Stewardship: Lessons Learned From the Collapse of FTX
Since the collapse of FTX earlier this year – and the subsequent criminal trial in New York City – I and many others have been parsing what this extraordinary chapter in finance history reveals about the current state of stewardship. By "stewardship," I mean the ethical imperative: "Responsibly managing what others have entrusted to your care" – which is, or should be, the core principle undergirding finance.
On one level, it's easy. Under founder Sam Bankman-Fried, FTX and its sister company Alameda Research appear to have engaged in unethical behavior at almost every level and in every way imaginable in a financial services enterprise, decimating the savings of a million investors in the process. As FTX successor CEO John Ray put it in the company's bankruptcy filing in November 2022, "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 elaborated in a second investigative report in June 2023 (boldface mine):
"Bankman-Fried along with FTX.com's co-founder, Gary Wang, and Director of Engineering, Nishad Singh (the 'FTX Senior Executives'), and others at their direction, used commingled customer and corporate funds for speculative trading, venture investments, and the purchase of luxury properties, as well as for political and other donations designed to enhance their own power and influence. ... [They] lied to banks and auditors, executed false documents, and moved the FTX Group from jurisdiction to jurisdiction, taking flight from the United States to Hong Kong to the Bahamas, in a continual effort to enable and avoid detection of their wrongdoing. In doing so, they showed little of the concern for customers that they publicly professed."
It's also possible that one of the simplest and most common dynamics in financial fraud was at play here – the slippery slope. "There's people that are born criminals, and there's people that become criminals," Ray told Michael Lewis in an interview for Lewis' recently released book, Going Infinite: The Rise and Fall of a New TyCoon. "I think he became a criminal."
But in other ways the FTX/Bankman-Fried saga is more complicated.
Bankman-Fried and his co-conspirators, as human beings, sat so far outside the scale of "normal" that it's possible to ask: Did they even understand the concept of ethics? (As Ray shared with Lewis, "I looked at his picture and thought, 'There's something wrong going on with him.'") If so, what ethical construct permitted them to engage in behaviors that applied to them?
Ironically, Bankman-Fried and most of his leadership team at FTX subscribed in an almost cult-like way to effective altruism, a utilitarian philosophy popularized by Oxford University professor William MacAskill that encourages adherents to optimize their long-term expected value to society by earning as much money as possible and giving it away to causes that improve humanity.
Considerable controversy exists as to what extent Bankman-Fried truly believed in effective altruism, or whether, as one commentator put it, he used "the do-gooder ideology ... as a sleek vehicle for immense social harm."
But this much is clear: To whatever extent Bankman-Fried and his acolytes adopted effective altruism, it was only from the neck up – as only an intellectual construct that fit with the trader's mindset of "expected value."
"It's quantifying philanthropy, quantifying the effect of the goodness you do," Michael Lewis recently told an interviewer on vox.com. "It becomes a mathematical exercise. ... Not doing it because he feels any real human feeling or cares about people. He just likes the math exercise. He likes the reason behind it."
Ethical principles certainly need to be understood at an intellectual level. But, critically and far more importantly, they need to be felt in the heart – which requires a connectedness to and a concern for others. An emotional understanding of ethical imperatives can only be learned from a lived experience as a member of a community. Lewis' book captures the extent to which Bankman-Fried surrounded himself with a community, yes, – of effective altruists, yes – but a community comprised of extraordinarily intelligent emotionless gamers who had little if any lived experience, as we understand it, and who were weirdly unable to and uninterested in relating to others.
"He [Bankman-Fried] has absolutely zero empathy," former FTX chief operating officer Constance Wang shared with Michael Lewis. "He can't feel anything."
Ethics without empathy is the world's oldest oxymoron.