The Week in Business: The FTX Collapse
What’s new? (Nov 13-19)
As the days passed, the collapse of one of the biggest cryptocurrency exchanges, FTX, led to a series of revelations – about the dysfunctional business within FTX, the tangled personal lives of people who were running it and what the new head of the exchange said appeared to be efforts to “cover up the misuse of client funds.” The company has filed for bankruptcy, and federal prosecutors are now investigating what happened to the lost funds of possibly more than a million creditors. The downfall of Sam Bankman-Fried, the founder and former CEO of FTX, has called into question the future of the crypto industry as well as that of a closely affiliated movement in which he has invested heavily. This movement was centered on a moral philosophy known as effective altruism, and it was funded largely by donations from the philanthropic arm of FTX.
11 years for Elizabeth Holmes
Elizabeth Holmes was sentenced to more than 11 years in prison on Friday, after being found guilty of four counts of defrauding investors over the technology and business practices of Theranos, her failed blood-testing startup. It was a lighter sentence than the maximum 20 years in prison to which she was liable, but still much harsher than the 18 months of house arrest her lawyers had demanded. The ruling was made by the same judge who oversaw Ms Holmes’ trial last year, and in handing it down he took into account a cache of letters and documents filed by lawyers and prosecutors for the case . Among them were family photos of Ms Holmes, her partner Billy Evans and their son, as well as comments from figures including Senator Cory Booker, who praised Ms Holmes’ “determination to make a difference”. Critics saw the case as an opportunity to send a message to other tech founders who might twist the truth in their pursuit of success in an industry where few executives are ever convicted of fraud.
Turmoil on Twitter, continued
Given the ultimatum to quit Elon Musk’s Twitter or stay with the company and “build a game-changing Twitter 2.0”, some 1,200 employees appeared to choose to go Thursday. They tendered their resignations hours before the 5 p.m. Eastern time deadline, which Mr. Musk set the day before in an email with the subject “A Fork in the Road.” The remaining staff, Mr. Musk wrote, are expected to be “extremely hard core” and work long hours at high intensity. Because the departures followed the mass layoffs of about half of the company’s employees, there are growing questions about the site’s upkeep. Large swathes of Twitter’s workforce have been eliminated, such as the communications department, which no longer exists, and the platform’s infrastructure teams, which are virtually non-existent. On Friday, Mr. Musk asked “anyone who actually writes software” to come up to the 10th floor of Twitter’s headquarters.
And after? (Nov 20-26)
Let the shopping begin
There is every reason to believe that despite the crippling inflation consumers have experienced this year, many of them intend to shop enthusiastically this holiday season. Retail sales rose 1.3% last month, beating expectations as retailers like Amazon, Target and Kohl’s offered holiday deals earlier than usual. The rise in sales coincided with the first signs of moderating inflation: in October, prices rose 7.7% year-on-year, still at a rapid pace but down from the 8, 2% September. But shoppers’ zeal for holiday sales indicated they were looking for discounts, adding to the pressure on retailers – who not so long ago had more power to price products as they pleased – to lower prices. At Target, for example, demand waned when those sales ended. What has changed since last season? Consumers had more money saved in 2021 and were spending on clothes and electronics coming out of the pandemic shutdowns. This year, customers became much more worried about rising prices and reduced their discretionary spending.