The coin flip that could convict Sam Bankman-Fried

by Jason Willick

The fraud case against Sam Bankman-Fried involves bitcoin and a more-exotic cryptocurrency that the fallen FTX magnate created. But one piece of evidence used against him at his New York trial involves an old-fashioned coin, with a heads and a tails.

The prosecution’s star witness is Caroline Ellison, Bankman-Fried’s former girlfriend and business associate who pleaded guilty to seven counts, including wire fraud and securities fraud, and took the stand against him this week. The Wall Street Journal summarized one striking piece of her testimony: “She recalled that Bankman-Fried once posed a coin-flip scenario where if the coin landed on tails, the world would end. But if the coin landed on heads, ‘the world would be twice as good.’ Bankman-Fried said he would take the bet.”

Bankman-Fried made a version of that same argument publicly last year. Why did the prosecution elicit this recollection from Ellison? Presumably, to impress on the jury Bankman-Fried’s appetite for risk — his willingness to court calamity in hopes of a massive payoff. Isn’t that the ideology of someone who, even after achieving great success, could commit fraud in high finance?

Insofar as Bankman-Fried’s rise and fall holds broader lessons, the coin-flip scenario is worth dwelling on. It’s certainly telling, but maybe not for quite the reasons prosecutors want it to be. Depicting Bankman-Fried as a callous risk-taker lets too many people off the hook for the FTX scandal.

The socially awkward, young crypto entrepreneur was not feted by celebrities, politicians and former heads of state for a willingness to rock the boat or take bold risks. He distinguished his crypto empire with his commitment to “effective altruism” — basically, technocratic liberal philanthropy. That’s fundamentally a safe and familiar ideology for America’s elite.

For some observers, the fraud charges against Bankman-Fried prove that his grandiose ambitions to save humanity — from nuclear war, from Donald Trump, from pandemics — were phony. I think they were all-too-sincere. Ellison’s anecdote didn’t expose a shocking aberration from the ideology Bankman-Fried sold to the public; it highlighted the other side of the same utilitarian coin that made power brokers swoon.

Bankman-Fried’s utilitarian philosophy traces to his childhood, as Michael Lewis recounts in his new book, “Going Infinite.” The FTX founder was hyper-rational from a young age, and his parents, Stanford law professors, espoused the belief that “any law should seek not to maximize some abstract notion of freedom but rather the greatest good for the greatest number,” according to Lewis.

Of course, a commitment to public welfare, and to reason, is part of most political philosophies — the not-so-small trouble is defining what “welfare” means. Effective altruists nonetheless try to operationalize this principle with mathematical precision, calculating the “expected value” of any course of action.

Beliefs and traditions that don’t appear to be empirically supported, such as religion, are hard for a utilitarian to understand. “Mass delusions are a property of the world, as it turns out,” Bankman-Fried told Lewis. The author also recounts how a younger Bankman-Fried — who grew up in the same neighborhood as I did, and whom I knew peripherally as a child — tried to quantify his indifference to Shakespeare: “What are the odds that the greatest writer would have been born in 1564?”

This moral system of probabilistic value calculation is what led Bankman-Fried to entertain such wild gambits as paying Trump billions of dollars not to run for president, as Lewis reports. It’s also what led Bankman-Fried, apparently earnestly, to think a 51 percent chance of doubling the world’s well-being is worth a 49 percent chance of ending the world. People sincerely convinced of their ethical righteousness can commit ethical wrongs — in fact, in some cases, they might be more blind to the nature of their actions than those who are less self-assured. As the British author and philosopher C.S. Lewis wrote: “It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.”

The government wants to convict Bankman-Fried for being a robber baron, and after nearly two weeks of trial, based on media reports, it seems to be making a strong case. But a jury would have to decide unanimously after further weeks of testimony that Bankman-Fried had the intent to defraud — and intent, especially for a figure like Bankman-Fried, is a complicated thing.

Whatever the jury’s conclusion, it would be a shame if the lesson from Bankman-Fried’s trial was that young entrepreneurs should avoid risk. The United States and the world need principled risk-takers to solve their multiplying problems with moonshots and unorthodox thinking. But such figures are more likely to be shunned than embraced by the great and good. What is not needed is more moral crusaders, who can cause great damage without really understanding what they have done.

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Number Go Up by Zeke Faux
ChatGPT on Effective Altruism
Going Infinite by Michael Lewis
Sam Bankman-Fried (Wikipedia)
Sam Bankman-Fried (Utilitarianism.com)

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