The Repercussions of the FTX Scandal
The FTX narrative has resulted in a plethora of unanticipated consequences and numerous divergent paths. The disgraced former CEO, Sam Bankman-Fried, also referred to as SBF, is at the centre of it all. As the story develops in both retrospect and in real time, a complex and unpredictable picture of him emerges, one that is upsetting onlookers on both sides of the debate with his deeds and words in public.
The general public clients of SBF who used his exchange and may have irreparably lost their money are the ones who are maybe most incensed with him. Information has surfaced suggesting that client monies were moved into something akin to a central slush fund, from which they could be readily misappropriated. In addition, SBF formed Alameda Analysis, which has ties to FTX, and loaned SBF $1 billion. Paper Bird, an SBF-owned company, received a loan of $2.3 billion.
The consumers’ already serious complaints are exacerbated by SBF’s blatant denial of responsibility for his conduct and the resulting FTX train accident. SBF has been expressing himself publicly on Twitter, but his remarks come off as bizarre and out of touch, as though what transpired was more of an accident than the result of his own actions.
In a private conversation, SBF reveals that he has been just going through the motions in public, saying whatever he thought would get him the most social capital, in response to a reporter from Vox named Kelsey Piper. The most telling quotation is this one: “Reputations are, in part, built on what you can say you’re [good at talking about ethics].” I have sympathy for those who are mistreated by this foolish game that we woke Westerners play, in which we speak all the correct shibboleths and win everyone over.” Reactions to this statement have come from political and cultural extremes.
The observation that political demands have grown oppressive and censorious and that there is anxiety over perceived ideological intrusion into business is a prevalent one. This is especially clear in light of Elon Musk’s acquisition of Twitter, as the new owner doesn’t seem to be about workplace politics or excessive content policing.
People who subscribe to the kind of thinking that SBF ridicules—likely the progressive-left Vox readership—may be horrified by the manner that SBF first played them, even seeming to be on their side, and now openly trivialises their opinions. ESG policies, which were already drawing some high-profile criticism, have undoubtedly been invalidated by FTX and SBF through continuous disclosures regarding their business operations.
Liquidator John Ray (with over 40 years of experience supervising Enron’s liquidation) stated in the FTX bankruptcy filing: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial data as occurred here.” This scenario is exceptional in that it involves compromised systems integrity, inadequate regulatory oversight abroad, and the concentration of power in the hands of a relatively small number of unskilled, naive, and potentially corrupted persons.” The remainder of the text then exposes the company as a disorganised disaster. FTX, however, was given the green light for all aspects of its operations, including—quite surprisingly—management and governance.
Difficulties with ESG
If the people who assign ESG scores are unable to identify issues with FTX and its management, how can the scores have any true significance or bearing? According to Elon Musk and Tobias Lutke, CEO of Shopify, the way ESG is being implemented right now is “broken, cynical, and counterproductive”. Musk criticised ESG loudly and even went so far as to refer to it as a “scam”. SBF, a beneficiary of the ESG system, concurs with the critique, asserting that ESG “has been perverted beyond recognition”.
The focus of this scandal has been on Sam Bankman-Fried, the former CEO, and his lack of personal accountability. Investors have expressed concerns about SBF’s loans, customer losses, attempts to reassure investors, and rumours of an ESG stamp. It is now becoming clear that this saga’s aftershocks are far from done.
The industry’s decentralisation could eventually serve to safeguard investors. Making a clear separation between FTX, a centralised platform, and the decentralised blockchains and apps that many cryptocurrency consumers are looking for will be advantageous.