Institutional Impact | November 22, 2022

Beware of paper billionaires bearing gifts, and other lessons of the FTX implosion 

Imogen Rose-Smith
ImpactAlpha Editor

Imogen Rose-Smith

Editor’s note: ImpactAlpha contributing editor Imogen Rose-Smith, a longtime senior writer for Institutional Investor, contributes a bi-weekly column on the policies, practices and strategies of the largest asset allocators, including pensions, foundations, and endowments. As Imogen says, she’s “tracking what investors do, not just what they say.”


ImpactAlpha, Nov. 22 – A few days before the FTX crypto exchange, with an $8 billion liquidity hole it could not fill, filed for Chapter 11 bankruptcy, my friend sent a picture of a Manhattan billboard that featured supermodel and “ESG advisor” Gisele Bündchen looking, well, like a dewey supermodel. 

“I’m in on FTX because we share a passion for creating positive change,” Bündchen says in the ad. 

“Um, esg,” read my friend’s accompanying text.

Somewhere on the list of FTX’s plans were making crypto ESG-friendly. Bündchen, ex-wife of the NFL’s favorite son Tom Brady, was central to the plan. Will ESG be among those forced to take the fall? 

For anyone who has been under a rock these past few weeks, (or not married to a Bloomberg editor), the Bahamas-based based crypto exchange and Samuel Bankman-Fried, known as SBF, the 30-year old gamer who founded FTX, both flew too close to the sun. 

At his zenith, SBF’s net-worth was estimated at $26 billion. Now the MIT graduate’s assets may be closer to zero, after a closer look at FTX’s accounting revealed a massive hole in its balance sheet, causing a run on the bank. 

FTX reminds me of other exercises in collective delusion investors and the capital markets have engaged in lately. Like FTX, WeWork (why, hello again, SoftBank) and the Abraaj Group were both businesses run by charismatic, driven men whose story outstripped the reality. 

What is frustrating for impact investors, and impact fund managers in particular, is that institutional investors are willing to go all in with a company like FTX at the same time so many of them still express so much hesitancy about making investments in things that actually are trying to do well while doing good by people and the planet. 

Yes, I know Abraaj was an “impact investment.” That’s kind of the point. One of impact’s largest success stories turned out to be an illusion. It is easier to be seduced by Davos men spinning a story than it is the often boring prosaic reality of doing investment work. 

Virtue con

What was so striking about FTX is it didn’t just draw into its orbit crypto-bro losers high on their pandemic GameStop winnings. Rather, bona fide institutional investors participated in funding round after round. In total, The New York Times reports, FTX raised $1.9 billion capital from 80 investors in just two years. 

And because SBF was, seemingly, very very rich, even as he dressed like someone only recently emerged from his parents’ basement, he started showing up at all the right rich-person conferences, and doing rich-person things. 

He was one of the largest donors to the Democratic party this election cycle. He spoke on panels with former President Bill Clinton and the former U.K. prime minister-turned Middle East peace envoy, Tony Blair. As recently as Nov. 17, The New York Post reported that SBF was scheduled to feature alongside Ukrainian President Volodymyr Zelensky and U.S. Treasury Secretary Janet Yellen and others at the Times’ Deal Breaker Summit coming up next week. 

SBF was also a leading figure of the so-called effective altruism movement, a new-ish form of philanthropy that emphasizes maximizing wealth (kind of like the old form of philanthropy, no?) in order to maximize impact.

As New York magazine put it in a recent headline, “SFB: The Virtue was the Con,” Bankman-Fried “pitched himself as a humanity-saving crypto genius. Then he spent other people’s money to save himself.”

Bündchen and Brady, by the way, have gotten divorced (not over crypto, apparently, but rather having to do with Brady’s unretirement and new contract; note: I don’t follow football or supermodels). After having their beautiful faces splashed all over FTX’s  February Super Bowl ad, Brady is listed in FTX bankruptcy filings as being out $5 million in equity in the crypto exchange. 

So much for ESG, and especially the ‘G.’ FTX seems to have had all the governance of a monkey fighting its way out of a paper bag. And while the reckoning over FTX will be large, and goes way beyond impact and ESG, it certainly has ramifications for both sectors, as well as the philanthropic community that supports impact.In particular how easy it is for all kinds of institutions, and individuals, to be seduced by large amounts of wealth. Even, or especially, when there are so many red flags. 

Impact investing in particular is by very definition aimed at tackling deep and difficult social and environmental problems. But more often than not achieving those goals means aligning with very deep pockets of wealth. And sometimes the money – and the people who are seen to have the money – can become more important than the mission. In the magical fun-house of extreme wealth it is easy to lose your bearings. All the more so when that wealth isn’t actually real, but rather paper profits. This holds true for investors, media, and charities alike. 

ESG and the (super)model 

What was Bündchen’s plan as FTX’s ESG Ambassador (great title!)? Details of this sustainability partnership were rolled out last spring in the Bahamas, at the first-ever crypto Bahamas conference hosted by SALT, a creation of Skybridge Capital’s Anthony Scaramucci, the shortest-lived ever presidential communications director. (The FTX move is going to be banging. Leonardo DiCaprio as the Mooch? He’s too old to play SBF.) 

The Brazilian-born Bündchen told Forbes at the time that she was “hoping to marry her lifelong passion for sustainability with the potential she sees in the cryptocurrency market.” Bündchen said she hadn’t initially known what crypto was. But, as she said, “We didn’t really understand how the internet worked when it first came around.”

The more Bündchen learned, the more she seemed to like what she heard. Crypto “allows finance to become more transparent, because you don’t have all these fees in the middle,” she told Forbes’ Amy Shoenthal. “That also makes it more democratic which means more people can have access. I’m all for transparency, and if this can make investing more inclusive, I think that’s great.”

Given the opacity of FTX and of SBF’s finances, this is now very funny, indeed. 

SBF joined in the interview to say that FTX was going to address crypto’s climate problem, rooted in the massive amounts of energy that it takes to mine bitcoin. 

In retrospect, what is striking about the interview is how vague their plans were to address the problem, which were part of a massive roll out that included commitments of “as much as $1 billion to charitable causes” in a year. And yet, their plan seems to come down to “we’re figuring it out.” 

As part of the initiative, Bündchen and Brady committed to donating millions to charity themselves. Bündchen tells Shoenthal that they have “have just started analyzing different projects. There are so many different ways you can go about this. We need to figure out where the foundation is because if we build a house on a very weak foundation, it can crumble.” 

The ESG ambassador concludes by assuring Shoenthal that when they “have this conversation a year from now, I’ll have a lot more to share. I came on board to help FTX figure out how we can do this in the most effective and impactful way possible and I’m optimistic about what we’ll be able to do.” Not sure if that follow-up is still on Bündchen’s schedule. 

For his part, SBF recognized crypto’s carbon footprint issues and said he is “optimistic that t​​he vast majority of transactions actually can happen, and some are already happening, on carbon neutral blockchains.” Except that transactions on blockchain aren’t the problem; it is the mining that is. So even this is a fub, rather like an oil pipeline saying it is carbon-neutral. What SBF went on to say takes on even more significance. 

“We want, at the very least, to provide an example of how to do this right,” he told Shoenthal. “We want to be in line with where we think regulation should and could be, and part of what that means is building out and publishing something that could ultimately be part of a healthy ecosystem. We use an asset registration and transparency system. Ultimately there may be a federal regulator that mandates this, and we’ve been sending a lot of what we’re working on to regulators to show them ways to implement these standards.”

One of the things that made FTX and SBF such a big deal is that SBF was front and center seeking to regulate the crypto market. These remarks suggest his thinking about regulation extended to ESG and, specifically, to climate. Having an influencer as powerful as Bündchen be the mouthpiece for that work suggests SBF was playing the same optics with ESG regulation that he was with regulators more generally. 

More recently, in a deeply cynical late-night interview that SBF conducted with Vox reporter Kelsey Piper over twitter DM’s (natch) the crypto titan basically admitted his efforts to lobby for regulation was “PR” and said, “fuck regulators.” Moreover, he said that “ESG has been perverted beyond recognition.” And agreed that his talk of ethics was “mostly a front.” The sucking up to regulators, the charity, the talk of ESG – just a front. 

It doesn’t help that SBF’s Vox musings sound like your (ok, my) high-school boyfriend philosophizing after OD’ing on Ayn Rand. I do wonder what would have happened if I’d been given a ginormous amount of money in my 20s and was feted like a god. How would I have turned out?

But you’ve got to love the steaming hypocrisy of SBF, a man who made a supermodel his ESG ambassador, saying ESG has “been perverted beyond recognition,” as if that kind of cynical brand marketing isn’t exactly the kind of behavior undermining ESG.

FOMO and the institutional investor  

I’m no bubble expert, but I’ve been around the capital markets for long enough to know that if it walks like a duck and talks like a duck, it’s probably a duck. And by April of this year there was quite a bit of quacking coming out of crypto in general, including from the vicinity of  FTX.

So, what were institutional investors thinking? My working theory is that much of the institutional capital flooding into the space was driven by FOMO (fear of missing out.) SBF himself said as much in an interview with Bloomberg’s Matt Levine.

Who among us didn’t hear the siren cry of bitcoin sometime over the last 24 crazy months and wonder if we were missing something? So many people I know, from my contractor to my most knowledgeable hedge fund manager friend, were dabbling in the market (not me; I lost money the old fashioned way, in stocks.) 

But as Henry Blodget (a man who should know his way around a bubble) said on Twitter (still a thing at time of this writing, no thanks to @ElonMusk) of institutional investors, you “can’t say they didn’t know better…” After all, these investors are meant to be sophisticated

The list of institutional investors with exposure to FTX is quite extraordinary. It includes, according to The New York Times, “NEA, IVP, Iconiq Capital, Third Point Ventures, Tiger Global, Altimeter Capital Management, Lux Capital, Mayfield, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Ribbit Capital, Temasek Holdings, BlackRock and Thoma Bravo.” Hedge fund managers Dan Och, Dan Lobe, Izzy Englander, Paul Tudor Jones, and Alan Howard were among those to commit capital to  FTX’s July 2021 fundraise according to Forbes

Bloomberg reports that the $181 billion Ontario Teachers Pension Plan “studied crypto for years” before deciding to invest $75 million in two FTX entities in October of 2021, followed by a $20 million follow-on investment in FTX.US three months later. As Bloomberg says, “Teachers is now writing off its entire $95 million investment in FTX.” The pension plan has defended its due diligence process as “robust.”

(Ontario Teachers was not required to publicly disclose its  FTX position in its 2021 investment report because the commitment was not over $200 million. Given that the teachers pension plan has $181 billion in assets, what else is in their portfolio? At least when the Dallas Fire and Police pension plan decides to bet big on real estate investments in Hawaii, that information is disclosed in meetings and reports.)

As FTX was failing, Business Insider quoted Ian Taylor, head of trade body CryptoUK, telling Britain’s Planetary Treasury Select Committee, “What we’re hearing — and this is speculation, I’m just giving my view — the majority of the funds in that platform were from institutional investors.”

Over at Institutional Investor, Michelle Celarier took a run at what institutional investors were thinking. She references a client letter from the mighty Sequoia, which has written its $213 million FTX investment down to zero, saying that they “are in the business of taking risk,” and conduct “extensive research and thorough diligence on every investment we make.”

Dennis Kelleher, president and CEO of Better Markets issued a statement slamming the idea that all these so-called sophisticated investors were making reasoned, rational investments in the crypto exchange. 

“The many crypto investors, enablers and legitimizers weren’t ‘seduced’ by FTX and SBF,” Kelleher said. “They were just willing to accept whatever a billionaire with a ‘vision’ said without doing the most basic due diligence or asking the most obvious questions if they thought it would make them rich.” Kelleher said he and his team turned down the opportunity to invest in FTX after the firm failed in its ability to answer basic due diligence questions.

People dived into crypto, despite some obvious red flags, because they thought it would make them rich. And for a while it worked. After all, it made SBF really really rich, on paper. And that kind of money attracts politicians, and supermodels, and NFL stars at the end of their careers, and, I guess, Canadian pension funds. 

It’s as if we’re all still stuck in this collective 1980s “greed is good” vision of markets and investing. Where the biggest bastard at the craps table wins, and no one has any time for silly things like ethics and values. 

The idea that capital could be used for good, that we could collectively start steering our ship in a different direction, still has not sunk in, after all this time. 

Distorted funhouse mirror 

The fact that SBF is so crushingly average makes the whole debacle all the more absurd. 

He looks like what he is, a precocious white Millennial from a nice middle-class family, who went to a good school, and got rich being good at social media. Minus the social media savvy, that’s pretty much the bio of every trader on Wall Street, proprietary trading desks like Jane Street Capital (where SBF got his start) and in hedge funds. (#nodiversityhere.) 

All that money turns people’s heads. SBF’s paper wealth impressed not only investors but charities. 

As Bloomberg explained, SBF “had big plans: the vast majority of his fortune would be dedicated to charity. He has been on philanthropic boards, funded advocacy groups and journalism nonprofits and earlier this year signed the Giving Pledge, a promise to send the majority of his wealth to charity in his lifetime or will.”

Signing the Giving Pledge wasn’t enough, SBF had to pioneer his own brand of giving: Effective Altruism. As The New York Times wrote, the movement “focuses on the question of how individuals can do as much good as possible with the money and time available to them. Historically, the community focused on low-cost medical interventions, such as insecticide-treated bed nets to prevent mosquitoes from giving people malaria.” 

SBF was into effective altruism before he became a billionaire. As a college student at MIT, he had lunch with the movement’s founder, William MacAskill. MacAskill encouraged SBF to get rich in order to fund the causes he cared most passionately about. SBF promptly did, and hired MacAskill to head up his FTX Foundation. Most of the pledges and promises that SBF made through the FTX Foundation, as well as his family foundation, Building a Stronger Future, are likely vaporized.

Shortly after FTX filed for freefall bankruptcy, the FTX Foundation’s Future Fund team, which included MacAskill, quit. In a statement they posted to an EA forum, the team said they were “shocked and immensely saddened to learn of the recent events at FTX. Our hearts go out to the thousands of FTX customers whose finances may have been jeopardized or destroyed.”

The team was “devastated to say that it looks likely that there are many committed grants that the Future Fund will be unable to honor.” In their personal capacities, they said, “we are exploring ways to help with this awful situation.” The outcome “is heartbreaking to us.” 

So, awful, heartbreaking, and inevitable to anyone paying attention. Just like the institutional investors, charities should have known better. 

And, just as institutional investors made SBF seem credible (Scaramucci’s Skybridge Capital made a $10 million investment in FTT, the token issued by FTX, as part of a deal in which FTX took  a 30% stake in Skybridge’s asset management business, the FT reports). Setting himself up as a mega philanthropist served the same purpose.  

Benjamin Soskis of the Urban Institute’s Center on Nonprofits and Philanthropy, told the Times that SBF’s reversal of fortune acted as a “distorted fun-house mirror of a lot of the problems with contemporary philanthropy,” in which very young donors control increasingly enormous fortunes.

These billionaire philanthropists “gain legitimation from their status as philanthropists, and there’s a huge amount of incentive to allow them to call the shots and gain prominence as long as the money is flowing,” he said. Another category SBF gave money to was media outlets including ProPublica, Vox, The Intercept and Semafor.

It’s the kind of reputation-laundering that SBF seemed to revel in. Get rich through doggy crypto on the one hand, then promise to splash the cash and deliver social change with the other. 

Altar of Mammon

Now the fever dream has burst. Because we apparently live in supervillain times, FTX seems to have been brought down at least in part by its enemies among other crypto exchanges, including rival Binance, which has suffered its own reputation issues. 

Now all these Effective Altruism bros are on social media, crying about how disappointed they are in FTX. I don’t know, maybe we should all just stop worshiping at the altar of Mammon. Rather, value people for what they do rather than the promise of what they might do.  

The Honnold Foundation, founded by former rock climber Alex Honnold of “Free Solo” fame,  is one of the charities that presumably stands to miss out on at least some of its FTX windfall. Honnold Foundation, identified in that April Forbes article as one of the FTX Foundation’s “first charitable partners,” wanted to develop solar projects in hard to reach, marginalized, places, including the Amazon. 

In announcing the formation of FTX climate last year, FTX Foundation said that it had  “made a three-year commitment to The Honnold Foundation to install solar panels in the places they are needed the most.” FTX said it had committed $50,000 for a joint effort between the Honnold Foundation and the Ceibo Alliance, an indigenous organization “working together to build a movement for indigenous land, life and cultural survival in the upper Amazon.” FTX Foundation pledged an additional $100,000 this year and next “in order to fully fund two new solar panel projects in the Amazon.” 

In the broader scheme of how much money FTX was supposedly making, and the billion-dollars a year SBF was talking about giving away $250,000 seem paltry. Effective or not, there appears to have been very little altruism at all.

Meanwhile, FTX depositors are lawyering up. Superlawyer David Boies has filed a class-action suit against Bündchen, Brady and other celebrity influences for getting investors into the crypto exchange. How’s that for ESG? (Boies’ former client Elizabeth Holmes, former CEO of failed blood test start-up Therenos, was just sentenced to 11-years in jail for ripping investors off. Balancing the moral scales.) 

There’s certain to be more drama ahead. Here’s hoping they can find a role for Leo in the movie. Bündchen and Brady can play themselves (they may need the money). But it’s going to take more than actors, models, and sports stars to credibly serve as ambassadors for ESG, and to call for a good bit more environmental stewardship, a bigger helping of social impact and a whole lot more accountable governance. It’s going to take all of us. 


Imogen Rose-Smith is a contributing editor at ImpactAlpha. A longtime senior writer for Institutional Investor, she was most recently a fellow in the Office of the Chief Investment Officer of the University of California.

Catch up on all of Imogen’s Institutional Impact columns.