Spectacular corporate flameouts make for mesmerizing reading. How can such massive organizational failures go undetected by so many (smart/rich/experienced) people for so long? The self-destruction of cryptocurrency exchange FTX is a textbook example and a prime case study for teaching information literacy to law students.
Information literacy receives much more attention in undergraduate education than in law schools and other graduate programs, and it tends to focus on analyzing sources of information and fact-checking. In a way we teach these principles in law schools by teaching basic legal bibliography. Evaluation of the quality and weight of sources is baked into our legal system. But we can and should go beyond those basics.
One way we can do that is by extending our teaching to non-law sources, such as news sources. Law students should continue to develop the information literacy skills they learned before law school by applying them to more sophisticated situations and sources. For example, many law students who read news articles notice that reporters will often bungle their description of the issues involved in a lawsuit.Another technique we can use is critical legal information literacy, which encourages students to seek out the structural and human bias hidden in our information resources. (To view Nicholas Norton’s excellent RIPS post on this from a few months ago, along with Nicholas Mignanelli’s also excellent response, click here.) For both techniques, healthy skepticism is the key.
FTX is a useful case study not only for business/corporate research classes but also for any legal research class. As a private, foreign company conducting much of its business in foreign countries, FTX was beyond the reach of SEC financial reporting requirements. Investors who ploughed billions into the company qualify as accredited investors under SEC regulations, deemed to be rich and sophisticated enough to evaluate and weigh risky investments on their own. This information vacuum is filled with statements and information from FTX and Sam Bankman-Fried, statements from investors, business partners, and competitors, and industry analysts. FTX could dole out as much or as little information as it wanted to.
An information literacy exercise could consist of the following. Ask students to locate a sampling of information sources about FTX ranging from the first time FTX appears in the news to its bankruptcy including (Lexis+ News works great for this):
- Press releases
- Trade journals
- Blogs
- Important newspapers (NY Times, Wall Street Journal, Financial Times, etc.)
- Business magazines
- Academic publications
Ask the students to create a list of statements and evidence for FTX being a successful business, and another list of warnings and red flags. Have the students imagine that they are a wealthy investor interested in putting money in cryptocurrency and hedge funds. Encourage them to try to ignore their hindsight (impossible, really) and ask them to determine whether they would have invested in FTX based on the reliability of the information available before the company’s collapse. How would they resolve conflicting information? How do you weigh the credentials and backgrounds of information providers? Does bias play a role (such as Bankman-Fried’s ties to elite universities)?
A similar analysis can be done on other companies or for lawsuits between private parties, such as the Amber Heard/Johnny Depp lawsuit. Using real stories ripped from the headlines will pique students’ interest and help them think about who they trust and why.