The Smartest Guys in the Room was the title of a book early this century by Bethany McClean and Peter Elkind, arguably two of the best business reporters of their generations. The book was about the rise and fall of Enron, a company so celebrated that the CEO graced the covers of possibly every major magazine and touted by McKinsey, whose consultants figured prominently in the company’s transformation from a sleepy gas distributor into a new-economy success story. Enron CEO Ken Skilling was a Harvard business school grad and worked at McKinsey for more than a decade.

“Enron has built a reputation as one of the world’s most innovative companies by attacking and atomising traditional industry structures,” McKinsey crowed in one of its quarterly reviews. “Enron no longer produces oil and gas in the US, no longer owns an electric utility, and has never held a large investment in telecom networks. Yet it is a leading value creator in each of these industries.”

Enron was a fraud, one that resulted in Skilling and other executives going to jail for their wrongdoing. The juries that convicted them weren’t enamored by the executives’ brilliance or impressed with their accounting legerdemain. The prosecutors who convicted the Enron executives deftly dumbed down their activities so lay people could understand the scope of their wrongdoing.

Enron isn’t the only known incidence when supposedly people of unparalleled brilliance proved they weren’t quite as smart as widely believed. In the 1990s a hedge fund called Long Term Capital Management, reputed to have developed a surefire strategy of guaranteed returns, collapsed and required an industry bailout. Among Long Term Capital’s directors were two Nobel Prize winners.

The public does not yet appreciate the magnitude of the implosion of crypto exchange FTX, which also involved supposedly some of the smartest tech entrepreneurs and venture capitalists from the best schools who also received fawning media coverage and cover stories. Perhaps some will see this as progress, but women also figure prominently in FTX’s collapse.

FTX’s founder and CEO Sam Bankman-Fried graduated from MIT where he majored in mathematics and physics. One must be hard core brilliant to earn a degree from MIT. When I was in graduate journalism school, I did some volunteer work at the MIT student newspaper and was blown away by the intellect of the people I encountered.  They were scary smart, although I found many of them to be weird.

Bankman went on to work at Jane Street Capital, a firm the FT characterized as “The top Wall Street firm ‘no one’s heard of’.” Jane Street is staffed by brainiacs specializing in exchange traded funds, which are baskets of stocks packaged and sold as a single security. It takes a certain mathematic brilliance to understand the sophisticated trading Jane Street is engaged in, but the fact the firm was rumored to be paying its interns $16,500 a month to work from home during the pandemic is indicative that the universe of people with the smarts to work there is limited. This article contains a sampling of the questions one must correctly answer to qualify for an interview at Jane Street; a tip of the hat to you if you even understand the questions, let alone can answer them.

According to this joint report by Fortune and the trade publication CoinDesk, Bankman-Fried surrounded himself with a tightly knit core of about 10 people who he met at Jane Street or MIT. All 10 are, or used to be, paired up in romantic relationships with each other. It wouldn’t surprise me if they engaged in polyamory, which is common among tech geeks.

Notably, Bankman-Fried and his gang lacked management experience. Bankman is only 30 and had never run a company. Caroline Ellison, CEO of Bankman-Fried’s crypto trading firm and reportedly his former girlfriend, was still a junior trader at Jane Street when she quit after less than two years. Ellison graduated with an undergraduate degree from Stanford in 2016, and she admitted in a podcast that people working under her had even less trading experience.

One wonders how Bankman-Fried managed to raise some $2 billion from investors, but here again some extraordinarily smart people from Ivy League schools were involved. One of them was Michelle Bailhe Fradin, whose LinkedIn bio shows that within five years of graduating from Brown University with an undergraduate degree in human biology, she was hired as a partner at Sequoia Capital, one of the most storied names in Silicon Valley. In addition to giving one of the keynote addresses at her 2015 graduation, Bailhe Fradin’s bio says she was a Rhodes Scholarship nominee. Perhaps fittingly, Bailhe Fradin began her professional career at McKinsey.

Michelle Bailhe Fradin/Sequoia profile

Sequoia has already written down its $210 million FTX investment to zero.

Another FTX funder was reportedly SoftBank, which has written down its $100 million investment to zero. That SoftBank, a venture capital firm that believes “technology is key to building a more connected, empowered, and joyful world,” is involved isn’t a shock. SoftBank was a major funder of WeWork, another company run by a former wunderkind named Adam Neumann.

FTX’s implosion also reinforces my long-held belief that there is an inverse relationship between companies professing to adhere to the highest standards of ethics and morals and their actual business and management practices. As examples, I’ve cited Centene Corp. and American Express, which can be found here, Ford Motor Co., which can be found here, and Tina Freese Decker, CEO of Corewell Health, Michigan’s biggest hospital system. Steve Feinberg, co-founder and co-CEO of Cerberus, insists his private equity firm adheres to “the highest ethical standards” despite accusations of looting his portfolio companies.

Bankman-Fried was an adherent of so-called “effective altruism,” a movement that holds that doing good isn’t enough, one must strive to identify ways to do the most good. Despite being a little pisher just 30-years-old, Bankman-Fried talked about becoming a trillionaire with plans to donate all his money to charitable causes.

In his mind, that likely justified donating millions to Democratic politicians, including President Biden. Another recipient of Bankman-Fried’s largesse was Debbie Stabenow, Michigan’s senior Senator.

Here’s a paragraph from an August 13, 2022, story that appeared in the L.A. Times explaining why FTX supported Stabenow.

“(Arkansas Senator John) Boozman and Stabenow, like other members of the House and Senate agriculture committees that oversee the CFTC, have been among the beneficiaries of Bankman-Fried’s political spending. The billionaire donated $26,600 to Stabenow and her allied fundraising committee and $5,800 to Boozman just weeks before he testified in front of them in February. In the weeks after his testimony, Bankman-Fried also donated to Senate agriculture committee members Tina Smith (D-Minn.) and Richard J. Durbin (D-Ill.). Durbin is the second-ranking Senate Democrat.

Debbie Stabenow/Deadline Detroit

Bankman-Fried was quite savvy when it comes to U.S. politics. He came close to getting legislation passed that would have had the Commodities Futures Trading Commission, not the SEC, oversee cryptocurrency regulation. While the SEC is hardly a heavyweight agency, it is still considerably more formidable than the CFTC. Pulling the wool over Stabenow’s eyes is a simple as taking candy from a baby (see here) and isn’t consistent with the actions of someone professing to do God’s work.

Elon Musk is also a professed adherent of effective altruism, which he said was his motivation to acquire Twitter.

“The reason I acquired Twitter is because it is important to the future of civilization to have a common digital town square,” the Chief Twit said in a tweet. “I did it to try and help humanity, whom I love.”

Notably, Musk only sought to help humanity after he was taken to court to honor a prior pledge to acquire the company.

Another tech executive professing a higher standard of ethics is Salesforce founder and CEO Marc Benioff, who talks a good game about “stakeholder capitalism,” a Davos conceit that holds CEOs must act in the interests of the greater good, not just their shareholders.

In 2018, Salesforce committed $7 million toward a successful 2018 campaign for a local ballot measure levying new taxes on San Francisco companies like his to curb homelessness. That same year Salesforce recorded more than $13 billion in revenues while paying zero federal taxes.

Then there’s billionaire Marc Andreessen, who once championed the need to build more housing in San Francisco to alleviate soaring residential real estate prices. But when plans were unveiled to build townhouses that would sell for as much as $4 million in the tony enclave of Atherton where Andreessen and other Silicon Valley billionaires live, they vigorously opposed the development.

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