Against the Rules On Background: White-Collar Crime and Punishment

Michael Lewis

Hey there. Against the Rules listeners, I appreciate you indulging me while I record some background interviews from my next book, which is mostly about Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX. Last year while I was on the scene, FTX collapsed dramatically. As I record this, Sam Bankman-Fried is under house arrest and awaiting what looks like a very complicated trial. The whole thing feels like it could become the white collar criminal event of our age, but if you took the long view, the historical view, maybe this whole affair would look a little different. Welcome back to On Background from Against The Rules, I'm Michael Lewis.

As I've been writing about Sam Bankman-Fried's case, I've also been wondering about how this would all have gone down 50 or a hundred years ago. Of course, there wasn't any crypto back in the day, but I find myself curious to hear an historical perspective on white collar crime in America. I've been wondering, have we gotten more lenient about it? Tougher? And what is prison like for white collar criminals these days compared to what it used to be? Fortunately, I found someone who could answer these questions and more. Eugene Soltes, he's a professor at the Harvard Business School or HBS as it's also known. A lot of his students have gone on to populate boardrooms and C-suites, super achievers. But at some point, Soltes got interested in the type of super achiever who achieves bad things. He sought them out, usually in prison and interviewed them and he published their accounts and his analysis in an excellent book called Why They Do It: Inside the Mind of the White Collar Criminal.

I just want to start by asking you how you, business school professor, got interested in white collar crime?

Eugene Soltes

So I began quite accidentally, I think probably like anyone that gets involved in or thinking about white collar crime. It was up at three in the morning watching actually a show called Lockup on MSNBC, and I was imagining if I had a half an hour with the white collar criminals, these former executives who were in the news, what would they say? What led them there to their current predicament, which is generally a medium security prison? And so that night I actually wrote some letters to individuals who I'd been following the news. Then lo and behold, a couple months later, some volunteered that I could come visit them in prison. One thing led to the next. Couple years later, writing a book and now my entire world is immersed there.

Michael Lewis

And it's found a home in the Harvard Business School. You actually teach a course?

Eugene Soltes

I do. I teach a second year course called Borderline. The title's very descriptive. It's on conduct that somewhere between legal, illegal, moral, immoral. It's all the things in business that fall in between the crack of business.

What we spend a lot of time focusing on are actually entrepreneurs, and I think in the best case, entrepreneurs who for a while you might engage in something like puffery, you don't actually put in a lot of internal controls. This is what we do see in a case like FTX. And then you go from this little working out of your garage, the next thing, running a multi-billion dollar enterprise and then bad things happening. And you look back and say, how did that occur? Could that have been prevented? And so that's in the best case, what we look at. We look at other instances of people's circumventing rules thinking it sounds very clever. This is very Enron-esque. You see a law and you think of a way of going around it because the law doesn't say you can't, and you have the mentality, show me where it says I can't. Sometimes it works and people come very wealthy because of that. Other times you get in a lot of trouble.

Michael Lewis

So the students when they're coming to your class, are they in a frame of mind of what do I do to prevent this happening to me?

Eugene Soltes

Everyone starts in what I call the more moral mode, almost like an ethics class. How ought you behave in these situations? That's not how these decisions are made. No one spends a half an hour pondering them. You don't have all the information. You're not bringing diverse viewpoints, and that's why a lot of times smart people make, with the benefit of hindsight, poor decisions.

Michael Lewis

Has your class paid any attention to FTX?

Eugene Soltes

We're absolutely going to get there because FTX is fascinating.

Michael Lewis

What interests you about it?

Eugene Soltes

So I'll say two dimensions. The first is, and again, and I'm only relying on the publicly available information, is separating on the two narratives. The one that the prosecutors and SEC and other agencies are describing, which this is a fraud since it's inception, which is story one and story two is these are a set of very, very smart kids effectively who built actually an pretty remarkable business that frankly would've benefited from a couple weeks at HBS about internal controls and compliance systems and never set any of that up. So it wasn't someone overnight deciding to take $10 billion and transfer from one entity to another, but it's the fact that they never actually spent the time to put together ways of not co-mingling funds. So it's not this egregious deliberate fraud, it's just a matter of really incredible sloppiness, which still has the extraordinary detrimental consequences that we've seen.

Michael Lewis

I'm surprised that you've been able to discern that much, that the first narrative is so powerful in the media right now that you even heard the second narrative.

Eugene Soltes

I spent a lot of time thinking probably always about what these other narratives are because I think there's this simple story that we like to tell and it's also the same story that enforcement agents and prosecutors, they need to tell. But I will say having spent a lot of time with a lot of various smart people that have found themselves facing these circumstances, I think it's much more complicated when one starts digging down.

Michael Lewis

Why do you think people don't like to see that? I bet you when you find yourself at a dinner party and you start to explain that Bernie Madoff was much more complicated than you know, I bet people bridle at that. It was fraud.

Eugene Soltes

You're welcome being my wing man at any dinner party when this pops up. Yes.

Michael Lewis

When you get to know any particular messy situation where maybe some illegal stuff was done and you start to really understand it and then you try to explain it in as complicated a way as it actually happened, people who are watching it from the distance that most people watch these things, reading the newspaper, whatever news, whatever gets to them, they don't really want to enter into that conversation.

Eugene Soltes

I'm empathetic because there are a lot of victims. FTX, there's a million people roughly that are wondering, am I going to get my money back? Did I just lose everything? Is it down to zero? And anything but I will say the strong vilified argument I understand, and if I was in their position, I wouldn't want to hear any other explanation. But simultaneously, it doesn't go a long way to explain the underlying root causes and psychology about what happened and how can we stop this from happening again.

Michael Lewis

Yes, it's not very helpful.

Eugene Soltes

It's not.

Michael Lewis

It's not very helpful at improving us.

Eugene Soltes

So the analogy I've often thought of is when there's an airplane crash, immediately what happens? You call the airlines in, you call FA, you call a pile of agencies. They come in and a manufacturer and their first and foremost goal is, let's get to the bottom of this. Is it weather? Is it air traffic controllers? Is it the pilot? And they really want to know what happened here. That's not true with white collar crime. Everyone has what I call an agenda. The prosecutors' their job is to send people to jail. The people working on the claimants in bankruptcy, they're trying to get money back. The defense counsel's trying to explain why this is not the story that you hear in the news. The problem is there's no independent third party that's sitting there and just saying, I want to know why this happened and what can we do to make this not happen again?

Michael Lewis

That's what I'm supposed to do.

Eugene Soltes

That's what your book is.

Michael Lewis

There are players in the society who have an incentive to play this role, and that's what a writer is supposed to do, who walks into this situation. One of the things I've noticed is that when someone gets into this trouble, whether it's the Enron people or Bernie Madoff or Sam Bankman-Fried, their point of view becomes taboo. That they're not actually allowed to offer their point of view. They try, but people don't want to hear their point of view anymore. And so I think that part of the problem is just like who's allowed to speak once one of these things blows up and who's allowed to have any credibility? The cases has got me wondering a little bit about just the history of white collar crime. When even the term was invented and why, and who's the original white collar criminal? What's the history of the subject?

Eugene Soltes

So the term white collar crime is actually comparatively new. We can actually point to a specific person. A sociologist named Edward Sutherland, and this is back in the 1930s, he literally created a book White Collar Crime that coined the term and raised the idea at the time that there were a lot of things that companies were doing that ought to be criminal, but simply because there were no laws on the book were not criminal.

Michael Lewis

What were the things was he talking about?

Eugene Soltes

A lot of basic fraud. A lot of stuff that we look pretty conventionally is pretty criminal today. Anti-competition was a big area, but there were, I'll say, massive gaps that you could do some pretty awful things. At this point, we were SEC, this is pre to a lot of our modern securities laws. We've come a long way since. I was looking back at Occupy Wall Street where people were saying, no one's held accountable, and I appreciate where people are coming from. I take a long window. Let's go back decades. In 50 and 75 years, we've come a long way and people are held to account maybe not perfectly by any means, but we're not in another Sutherland's time.

Michael Lewis

And why did this problem exist? Explain why there was room for someone to come in and write a book that said, look, there's all this bad stuff going on and it should be illegal. It's not illegal. We need this whole category called white collar crime.

Eugene Soltes

When you say crime, people thought it meant a street offense. It's a violent offense of someone hurting you or taking your pocketbook. White collar crime by its very nature, much more amorphous. If there's a murder, you have a body and the question is who did it? It's unquestionable that it happened. If you think of white collar crime, in almost all the instances, the prosecution not only has to show that X did it, but they're trying to show that it was a crime in the first place because how do you separate sloppiness or mistake or an adverse market change from someone deliberately tried to take a company under for their own benefit and gain? White collar crime is messy.

Michael Lewis

And harder to dramatize the victims. So this book gets published. Does it have an effect?

Eugene Soltes

No, no. It didn't get a lot of press outside of more obscure academic circles, and a lot of people said, whoa, whoa, this guy is saying all these people are doing things that are criminal? Let's look at the law. The law says these are not crimes. And so it looked like some ultra progressive argument that I'm going to call people a criminal who are not, but they missed the broader point which he was making, is that maybe we need to think about all the institutions that protect these entities and powerful individuals.

Michael Lewis

Let's take a quick break.

I am back with Eugene Soltes On Background. Before the break, we heard how the term white collar crime didn't really get much traction when it was first introduced in the 1930s, but in the 1960s, during the Kennedy administration, that started to change.

Eugene Soltes

There was a massive case of price fixing in the electrical space. GE and Westinghouse, this is the first time you had senior level executives at major companies being criminally prosecuted. Actually, front page of Life Magazine, it was an executive, a well-known, prominent executive, literally going into jail. So the main arguments that the lawyers were making in defense of their clients were this is a fine gentleman, you should not send this fine gentleman in a prison with I believe they actually used the word pimps and prostitutes. And so they didn't do it, but why would you send this fine gentleman? That's not where gentlemen go.

Michael Lewis

So class distinctions were being made.

Eugene Soltes

Yeah.

Michael Lewis

And was there a place to send them other than the places where pimps and prostitutes were? Were there white collar prisons?

Eugene Soltes

I don't believe there were.

Michael Lewis

Since they weren't bringing these people to book, there wasn't really a special place to put them.

Eugene Soltes

No, no, not at all. But these sentences were short. We're talking like a couple months because what happened, immediately when the Westinghouse executives got out, the President of Westinghouse actually noted again about these fine gentlemen and they were rehired back in their exact same positions.

Michael Lewis

It's interesting how the culture has moved, right? It really is different.

Eugene Soltes

It is really different. I'll give one other spin that's interesting. I will say the person who probably had the greatest impact, actually, we go to the eighties.

Michael Lewis

We have to jump all the way to the eighties?

Eugene Soltes

Yeah, we got to go all the way to the eighties, but the person who led it is the part that's interesting is Rudy Giuliani, when he was a US attorney of a southern district of New York, he did over 50 prosecutions. He's the one that we now think of the perp walk is like that's standard affair. Now that was Giuliani's innovation. And so Giuliani's had a really a storied career, and he's the one that created the modern senior prosecutor who holds senior executives and doesn't mess around, parades them through the office in handcuffs and puts them in the back of the car.

Michael Lewis

What's interesting about that, there's a lot that's interesting about that. But that first, it doesn't happen till then. So the question is why then? If that approach becomes the standard approach afterwards, it's because it worked. It worked for Giuliani, it made it more popular. People liked it, but what is it about that period that leaves it open to this innovation?

Eugene Soltes

I think because a prosecutor, him or herself makes a name, and I think there is an element of the personality in building up the career of the individuals who are holding people to account.

Michael Lewis

Is it a uniquely American phenomenon?

Eugene Soltes

Yeah. There is no country that is even close. It's challenging to hold individuals accountable. You indict an individual, they fight for their life because there's nothing left other than trying to protect their reputation. So they will go to court, they will spend every penny they have.

Michael Lewis

The white collar criminals, many of the ones that you interacted with, had long sentences and were not in minimum security prisons. They were in what looked like a real jail.

Eugene Soltes

Yeah, you have a year plus sentence, which means you're not getting lighter touch facility, you're getting the real deal. They're dangerous. And so this is where we hear them hiring consultants and other people to inform them about what their experience is like and how to survive during their sentence.

So once you're up and you have a couple year sentence, you're not going to a prison camp, which would be I think what most people think of as the white collar prison. You're in oftentimes a medium security prison, it's not a pleasant place, I will say. They're loud, noisy, dirty, they're exactly what people think.

Michael Lewis

Who did you visit, by the way? Anybody I would've heard of?

Eugene Soltes

My first visit probably was one of the more prominent Dennis Kozlowski, the former CEO of Tyco.

Michael Lewis

I remember him. Yep.

Eugene Soltes

One of the most highest paid executives in the country, a rockstar by any account. He was the next up and coming Jack Welch. And yeah, he was the first person that went from flying in a Gulf Stream to being in actually a prison in upstate New York.

Michael Lewis

Describe visiting him. What was it like?

Eugene Soltes

I was really nervous coming in. I will say it was this pretty awful place and there's Dennis Kozlowski there wearing a polo shirt. The warden was kind enough to give us effectively a lawyer visiting room, which sounds like it was nice, but it had one of those fluorescent lights that was half flashing. And it felt very, very small. And again, dirty and cold. But what was amazing is immediately I remember the, I'll say almost the grace that Mr. Kozlowski had when we started the conversation, and I appreciate how quickly people can evolve. You can go from flying in a G6 to prison and it's not immediate, but you learn how to evolve and adapt and we're surprisingly adaptable creatures.

Michael Lewis

Did you go visit Bernie Madoff?

Eugene Soltes

I was never actually permitted by the prison. Every Wednesday night, actually, I would speak to him at 7:00 PM in my office. He would call collect my Harvard office and we would speak and hundreds of pages of correspondence.

Michael Lewis

What did he want to talk about? Did he acknowledge that he'd done something wrong?

Eugene Soltes

Yes, he absolutely did admit that he did something wrong, but he did have the ability to rationalize and justify why the adverse impact that that had on so many victims was not what people were making it out to be. I recall he had the "they put all their eggs in one basket. That's like investing 101 failure." He had this interesting ability to explain or provide a different way of seeing the world.

Michael Lewis

Did he feel wronged?

Eugene Soltes

He would've preferred obviously to not have been in prison, but I think for a long time he thought that was the end of the road. At some point, by its very nature, whether he admitted it, which is what he did or he died and those pieces would've been exposed, it was inevitable in some way. And I think he knew that.

Michael Lewis

Getting to know these people, did you find the more you got to know them, the more sympathetic you were with their plight?

Eugene Soltes

I'm empathetic on the basis of this is not what they wanted to have their career end as. I became a husband and had some kids during the course of the project, so missing your kids growing up, that would matter. But at the same time, what they did deserve the sanction that they're getting and it's harsh and it's difficult, but that's what we demand.

Michael Lewis

Did you have the sense that in most cases these were not people who were born criminals, that they circumstances and their personality had interacted in such a way they found themselves at the top of a slippery slope and slid down it?

Eugene Soltes

Exactly. Madoff, I don't think he was a born criminal. I think he had a lower ability to empathize with others. So to the extent that he found himself in a position engaging in behavior that ultimately was taking advantage of people, he didn't have the compunction to stop in a way that maybe other people might have, but he was not destined to create a massive pyramid scheme or Ponzi scheme. It's he made a series of mistakes and rather than pulling back from those mistakes, he, I would say, doubled down and tripled down, and it starts as something much smaller and grows to something much more significant

Michael Lewis

And often starts as something very legitimate.

Eugene Soltes

A lot of great entrepreneurs start with creative ideas that do push the bounds of law. We can think of Uber and Airbnb. They looked at zoning laws, they looked at taxi cab laws and thought they're outdated, or they're antiquated or they don't fit the modern world. Just ignoring them for a while until "the law catches up" or you're able to lobby and change them. Sometimes that works very well and sometimes it ends very badly.

Michael Lewis

If you were to get your students in a room and say, here's what you need to watch for to prevent you becoming the next Bernie Madoff or whoever, what tips would you give them?

Eugene Soltes

I've had students that have run into issues and problems later on who are savvy and smart, and I think thoughtful people by all accounts from all my interactions. We go through all the exercises, we all do the training. We all talk about how we're high integrity, moral people, but we never really are able to step back and look at our organizations and look at ourselves in what I call it, an unbiased way. Something that I always struggled with is while I'm talking to people that are literally sitting in prison, people were still reflecting how they were high integrity businessmen or attorneys, entrepreneurs who made a mistake, but otherwise they're high integrity people. And I always reflected, well, that's the same thing we all do. When we make mistakes, it's not like we change our view of ourselves. Why should we expect someone that does it a hundred times more and would view it differently?

And so humility, I guess the characteristic that I'm most fearful of when people are so confident in themselves that they can't see others, they don't want to surround themselves by people who may have different views and opinion because that isolation is what leads to poor decision making.

Michael Lewis

So it's interesting you're identifying the conditions in the person, in the environment that might lead to this thing, lack of humility being one of them. What else? Are there other signs that this is fertile ground for white collar crime?

Eugene Soltes

Individuals can engage in almost a degree of mindlessness. They are not internalizing the broader ramifications, the lack of a feeling of harmfulness. And that's because most of the victims in white collar crimes are, they're distant, they're morphous. Some crimes like insider training, we can't even identify the victim. We say it's the integrity of the market. That's not something that resonates in our gut. And so you can go ahead with the decision without feeling it.

Michael Lewis

Have you ever had one of your students end up in jail?

Eugene Soltes

I have had, it's one of the last slides I actually show on my last lecture. It's a picture of the class cards of former Harvard Business School students that are either currently or have recently been in prison. Rajat Gupta, the former head of McKinsey, Jeff Skilling, the former CEO of Enron. But I make the point that no one on their last day at HBS is thinking of doing anything else but going out, doing something productive. Maybe it's to change the world in some way. Maybe they just want to make a lot of money. But no one is ever thinking, you know what? I'm going to go out, make a pile of money, change the world, get on the cover of a magazine, and you know what? Then I'm going to try that wire fraud that I heard about or engaging insider trading. No one's ever thought that.

But we look at the data and we see people like Rajat Gupta. He's as celebrated as you can get. You don't become the managing director of McKinsey and Company by being anything but a incredibly thoughtful, strategic, respected leader for literally decades. And so to see someone of that position, literally 20 seconds after a Goldman Sachs board meeting divulging information to a hedge fund is some people think of that as damning and just an indictment on business. I actually look at the other way that that's humbling to see someone that we could rightfully respect in so many ways do something that is so incredibly myopic should make us all sit down and think about ourselves and what limitations and capacity that we might make these simple myopic decisions that have these extraordinary ramifications.

Michael Lewis

Do you get a sense that your students internalize this and are terrified that it might happen to them?

Eugene Soltes

You see the wheels turning, and I've had a lot of, I'll say, deep like heart-heart conversations with students sometimes of facing difficult decisions and trade offs. I've seen many instances now of, I don't want to call it crime in progress, but people getting into situations that depending on how it goes, are going to go from a tough business decision to a potentially books and records what I call regulatory violation to if that continues down the same slippery slope, it's going to turn to something that a prosecutor would become interested in.

Michael Lewis

What do you think it is about American culture that has encouraged the prosecution of white collar crime?

Eugene Soltes

I think there is something as people become more and more powerful and companies become more and more powerful, they desire to hold those in account, which I believe is only appropriate.

Michael Lewis

That's a byproduct of inequality.

Eugene Soltes

Yeah, I'm playing by the rules and you are not, and you're getting something because of that. This is probably Wild West Justice too. It's like cheating at cards. We might all be equal at the card table, but if you see someone cheating and they take your chips from you, this is like you take them out back. This is the more civilized professional form with our institutions. We want to hold people to account that cheat and deceive us because in the end, what is white collar crime about? It's about deception. That's at the heart of everything. You deceive me, and because of that, you should be held to account.

Michael Lewis

After a break, Eugene Soltes and I talk about the worst year of any white collar convict's life, and it's not the year they get convicted and go to prison.

I'm back with Eugene Soltes, the author of Why They Do It: Inside the Mind of the White Collar Criminal. Do you have any sense of what happens to white collar criminals once they get out of jail? How do they get on with their lives?

Eugene Soltes

It's hard. Having a felony conviction, a criminal conviction on your record changes your life. One thing I've observed is they're married. They have kids. While they're going through the trial, everything is held together. If anything, this family grows stronger. I actually came to admire many of their relationships I saw with their family while they're in prison, and then what happens? They leave prison and a year later, it all falls apart. Almost everyone I see getting divorced. It's not because the spouse is not supportive, but you're frustrated because you say, well, I did my time. I paid the cost that I was supposed to. Why can't I move on with my life?

And you realize your friends don't want to associate with you. You can't get a job, you can't do a lot of things actually once you have a criminal conviction. And that's incredibly frustrating to especially type A people who want to go forward. And if you're 40 and you're ready to move on. 45, ready to move on, you can't. So there's two groups. There's the one group that has a lot of money still left even after they paid all the lawyer bills and all. You become an entrepreneur because you're not beholden to anyone, so you can reinvent yourself. There's a second group that sometimes we'll find, I'll say the Middle East, sometimes Southeast Asia, but I've seen quite a few people going to the Middle East or other jurisdictions in Asia where if anything, you had a criminal conviction, but then you describe the improper American justice system. People say yes, they agree that that's those crazy Americans, and you reinvent yourself overseas where you don't have those same limitations.

Michael Lewis

So the pattern is their marriages and families stick together while they're in jail and they get out, they fall apart and they move to Asia.

Eugene Soltes

That's a good way of putting it. The hardest people actually are people that are younger.

Michael Lewis

Like FTX, like Sam Bankman-Fried, he's 30 years old and faces jail time.

Eugene Soltes

Yeah.

Michael Lewis

Can you think of analogies to him?

Eugene Soltes

Elizabeth Holmes, a lot of the cases you don't hear about. When you see the article, I'll say of the trader that is at the Goldman Sachs or JP Morgan who's a vice president who had a cousin place some trades, and you have an insider trading charge. You were making a couple hundred thousand dollars a year. These are lower key cases than SBF, but what do you do? Even to plead guilty with a reasonable lawyer, you're going to spend a million dollars or more. What do you do after and you go to prison for six months or a year? No one will hire you don't have enough money to create your own business. That's hard.

Michael Lewis

What you're saying is our society judges you by the worst thing you did.

Eugene Soltes

Once you have a criminal record. This is the same thing if you have a low level drug offense when you were 19, or we're talking a trader at a bank, you don't get to participate in society in the same way anymore, which is brutal.

Michael Lewis

So Sam Bankman-Fried, play out various futures for him. You said there are two narratives, the two narratives that will be spun basically in the courtroom, one by the prosecutors and one by the defense. One of the narratives is that it is a criminal conspiracy from the start, and this is a boring criminal. And the other narrative is this is something that it was an accident. Some kids got sloppy and they should be forgiven and understood.

Eugene Soltes

If you want to create what I call the perfect white collar crime, and this is, I should be very clear, not what we teach in class, but you don't create any written records. This is what prosecutors use. You look at emails, you look at transcripts of phone calls, there's actual evidence there, and so the perfect white collar criminal, the prosecutors have to rely on the he said, she said, where you get other people to turn and they try to recall conversations, and then the defense cast out about the quality of those witnesses, those cooperating witnesses. I think what's really difficult in the case of FTX is, there's lengthy and well documented pieces of information. This is also look at the speed of the indictment in which it came down. I think prosecutors feel very confident, and I don't think there's one council in the entire world that would suggest defending yourself in I'll say the public court while you're going through will help your case.

Michael Lewis

You're talking about Sam Bankman-Fried actually talking to journalists while he's going through this?

Eugene Soltes

Talking to, yes. Well-respected writers, yes. But unfortunately, I think this is what happens when you're criminally indicted. You get your time in court to explain why that's wrong, and then if you're not convicted, you get to then write a book and some people then explain why prosecutors are wrong too, but doing it in real time, that's just dangerous. So my view.

If prosecutors are not able to make at least one count, I would be pretty shocked actually, just given the volume misinformation, and frankly, you can see prosecutors have all been very vocal and there's already well known that there are other prominent individuals that were around him that are cooperating. Even with the best counsel, that's a high bar to surmount as a defense. So you go to prison, I think the question is how long. We're talking not six months in prison or a year. You're looking a life sentence. That's scary. The reason why most people don't go to court and put this in front of a jury is you're literally looking at theoretically a hundred years in prison.

Michael Lewis

What kind of deal do you imagine a prosecutor might offer him?

Eugene Soltes

I'll say, what makes this case so extraordinary is, again, and this is the simplification, but you have one entity that's independent from another entity in $10 billion of customer money transferred. That's extraordinary. I will say that pales in comparison, to anything Madoff did.

Michael Lewis

Yep.

Eugene Soltes

If you take that simple story. That would be an equivalent of an owner of Fidelity, like the Johnson family transferring it to some other company they own.

Michael Lewis

Yep.

Eugene Soltes

$10 billion. That doesn't happen, but it did. There's a million individual claimants, and so I think in the case for prosecutors, they think about victims. You have literally a million victims. You make $80,000 a year, you lost 30 in FTX, you want blood, so to speak. And so I think even the deal that they would offer would be something that would have looked so unpalatable. We're going to offer you, I'll just say 10 to 20.

Michael Lewis

He's 30.

Eugene Soltes

30? 30, yeah. You're going to be in your mid-forties. You think some reason that you can avoid that. I will say I don't see that being possible here.

Michael Lewis

So if you're a betting man, you're betting he's going to jail for a long time.

Eugene Soltes

I'm betting he's going to be in prison for a while.

Michael Lewis

If you had had Sam Bankman-Fried as a student and you had a time machine, so you had a sense that he was going to be facing these temptations or difficulties, what would you have told him? What advice would you have given him that would've kept him out of trouble?

Eugene Soltes

So I wish the entire team would've spent a month with us, I'll say our first month of HBS. Let's say, doing some basic business, internal controls, governance, risk management, the kind of things that clearly lacked. If I gave them a month of what I call the basics, and then they went ahead and did what's alleged, then I know which story it is. They ignored that and they went ahead. But to the extent that they were genuinely so ignorant, there is a cost associated with that. And I think there's an appropriate set of sanctions, but it's a very different set of root causes and how I would think about their actions and their shortcomings as business leaders.

Michael Lewis

Can you think of another white collar case like this?

Eugene Soltes

One of the questions I look at this case and I really struggle with is that there's a million individual claimants that lost money and feel that they've been defrauded. The question is, so why did they trust to put their money into FTX, given how little governance there was? And we go, well, let's look back. FTX was extraordinarily well-funded. It was funded by, I'll say, many of our former students that work at well-known venture capital shops and endowments and other organizations who put money in, and this came out very much in Theranos as well, put in hundreds of millions of dollars with limited to oftentimes someone says no due diligence. It's kind of the fomo. They didn't want to miss out. Elizabeth Holmes, literally, it was well known, was turning down money if people asked questions. So you threw $100 million in her, 200 million in. For a venture capital company to write off 200 million, which is what they've all done, frankly, isn't that big of a deal. That's part of the risk business they're in.

But the challenge we face right now is by all those venture capital companies and endowments and other organizations putting in hundreds of millions of dollars each into enterprises with little due diligence, what do they do? They effectively create credibility for an organization like FTX and then a million people rush and put money in. And really, no one's watching the shop and actually helping a company like FTX grow up, which is what could have prevented this. We have money thrown at young entrepreneurs that may not have experience or knowledge, and then what happens at the end? The investors, the institutional investors can write that off and it's not that big of a deal. And then you have a million individual investors that feel deceived by the system. And this is why I think people are critical about business, why they're critical about places like Harvard Business School is because they don't think business is looking out for them. And this is exactly what makes people, I think, appropriately cynical of business is it looks like people are just making money and gambling when it has real consequences on real people.

Michael Lewis

Eugene, this was great.

Eugene Soltes

Absolutely.

Michael Lewis

Eugene Soltes is a professor of business administration at Harvard Business School and the author of Why They Do It: Inside The Mind of the White Collar Criminal.

Let's end today by answering a question from one of our listeners, or maybe more than one. Here's the first. Jake, who asks, "How do you think of the informative aspects of your books? Do you view it as a dual purpose along with your broader goal of building a large, broader narrative? Is it an ends to the means to be able to have the reader understand the story, or do you see it as the core of your works?"

First off, I don't break it down quite like that. I don't think, oh, I'm going to inform the reader about credit default swaps or baseball statistics or cryptocurrency. What happens is there's an idea or there's a character, or there's both that I become really interested in and I realize that I can't get the character or the idea across without informing the reader more about this or that.

So the characters in The Big Short, they were obsessed with the rigging of Wall Street and the crashing of the American financial system, and that involved some really technical financial instruments that they got very obsessed with. So the reader had to understand them in order to understand the character. The same is true of if I'm writing about Sam Bankman-Fried it's very hard to do that and engage the reader in the way I need to engage the reader unless they understand at least what Sam Bankman-Fried understands crypto to be and some other things.

So it's just like when you're entering into the world of another person, there's sometimes some complicated things about that world that need to be explained, and I try to explain them in a way that doesn't disrupt the reader's pleasure in the narrative. It's funny when I'm thinking about how to do that, I think my mother needs to understand this. And the funny thing about that is my mother doesn't read my books, but I still have that thought in my head.

So anyway, I hope that answers your questions and happy to take more down the road. Thank you. And if you have a question, let me know. Just write me by clicking the link in our show notes or visiting atrpodcast.com. That's atrpodcast.com.

On Background is hosted by me, Michael Lewis, and produced by Catherine Girardeau and Lidia Jean Kott. Our editor is Julia Barton. Our engineer is Sarah Bruguiere. Our show is recorded by Topher Routh at Berkeley Advanced Media Studios. Our music was composed by Matthias Bossi and John Evans of Stellwagen Symphonette. My old friend Nick Britell composed our theme song.

On Background is a production of Pushkin Industries. To find more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts, or wherever you listen to podcasts. And if you'd like to listen ad free, and learn about other exclusive offerings, don't forget to sign up for a Pushkin plus subscription at pushkin.fm/plus or on our Apple show page.