much more media reporting on the EA-FTX association resulting in significantly greater brand damage?
Most likely concern in my eyes.
The media tends to report on lawsuits when they are filed, at which time they merely contain unsubstantiated allegations and the defendant is less likely to comment. It’s unlikely that the media would report on the dismissal of a suit, especially if it was for reasons seen as somewhat technical rather than as a clear vindication of the EA individual/organization.
Moreover, it is pretty likely to me that EVF or other EA-affiliated entities have information they would be embarrassed to come out in discovery. This is not based on any belief about misconduct, but the base rate that organizations that had a bad miss / messup have information related thereunto that they would be embarrassed about (and my characterization of a bad miss / messup here, whether or not a liability-creating one).
If a sufficiently motivated plaintiff sued, and came up with a legal theory that survived a motion to dismiss, I think it fairly likely that embarrassing information would need to be disclosed in discovery. They could require various persons and organizations to answer questions, under oath, that they would rather not answer. Questions from a hostile examiner motivated to uncover damaging information, not a sympathetic podcaster. While “I don’t remember” is usually an acceptable answer, it also can make the other side’s evidence uncontested if they have anything on point.
For purposes of the next two sentences, “a sufficient basis to believe” means enough that a court would likely allow a good deal of digging if the matter was related or even adjacent to something that was material for purposes of the specific litigation. There’s a sufficient basis to believe that EA leadership may have had good reasons to believe SBF had committed fraud against Alameda investors.[1] There is a sufficient basis to believe that EA PR people were aware of SBF-related risk and were actively working on the topic.[2] The plaintiff could also expand the scope of discovery as previously-discovered information warranted.
If the case didn’t settle before summary-judgment motions, the juicy bits would be all laid out in the plaintiff’s motion, open to public view.
Prompting the legal system into investigating potential EA involvement in the FTX fraud, costing enormous further staff time despite not finding anything?
This seems rather unlikely. The FTX debtor entity is cooperating with the feds. DOJ has several ex-insiders who are singing like canaries, who have good lawyers, and who know that the more people they help the feds convict, the better things will be for their sentences. If there were reasons for the feds to be looking at potential EA involvement in the FTX fraud, it is almost certain the feds would know that at this point without any help from EA sources. Moreover, the FTX or ex-insider information would likely be enough to get the necessary search warrants, wiretaps, etc.
There is of course also, as Will’s note implies, the distraction/expense/angst/etc. of dealing with litigation, whether or not it ultimately has any merit. That would justify giving some weight to whether a disclosure increases the risk of any lawsuit, independent of any merit or concerns about external adverse effects like publicity. However, in my mind that goes both ways! I’d affirmatively want to disclose most information that makes would-be plaintiffs less likely to sue me. If one’s prior is that conditioned on X being not-true, there’s a 75% chance I would specifically deny X for litigation-avoidance reasons, then one can update on the fact that X hasn’t been denied.
Although the Time article doesn’t specify exactly what information was shared with EA leadership, it does indicate that an Alameda exile told Time that SBF “didn’t have a distinction between firm capital and trading capital. It was all one pool.” That’s at least a badge of fraud (commingling). The exiles accused SBF of various things, including “‘willful and knowing violations of agreements or obligations, particularly with regards to creditors’—all language that echoes the U.S. criminal code.” The document alleges that SBF was “misreporting numbers” and “failing to update investors on poor performance.” Continuing: “The team ‘didn’t trust Sam to be in investor meetings alone,’ colleagues wrote. ‘Sam will lie, and distort the truth for his own gain,’ the document says.” Lying to investors is pretty much diagnostic of fraud.
The New Yorker, quoting an unnamed participant on a leadership slack channel: “I guess my point in sharing this is to raise awareness that a) in some circles SBF’s reputation is very bad b) in some circles SBF’s reputation is closely tied to EA, and c) there’s some chance SBF’s reputation gets much, much worse. But I don’t have any data on these (particularly c, I have no idea what types of scenarios are likely), though it seems like a major PR vulnerability. I imagine people working full-time on PR are aware of this and actively working to mitigate it, but it seemed worth passing on if not since many people may not be having these types of interactions.”
Alameda exile told Time that SBF “didn’t have a distinction between firm capital and trading capital. It was all one pool.” That’s at least a badge of fraud (commingling)
Alameda was a prop trading firm, so there isn’t normally any distinction between those. The only reason this didn’t apply was that there was a third bucket of funds, pass-through custodial funds that belonged to FTX customers, which they evidently didn’t pass through due to poor record keeping. That’s not as much indicative of fraud, it’s indicative of incompetance.
Most likely concern in my eyes.
The media tends to report on lawsuits when they are filed, at which time they merely contain unsubstantiated allegations and the defendant is less likely to comment. It’s unlikely that the media would report on the dismissal of a suit, especially if it was for reasons seen as somewhat technical rather than as a clear vindication of the EA individual/organization.
Moreover, it is pretty likely to me that EVF or other EA-affiliated entities have information they would be embarrassed to come out in discovery. This is not based on any belief about misconduct, but the base rate that organizations that had a bad miss / messup have information related thereunto that they would be embarrassed about (and my characterization of a bad miss / messup here, whether or not a liability-creating one).
If a sufficiently motivated plaintiff sued, and came up with a legal theory that survived a motion to dismiss, I think it fairly likely that embarrassing information would need to be disclosed in discovery. They could require various persons and organizations to answer questions, under oath, that they would rather not answer. Questions from a hostile examiner motivated to uncover damaging information, not a sympathetic podcaster. While “I don’t remember” is usually an acceptable answer, it also can make the other side’s evidence uncontested if they have anything on point.
For purposes of the next two sentences, “a sufficient basis to believe” means enough that a court would likely allow a good deal of digging if the matter was related or even adjacent to something that was material for purposes of the specific litigation. There’s a sufficient basis to believe that EA leadership may have had good reasons to believe SBF had committed fraud against Alameda investors.[1] There is a sufficient basis to believe that EA PR people were aware of SBF-related risk and were actively working on the topic.[2] The plaintiff could also expand the scope of discovery as previously-discovered information warranted.
If the case didn’t settle before summary-judgment motions, the juicy bits would be all laid out in the plaintiff’s motion, open to public view.
This seems rather unlikely. The FTX debtor entity is cooperating with the feds. DOJ has several ex-insiders who are singing like canaries, who have good lawyers, and who know that the more people they help the feds convict, the better things will be for their sentences. If there were reasons for the feds to be looking at potential EA involvement in the FTX fraud, it is almost certain the feds would know that at this point without any help from EA sources. Moreover, the FTX or ex-insider information would likely be enough to get the necessary search warrants, wiretaps, etc.
There is of course also, as Will’s note implies, the distraction/expense/angst/etc. of dealing with litigation, whether or not it ultimately has any merit. That would justify giving some weight to whether a disclosure increases the risk of any lawsuit, independent of any merit or concerns about external adverse effects like publicity. However, in my mind that goes both ways! I’d affirmatively want to disclose most information that makes would-be plaintiffs less likely to sue me. If one’s prior is that conditioned on X being not-true, there’s a 75% chance I would specifically deny X for litigation-avoidance reasons, then one can update on the fact that X hasn’t been denied.
Although the Time article doesn’t specify exactly what information was shared with EA leadership, it does indicate that an Alameda exile told Time that SBF “didn’t have a distinction between firm capital and trading capital. It was all one pool.” That’s at least a badge of fraud (commingling). The exiles accused SBF of various things, including “‘willful and knowing violations of agreements or obligations, particularly with regards to creditors’—all language that echoes the U.S. criminal code.” The document alleges that SBF was “misreporting numbers” and “failing to update investors on poor performance.” Continuing: “The team ‘didn’t trust Sam to be in investor meetings alone,’ colleagues wrote. ‘Sam will lie, and distort the truth for his own gain,’ the document says.” Lying to investors is pretty much diagnostic of fraud.
The New Yorker, quoting an unnamed participant on a leadership slack channel: “I guess my point in sharing this is to raise awareness that a) in some circles SBF’s reputation is very bad b) in some circles SBF’s reputation is closely tied to EA, and c) there’s some chance SBF’s reputation gets much, much worse. But I don’t have any data on these (particularly c, I have no idea what types of scenarios are likely), though it seems like a major PR vulnerability. I imagine people working full-time on PR are aware of this and actively working to mitigate it, but it seemed worth passing on if not since many people may not be having these types of interactions.”
Alameda was a prop trading firm, so there isn’t normally any distinction between those. The only reason this didn’t apply was that there was a third bucket of funds, pass-through custodial funds that belonged to FTX customers, which they evidently didn’t pass through due to poor record keeping. That’s not as much indicative of fraud, it’s indicative of incompetance.