Aha! Forbes Has Got The Goods On Sam!

In a remarkable unintentional exposé of our educational system, Forbes yesterday seems to think it broke the story of the year: Exclusive: Sam Bankman-Fried Knew Plenty About His Alameda Research Hedge Fund–And Sent Details To Forbes Just Months Ago.

Bankman-Fried, in a series of high-profile media appearances this week, has begun offering his own working theory: Alameda took on far too much leverage to make risky investments on the FTX platform, and FTX failed to recognize and prevent it. A key claim: that Bankman-Fried himself didn’t really know what Alameda was up to.

“I was frankly surprised by how big Alameda’s position was,” Bankman-Fried said at The New York Times’ DealBook Summit on Wednesday. “Alameda is not, like, a company that I monitor day-to-day,” he claimed to New York magazine in an article published Thursday. “It’s not a company I run. It’s not a company I have run for the last couple years. And Alameda’s finances I was not deeply aware of. I was only surface-level aware of Alameda’s finances.”

Wow, if someone can show he was the evil genius behind the swindle, that he actually knew everything, then it's game over! And Forbes has the smoking gun!

Just how “surface-level” remains to be uncovered, as a bankruptcy team picks through the wreckage to retrace what occurred. But a look inside Bankman-Fried’s discussions with Forbes provides an early baseline of Bankman-Fried’s awareness of Alameda’s dealings: Since January 2021, Bankman-Fried has sent Forbes details of some of Alameda’s major holdings at least five times in response to questions about his net worth, including explaining the specifics of certain transactions and updating the number of FTT, Solana and Serum tokens Alameda held–as recently as late August.

Why, Sam sent Forbes spreadsheet after spreadsheet covering Alameda's holdings! He updated them at least five times! As recently as late August!

There's just the small problem that John Ray, the new FTX CEO, is on record as saying,

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.

So whatever Sam sent Forbes, and no matter how often he updated it with new details, it was the purest moonshine. How on earth does this prove Sam knew what was going on? Every informed account is that Sam and the others in the luxury condo had no financial experience, they were basically just interns. How could Sam, an intern-level guy, have known enough about finance to put together even a phony spreadsheet? CEO Ray himself has said,

It is my view based on the information obtained to date, that many of the employees of the FTX Group, including some of its senior executives, were not aware of the shortfalls or potential commingling digital assets.

This in turn supports my developing inference that Sam actually didn't know what was going on in his name. Take his reaction to a question about his parents' vacation home in the Bahamas:

Sam Bankman-Fried claimed he didn’t know how a $16.4 million Bahamas mansion got listed under his parents’ names, insisting that it was meant to house staffers at his now-defunct FTX cryptocurrency exchange.

“I don’t know the details of the house for my parents,” Bankman-Fried told the New York Times’ Andrew Ross Sorkin via Zoom at the newspaper’s DealBook summit event in New York City on Wednesday.

“I know it was not intended to be their long-term property. It was intended to be the company’s property. I don’t know how that was papered in.”

Or take his response to a question from another interviewer about a “backdoor” that allowed Sam to execute commands that could alter FTX’s financial records without alerting others:

SBF expressed surprise at the very idea. “And this is something I would be doing?” he asked. “That I can tell you is definitely not true. I don’t even know how to code. […] I literally never even opened the code for any of FTX.”

This set the tone for the rest of the conversation, in which Fong politely asked hardball questions and SBF answered with seeming openness.

What this suggests to me is more of what I surmised yesterday: Sam and his condo colleagues were a front, similar to Enron's phony trading floor with computer monitors on the tables and traders on the phones, the whole thing a sham for visitors. I think Sam was merchandised as a Wunderkind-cum-idiot savant who knew how to make crazy bundles of money despite being medicated out for ADHD. Caroline Ellison was merchandised the same way. The bottom line is that not everyone was fooled. But Sam himself was the frammis, the phony get-rich-quick formula on which the Ponzi was based. He wasn't the mastermind, he was the gimmick.

The media fell for the Sam-as-idiot-savant line from the start, and so far, they won't drop it. If he was smart enough to make billions, which he didn't, he was smart enough to cover everything up, except he wasn't.

There was clearly an off-the-org-chart, off-the-books operation that handled the celebrity endorsements and arena naming deals, it also generated the phony spreadsheets that it gave Sam to pass on to Forbes, and it had a legal department that cooked the deeds for Sam's mom and dad to get their vacation home. I believe Sam when he says he knew nothing about that. John Ray is suggesting as much himself.

I think the bigger story is Prof Bankman, Prof Fried, and the Ellisons. Whether anyone in the media is allowed to pick it up is another question.

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.