Truth Social: Shady Deals Lead to a Federal Investigation (2022)

ABSTRACT:

    The relatively new, conservative based social media app, Truth Social, has been sparking controversy since the time of its development in early 2021. This application, headed by Donald Trump and his company Trump Media, has raised questions about not only how it is being run and moderated, but also the dealings behind the scenes that have led to a federal investigation. Investors, developers, and users, and even those who have left the company have been affected by this, and some who continue to be involved are dealing with the consequences.

    Despite the polarizing topic of the app’s political nature, this paper is intended to be an objective look into how the situation is viewed by four ethical theories: Individualism, Utilitarianism, Kantianism, and Virtue Theory. Only after considering the teachings of each theory will a verdict be able to be placed on Truth Social, and in turn, their parent company, Trump Media. After looking into each of the theories and their teachings, the acts from Trump Media and Truth Social will clearly be seen as more unethical that not.

CASE CONTROVERSY:

Final tweets from former president Donald Trump

    Before discussing the controversy of Truth Social, its conception must be understood. On January 8^th, 2021, closely following the January 6^th insurrection of the U.S. Capitol Building, Donald Trump posted several tweets further spreading the message that the election was stolen and denying a peaceful transfer of power. According to a statement by Twitter, “We assessed the two Tweets referenced above under our Glorification of Violence policy, which aims to prevent the glorification of violence that could inspire others to replicate violent acts and determined that they were highly likely to encourage and inspire people to replicate the criminal acts that took place at the U.S. Capitol on January 6, 2021” (Twitter). Many other forms of social media followed this act, banning the former president on their respective apps. Due to Trump using these sites as his major form of reaching his political followers, he was forced to use far smaller platforms. This caused him to look for an alternative, and eventually to create a competitor of his own: Truth Social.

    However, to launch such an app, they needed financial support from external sources, so Trump Media looked to investors for help. In late 2021, a deal was struck between Trump Media and the company Digital World Acquisition. Specifically, Trump Media would get $300 million for agreeing to a merger with Digital World (Goldstein and Thompson). This was a surprise to many, as there was nothing publicly stated before this time about a merger. However, this, in addition to $1 billion from several hedge funds, would be more than enough to fund Trump’s passion project and not many more eyebrows were raised.

The waitlist for Truth Social from https://ichef.bbci
.co.uk/news/640/cpsprodpb/1407C/production/_
123944028_screenshot2022-03-29at15.14.28.png

    Launching just over a year after the permanent bans took place, Truth Social was marketed as a right-wing app that was highlighted by its lack of moderation, labeled by the developers as free speech. While this seemed like a safe haven for far-right wing Americans, in February of 2022, they were met with a host of issues with the interface of the app. The launch was “plagued by technical glitches and a 13-hour outage” (Kelly) and a month after its release, “new users are still being put on an ever-expanding million-person or more waitlist to join the app” (Kelly). While all major apps have technical difficulties in their early stages, this seemed to be more than expected. Reportedly, two executives of Truth Social resigned from their positions due to the nature of the launch. Josh Adams, the Chief Technology Officer, and Billy Boozer, the Head of Product Development, did not make a comment on specifics about their swift resignations.

Ricky Shiffer at the attack on the U.S. Capitol. 
https://www.sportskeeda.com/pop-culture/what
-ricky-walter-shiffer-do-armed-man-killed
-police
-standoff-attempted-ohio-fbi-office-breach

    In addition, the budding social media app was gaining more users, but this meant more of a chance for misuse. Following the FBI’s search of Trump’s Mar-a-Lago home in August of 2022, there was an uproar on the app, including messages from a man by the name of Ricky Shiffer. One of these posts read “get whatever you need to be ready for combat” (Thompson and Goldstein). Later, he was killed attempting to break into an FBI office in retaliation to the search. While some point to Donald Trump for fueling some of this hatred, the senior research manager for Institute for Strategic Dialogue, Jared Holt, has another view of it. He indicated that, “the unfortunate truth is that any platform — once it gets big enough — has to deal with somebody doing something like that” (Thompson and Goldstein). This death made it difficult to justify one of its largest draws for the userbase: the lack of moderation.

Timeline of Events

    These were not the only issues with the company however, as internally there were surfacing problems surrounding the merger with Digital World. A whistleblower by the name of William Wilkerson claims that there were “fraudulent misrepresentations … in violation of federal securities laws” (Harwell). Based on Special Purpose Acquisition Company (SPAC) guidelines, talks of mergers between parties must be disclosed to the public. While Digital World did later acknowledge that there had been undisclosed talks of the Merger between representatives of each company, they “argue that those talks were too preliminary to meet the threshold for disclosure” (Goldstein). But with these admissions in addition to the whistleblower, the Securities and Exchange Commission (SEC) has launched an investigation into the deal. This process is far from over, but at this point, anything else would be pure speculation as those concerned with the company are waiting for the result of the investigation. As of now, the merger still has not gone through, but Digital World’s shareholders have extended the deadline of the merger a few months, and are looking at other long term options, to accommodate the company during the investigation.

STAKEHOLDERS:

    This process, from the deal with Digital World to those resigning because of too many technical issues, has affected many people, whether it be in a positive or negative manner. It is important to highlight some of these individuals and groups to acknowledge their level of involvement. This will help to adequately represent all parties involved when thinking about each ethical theory. The most obvious of these is Truth Social and by extension Trump Media. Based on the results of the Federal investigation, they could lose out on their promised $1.3 billion. Digital World is in a similar situation, as they would be forced to return the $300 million initially raised by the investors. Directly following this, the investors and contributing hedge fund managers would be affected by their money returning to them without payout. Another set of stakeholders are those using the app. While many are satisfied with the experience, the host of problems with other users and technical issues must be taken into consideration. Some individuals associated with the groups above are Donald Trump, Josh Adams, Billy Boozer, William Wilkerson, and Ricky Shiffer.

INDIVIDUALISM:

    This ethical theory is among the simplest to understand and can be broken down into two main parts. To be ethical under Individualism, an action must be profitable for the company, and in tandem, there must be no laws broken. From the perspective of Truth Social and Trump Media, this merger with Digital World was indeed a quite profitable idea. They would be gaining a total of $1.3 billion. To satisfy the second characteristic of Individualism, Trump Media claims that everything was done legally. If they are to be taken at their word, this would be an ethical action.

    However, there is more to this than it seems at first glance. If it proves that there were deceptive dealings between Digital World and Trump Media, the verdict would shift. The aforementioned result of Trump Media being innocent, and hence the merger being ethical is only one of two possible outcomes. The other is that they are guilty of fraudulent behavior. It is unclear which laws they are being investigated for, but if they have carried out illegal activity, the merger would not go through, and the money would be returned to the respective investors. This in turn would violate both the necessities behind individualism. The obvious part of them being guilty would imply that the law has been broken. As a result, profitability would be diminished greatly if not fully taken away. They would lose the money promised by the merger, making the action unethical. This cannot be reasoned whether it is ethical or not, but it is entirely based off the investigation.

UTILITARIANISM:

    Contrary to Individualism where only the company taking action is considered, Utilitarianism takes the wellbeing of all stakeholders into account. The major tenant of this theory is to maximize happiness. If the action does not maximize happiness, then it is considered unethical. Similar to the last analysis, two cases will be considered regarding the outcome of the federal investigation. However, some stakeholders in the process are not particularly interested parties when it comes to the investigation, and hence they will be listed first. The main reason many of them are no longer linked to the company and its dealings is because they have been taken out of the equation in one way or another. Josh Adams and Billy Boozer were unhappy with the company and how the technical issues were being handled, as this was their reported reason for leaving. Another former executive, William Wilkerson the whistleblower, was so unhappy with the dealings at the company that he felt the need to file a formal complaint with the SEC. The final consideration for the currently uninterested parties is Ricky Shiffer. While he theoretically cannot feel happiness nor the contrary, his death presumably caused despair among family and friends. In this category, there were no feelings of happiness, but before an ethical judgment can be placed, the other two cases must be presented.

    If Trump Media is not guilty, it is reasonable to assume they would be happy as the long-awaited merger would finally be able to go through. This would give them access to funds to run Truth Social and potentially work on further ventures. It would equally make Digital World and their investors happy as they would make a profit from this just as much as Trump Media would. Taking the first group of people into account, there are more people who are happy simply because of the quantity associated with the deal that outweigh those who have been burned leading to the merger. On the contrary, if this deal is found to be illegitimate, all mentioned parties would completely flip and be unhappy. Truth Social could be at risk of shutting down with a lack of finances to run successfully, which would make all the employees generally unhappy. The same logical reasoning can explain the displeasure of all associated with Digital World and the investors funding the merger. In this case, all parties are not happy, so it would be unethical. Due to the divide in the cases, it is left up to the investigations results.

KANTANIANISM:

    While both of the past ethical theories were fairly simple, they also had some sizeable shortcomings that can create holes in their logical arguments. To make up for a lapse in the inadequacies of these theories, Kantianism is slightly more complicated and less black and white. There are a few important principal thoughts associated with this way of ethical analysis. The primary ones are to act rationally and to respect others’ rationality. All other rules of Kantianism can be derived from these two statements. If you are not helping people to be rational, or worse, obstructing their rationality by lying, this is not showing respect to their rationality. In addition to this, there are two important formulas to live by: the Formula of Humanity and the Formula of Universal Law.  The first of these claims that one must respect another’s humanity and never use them as a means to some end. The second of the formulas says to act according to a maxim and if you can universalize this maxim without contradictions to rationality, it is permissible.

    There is more to the teachings of Kant, however, this is more than enough information to pick out several violations by the heads of each company. One such infringement is the deceit behind the talks between representatives of Trump Media and Digital World that were not disclosed to the public. This does not respect the rationality of the public. Despite the companies not explicitly being dishonest, they were lying by omission. This also fails the Formula of Universal Law. Consider the maxim as not disclosing the talks to the public. Universalizing this, it can be seen that there is some information that could be useful that is unknown to people, hence lapsing their rationality.

    Another such violation is the idea of Truth Social as a whole. Trump Media is using those who work at the company, as well as the users of the site, as mere means to complete a merger that will profit Trump Media primarily. While Truth Social will also see some of the benefits, it will be less direct, contradicting the Formula of Humanity. Opposed to the last two ethical theories, Kantianism does not hinge on the federal investigation heavily. However, if found guilty, this would go against all what Kant believed to be ethical, as lying is an impermissible act. Therefore, it can be reasoned that this deal is unethical under the teaching of Kantianism.

VIRTUE THEORY:

    The final analysis that will be considered is that of Virtue Theory. When discussing this way of thinking, the first logical question is determining what a virtue is. It can be expressed as a characteristic that allows something to function as it is intended to. In humans, there are four major characteristics: courage, temperance, justice, and honesty. It can be seen quite easily that one must strive for these virtues, but they are each on their own spectrum. Take courage for instance; it sits on the spectrum between the vices of cowardice and recklessness. Despite these being qualities of an honorable person, humans are not inherently virtuous. The process to become virtuous has four steps. One must model themselves after a virtuous person, thus making it easier to know what habits to follow. Next, it must be acknowledged that most people are weak willed, and hence, the transformation will be difficult. Once this is realized, it is important to attempt to act with the virtuous qualities in mind. Once these actions become habit, they develop into character traits and in turn virtues.

    As honesty is one of the cardinal virtues, the argument for why the merger is not ethical follows similar logic to that of Kantianism. It is quite clear that those representing Trump Media and Digital World have failed one or more of the aforementioned steps. It would only be speculation to figure out where the error was, but no matter which step was missed or ignored, the outcome was the same. They were dishonest with the public about their talks of a merger behind closed doors. This also relies slightly on the result of the investigation, as it could violate the cardinal virtue of justice as well. If they are found to be guilty of fraudulent activity, this would directly contradict this virtue. Based on all the presented information, the teachings of Virtue Theory would undoubtedly condemn the merger between Trump Media and Digital World as being unethical.

JUSTIFICATION OF ETHICS:    

    Reviewing the verdicts of the four considered theories, we have two that outright would label the merger unethical. The other two are somewhat inconclusive due to the fact that they rely so heavily on the outcome of the federal investigation. But to determine if it truly can be labeled one way or another, the ethical theories must be combined in some way to adequately judge them. One such method of combination could be to give each theory an equal weight. This approach would rely on the investigation so it will again be broken into cases. If the merger is found to be legitimate, the divide between theories claiming ethical and unethical will be two on one side and two on the other. Alternatively, if the deal is found to be illegal, all four theories label it as unethical. However, there is one final instance to examine. In the case of this current time, two theories label it as being unethical and two cases are undetermined. This can be modeled by looking at the probabilities of certain events. If we say each ethical theory is equal to one if unethical and zero if ethical, and the expectation is greater than two, the act is more likely to be unethical. Since major news sites are writing about it, it is reasonable to assume the probability of the investigation yielding a guilty verdict is greater than zero and hence, the expectation for the two undetermined theories is greater than zero. Added to the two that would define it as unethical, it can be seen that the expectation is greater than two. Therefore, the merger is more likely to be unethical currently.  

CONCLUSION:

    It must be noted that this has been researched and written from the information available by December 2, 2022. As seen throughout the paper, much of it relies on the results of the federal investigation. However, it was written in such a way that hopefully the reader may easily convert the ethical theories to one way or another once the results are established. The covered scenarios are not necessarily comprehensive of all possibilities, but simply the most probable ones.

Owen Boyns

REFERENCES:         

Goldstein, Matthew. “SPAC Tied to Trump Media Says Early Talks Were Not 'Substantive'.” The New York Times, The New York Times, 25 Oct. 2022, https://www.nytimes.com/2022/10/25/business/trump-media-spac-sec.html. 

Harwell, Drew. “Co-Founder of Trump's Media Company Details Truth Social's Bitter Infighting.” The Washington Post, WP Company, 16 Oct. 2022, https://www.washingtonpost.com/technology/2022/10/15/truth-social-trump-animosity-whistleblower/.

Kelly, Makena. “Two Top Truth Social Execs Resign from the Company.” The Verge, The Verge, 4 Apr. 2022, https://www.theverge.com/2022/4/4/23010005/truth-social-billy-boozer-josh-adams-donald-trump-social-media-rumble-tmtg.

“Permanent Suspension of @RealDonaldTrump.” Twitter, Twitter, https://blog.twitter.com/en_us/topics/company/2020/suspension.

Thompson, Stuart A., and Matthew Goldstein. “Truth Social's Influence Grows despite Its Business Problems.” The New York Times, The New York Times, 1 Nov. 2022, https://www.nytimes.com/2022/11/01/technology/truth-social-conservative-social-app.html.

FTX: Mishandling of Funds (2022)

FTX Logo (17)

Abstract:       

It’s a quiet morning in 1945, George Bailey opens Bailey Brother’s Bank and Loan for the day ahead. All is well until the unexpected happened. Swarms of customers come running into the bank demanding their money to be withdrawn from the bank. George is stunned, he doesn’t have enough money in the bank to pay out to everyone. What’s happened is a classic bank run, something everyone in the industry dreads. Although, these events are entirely fictional taking place in Christmas classic “It’s a Wonderful Life”, the threat of a bank run is very real. On November 6th, 2022, the unexpected happened and crypto exchange giant FTX’s coin “FTT” lost 80% of its value causing a six-billion-dollar bank run on the firm, crippling it in the process. This paper will delve into if FTX operated in an ethical manner, using four different principles: Individualism, Utilitarianism, Kantianism, and Virtue Theory.

Background of FTX:

            FTX’s journey from a small exchange within a separate finance company, Alameda Research to the fastest growing crypto exchange in the world to a smoking wreck is rocky one. Founded in 2019 by Sam Bankman-Fried, FTX began its slow climb as a subsidiary of Alameda Research, an investment firm. Sam, the founder, and CEO got to work, raising capital for his fledgling company through venture capitalists. By July of 2020 FTX was valued at eighteen billion dollars, fast forward two years, thirty-two billion dollars. One important early investor in the company was Binance CEO, Changpeng Zhao. He bought a twenty percent stake in the company. From its founding to August of 2022, FTX grew exponentially. In March of 2021, FTX bought the naming rights to the Miami Heat’s stadium. By 2022 it was the second biggest crypto currency exchange in the world, only surpasses by Changpeng Zhao’s company, Binance. Importantly, FTX bought back the share’s Zhao purchased using a crypto currency they created, FTT. FTT is used by FTX to fulfill customer’s exchanges of currency on their platform. As an exchange FTX’s business model is to serve as a middleman between one form of currency and another. Simply put, “A cryptocurrency exchange is simply where buyers and sellers can trade crypto. If you want to trade crypto, you need to do it via a crypto exchange” (10). This leads to the events that took place in November 2022.

The controversy:

            In the early hours of November 2nd, 2022, CoinDesk a popular website that covers the cryptocurrency market released an article on Alameda Research the company from which FTX was founded. Within the article it was revealed that Alameda Research held nearly fifteen billion dollars’ worth of assets. Of that fifteen billion about eight billion dollars was in FTX’s coin FTT. As another crypto currency CEO and expert Cory Klippsten puts it, “It’s fascinating to see that the majority of the net equity in the Alameda business is actually FTX’s own centrally controlled and printed-out-of-thin-air token)(2). What is important about this revelation is that according to FTX themselves, there is only five billion dollars’ worth of FTT coin in circulation, yet on Alameda’s books they had eight billion dollars’ worth of the coin. Zhao who was previously paid FTT for his twenty percent of FTX announced his was selling all FTT in his company’s possession not long after the article came out. The combination of the imbalances on the sheets and Zhao’s announcement caused the value of FTT to plummet, losing nearly eighty percent of its value in the following days of the article being released. On top of that, Sam Bankman- Fried’s FTX had more to worry about, a classic bank run. The New York times described the event as a, “ sudden cataclysm [that] prompted comparisons to the collapse of Lehman Brothers, the investment bank whose implosion helped set off the 2008 financial crisis.”(12). Much like the big banks going under in 2008 crisis, the crypto giant looked for a bailout. This bailout tentatively came from Changpeng Zhao and Binance. Zhao, Binance’s CEO went to twitter to say, “This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire http://FTX.com” (14). He also added that the company would be doing its due diligence into FTX before finalizing any deal. It was a good thing that Zhao did so, as what was uncovered was that FTX had been mishandling funds associated with customers. According to Fox Business an FTX lawyer was quoted to saying, “Bankman-Fried used the firm as his "personal fiefdom". (13). Unsurprisingly, the deal between FTX and Binance fell through, and on November 11^th FTX, along with Alameda Research filed for bankruptcy. Bankman-Fried went to twitter to say,” I'm sorry. That's the biggest thing. I f**ked up and should have done better.” (3). Following this announcement Sam stepped down from CEO of FTX and

John J. Ray III who handled Enron’s bankruptcy in 2001 stepped up to helm the company. John after looking at the company financials stated, “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” (Fox) As of the writing of this paper, FTX owes, “its creditors at least $3.1 billion, according to court documents filed by the bankrupt cryptocurrency exchange” (5).

Stakeholders:

Sam Bankman-Fried: CEO and founder of FTX. Controlled FTX during its downfall. Lost a large majority of his net worth with the collapse of his company.

Timeline of Events

Sam Bankman Fried (15)

Changpeng Zhao: CEO of Binance. Early Investor in FTX, now is the rival company to FTX. Gains

near complete market control of crypto currency exchange markets with collapse of FTX.

Changpeng Zhao  (16)

Timeline Part II

Sequoia Capital and other investment firms: Invested funds in FTX, with the bankruptcy are likely to get pennies on the dollar of their investments.

Alameda Research: Sister Company to FTX. Very closely related, is also tied up in bankruptcy process

Individuals: Everyday users of the platform. Likely to have lost their funds they had with FTX if they did not withdraw in time. All users of the platform are due to be compensated if funds can be found.

Individualism:

            An individualistic perspective on how FTX operated would show that they failed. Individualism argues for the business and its owners to maximize its own profits and gains. With a net worth of over fifteen billion dollars before the collapse of FTX, Sam Bankman-Fried was one of wealthiest crypto investors in the world, not to mention straight up one of the wealthiest people in the world. After FTX went under due to the negligence of the company he, is currently valued at just over one billion dollars (11). The management of the firm was not in line with their own gain as it resulted in the company going belly up.

             FTX was poorly operated. The company routinely inflated FTT’s value, thereby raising its own value, as they operated the coin and had control of the flow of it. While this tactic worked in the short term, once the Coinbase article came out the value of FTT sank, bankrupting FTX. Essentially FTX shot themselves in the foot and was short sighted in their business strategy, the opposite of serving themselves. The market that FTX was in is essentially unregulated. Crypto currency is an extremely new concept, and governments have not caught up to the times. This left FTX with essentially unlimited avenues to succeed. Unfortunately, they built as Fox Business described them, “A house of Cards” (7). FTX couldn’t even save itself, let alone their customers failing to follow individualism.

Utilitarianism:

Under the guise of Utilitarianism, FTX’s actions are not acceptable. Utilitarianism demands that the majority is “happy” under all circumstances. The classic movie trope of the protagonist exclaiming “It’s for the greater good!” is a perfect example of Utilitarianism in action. In the case of FTX, they failed everyone. Due to their negligence over two billion dollars of assets are unaccounted for, and three billion is owed to customers and investors. Everyone the company effected was hurt by it in some way. No one wants to lose money on an investment, and through the companies’ misguided hand many people have. Others will get their money back, however, must go through the company’s bankruptcy process to do so. This not only is a headache for these investors but also could be costing them even more money due to legal fees and court procedures. Utilitarian thought is fundamentally upside down with the state the company is in. Employees are affected negatively without a job, investors and investment firms are hurt as they have not lost a portion of their portfolio. Not to mention, FTX has affected other investors and business with their recent collapse.

            FTX was the second largest crypto currency exchange in the world when they declared bankruptcy in November. This large of an exchange causes ripples in the crypto currency market. In financial terms, it will and did cause a downturn in the market in general. In fact, the crypto currency market has taken a hit in the last few weeks. Bitcoin the most popular crypto currency has dropped in price due to FTX’s bankruptcy. Time Investing reports, “Prior to FTX’s unraveling, bitcoin’s price was holding steady for most of October. Prices remained low at around $19,000 [per coin]” (8) Compare this with the price of Bitcoin as of December 1^st, 2022, which is listed at just under seventeen thousand dollars per coin (10).

Bitcoin's Price Dec.2 2022 (1)

 That is an eleven percent drop in value in just under a month sense FTX has collapsed. Admittedly this is circumstantial evidence, however a similar event occurred when the investment bank goliath Lehman Brothers collapsed in the 2008 financial crisis. From the BBC, “The consequences for the world economy were extreme. Lehmans' fall contributed to a loss of confidence in other banks, a worldwide financial crisis and a deep recession in many countries” (4). FTX’s collapse has caused mistrust in the market. This as a result creates a downturn in the market. This downturn has affected an untold number of investors as small as individuals to as large as firms. The majority has been affected more in a negative way than the minority has. The rules of Utilitarianism have therefore been violated.

Kantianism:  

            Kantianism argues that the means of actions are more important that the result of an action. Not only this but the meaning behind the action is also equally important. Kant described the meaning behind the action as “Good Will”. For a business’s actions to be ethical permissible the actions the business takes must be first good, and second their intention must also be good, or at least neutral. In the case of FTX, the company’s bankruptcy isn’t the center of the controversy, being merely a consequence of the company’s actions. FTX’s management was poor. They took risks that were not necessary. Sam Bankman-Fried was even quoted to saying, “I wasn't spending any time or effort trying to manage risk on FTX” (6). Of course, this boils down to downright negligent management of a multibillion-dollar corporation. Without FTX releasing a statement as to why they took the actions they that inevitably bankrupted them, it can only be left to speculation. One theory would show that FTX violated Kantianism ethical procedure for pure greed of the company. FTX was shown to purposely inflate the market value of FTT by selling a small portion of the coin at a certain favorable price, then using that value to calculate their net worth (7). An analogy by Ben McMillan shows the flaw in this method, “imagine someone owns every house in a 100-home neighborhood and forces the sale of one home for $1 million, then uses that sale to show they have $100 million in "equity." But then, the owner is forced to sell all the remaining 99 homes, and the houses only sell for $100,000 each – meaning $90 million of their so-called equity disappears” (7). By inflating their net worth FTX could theoretically get more capital through loans, thereby giving the company more cash. Ethically through the guise of Kant, this isn’t permissible. It is misleading, FTX doesn’t have nearly the amount of equity as they claim, instead they misled customers and investors by having the inflated numbers on the books. This tactic is shady and impermissible by Kantian thought as the means that the company used to get larger is misleading, automatically violating Kant’s philosophy.

Virtue Theory:

            Virtue theory is an ethical theory that takes one’s character traits into account, to determine if one’s actions are ethical or not. Traits that help one flourish and grow as a person are good, or “virtues”. Whilst traits that hinder people’s growth and happiness are “vices”. Putting FTX under the microscope, they displayed both virtues and vices. Looking at Sam Bankman-Fried’s twitter shows the man at least at the public level is remorseful for what has occurred, and how it affected his customers; tweeting, “My goal—my one goal—is to do right by customers… after that investors. But first, customers” (3).

Tweet from Sam Bankman-Freid (3)

 While this is after the fact, he as the de facto head of the company does show willingness to fix what he self admittedly blundered. Being virtuous after the fact, however, does not make up for greed the company heads had before bankruptcy. As previously stated, FTX had no risk management, it routinely pumped FTT’s value increasing FTX’s on paper equity, and it also gave out messy loans to sister firm, Alameda Research. The New York Times claims that FTX could have loaned as much as 10 billion dollars to Alameda Research, much of that being customer funds (9). Of course, investment bankers loan out money all the time, it is their way of making money. However, the big difference here is that FTX’s ties to Alameda Research made it so FTX heads made money too when Alameda Research made money. FTX was greedy, it pushed risky investments and inflated their own revenues to the point where when hardship hit in the form of FTT tanking in price, the whole system collapsed around it. By falling to the vice, FTX doomed itself, and its unethical practices tarnished the company. Even before the collapse, other companies pulled out of loans with Alameda Research, which in extension is FTX. For instance, the New York Times reported, “Blockchain.com, a leading seller of Bitcoin and other cryptocurrencies, closed out a loan it had made to Alameda, concerned about “too many illiquid-related assets” (9). At the end of the day companies exist to make money, so it shows the risk that FTX and Alameda Research were taking for one to pull out. The risk taken was backed only by the greed of the firm’s leaders.

Justified Ethics Evaluation:

            FTX during its operation seemed too good to be true, and as the adage goes, if it seems too good to be true it is. Being the fastest growing exchange for crypto currency in the world is lucrative and enticing. Figures like Sam Bank
man-Fried took the world by the reins, capitalized on a budging market to make as much money as possible. The company clearly was a personal piggy bank for Sam and his cronies. The company was run with a loose cannon at the wheel, it is no wonder why it collapsed. Playing fast and loose with billions of customers dollars shows no regard to one’s customers. As a result, FTX is unable to pay back their customers and investors, loosing three billion dollars’ worth of assets. Sam’s actions as CEO were downright negligent. He ran FTX into the ground through his risky investments with Alameda and the self-inflation of FTX’s main asset, FTT. It doesn’t take a genius in economics to realize artificially pumping up the value of FTT would cause a market correction eventually. This tactic was used by Jorden too Belfort, better known as The Wolf of Wall Street with his investment firm, Stratton Oakmont. He pushed his customers to buy cheap stock on mass, inflating the price of it. It's out of pure greed to capitalize and make as much money as possible. Both firms ended in the same fate, bankrupt. If FTX were to go back and redo their past, they could easily be in business today if they didn’t do a measure of actions. One; FTX needed to cease their grey area relations with Alameda Research. This relationship in a non-crypto related market would’ve been under lots of scrutiny from investors and regulatory agencies. Second, FTX needed to practice ethical business practices, such as being honest about actual revenue, not inflating their net worth through shady means. The mix of negligence and FTX’s more dubious business practices marked their downfall. The company was mismanaged to the point that they had no idea of the amount of liquidity they had to pay debts owed. When FTX’s house of cards toppled, their customers paid the price.

Conclusion:

            FTX’s bankruptcy comes as no surprise in hindsight. Under the scrutiny of four different ethical theories, the company failed to show any sort of ethical actions. It didn’t serve itself by making poor decisions that ended the company, failing Individualism. The company did not serve the greater good either, instead plunging the market into distress and hurting the wallets of potentially millions of people. This breaks the rules of Utilitarianism. The company’s actions were not out of the good will either, they mislead customers and investors about the net worth of the company and thereby it’s security, breaking the rules of Kant. FTX was also not virtuous, operating out of pure greed, again pumping up its net worth and investing funds in risky bets. Truly, the fall of FTX is a shame, not because the company itself was anything particularly special, but the fall of FTX marks a new struggle in the crypto market and may delay its adoption into the mainstream. The concept of crypto is heavily intertwined in what experts are calling the “Internet 3.0” and this fall may falter a new renaissance in the development of the internet and humanity as whole.

 

References

1. (n.d.). CoinDesk. <a href='https://www.coindesk.com/price/bitcoin/'>https://www.coindesk.com/price/bitcoin/</a>   

2. Allison, I. (2022, November 2). Divisions in Sam Bankman-Fried‚Äôs Crypto Empire Blur on His Trading Titan Alameda‚Äôs Balance Sheet. CoinDesk. <a href='https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/https://www.coindesk.com/business/2022/11/02/divisions-in-sa'>https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/https://www.coindesk.com/business/2022/11/02/divisions-in-sa</a>   

3. Bankman-Freid, S. (n.d.). Twitter. <a href='https://twitter.com/SBF_FTX'>https://twitter.com/SBF_FTX</a>   

4. Blythe, N. (2010, September 15). How did Lehman's collapse affect the world of finance?. BBC. <a href='https://www.bbc.com/news/business-11310143'>https://www.bbc.com/news/business-11310143</a>   

5. Brooks, K. J. (2022, November 21). Bankrupt FTX Trading owes creditors more than $3 billion. CBS News. <a href='https://www.cbsnews.com/news/ftx-bankruptcy-3-billion-crypto-sam-bankman-fried/'>https://www.cbsnews.com/news/ftx-bankruptcy-3-billion-crypto-sam-bankman-fried/</a>   

6. Dean, G. (2022, December 1). Sam Bankman-Fried said that if he'd spent 'an hour a day' thinking about risk management FTX might not have collapsed. Yahoo Entertainment. <a href='https://www.yahoo.com/entertainment/sam-bankman-fried-said-hed-131733118.html?fr=sycsrp_catchall'>https://www.yahoo.com/entertainment/sam-bankman-fried-said-hed-131733118.html?fr=sycsrp_catchall</a>   

7. Dumas, B. (2022, November 23). FTX: How Sam Bankman-Fried built a house of cards. Fox Business. <a href='https://www.foxbusiness.com/markets/ftx-sam-bankman-frieds-house-cards-came-tumbling-down'>https://www.foxbusiness.com/markets/ftx-sam-bankman-frieds-house-cards-came-tumbling-down</a>   

8. Gailey, A., & Cabello, M. (2022, December 2). Bitcoin‚Äôs Price Remains Low as FTX Contagion Continues. How Investors Should React. Time. <a href='https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-crash-continues/#:~:text=Despite%20the%20ups%20and%20downs%2C%20bitcoin%E2%80%99s%20price%20has,winding%20down%20pandemic%20measures%20to%'>https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-crash-continues/#:~:text=Despite%20the%20ups%20and%20downs%2C%20bitcoin%E2%80%99s%20price%20has,winding%20down%20pandemic%20measures%20to%</a>   

9. Goldstein, M., Stevenson, A., Farrell, M., Yaffe-Bellany, D. (2022, November 18). How FTX‚Äôs Sister Firm Brought the Crypto Exchange Down. New York Times. <a href='https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html?action=click&module=RelatedLinks&pgtype=Article'>https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html?action=click&module=RelatedLinks&pgtype=Article</a>   

10. How Does a Crypto Exchange Work? (2022, September 23). Sofi Learn. <a href='https://www.sofi.com/learn/content/how-crypto-exchanges-work/'>https://www.sofi.com/learn/content/how-crypto-exchanges-work/</a>   

11. Morrow, A. (2022, November 10). Crypto‚Äôs white knight lost 94% of his wealth in a single day. CNN. <a href='https://www.cnn.com/2022/11/09/business/sam-bankman-fried-wealth-ftx-ctrp/index.html'>https://www.cnn.com/2022/11/09/business/sam-bankman-fried-wealth-ftx-ctrp/index.html</a>   

12. Yaffe-Belany, D., & Grithiff, E. (2022, November 8). Crypto World Is Rocked as World‚Äôs Largest Exchange Rescues Rival. New York Times. <a href='https://www.nytimes.com/2022/11/08/technology/binance-ftx-deal-crypto.html'>https://www.nytimes.com/2022/11/08/technology/binance-ftx-deal-crypto.html</a>   

13. O'Halloran, S. (2022, November 28). FTX bankruptcy unique, losses hard to determine: Ken Feinberg. Fox Business. <a href='https://www.foxbusiness.com/markets/ftx-bankruptcy-unique-losses-hard-to-determine-ken-feinberg'>https://www.foxbusiness.com/markets/ftx-bankruptcy-unique-losses-hard-to-determine-ken-feinberg</a>   

14. Zhao, C. (n.d.). Twitter . https://twitter.com/cz_binance

15. Sam Bankman-Fried Image (n.d.). https://miningtechnology.in/sam-bankman-fried-denies-fraud-in-ftx-collapse-rolling-stone/

16. Changpeng Zhao Image (n.d.). https://noticierobitcoin.net/noticia/changpeng-zhao-traders-binance-eludir-bloqueo-estados-unidos/

17. (n.d.). FTX Logo. https://thefipharmacist.com/tools/ftx/

           

Twitter: Elon Musk Layoffs (2022)

Abstract

Between January and April, Elon Musk began to collect large amounts of shares of the social media company known as Twitter. On the 27th of October, the deal was finalized. Musk immediately became Twitter's new owner, promptly firing Agrawal, chief financial officer (CFO) Ned Segal, Gadde, and general counsel Sean Edgett. Because of the exorbitant expense of the Twitter Exchange, Mr. Musk began to cut costs within the company, on October 20th The Washington Post reported that Musk intended to terminate 75 percent of Twitter's staff to which Mr. Musk told Twitter employees, while layoffs were still likely to happen, he did not intend to do so at the scale the Post had previously reported. Fast-forward to November 4th Musk and Twitter began laying off a substantial portion of the company's workforce and Twitter temporarily closed its offices, with The New York Times estimating that roughly half of the employees had been let go. Because of this mass layoff without warning five Twitter employees based in San Francisco and Cambridge, Massachusetts filed a lawsuit against the company, alleging that mass layoffs would violate federal and California WARN Acts.

This paper will be an analysis of the potential ethical violations that Mr. Musk has committed, according to the theories of Individualism, Utilitarianism, Kantianism, and Virtue Theory to determine whether Mr. Musk and the company was acting ethically or unethically.

Company takeover overview

Between January and April, Elon Musk began to collect large amounts of shares of the social media company known as Twitter. On April 2nd Mr. Musk becomes the largest shareholder and is invited into the spheres of influence within Twitter. On the 14th Mr. Musk makes a bid to buy out the company to which the board of directors unanimously agrees on the 25th for a price of $44 billion. Between May and June however, Elon Musk begins to back out of the said deal for a multitude of reasons. The first of which was revealed to the public was the report that five percent of all Twitter users were either bots or spam accounts. To ensure that the deal would be as smooth as possible, the board agrees to a 3rd party investigation, to dismiss the claims that were given by Mr. Musk.

In July, at the time, security officer Peiter Zatko had accused several Twitter executives, including CEO Agrawal and certain board members, of making false or misleading statements about the privacy of its users. Because of this Mr. Musk then announced his intention to terminate the proposed acquisition, claiming in a regulatory filing that Twitter was in "material breach" of several parts of the agreement. In response, Twitter formally launched its lawsuit against Musk at the Delaware Court of Chancery and hired the law firm Wachtell, Lipton, Rosen & Katz to represent its case on July 12th. When the Board and Mr. Musk went to court on the 19th judge Kathaleen McCormick ruled that the trial would take place in early October and last for five days. In the coming weeks, many chaotic events took place, that caused the value of Twitter to fall drastically, on the 22nd Twitter cited the "chaos" caused by the proposal as the primary factor for its decline in revenue. At the end of the month, Musk's lawyers complained that Twitter had hindered them from commencing the discovery process and requested an October 17 start date, which they were given.

On August 10th Musk sold 7.92 million Tesla shares worth a total of $6.9 billion as a backup should he lose the lawsuit and be forced to buy the company. To strengthen his case Elon Musk would begin to gather evidence that suggests Twitter had manipulated the deal in bad faith. On the 29th Musk filed a "termination letter" with the SEC, citing Zatko's claims as evidence Twitter breached their contract, which was accepted into the case.

On the 13th of September Zatko testified before the Senate Judiciary Committee, while Twitter shareholders voted in favor of the acquisition. While at the same time Musk privately offered to purchase Twitter at the reduced prices of $31 billion and $39.6 billion, both of which the company rejected. On October 3rd as the time for the court hearing drew nearer Mr. Musk’s legal team informed Twitter that Musk had changed his mind and decided to move forward with his proposed acquisition at the originally agreed-upon price of $54.20 per share, on the condition that Twitter drops its lawsuit. They accepted and McCormick agreed to a request by Musk to postpone the trial to October 28 so Musk could finalize his debt financing for the acquisition. On the 27th of October, the deal was finalized. Musk immediately became Twitter's new owner, promptly firing Agrawal, chief financial officer (CFO) Ned Segal, Gadde, and general counsel Sean Edgett

Case Controversy

Because of the exorbitant expense of the Twitter Exchange, Mr. Musk began to cut costs within the company, on October 20th The Washington Post reported that Musk intended to terminate 75 percent of Twitter's staff to which Mr. Musk told Twitter employees, while layoffs were still likely to happen, he did not intend to do so at the scale the Post had previously reported. Fast-forward to November 4th Musk and Twitter began laying off a substantial portion of the company's workforce and Twitter temporarily closed its offices, with The New York Times estimating that roughly half of the employees had been let go. Because of this mass layoff without warning five Twitter employees based in San Francisco and Cambridge, Massachusetts filed a lawsuit against the company, alleging that mass layoffs would violate federal and California WARN Acts. which have yet to be addressed in a court of law. Due to the layoffs being so numerous Twitter asked some employees who had been laid off to return to the company, either because they had been fired by mistake or because they were belatedly deemed important to the health of the business. On the 16th Musk stated that he planned to appoint a new CEO to oversee Twitter eventually. Musk and his advisers met with several employees to dissuade them from leaving the company while Twitter offices were once again closed until the following Monday.
On November 18th a large number of core functions had been rendered nonviable due to resignations. These included the "payroll team, financial reporting team, and taxes team for the US, [who] completely resigned". Elon Musk calls for 'anyone' left at Twitter who can write software to meet him, or fly in, to help him 'better understand' Twitter's tech

Stakeholders

The stakeholders, in this case, are the employees at Twitter and their families. Due to the massive changes being made in their workplace they have had no assurance that they will be employed by the end of the week each day. The workforce of Twitter is directly being treated unethically. Being left without a job with no prior notice, their livelihood being put at risk as well as their families being left without a major source of income in many cases will leave people destitute.
The other stakeholders, in this case, are the users and distributors of Twitter, because of such a major slash within the company, many features that were to be rolled out with new updates to Twitter will no longer be on schedule, this will cause an eventual bottleneck within the development pipeline, that will affect all users as well as distribution companies such as Apple and Google.

Today we will take a look at this controversy through several mindsets, summarize those mindsets, and how those mindsets affect what the resolution to the controversy should be.

Individualism

Individualism according to Machan says “the only direct goal of business is to profit, and the primary obligation of the businessperson is to maximize the profit created, for the company and its shareholders.
Looking at the controversy through this lens, ElonMusk has been within the specifications of his purview, by trying to maximize profit, because the company was taken private as of October 26th we cannot tell if the profit is being increased however the plan Elon Musk would indicate he is trying to cut costs to decrease the accumulating debt, and as long as he does that within the purview of the law, he is within the ethical boundaries. That however is up to debate, the laws for layoffs are long and complex, as stated before in the case controversy section, the federal WARN law is a U.S. labor law that protects employees, their families, and communities by requiring most employers with 100 or more employees to provide 60 calendar-day advance notification of planned closings and mass layoffs of employees. Because Elon Musk had not given a 60-day notice it could be argued that he is breaching the laws, however, that could also be contradicted because § 639.9 (b) within the law states that due to unforeseeable Business circumstances the layoffs without notice could be accepted within a court case.

Utilitarianism

Utilitarianism is by far more pro-stakeholder, it takes a stakeholder’s approach by saying in order to maximize happiness in yourself and other people. Its goal is to maximize happiness for all affected parties and to minimize unhappiness for all affected parties. In other words, Utilitarianism can be described as ‘pleasure and the absence of pain’. Ultimately, Utilitarians consider the costs and benefits of actions for all affected, not just the company or one individual. If we are to consider the pros and cons for the stakeholders then the entire deal has been mishandled and has harmed every stakeholder, and the employees have been harmed by the lack of security and reassurance. With the sudden changes and creation of a precarious work environment, the surviving members of the workforce still haven’t recovered from the experience as well as the poor environment that has been put in place by the new CEO. The second stakeholders are the families of the former twitter employees and distributors of twitter. As stated before the families of former employees are directly affected by the exorbitant layoffs happening and are extremely at risk of losing their livelihood as a result, and the distributors who are seen having issues communicating with Twitter’s internal customer support (mainly because it doesn't exist anymore), the extent to which this fallout will be is unknown as of now, but it can be said that the worst is still yet to come, with Elon Musk reported being hemorrhaging money because of this deal. It is still yet unclear if the company and social media platform will declare bankruptcy and how that will also affect the stakeholders.

Kantianism

Developed by Immanuel Kant and focused primarily on rationality and Good Will. Kant says that it is wrong to manipulate and exploit people for their advantage. The four basic principles of Kantianism are defined to act rationally, helping others make rational decisions, respecting people, and to be driven by Good Will, and looking to do the right thing because it is right. In this theory, the Categorical Imperative is a test that decides whether an action is permissible or impermissible. One of the main formulations of the Categorical Imperative is The Formula of Humanity which states that it is wrong to use people as a means to get what you want because it exploits them.

If we follow this line of thinking it is clear to us that Elon Musk is in clear violation of his ethical obligation to his newly found employees, although he is acting rationally trying to cut expenses being dealt with by the company, the lack of clarity and falsities with internal reports to employees about layoffs clearly shows exploitation and manipulation of the employees, that and new reports stating that the workers who are still left are being told to do 70 plus hour work weeks show us that the new CEO, or “Cheif Twit” as he has referred to himself as is fallen out of good ethical practice for his new company.

Virtue Theory

Virtue Theory was developed by Aristotle. Virtue Theory focuses on rationality and whether a person is virtuous or not. The 4 main virtues include courage, honesty, temperance, and justice. Aristotle said that rationality is what differentiates the characteristics of people. So, people need to be rational to live a virtuous life. Aristotle also said that people need to be rational to function well and said that if a thing achieves its function then the thing is happy. Therefore, people who function well will live virtuous lives.

Looking at Mr, Musk’s actions through this lens, it becomes much harder to discern what is ethically just, on certain aspects it is clear that the takeover was very badly mishandled. As stated previously Mr. Musk has not had clarity with his employees thus making him in violation of the virtue of honesty. It is also clear that he violates the virtue of temperance.

Temperance is setting reasonable expectations for employees. Which we can see is not being followed as shown by his telling employees to work 70-plus hour weeks, with so much chaos happening around them. In happenstance, the creation of such a hostile and unreasonable work environment makes it impossible for Mr. Musk to pass the Temperance Virtue.

The virtue of justice is described not as bringing justice in the workplace but as acting in a just and reasonable manner that makes rational sense that can be followed without major issues, which again is shown to not be followed. We have seen that many of the layoffs were trying to be retracted with letters stating that people were laid off that weren’t supposed to be and Mr. Musk reportedly meeting in person with many of the former employees trying to bid favor and bring them back into the fray. The Justice virtue has been violated because of this back and forth of, giving a statement and then retracting it a day later, to where it seems there is no clear rationale for who is and isn't being put on the chopping block, the only clear thing about the whole ordeal is that people are being fired to cut costs, the employees just can never tell who.

The last virtue to discuss is courage, courage seems to not be violated solely because of the complexity of the situation. And the lack of opportunity to be violated, to violate this there would need to be a clear and established history of trust between employer and employee, but because of how recent the case is (it is still ongoing as of writing) there is no allowance for the Virtue to be violated.

Going through the 4 virtues, 3 of the 4 virtues are violated, and the 4th isn't even affected, therefore we can conclude that because any of the 4 virtues are violated Mr. Musk is not working within his ethical boundaries.

Evaluation

Now we have gone through, our journey of several different ethical theories, we can determine whether or not Mr. Musk has mishandled his newly acquired company and how he could've done better. According to Individualism, the argument could be made that he was within his purview of the law to cut ties with a large portion of the workforce without prior notice thanks to § 639.9 (b) of the WARN Acts. but according to all other views he has been in a clear and direct violation of his ethical responsibility to his employees and their families. Utilitarianism would argue that because of the lack of morality with judgments that have taken place, its core values of maximizing happiness haven't been followed. Kantians would also agree that the ethical boundary has been crossed stating the Categorical Imperative was not followed. It is also stated by Virtue theory, that because 3 of the 4 virtues; honesty, temperance, and justice, were not followed that Mr. Musk wronged those who were let go.

Unfortunately, hindsight is 20/20, and what has happened can't be fixed. The correct path to have taken would have been to give the employees 60 days' notice and begin to cut costs in other ways while the layoffs were to occur. The question then arises, “How would we rectify the situation now ?” The most obvious answer would be to give a stipend for the influx of money that has been lost as a result of the layoffs. The odds of that happening are slim to none, however. The option that then brings itself to the forefront would be to settle this dispute in a class action lawsuit that would be able to allow an accord to the workers so that they may air grievances and work toward a settlement that is beneficial to their issues.

Closing Thoughts

In my closing thoughts, I feel I should also come to say that even though this writing is in an attempt to stay neutral to the situation, I do feel that my own thoughts will seep into the writing of the paper. I do stand with the workers as I feel everyone should in this situation. However, there is an argument to be made that this was the course of action that was going to be made regardless of ethical boundaries. I should note that the situation was poorly handled at best and that even if layoffs were to happen the WARN Acts should have been followed better and the workers should have been given much more clarity on what was to happen when the transition between the two different boards was going to happen. I also feel that the Board of directors spearheaded by the former CEO Parag Agrawal is not innocent in the events that lead up to the mass layoffs, in many ways they sold out their employees and left them with many questions and concerns without instilling confidence or a sense of security, it is just as much the board's job to ensure employees that they have security, as it is the board's job to please shareholders.

Overall the entire takeover was a poorly mishandled mess that every party involved had a hand in dealing with. Much of the blame is on Mr. Musk, and we have taken a look at this through many eyes. The takeaway here should be, since each decision matters, it's important to pause and think about the impact your decision or action will have on yourself and others. Weigh the potential consequences of each decision, including positive or negative outcomes that may occur immediately or in the future.

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