From Ether to Gold to Dross
Of all the tales of the spectacular collapse of FTX Crypto Exchange and its cautionary fate, nothing is as amusing as how Sam Bankman-Fried, the slobbish-looking CEO and Democrat Party benefactor who founded the now-bankrupt firm once "valued" at $32 billion, admits he used ESG (Environmental, Social and Governance) fans to manipulate investors into funding his Bahamian-based Ponzi scheme. From the Wall Street Journal:
Hedge funds, venture-capital firms and other professional investors earn billions of dollars of fees for their purported skill in judging the potential of businesses and the integrity of their managers. Yet dozens of the world’s leading investment firms, including Sequoia Capital, Singapore’s state-owned investment company Temasek, the Ontario Teachers’ Pension Plan, SoftBank Group Corp., and hedge funds Third Point and Tiger Global, showered SBF with money. Despite their vaunted investing expertise, these firms all missed the many red flags fluttering high above FTX. And seldom in financial history have red flags been redder than this.
The product was hard to understand, the books of its trading affiliate, Alameda Research, were never audited. The leaders lacked any discernible expertise or moral compass. And yet suckers couldn't wait to give them their money.
Many public entities lost a lot by investing in FTX. The Missouri Employees’ Retirement Fund lost about one million dollars. The private equity firm who had them invest in the company was BlackRock, the biggest fan of ESG investing. The Ontario Teacher’s Pension Fund is writing down ninety-five million in "investments" it made in FTX. (No mention of whom it used to place this wild bet.) In the meantime Bankman-Fried admits ESG was a big part of his promotions:
Mr. Bankman-Fried virtue-signaled by committing to make FTX “carbon neutral” and donating generously to fashionable progressive causes such as a foundation working to provide solar energy in the Amazon River basin. “We’re giving millions each year to launch sustainability related initiatives,” he said in an April Forbes magazine interview with—you can’t make this up—Brazilian super-model Gisele Bündchen.
The reason he did was to keep regulators from looking too closely at his virtue-signaling, booming company. Meanwhile, he was leveraging FTX customer funds to make risky, ill-timed bets. It worked (until it cratered) with ESG rating organizations such as Truvalue ESG scoring it even higher than Exxon Mobil on “leadership and governance.”
Bankman-Fried has made the obligatory apology for those who were harmed, but admits that the philanthropic side of his company, and ESG generally, are part of “this dumb game we woke westerners play where we say all the right shibboleths and so everyone likes us.”
How bad was the leadership and governance of FTX? You have to look at the account of John J Ray whom the court has appointed to oversee the liquidation in the bankruptcy case and who reports, "Never in my career have I seen such a complete failure of corporate controls." Read his report to fully appreciate what a ridiculous investment vehicle this was.