top of page
  • Writer's pictureChris Charman-Hunter

CASE STUDY: Sam Bankman-Fried And The Hidden Language Cues That Give Away His Deceptiveness

Sam Bankman-Fried: Personality Risk Identified Through Natural Language

With advances in natural language processing (NLP) we are able to analyse the natural language used by individuals and extract personality and social dynamics data to provide an insight into who someone truly is and what drives them. Through  analysis of interview transcripts from Sam Bankman-Fried, prior to the discovery of the fraud committed at FTX, we can begin to understand the role of personality in fraud risk and the corporate governance lessons for investors.


Sam Bankman-Fried: The Fraud

Sam Bankman-Fried was sentenced in March 2024 to 25 years in prison for stealing $8billion from customers of FTX. He was using the money to prop up his hedge fund, buy real estate and attempt to influence government regulation on cryptocurrency, including paying $150million in bribes to Chinese officials.


More than 80 Venture Capital firms and investors had poured nearly $2billion in funding into FTX and Sam Bankman-Fried during this time. This included $500million just one year before the fraud at FTX was uncovered and everything came crashing down.


Social Desirability: Cognitive Individual’s Ability to Mask Personality

Sam Bankman-Fried is without doubt a highly cognitively capable person. He had graduated from MIT and had success early in his career, leading to the founding of FTX and securing huge amounts of funding and influence along the way.  The challenge with highly cognitive individuals is they understand they need to present socially desirable personalities in order to progress and their capability means they are able to do so. 


In Michael Lewis’s book Going Infinite SBF makes telling admissions of his actions to appear more socially desirable:


"There were some things I had to teach myself to do. One is facial expressions. Like making sure I smile when I'm supposed to smile. Smiling was the biggest thing that I most weirdly couldn't do." - Sam Bankman-Fried


SBF had also been a key member of the Effective Altruism movement, professing that he was ‘earning to give’ and even promising to pay off the national debt of the $9billion national debt of the Bahamas. This duped not only investors, but the entire movement, who despite warnings as early as 2018 cosied up to SBF in return to access to his wealth.


Natural Language Processing: Unmasking Personality

There are some elements of human behaviour which are more difficult to mask and provide a window into a person’s true personality and with it insight into their true motivations and inclinations. One such element is natural language. This is the language used by a person without conscious planning or premeditation. For example when answering off the cuff questions during an interview rather than delivering a pre-prepared statement or presentation.


Self Interested: Lack of Empathy and Connection to Others

Through measures of empathy extracted from natural language we can identify how aware others are of others emotions and feelings, as well their level of concern or indeed callousness towards the feelings of others:

  • When assessing SBF’s natural language we found that he was in the bottom 6% of CEO’s within our benchmark for internalising other’s emotions.

  • He had 43% lower concern for the feelings of others than our CEO benchmark.

  • He displayed 12.5% higher detachment and callousness towards others than our benchmark.


Similarly when assessing SBF’s social dynamics, which measures how an individual engages with the outside world, we see further detachment. Within our analysis social dynamics of affiliation and desire to socialise with others are typically areas where leaders score much higher than the general population, however this is not the case for SBF:

  • On measures of affiliation to others SBF scores in the bottom 6% of the general population and 93% lower than our CEO benchmark.

  • SBF scores in the bottom 3% of the population on desire to socialise with others and 96% lower than our CEO benchmarks.


These findings mirror SBF’s self reported lack of empathy and attachment and paint a picture of an individual who is not concerned or taking account others. Which is indicative of risk associated with someone acting in their own self interest, which was later found to be the case.


 "There's a pretty decent argument that my empathy is fake, my feelings are fake, my facial reactions are fake.” - Sam Bankman-Fried


Fraud Risk: Lack of Respect for Social Contract Combined with Low Stress

Empathy and social dynamic abnormalities on their own may not create the risk of the huge fraud and dishonesty which SBF committed, however there are other markers in SBF’s personality which likely contributed to his acts.


The first is his seeming disregard for authority and social contract, which is measured within conscientiousness. Our median CEO’s scores within the bottom 37% of the population for regard for authority, and SBF scores significantly below even this scoring in the bottom 24%. This represents an individual who is likely to think that the rules do not apply to them and is therefore more willing to break them.


This combines with SBF’s low neuroticism score for stress prone, which measures an individual's response to external stress, where SBF sits within the bottom 2% of CEOs for response to stress. Together these insights paint a picture of SBF as someone who isn’t bound by the usual social contract and is unlikely to react appropriately to high stress situations. This no doubt in part led to his starting to commit dishonest acts and then doubling down in the face of adversity unconcerned with the magnitude of the fraud.


Mitigating Personality Risk: Identifying and Governing Personality Risk

The challenge in FTX’s case was that SBF had complete control over everything, which has since been documented by former employees. However, investors and employees should have been aware that this was someone acting in his own self interest and not bound by social norms, creating severe risk.


“Sam ran the shop, Sam ran everything, we all trusted him, and believed him. It was a dictatorship, in a good way, a benevolent dictatorship.” - Former FTX Employee


“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,” - John J. Ray III is the new CEO of FTX and former Chairman at Enron Creditor Recovery.


Understanding the personality of leaders is crucial to identifying and mitigating risks within investments. If investors had known of the personality risk associated with SBF then there would be no world in which the complete lack of corporate governance at FTX would have been acceptable. 


By Chris Charman-Hunter, Partner - Client Services


Comments


bottom of page