RUIN: Money, Ego and Deception at FTX
Crypto is a story about the future of money, about people's willingness to adopt this and people get excited about that story. SBF, Sam Bankman-Fried. Sam Bankman-Fried. You run one of the biggest, certainly the fastest growing crypto exchanges. They can kind of begin to see that future and they get a little nervous about, will I have a place in that future? Sam Bankman-Fried, the king of crypto. He's the most important man in crypto. A lot of these guys suggest like, this is a once in a lifetime opportunity.
You gotta get in now, you gotta get in on the ground floor. It's gotta happen. He had a predatory model that was incredibly radical and dangerous. [Christy Goldsmith Romero] FTX was asking for special treatment. FTX might be heading into a bankruptcy process.
A liquidity shortfall of around $8,000,000,000. I cannot imagine a scenario where $8,000,000,000 just disappears. [Anthony Scaramucci] Crypto industry's been cut to ribbons this year.
Bankman-Fried's company had an estimated valuation of $40,000,000,000. [Stacy-Marie Ishmael] One of the things about crypto is that it just seems to be doing a speed run of all the worst lessons of traditional finance. Sam Bankman-Fried has been arrested in The Bahamas. Is being held in jail.
Sam Bankman-Fried will be extradited to the U.S. Eight criminal charges- Bankman-Fried and his co-conspirators stole billions of dollars from FTX customers. Highly unlikely anyone would recover losses. [Sam Bankman-Fried] I was shocked by what happened this month.
We messed up big. I think this will go down as one of the largest financial crimes in history. Bankman-Fried has pled not guilty. It's $250,000,000 bail bond.
A trial date has been set for October 2nd. Sue, Mark. Are you in? I'm in. I'm in. I'm in. I'm in.
We're in. [Christy Goldsmith Romero] After the financial crisis in 2008, there was a lot of mistrust in the financial system and there was a lot of frustration by a lot of people. Just gonna be one of the watershed days in financial markets history. $700,000,000,000 in bad loans. Our country could experience a long and painful recession.
Lehman Brothers filed for bankruptcy. There is no single action the federal government can take to end the financial market turmoil, and the economic downturn. Shame on you, shame on you, shame! What started in America last year has now spread to every part of the world. The news from Wall Street has shaken the American people's faith in our economy. [Christy Goldsmith Romero] The greed that banks had shown, the unchecked risk taking that they had done that basically put everyone in a lot of financial hurt, and Bitcoin was really born out of that.
So, crypto in a sense starts with Bitcoin, which is like meant to be a form of cash, right? It's like the original idea of Bitcoin is it's like a substitute for cash. There's a problem if you want to try to send money to somebody over the internet. It's digital. Digital is easily copied. So, people had to figure out a way to send some kind of token of exchange that couldn't be easily stolen or double spent. The way this is done uses cryptography, the science of secret codes, and by creating that technology then we're able to create this whole new world of assets called cryptocurrency.
There was a lot of interest in it at the time from people who valued privacy. They saw this as a way to exchange money peer to peer in a way that was sort of outside the government's control. A bitcoin is backed by nothing. It's just a Bitcoin. The only thing that makes it special is the fact that you and I and a community of people have agreed that maybe this token is worth something.
In that period there was a roguish nature to cryptocurrencies. There was a movement of decentralization going on, this idea of stick it to the man and no regulations. This was especially appealing for people who kind of wanted to be off grid, were interested in unique technologies and of course, people who wanted to make money.
Sam Bankman-Fried seemed like a very smart guy who came from traditional finance, and kind of knew like the layout of like how finance works. I remember when they told me about him for the first time. They had this glint in their eye and they sort of had this chuckle like, he's very, very smart, he's very capable, but he's very unique and he takes a lotta risks. This is someone who was born and raised in Silicon Valley. This is someone whose parents worked at Stanford. Very esteemed law professors, new people.
He grew up in a wealthy area, went to a ritzy high school. He was super well connected. [Sam Bankman-Fried] I ended up interning at Jane Street, a finance firm after my junior year and really liked it there. Jane Street is this super elite quantitative trading firm on Wall Street. It's super hard to even get an interview there, nevermind a job. You have to be absolutely brilliant.
They are obsessed with risk. And in many ways he fit the profile. Loved puzzles, loved math, straight out of MIT.
Finance is a good place to turn the ability to solve puzzles into a career, and often a very lucrative career. Crypto you get to solve things that no one's thought about before. You're not as constrained by regulation or by having a boss who's been there for 20 years.
♪ I see you crawl ♪ ♪ I see you crawl ♪ Sam left Jane Street and he started Alameda Research. [Annie Massa] Alameda gets started in Berkeley in 2017. Sam has said that he wanted to give it kind of an innocuous name, especially 'cause he was working in countries that might be suspicious of a crypto hedge fund. A hedge fund takes money from its founders and partners and invested in search of gains.
The fund is like a ship on a voyage to Treasure Island and investors are the passengers, but the sea is unpredictable and there's a chance the ship might not reach the destination, or even sink. The hope for riches is what keeps everyone on board. Sam's inner circle in Alameda were people from math camp, from MIT, and who he knew from Jane Street. They were all these math whizzes from Massachusetts and California. Sam started Alameda with a very small group of people.
If you can just get enough capital together, you can do that. So, there are a couple of key players to know. First one, and one of the most important was Gary Wang, roommate from MIT. Gary was the chief technology officer, the tech and engineering guy, an extremely gifted programmer. Nishad was head of engineering, so he was the other key piece to the tech side along with Gary.
Then you have Sam Trabucco. We're a cryptocurrency trading firm, meaning that we're sort of doing the same sort of things you do in traditional finance, but we're doing it in like the Bitcoin and like similar products. He was the co-head of Alameda with Caroline Ellison.
Caroline and Sam met when they were working at Jane Street. Caroline Ellison was Co CEO of Alameda Research and she like, was winning math competitions. [Caroline Ellison] I talked to Sam who had just started Alameda and he convinced me that it was an exciting opportunity so , I decided to take a chance on it. He started Alameda with money from friends and family and just started doing crypto trades, and turning a profit that way.
They found a way to buy crypto in the United States, sell it in Japan and take advantage of that difference. This price difference was sitting there but it was not necessarily easy to take advantage of and the legend of Alameda was that they figured out a way to do that. They were founded in Berkeley, California and then quickly decided to set up shop in Hong Kong. In Hong Kong At the time the crypto scene was pretty interesting.
There were a lot of crypto people there. I moved to Hong Kong in 2014, and it's where I started my career in venture capital. Venture capitalists invest in new businesses. It's like giving a kid with a great lemonade recipe the money to buy a bigger stand and more supplies. It's a gamble, but if the lemonade stand becomes a hit, your small investment could turn into a big return.
During their time in Hong Kong, Sam was able to connect with multiple investors and I think was when everything just really took off. We were looking into Alameda opportunity and investing in Sam. Sam was an incredible figure. He's the kinda guy you wanna back. Like, he's very unique. He's one of one.
And the trading strategies that Sam was doing were very smart. Some of them were a little riskier than others, but the reason that it was risky was because Sam was always on the cutting edge, and that was exciting to us. If you're taking technology risk, we love that. I'm a technology investor, that's what it's all about. [Sam Bankman-Fried] We talked with some VC firms and our pitch was basically, "Hey guys, good news. Bunch of 25 year olds, we don't really know what a Bitcoin is but we're trading it.
Also, this is all crypto and we got a startup together. None of us has run a company before and we'd like $100,000,000 by next Tuesday ideally." It was one of the craziest diligence processes I've ever been through. We kept uncovering more and more weird things that dragged us deeper and deeper. One week he sent us his latest data and he was down meaningfully.
We were a little freaked out. We asked him what happened and he responds, "Oh, I can't remember if I told you, but me and most of the senior members of the team, we actually had this idea for a crypto exchange. So, that's why we've been losing money because I've had my eye off the ball. I just think it's a calculated risk. It's worth it for me to lose money here and not spend time on it because this exchange thing could be so big." And actually, I kinda like this answer.
I've invested in many of the largest exchanges in crypto around the world. We can help you build an exchange and he responds, "Oh, I think you maybe misunderstood me. This exchange we're working on is separate from Alameda Research."
So I asked him like, "Is it different people working on this exchange? Are you using separate intellectual properties, separate IP, separate resources?" [Sam Bankman-Fried] Alameda is buying and selling. Like, it's trading for its own book and trying to do profitable trades. FTX, you can think of it as infrastructure, it's markets infrastructure, so everything that sits between a buyer and a seller. So, FTX doesn't buy and sell itself, but it's a venue where people can go to trade crypto. FTX is a public facing exchange. It's a place where other people come to place trades.
A lot of crypto is people who don't like banks and who want to take intermediaries out of the financial system and their goal is to be able to send Bitcoin to buy stuff without anyone else being involved. You just hold your money and you can send it without anyone's permission. It's like a big philosophical part of crypto, but not having any intermediaries, it's kind of hard. You have to download a lot of weird software and like set up wallets and like, think about pass codes and all this stuff that is somewhat mentally taxing and if you just wanna buy a thing that'll go up, there are crypto exchanges that have nice websites where you can go and buy the thing without worrying about a lot of the apparatus of crypto. FTX is a crypto exchange being built inside Alameda.
You had two companies coming I guess, from the same route. He wanted to take money from us into Alameda Research and he wanted to use that money to finance and help start a separate business that we would have no information about, no ownership in. And it was actually hurting our interest at Alameda.
And I remember at the end I tried one last ditch effort to explain to Sam why we couldn't just negotiate a separate deal for FTX. He was just looking at me very sort of wide-eyed. He didn't care really about the moral implications of what he was proposing. It was almost like trying to explain like business ethics 101 to a baby.
And I realized we were so far apart that it was just too much. We couldn't possibly do a deal with this guy. They launched FTX about 18 months after they launched Alameda. We knew from our own experience launching an exchange that the speed at which they were operating was almost impossible for the size of team that they had. So, I think a lot of cryptocurrency companies actually are very proud that they run on these incredibly small teams in general. Is this completely a facade? Is there anything happening behind the scenes? At the time FTX was like 20 people.
Kraken had 100 people on the security team alone. Sam starts FTX in 2019 and this is when he really explodes outside of crypto's radar. People talk about SBF as being like unconventional in some way.
The the kinda like crazy, gigantic mop of curly hair, the like t-shirts that are like half fitting him, the cargo shorts. It's the fact that he looks like he hasn't showered for a couple of days. And a normal financier looks at that and says, "Oh man, that that seems like a red flag." But like, in the mind of a venture capitalist, right? That is proof that he's so smart, he doesn't care. It's like the equivalent of like on Wall Street, like having a really well tailored suit. I've been working with programmers since 1988.
They were all Sam Bankman-Fried. They wore the same clothes he wears, they were in flip flops of Lamborghinis. I've seen this movie before 1,000 times. Just so many people in crypto come off as like crazy or really promotional like hype man. Like they sound like they're trying to sell like a new vacuum cleaner door to door or something.
At this Bitcoin conferences, people literally like screaming on the stage like, "Bitcoin's going to the moon. Yeah!" Like, "Bitcoin's gonna save the world." And let me tell you that we are really changing the world as we know it. Bitconnet! Woo! The conference ended with a guy giving a speech about how Bitcoin would save El Salvador, literally bawling. We die on this hill, I will fucking die on this fucking hill.
So, today a country plugs in into open monetary system and gives their assistance hope. So in that world, Sam actually seemed pretty reasonable. So, I thought we should build the first Alexandra here in El Salvador? Bitcoin City. And the volcano will power the whole city and will also power the mining. And so when you compare kind of that stereotype to how Sam presented, which was definitely eccentric... But the things he was saying were really thoughtful and seemed thoughtful.
He also just had this great persona. He had a way of seeming very honest, guileless. Like he seemed like he was not trying to fool anybody. There was a tremendous amount of trust placed in Sam. He positioned himself as a guy who was trying to do crypto the right way. When he was a teenager, he had decided that he really wanted to dedicate his life to doing what was best for the world.
He considered different things like, he tried being an animal rights activist. He considered like politics, but then he decided that really the best way would be to get really, really rich and then give that money away. What we need is an ethical revolution so that we can work out how do we use this tremendous bounty of resources to improve the world? For the last 10 years my colleagues and I have developed a philosophy and research program that we call Effective Altruism.
[Sam Bankman-Fried] It's always been in theory a goal of mine to figure out how I can have positive impact on the world, and I got involved in the EA community in college and it's been a really big part of how I've decided what to do with my life. And so, Effective Altruism becomes this like, essentially a community of people that mostly develops online. It's very young and it's about giving as much money as possible in the most effective way as possible.
The Effective Altruists, like at first they were like, "All right, we've studied it and we've come to an answer. We must buy bed nets for everyone in Africa so they don't get malaria." And so, these guys would go work on Wall Street, make some money and give it to this bed net charity. Their philosophy is utilitarian and that means like what's gonna do the greatest good for the greatest number of people? It sounds unobjectionable on the surface, but as time went on their ideas got like weirder and weirder, and more science fiction-y. They say, "We have to worry about the long-term survival of humanity." And as a result, like they started worrying about apocalypses.
They're like, "All right, let's say there's something that could wipe out all of humanity, like killer robots. That would be very, very bad. So, if we could do something that would prevent it, that would be very, very good.
In fact, better than giving out bed nets." It gets to like, "We need to stop AI from killing us. We need to stop the next pandemic."
And that's the kind of Effective Altruism that Sam Bankman-Fried believes. [Sam Bankman-Fried] AI is gonna get more powerful and it has the power to change the world for better or for worse, and it's gonna happen. We're not gonna not build AI and that we are having the hard conversations about what role it should be playing. And this can be like kind of a dangerous way of thinking. Like, it's almost like you're the hero of your own sci-fi movie.
Like, you're not definitely gonna save the world but like, maybe you are. Like, when you just take a few steps away from it, you just see how kind of morally twisted it is because the idea essentially is it's better to go into finance than it is to become a doctor or a teacher. It's morally superior and that it's basically a philosophy designed to flatter the sensibilities of tech bros and finance bros, where now like you don't have to feel bad about being in finance instead of like actually helping people in your day-to-day life. If we succeed we're gonna save the world maybe. It's like should I worry about like securities laws? Maybe not. Like, in fact that might be bad.
Like, if you don't save the world 'cause you are too worried about what the Securities and Exchange Commission might think, like maybe that makes you a bad person. It's a worldview that essentially justifies almost any behavior today that justifies insane accumulation of wealth while not necessarily like paying your fair share to society. We have a new name for the coronavirus. The World Health Organization has officially called it COVID-19. The number of cases soaring just today, more than 24,000 now nationwide. COVID-19 can be characterized as a pandemic.
Are you gonna recommend to the governor that New York City do shelter in place? It has to be considered starting today. Right about now for many it means working from home, that is the new normal. You must stay at home.
But 2020 was just a weird time in so many ways. Most people just didn't have an outlet like, for entertainment or community. They weren't spending money on the things that they were normally spent money on, so a lot of people just gravitated toward cryptocurrency trading.
Like in 2020, crypto was just getting like much bigger. People were investing real money. Big institutions were talking about getting involved. It was definitely not your kind of Wall Street hedge funds that were doing this stuff in 2020. It was very much retail driven. Many ex poker players started trading crypto around then.
FTX happened to launch at exactly the right moment. It was really the beginning of the bull run. A bull run is a time of hustle and activity when investors chase higher and higher prices.
Imagine a mechanical rabbit zipping around a dog track. When the rabbit speeds up, the dogs have just one instinct, run faster. If you look at a company's chart in the space that has been around for 10 years, it's just up and down but they really caught the beginning of the bull market. And so, I think investors saw that and just thought wow, this company just only goes up.
[Sam Bankman-Fried] It was a little bit of right place, right time. Like, people were hungry for like, new platforms at the time and I think we always felt pretty good on the product side. It all happened so quickly. You had this crazy crypto boom that happened, 2020, 2021.
Price of crypto I think peaked sort of like November, 2021. In early 2022, that's when the whole world kinda woke up and said, "Holy crap, this isn't just some kind of like weird like, tech thing for libertarians. This is maybe the future of finance." And you didn't have to be like, a crypto believer to say that.
All you had to do was look at the money because the money was so big. Eventually, as FTX started to get larger, it started to really gain traction, crypto scene started shifting in Hong Kong a bit. In parts of Asia there was a pretty strict crypto crackdown.
China in particular had really intense crypto bans and I think there was a lot of nervousness. So, eventually both FTX and Alameda relocated in 2021 to The Bahamas. I think that we've been looking at The Bahamas for awhile. They're one of the first countries to roll out any comprehensive regulation for cryptocurrencies, which we think is extremely important for this space and a really positive sign.
The reason FTX was in Hong Kong and then The Bahamas is 'cause all the stuff they were doing would've been illegal in the U.S. Like, that's why these crypto exchanges are offshore. And The Bahamas was like, "Hey crypto guys, please come here. We'll let you do whatever you want." He created this like image that he did not care about money. He really liked to play up his monk-like lifestyle.
Like, "I drive a Toyota, I sleep on a beanbag." Hold on, where's your car? It's that one there. That's like, what? A Toyota. Yeah, it's a Corolla.
And this place where he lived just did not fit with that because he's living in a penthouse at like the nicest resort in The Bahamas. [Sam Bankman-Fried] Yeah, nine colleagues and I bought a large apartment together near our office that we live in. And I don't, I mean, I'm sort of really fortunate to be able to have a really comfortable life and not have to worry ever about money for myself, but I'm not particularly excited to dive into luxury. I'm not excited about yachts and I both think it's not what I should do with my money.
I think I should be thinking about how I can help the world with it, and it also just isn't who I am. He didn't buy a Lamborghini, but like he did fly in private jets. He had this fancy penthouse. They paid 30 million bucks for it. It's in one of like eight buildings that are in kind of a horseshoe shape around this super yacht marina. I grew up in The Bahamas, spent the first 18 years of my life here.
The Albany Club is a gated exclusive residential community that also includes a hotel and a heavy nightlife scene. It's a place where the likes of Tiger Woods have residences, Justin Bieber. I went to Albany and as soon as I got there I felt like I was on this like luxurious like, alien planet. Like, the grass was super green, the air somehow smelled better than the rest of the island.
It was super quiet, everybody was very fit. Coffee costs like $9. There's a sign on the wall at the coffee shop that's like, "Do not take pictures of celebrities at this coffee shop." Not a place that Sam would've fit in but I think he could have justified it to himself by saying like, "I'm gonna give away so much money in the future that this amount of spending is just not important."
Maybe you've given away 50, 100,000,000 that you've gotten 50 or 100,000,000 worth of PR out of it. How do I know that you're not just doing it for show? So, all these people who were working at FTX and at Alameda, they lived in this penthouse so their entire lives in The Bahamas were intertwined. They had office parties all the time. They were wild.
They could last you know well into the morning and they were frequent. The vibe as it seems was a lot more a quasi like fraternity or sorority type of atmosphere. And they dated each other.
Sam and Caroline Ellison were on again off again relationship. Caroline Ellison was one of the executives that lived down in The Bahamas. So, I kind of got interested in this idea that if Alameda has information about what customers on FTX are doing, they can place trades that have an advantage. It was kind of viewed as like sketchy because it's a big conflict of interest.
Like, he owns the exchange and he's got a big fund that trades on the exchange. Do you wanna play online poker against the guy who owns the website? Like, he could probably like cheat and look at everybody's cards. How do they make sure that someone's not just like peeking over someone's shoulder at the beach on a laptop? Very few people wanna go on the record saying anything bad about Sam or about FTX because Sam was just too important in the crypto community.
When you combine Effective Altruism, long-termism and this approach to life that I think Sam had that probably goes beyond money, which is like this gaming idea where you're just trying to like rack up as much points as possible, you start in a place that feels ethical and like morally sound and you get to a place where you don't even really have to worry that much about what's happening in the now. It's just all about making this thing as big as it possibly can be. FTX's strategy was basically like, get out in front of everybody as many people as possible, whatever it takes. [Annie Massa] Sports, sponsorships were a big part of that. Second down, Hastings.
This is actually really elite. Hey it's Shaquille O'Neal and I'm excited to be partnering with FTX. I'm Naomi Osaka and I'm proud to partner with SBF. Hey- Woo! That's my man! Sue, Mark. Are you in? I'm in. I'm in.
I'm in. I'm in. Oh, I'm in, bro. I'm all in, are you? Of course I'm in. Why you gotta ask? Creating crypto with FTX? I'm in.
Is this about the new FTX arena? We're in. Our city, our team, FTX. You in Miami? FTX obviously like got the naming rights to an arena. They got these like patches on the umpire's uniforms in like Major League Baseball. There was a time when FTX was just everywhere out of the blue.
FTX is dope. And they got spokespeople like Tom Brady and Gisele. Yeah, yeah, a trade. We're telling everyone.
Not a trade trade. I'm trading crypto. FTX is the safest and easiest way to buy and sell crypto.
I gotta ask you about working with Tom Brady and Gisele Bundchen. One of the user source sets of people in the world who have absolutely massive reach and respect. It's hard to go against Tom Brady or Steph Curry or Louis Hamilton or... People think what they're fed, essentially.
If you have Tom Brady talking about FTX, fuck yeah, I'm gonna trust FTX. I feel very comfortable endorsing this product for what it provides is a service and how it can help someone like me and thousands of other players. By the way, this is like all over the world too.
So we're not just talking like sports leagues in the U.S. We're talking like Formula 1 and billboards and ad campaigns in all kinds of different locations as well around the world. FTX did this ad campaign with Steph Curry and I remember watching this Steph Curry one and just feeling like very uncomfortable. This is Steph Curry, the world's leading expert on cryptocurrency. I'm not. Because the premise of that ad was that you didn't need to be a crypto expert to basically invest on FTX.
Steph Curry sort of repeatedly says, "I don't know anything about crypto, I don't know anything about crypto," which I'm sure is true, but then at the end of the ad he says, "And I don't have to know anything about crypto 'cause I have this." I'm not an expert and I don't need to be. With FTX everything I need to buy, sell and trade crypto safely.
Now, and look, I cover business and finance and like I know that it is not safe. You're talking about a incredibly risky asset class. In looking at the height of FTX and Sam Bankman-Fried's power, you can look at the 2022 Super Bowl. That was kind of like the moment I'd say when like crypto really got on people's radars, right? There was, Matt Damon did these like crazy crypto.com ads and there were a bunch of other advertisers and FTX was one of the big ones. I call it The Wheel.
Hm, I don't think so. What does it do? It rolls. Yeah, so does a bagel, okay? A bagel you can eat. The whole idea of the Super Bowl ad with Larry David was like, oh, like throughout history there have been haters, basically. People who don't see what the future is gonna hold.
Edison, can I be honest with you? Eh, it stinks. Like I was saying, it's FTX. It's a safe and easy way to get into crypto.
Eh, I don't think so. And I'm never wrong about this stuff. Never. There was a question like, where is all this money coming from? Sam and FTX were growing incredibly quickly, but Sam's star was growing even quicker than the exchange. For whatever reason he decided to make himself the poster boy. It's not like the CEO of Netflix is in all the Netflix commercials, right? No one really thinks about the founders of most of the businesses that most people use every day.
Any U.S. bank, ask the average consumer who banks with that bank, if they know the founder or the CEO, they won't say, "Oh, yeah. I've seen all of his TikToks and YouTube videos." But Sam is front and center everywhere and I had a conference in Miami and the hotel I was staying at was across from FTX Stadium.
When I went to San Francisco in July, like it was like there was Sam and Gisele like staring down at me from all these mega ads for FTX. And I see at the bus stop Sam's face. Oh my god, is this gonna be my life now? The biggest blemish in my entire investing career is following me around nonstop.
In the press they processed it as a really exciting story, a success story. One that you know provided I'd say hope to the Left. And even if you didn't agree with his politics, he was like a really interesting kind of new sort of philanthropist, and that was exciting to a lot of people. I think the media did have a bit of a love fest with him. He knew how to be flattering. He also was just extremely available.
I think the media is definitely complicit in his rise. He said that he was aware of the fact that most people in his position would have journalists and reporters talk to their publicist first, but he made sure to always keep an open line of communication with journalists. I'll spend time talking with the press. I'll spend time on interviews.
I'll spend time on Twitter. I spend probably an hour or a day on Twitter. People wonder like what was his secret to like getting such good press? He loved to answer questions, he loved to talk to reporters.
He would answer anything you ask. Well, it's a good question. It's a good question. Yeah, and it's a good question. It is a good question.
It's a good question and frankly... It's a good question. Okay, that's a really good question.
He wouldn't give you like some canned response. That seeming openness made him seem like a good person to write about. [Cas Piancey] There was a kind of a fluff piece written by Sequoia. Sequoia is a huge name in Silicon Valley. This is one of the best of the best in terms of venture capital investors. And they had made a huge $200,000,000 bet on FTX.
The guy who wrote the article just clearly was very taken by Sam. He went over the top with it. He was like, "As I was sitting there with Bankman-Fried, I could tell I was sitting with a future trillionaire."
One of the things that they mentioned is that he was playing video games the whole time he was on this call with them, and they were all so excited about that. They were like, "Ah, wow, he's multitasking. He's focused on "League of Legends" while he talks to us.
He's a genius." [Stacy-Marie Ishmael] People love a wonderkind, especially in the U.S. context. If you were to design a wonderkind in a laboratory, you would probably end up with someone like him. He had just sort of the cool factor that people in Silicon Valley were looking for. It's like Mark Zuckerberg with his hoodies. I talked to an FTX employee who asked Sam, "Why don't you get a haircut?" And he said, "I don't think it would be a good idea financially for me to get a haircut."
He was among the richest people in the world. He was not only one of the richest people in the world, he was a young rich person. He seemed so important to know and understand and there was I think probably a fear of missing out on a profile of him when he seemed like such an important kind of guy, like such a linchpin in this industry. SBF's reputation among those of us who work in crypto and are very active in crypto was not as positive as he was portrayed in the mainstream media. He was perceived more as someone who was quite mercenary and a bit of an opportunist.
I heard stories already in 2020 about how he kind of mistreated counterparties that were in a weaker position. So I think many of us in crypto had a bit more of a hesitation when it came to the sort of king status that he was getting. I think many of us feel like perhaps we should have spoken up, but at the same time it's difficult when you have someone who gets that popular and that powerful so quickly. And if you do speak up, you might not have all the evidence because a lot of this is rumor based.
And so you take a big risk if you do speak up. What's up, guys? I'm here with my boy Sam from FTX. We're at Crypto Bahamas Conference. We're gonna start the day, we're gonna do some TikToks for you guys and it's gonna be an amazing day.
We'll get started. We'll do a get ready with me. Sam, where you goin', bro? Crypto Bahamas was like, their big conference.
They'd hired Tony Blair and Bill Clinton to talk at this, presumably for like huge speakers fees. Sam was gonna interview them both on stage, and even by his standards of leg tapping, like his legs were going crazy. It was like one leg and then he'd actually like grabbed a leg and then like the other leg starts tapping. Like, he grabs that leg.
One point like Bill Clinton almost like kind of like gave him like a little pat on the shoulder like, "Don't worry buddy." It was kind of embarrassing, honestly. Like, his questioning of them was so bad, it was clear he hadn't prepared for it at all. The other thing that was weird about the conference was that so many of the people I met there were promoting totally dubious schemes. It felt incongruous with the way Sam liked to present the company.
Being in The Bahamas brought Sam closer to the U.S. He could more easily travel to Washington D.C. where he was doing a ton of lobbying. He had connected with policymakers, he was helping to design legislation. Sam was starting to operate not just as a founder in the tech sphere that we live, but he was negotiating directly with politicians, with world leaders, and that was serious. You have this boy genius who is now the face of the entire industry, is leading the charge on changing rules and regulations in the United States, has the ears of politicians and regulators and whoever he wants.
In 20 years never seen any industry get up to speed this fast. A report came out shortly after the 2020 election that said that he had donated a huge amount of money to the Democrats. I think he was the second largest democratic donor.
He actually spent $40,000,000 on races. [Sam Bankman-Fried] Hey, I donated to both parties. I donated about the same amount to both parties this year. That was not generally known because for some reason, in fact is no one can possibly fathom the idea that someone in practice actually gave dark.
So, I don't know. All my Republican donations were dark. People won't see 'em, and the reason was not for regulatory reasons.
It's 'cause reporters all freak the fuck out if you donate to a Republican because they're all super liberal and didn't wanna have that fight so I made all the Republican ones dark. And then in early 2022 he gave an interview where he said that he was gonna give a billion dollars in the 2024 presidential campaign. Might you give a billion? [Sam Bankman-Fried] Yeah, I think that's a decent like thing to look at as a sort of like, I mean, I would hate to say like hard ceiling 'cause who knows what's gonna happen between now and then, but as like at least sort of a soft ceiling I would say, yeah. A billion dollars and it's like 10 times what the largest donor had ever been.
When you're talking those numbers, when someone says, "I'm gonna give a billion dollars in the next two years, like that catches everybody's attention." You have this guy who's kind of right on the edge of the law who is also at the exact same time becoming part of the mainstream political establishment. [Christy Goldsmith Romero] My background for the last 20 years, I've been a financial regulator in the federal government. The advantage of being regulated if you're one of these companies is that ultimately financial institutions and traditional finance might be able to invest in you and that's where the big dollars are. Wall Street's not going to invest in crypto until they're regulated. A lot of crypto people operate at the edge of rules.
Often they choose to operate in places where there are no rules. Crypto has been pretty thinly regulated in the United States. They often will hop from one city or one country to another depending on where they think it's honestly safest for them. FTX U.S. did a lot less and allowed its customers to do a lot less than you could do in the main exchange that only people overseas were allowed to use.
But FTX U.S., it's a foothold in the world's most important financial market. [Christy Godlsmith Romero] So the crypto companies all of a sudden came in and said they wanted to be regulated.
[Sam Bankman-Fried] Number one is regulation in licensing. That is the most important thing for our business. It's the most important thing for the industry right now. [Christy Goldsmith Romero] I met Mr. Bankman-Fried three times. He wanted to get his application through and he needed my vote to do that. He had a fundamentally a predatory model that was incredibly radical and dangerous.
Better Markets is a nonprofit independent organization that advocates for the public interest in Washington D.C. Look, FTX had a two-part strategy in Washington. Part one was to buy and influence as many elected officials as possible to get the most favorable legislation possible, which is to say the weakest possible legislation.
And the other track was to get the CFTC to approve this application. [Christy Goldsmith Romero] One of their talking points is that they are so different, they are so innovative that they basically need bespoke regulation. Once you start to dig into the technology, the types of trading, the way the companies are set up, it looks very similar to other companies. So, I've said why would we stray from what we know works? A couple of weeks before the meeting with us, I got a phone call that they were floating a million dollars or more if we would support their application at the CFTC.
Why do you think they spent hundreds of millions of dollars in marketing over the last couple of years? Why did they buy the Super Bowl ad? Why are they putting their names on Major League Baseball umpires uniforms? They wanted retail America to be thinking FTX, legitimate, real, good place to do business. That was all priming the pump for the app that was gonna go live. The second the application got approved, the app goes live, boom.
Millions of retail customers for FTX sending tens of millions of dollars into FTX. CZ, Changpeng Zhao is his name. CZ is the founder and CEO of Binance, which is the world's largest and most liquid cryptocurrency exchange. Bitcoin cryptocurrencies back in 2013, 2014, for me was one of those really unique opportunities where it was early stage, only a small number of people got it and it's gonna be a huge future.
So, I told myself I'm not gonna miss it. That was an opportunity of a lifetime. CZ is a Chinese-Canadian entrepreneur. He's been in crypto for a really long time.
He was also an investor in FTX. I think he saw them less as a competitor and more as there's room for more than one major exchange. Binance was way bigger than FTX, but FTX was like the main competitor of Binance. These were the sort of two heavyweights in the world of crypto.
And Binance was this like hyper aggressive exchange founded in China. And the founder of Binance, CZ is this really incredibly like pro crypto billionaire guy. And Sam kind of set himself up as a foil to that. Sam was an American.
Sam was giving money to American politicians. He was like the good guy to CZ's bad guy, right? That's kind of how it was processed at the time. I was trying to profile CZ. He lives in Dubai. Dubai, not everybody likes it, right? But it's sort of an interesting place. It's this international city, really tall buildings and so on.
And I'm asking him, maybe CZ could tell me what he likes about Dubai, or show me around, gimme the tour of the city. This is his new home. He's so happy to be here, and the only thing CZ wanted to do was talk about his minivan. It's the kinda thing that you would use like for a VIP convoy.
And he had bought this minivan because it had the same kind of seats that you have like on a first class airplane cabin, right? And he showed me, we're in the van and there's like a couple of assistants in the back and CZ shows me how you can lower the seat, and he told me that he got this van because it was the only one where you could lower the seat all the way. And he starts lowering the seat, he presses the button and it's like , and it like hits the knees of the guy behind us who's taking notes and the guy sort of says, "Ah!" And then CZ turns it around, pops it up. But it just, I thought it was pretty funny 'cause like he's so comfortable on the go, international travel that he's trying to like replicate that even in his home. My understanding of Sam's plan was that he's operating this kind of offshore casino and he would like the U.S. government
to give him a casino license. At some point regulators are gonna accept this and one of us is gonna be the big winner, and Sam was trying to make that happen in the United States, which of course if you're legal in the United States, like the United States is like the locus of the global financial system and I think CZ perceived that as a threat. When we optimize our energy so it's much better for me to sit here and speak to all of you than looking at what FTX does or trying to take market share away from them. For them they may think it's mar it's meaningful to take market share away from us.
But that's actually also a very, what do they call it? Limited mindset. They should try to grow the industry and not lobby against other players. I don't think what FTX was doing was trying to kill their competitors.
They were literally just trying to find a way to safely operate in the United States, and that is actually something every exchange was and is doing. They just wanna make sure that they could have American investors in a way that's legal so they aren't sued within an inch of their life. Whoever wins this market, whoever's first to market is gonna have a huge advantage, but also there's this like political thing going on where FTX presents itself as the like American champion and gets the U.S. government to keep Binance at arm's length for political reasons.
FTX has this token called FTT. This is typical for crypto projects and companies to have their own affiliated token. So, the FTT token is basically a token which gives you certain benefits on the exchange if you hold it. One of the strategies that FTX used and Binance still uses is let's issue a token for the exchange. The more you own, the less you pay for trading fees.
In crypto people often think of tokens as being something like airline miles where if you use the product you get rewarded in them, or when you have the things you can use them to pay for the product. So, the value of that depends on how much you want to use FTX as an exchange. But the main thing that Token does is like it trades and if people think the exchange is good then they might buy the token of that exchange as a way to bet on that exchange.
And so, if you're an exchange, you love issuing those tokens 'cause they're free to you essentially. Let's say that I create a coin, I'm gonna call it Zeke Coin. All right, like now there's a billion Zeke Coins, I just did it. I just need to sell one of 'em to somebody.
It could be like my buddy for $1 and then the cost $1 times the supply, 1 billion, makes me a billionaire based on the market value. And then I can go to like banks and say, "Hey, I'm a billionaire. Will you give me a loan?" But is it really worth that much? I mean, it's kind of funny money in that way. The problem however is that the FTT token is not like Bitcoin or Ethereum where the supply of the currency is totally fixed. With the FTT token, they were able to mint themselves an absurd amount of tokens out of thin air and they were able to change the supply of the tokens over time To me, I always thought the main aspect of like a token like FTT is that FTX promised to use a portion of its trading revenues to buy back FTT tokens.
And I think FTX said that they were going to use a third of the revenue, and put that toward buying back the FTT tokens. So, people expected the exchange to generate a lot of revenue and have their tokens bought back later at a higher price. Yeah. I was in Singapore for about 10 years actually.
Singapore had great regulation for hedge funds in general, but it was also very good for crypto for a long period of time. It still is. So I was based there.
We founded Three Arrows. We started it in 2012, mainly focused on foreign exchange and later became entirely crypto by 2018. We kept the business there and we did a lot of trading, a lot of venture capital, a lot of investment.
Three AC was a crypto hedge fund, which is just another way of saying it was this giant pile of investment money. [Zeke Fauz] Let me tell you about Three Arrows Capital. These guys were like one of the biggest, most respected funds in crypto. And they were known as these brilliant traders who could do no wrong. These guys were kind of gods in the crypto space, right? They were idolized.
And Sue was promoting this idea called the supercycle. The idea is more or less like the price of Bitcoin will never go back down. That it is gonna go up forever. We just had this philosophy that as long as it's going well, don't stop.
You just keep going. I genuinely thought that we would all make it, and I think it was because I believed in supercycle. I just thought that there could be no catastrophe that big because people would get how bad it would be if we had big catastrophes.
Everybody in the industry was like, "This guy is a great trader, this is what is going to happen. And one of the things that they were really long on was this ecosystem of Terra and Luna. There were two tokens involved. One was called Terra, one was called Luna. [Stacy-Marie Ishmael] One of the things to understand about crypto is that it is a way for people to find community. And Terra Luna for awhile operated a lot like a meme stock.
Terra Luna, even within the crypto world, was viewed with like a lot of skepticism because it was paying like an insane interest rate. It was pretty much clearly a Ponzi, so... A Ponzi is an investment that looks like a perpetual motion machine. It keeps paying high returns as long as new money keeps coming in and no one takes their money out, but eventually it runs out of people who want to invest and it collapses. Many crypto projects ended up working like Ponzis even if they weren't intended to be.
And so, eventually when people started to get a little nervous about the value of this system and began trying to take their money out, it all collapsed and it collapsed spectacularly and spectacularly quickly. Three Arrows had borrowed so much money from so many different places that when they failed, it had kind of like a cascading impact on the crypto world. This was an event where $60 billion of market cap, two top 10 coins were vaporized in a period of days.
It was a very rapid collapse for us and it was something that we didn't really quite see coming. After the Luna collapse, there were a lot of issues with liquidity in the entire credit markets, so a lot of firms that lent to us to do this kind of trades, they started to try to recall capital. They owed people a lot of money and they didn't have the money to pay it back. Once Terra Luna blew up and Three Arrows failed, all the people that had lent out money to crypto funds were like, "Hey, do we lend money to like any other people who are broke now? Maybe we should ask everyone to send the money back just to like check that they still have it, and then maybe we'll give it, we'll lend it out again afterwards."
Among the funds that had their loans called in was Alameda. So these like unrelated lenders, other companies were like Alameda owed them several billion dollars. And even though Alameda had not failed, the lenders were like, "Hey, just like to check, why don't you send us that money back? Let's just make sure you can." So Alameda had to pay back like, billions of dollars in loans after the Terra Luna collapse. It didn't have the money.
So that was when according to some of the other FTX executives, Caroline, Sam, Nishad and Gary had a meeting and were like, "What should we do? We were being asked to send billions of dollars back to lenders," and there were two choices. Alameda could go bankrupt, or they could dip into the FTX customer funds to pay back these loans. And decided like, "You know what? Let's go for it.
Let's borrow the money from the customer funds, we'll make it back later." I spoke with Sam about this and I was kind of surprised 'cause I thought he would deny that such a meeting had even taken place. But he acknowledged that there had been this meeting, but he said to me that it just hadn't, had seemed very important to him at the time.
And that's where you get into the whole explanation about how Alameda was already borrowing money. Basically Alameda was borrowing money from FTX, and posting his collateral FTT tokens. So Sam's floundering, like Alameda is struggling now and Sam's fame increases. Like, he goes out and puts on this front that he's gonna save the industry. Crypto FTX signed an agreement with BlockFi today.
The deal includes an option to purchase the crypto lender for as much as $240,000,000. Increasingly in the crypto community, you're being known as a white knight. Anthony Scaramucci even told us he thinks of you as the J.P. Morgan of the industry. Obviously there's a lot of turmoil going on right now.
[Sam Bankman-Fried] I think this is less thinking about what do we need here and this is more identifying potential opportunities if there are any for us to grow further and faster than we would by default. This narrative started of Sam Bankman-Fried being the J.P. Morgan of crypto. He's in one hand being pressed, pressed by regulators, pressed by the kind of like conditions of the market.
And on the other hand, rather than kind of like basically going into survival mode, he is attempting to somehow like soar above it. You begin to see people in the Sam Bankman-Fried empire begin to step away. Brett Harrison, who was the CEO of FTX U.S. leaves. Let's just start on the news of the day in the departure of Brett Harrison. What exactly is going on? How long has this been in the works and where does it leave FTX U.S.? [Sam Bankman-Fried] Yeah, I mean it's not the kind of thing that would go public were it not to have been in the works for a little while.
[Pat Regnier] Sam Trabucco, the Co CEO of Alameda also leaves. He said something along the lines of like, "I just want to ride my boat fast over nice water." [Sam Bankman-Fried] One thing that I definitely learned was how to manage a team. I knew how to manage a team when everyone was happy, but I had no idea how to manage a team when there was stress, when people were unhappy with each other, when there was conflict. I was presented with times when members of our team disagreed with each other, disagreed with me especially, and I didn't know what to do when people couldn't reconcile. In the beginning, the level of cooperation between even competitors like CZ and Sam, it was very much cooperation 'cause they were starting in the industry.
They were the co-founders so to speak. They were the two behemoths. Sam wasn't thinking through what would happen if he sold 20% to CZ, but that's basically what he did.
I think it's totally possible that CZ invested in Sam from the start because he perceived him to be a competitor and because having an interest in a competitor be a good idea and also he was able to use that to slow certain aspects of Sam's plan down. That investment was really a poison pill. Binance being a competitor I think knew that by acquiring a 20% stake, they could effectively block the progress of FTX anytime they wanted to. So he's telling me this story. He starts trying to get licenses to operate in multiple countries in Europe and North America.
And they ask, okay, "Who's on the company? Who owns it?" CZ's 20%. So he has to disclose everything about who he is, where he is, where he has his assets. So he calls CZ and say, "Hey look, we're trying to get this application.
You gotta disclose." And he'd say, "No, I'm not disclosing." He said, "Why?" Now, I don't know what CZ was doing here. Nobody does, only CZ does, but he just refused to comply. So he's probably talking to his management and I'm now speculating, but I think it's probably went down this way. What do we do with the CZ guy? He's just not gonna play ball with us.
He's a huge shareholder. Somebody probably said, "Sam, you gotta buy him out, you gotta get rid of him." [Jesse Powell] It seems like CZ leveraged that for a buyout of his position with like a 20 x return on his investment.
That deal went down for $2.1 billion. Nobody knew. And I only found out a few weeks ago because when Sam told me that, I said, "Wait a second, wait a second. You gave all your assets to CZ? How much of it was cash? Like, you stripped the balance sheet of cash to buy this guy out 'cause he was playing hardball with you and not being compliant with regulators? Was that planned? Like . What is that? Of that 2.1 billion,
it sounds like the majority was cash, but 550,000,000 of it was FTT tokens. A story comes out in CoinDesk about Alameda's balance sheet and the story has to do with FTX's native token and how Alameda has a lot of that on his balance sheet. Over the weekend speculation rose about the solvency of FTX. This came after a CoinDesk report revealed Alameda Research's balance sheet is full of FTX's native token FTT.
So, that story comes out and then the next beat is that CZ at the exchange Binance tweets that because of what's come to light, he's looking to sell a ton of FTT. Binance CEO Changpeng CZ Zhao, a sizable owner of the FTT token saying his exchange would begin liquidating any remaining FTT it had held on its books. Suddenly this CoinDesk report, right? Which we don't know where it came from, obviously could have been leaked by a competitor, it could be not credible. But now we're seeing a guy who's an investor in FTX who has a close relationship with Sam Bankman-Fried who's saying, "Yep, there's something here and I'm gonna get out of it." And as people lose faith in the exchange, there's like a bank run where people are trying to withdraw assets. So many people are withdrawing that they actually stop people's ability to even withdraw their assets.
That makes the panic spread even more wondering, does FTX even have enough money to give me back what is rightfully mine? The value of Alameda's stash of these tokens was hundreds of millions of dollars. But they went around saying, "Look at our balance sheet, it's so good. We have hundreds of millions of dollars of these tokens and no one wanted to pay that kind of money for them."
Crypto Exchange Binance announced a deal to buy rival FTX.com. Glen Goodman eToro crypto consultant joins us now to walk us through this. Glen, I just wanna make sure that I've got my head around this correctly. We see Binance selling FTX's tokens after a report last week, questioning the credibility of the business, that then causes a liquidity story, which is then resolved by Binance stepping in and buying FTX.com. Have I got that straight and if so, this feels like the Wild West.
Yeah, you've pretty much got that right and it could be either a masterful chess move, like one of the best business chess moves I've ever seen by Changpeng Zhao, the boss of Binance, or he just got himself into this position kind of by accident and then is now benefiting from it. Binance as Binance goes in and gets a closer look at FTX and the whole in FTX's balance sheet is so enormous that CZ backs out of this deal within 24 hours. Things really took a tur
2023-10-29 21:07
