The Weekend #163—What we learned from SBF

And how the industry proceeds

It only took 4 hours for the jury to find SBF guilty on all 7 counts. A lot of that time, as Margaret pointed out, was likely “spent deciding on the foreman/woman and voting.”

You could also imagine they stalled a bit for optics—making so to take their time so the decision didn’t appear too fast.

After all, this was essentially an open and shut case. The prosecution had receipts and supporting testimony from SBF’s inner circle. Meanwhile, all SBF had was a sob story that really only existed in his own head. (And maybe that of his parents.)

Here’s the WSJ:

Jurors, who walked stoically into the courtroom, reached their verdict after just a few hours of deliberations. Bankman-Fried, who stood and faced the jury, cast his head down after the verdict was read. His parents both held their heads in their hands, and his mother cried.

…

For federal prosecutors, the verdict was an expected victory after putting forward what many observers saw as a powerful case that included 18 witnesses.

“While the cryptocurrency industry might be new, and the players like Sam Bankman-Fried might be new, this kind of corruption is as old as time,” said Damian Williams, the U.S. attorney in Manhattan. “This case has always been about lying, cheating and stealing, and we have no patience for it.”

…

Under cross-examination, Bankman-Fried floundered as a prosecutor contrasted his many public statements with his private ones in an attempt to show he was a liar. Bankman-Fried gave evasive answers and said he had little recollection of past comments prosecutors cited. During closing arguments, Assistant U.S. Attorney Nicolas Roos told jurors that Bankman-Fried said he didn’t recall at least 140 times. “He approached every question like up was down and down was up,” Roos said. 

And so it was a good day for justice, and there are certainly plenty of people celebrating SBF’s ultimate comeuppance—particularly those that lost money.

But it can also feel a bit sad.

Here is a clearly brilliant young man. It might be hard to sympathize with Michael Lewis’s reading of events and character, but you also can’t rule it out—an ambitious young man who clearly lost his way during an incredibly heady journey. (FTX, for all intents and purposes, appears to have been a highly successful exchange—Alameda’s bad bets notwithstanding.)

Like Icarus, SBF flew a little too close to the sun.

Had he not, you could imagine a timeline where the team had just a little bit of risk management and organization—a world, where, with a little less recklessness and little more respect for customers and regulations, SBF actually fulfills his potential, helping to usher in a new era of money and finance to the mainstream.

The reality is that this interpretation is likely far too generous. From an ethics perspective, SBF played fast and loose from the get go in a way that Robert Prentice argues was always self serving:

And the self-serving bias also seems on full display as SBF repeatedly interpreted evidence in a self-serving manner that assuaged any doubts he might have had about the rightness of his actions. He repeatedly made management decisions that gave himself the overwhelming percentage of control of and monetary reward from the firms’ actions.

Also, in Alameda’s early days when a big chunk of cryptocurrency went missing, other members of the management team wanted to stop trading until it was found and believed they should inform investors and employees. SBF disagreed, believing that there was an 80% chance that the currency would be found and therefore that Alameda should act as though it possessed 80% of the currency. Realizing that such reasoning was hardly consistent with GAAP, many employees then quit out of “concerns over risk management and business ethics,” according to Alameda co-founder Tara Mac Aulay. SBF’s moral reasoning appears to have been infected by the self-serving bias.

But, of course, none of that matters. This was fraud at the highest echelons, and with money and finance—especially other peoples’ money—there’s no wiggle room here. There’s a reason why this is the most regulated industry on the planet.

Moving fast and breaking things doesn’t fly. (No pun intended.)

There’s this joke about crypto—that devotees are rebuilding money and finance from the ground up. In doing so, they’re relearning all the lessons that modern money, banking, and finance already knew for quite some time.

Rules and regulations are typically reactive. We make mistakes. We figure out how to prevent them in the future. They exist for a reason. (Incidentally, that’s also the process by which children become adults.)

Meanwhile, the public also learns. Fool me once.

Money will get to people’s heads, and so we’ve seen this every cycle. There was Ross Ulbricht and the Silk Road. Charlie Shrem and BitInstant. Mark Karpeles and MtGox. There were all those ICOs, and recently, all those NFTs. The walls appear to be closing in for CZ and Binance.

Just because money and value comes in a new form factor doesn’t mean the rules suddenly don’t apply.

Now we have the story of SBF.

But viewed another way, these downfalls are a story of growth.

Money and finance is due for an upgrade, just as every other industry has experienced a digital and networked transformation over the last few decades. That money and financing is lagging and on a stretched out timeframe is mostly because of aforementioned rules and regulations. As we’re learning (all over again), that’s a good thing.

For these innovations to truly be transformative to society and the people who need them the most, there’s really only one way to proceed—the straight and narrow.

And thanks to SBF, that’s much more likely now going forward.

The tools and technologies are there. It’s why most central banks are looking into or working on digitized versions of their currencies including 19 countries from the G20.

Now, it’s just time to grow up.