed his experimentation with Adderall and other stimulants.

Amphetamine can be prescribed under the brand name Adderall as medication to treat attention deficit hyperactivity disorder (ADHD).

Lerner told the Times that while some FTX employees may have had prescriptions for ADHD medications, the “rate of ADHD in the company was in line with most tech companies.”

To which I have two reactions. One is that if the rate of ADHD at FTX "was in line with most tech companies,” then maybe Elon Musk had a point in firing half of Twitter (he might have if he'd taken more than just a week to fire them, of course). But also, based on John Ray III's remarks, nobody knew who worked there or how many employees they actually had, so how can Dr Lerner even know what the ADHD rate actually was? As Ray put it,

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

In other words, it's as if the place was run by a little clique of people with ADHD.

Yet the key players came from remarkably privileged backgrounds. What does this say, for instance, about the schools and universities to which the powerful parents were able to send their children? If we can reason backward from the circumstance that those offspring seem to have suffered from serious symptoms of ADHD as adults, how could they possibly have qualified for admission to exclusive schools and universities as adolescents?

Remember that people with ADHD have problems with completing tasks, meeting deadlines, listening to lectures, or doing lengthy reading, all of which are normally required for elite-school admission. How did they manage even to sit through the SATs, much less pass them with distinction? How did they manage to graduate at all, much less to have had professors say glowing things about them?

And we're back to the question I raised above, why the Bankman-Fried brothers and Ellison, with degrees in math and physics from top universities, couldn't get careers going after graduation that were consistent with such outstanding credentials. Something's seriously missing in this whole picture.

Oh, right, this is David Brooks's new meritocratic American upper class.