FTX was emblematic of a venture capital cult that grew wildly out of control

In reality, FTX would never have grown to the size it did without the active support of the finance industry, and the culture of “growth at all costs” and “break stuff quickly” that it encourages. The shaggy-haired 30-year-old with his shambolic manner suddenly found himself in a position where billions of dollars were thrown at him. Its investors included mainstream names such as Softbank and Sequoia while it was working with some of the biggest banks, accountants and law firms in the world. The likes of Bill Clinton and Sir Tony Blair were happy to talk at its conferences, lending some gravitas to a company that had appeared from nowhere. 

There were red flags all over FTX that any proper investment professional should have picked up on. There were few checks or controls. There was clearly a massive conflict of interest between the crypto hedge fund that was run alongside the exchange. Investors who asked perfectly ordinary questions about what was happening internally were told to go take a flying jump.

 As far as anyone can tell, there were no audits, nor even very much in the way of basic bookkeeping. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said John J. Ray, the insolvency specialist, and also the man who sorted out Enron, drafted in to try and sort out the mess the company was left in. It is a damning verdict. 

And yet all that was ignored because Bankman-Fried fitted the image of the disruptive genius the venture capital industry has come to believe in. He was absurdly young, and a mess, typically attending meetings in shorts and a t-shirt. He championed social activism, donating vast sums of money to left-liberal political candidates and causes, even as he cheerfully admitted that most of it was just a way of making the business look good. He surrounded the firm with high-profile celebrities such as the sports star Tom Brady and the model Gisele Bundchen (although Taylor Swift, to her credit, declined the opportunity to get involved). 

Perhaps most of all, he dressed up what was basically a fairly old and dull idea – FTX was just a commodity exchange, trading crypto currencies instead of metals, or oil, or, come to think of it, scrap metal – with lots of visionary jargon about how it was creating something that no one had ever seen before. He fitted every entrepreneurial cliche of the last two decades – and the finance industry loved him for it. 

We have seen this already, of course. WeWork was wildly over-hyped, for what turned out to be a fairly dull office management company pretending to have re-invented the world. Klarna, the buy-now-pay-later startup, has seen its valuation collapse as people work out that lending money to people who don’t have very much of the stuff has always been a difficult way to make a living. 

FTX is without question the most spectacular collapse so far. But there are plenty more very flimsy companies out there, and there will be lots more write-downs in the year ahead. In reality it is the venture capital industry, and the bankers and fund managers that support it, who should be on trial, not just as Sam Bankman-Fried. They are just as guilty – if not more so.