Speaker 1: This is Red Pilled America.
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Speaker 2: save America one story at a time.
Speaker 1: Previously on Red Pilled America.
Speaker 3: Over the weekend, speculation rose about the solvency of FTX.
Speaker 1: It appears that FTX has stop woodraws, so.
Speaker 4: It looks like all ftx dot com balances or zero.
Speaker 1: Sam Bankman Freed was a pillar of the crypto world.
Speaker 4: I grew up in the San Francisco Bay area on
Speaker 4: a Stanford campus.
Speaker 2: From his first breath, Sam was surrounded by the elite
Speaker 2: of the academic elite.
Speaker 5: Effective autism is about using your time and money as
Speaker 5: effectively as possible to make the world a better place.
Speaker 2: Sam set up a cryptocurrency trading company. He'd eventually call
Speaker 2: it Alanita Research.
Speaker 4: We want a bank account and if we're bitcoinn arbitraged
Speaker 4: trading shop founded by a bunch of twenty year olds,
Speaker 4: if that's the name of our company, we're not getting
Speaker 4: our bank account.
Speaker 1: I'm Patrick Carlci.
Speaker 2: And I'm Adriana Cortez.
Speaker 1: And this is Red Pilled America a storytelling show.
Speaker 2: This is not another talk show covering the day's news.
Speaker 2: We are all about telling stories.
Speaker 1: Stories. Hollywood doesn't want you to hear stories.
Speaker 2: The media marks stories about everyday Americans at the Globalist ignore.
Speaker 1: You could think of Red Pilled America as audio documentaries,
Speaker 1: and we promise only one thing, the truth. Welcome to
Speaker 1: Red Pilled America. We're at part two of our series
Speaker 1: of episodes entitled Crypto Revisited. If you haven't heard the
Speaker 1: first episode, stop and go back and listen from the beginning.
Speaker 1: We're looking for the answer to the question where is
Speaker 1: cryptocurrency going? By telling this story of the astonishing rise
Speaker 1: and spectacular fall of crypto entrepreneur Sam Bankman freed so
Speaker 1: to pick up where we left off. In late twenty seventeen,
Speaker 1: Sam launched a cryptocurrency trading firm he named Alameda Research.
Speaker 1: He chose research because Sam knew that the banking community
Speaker 1: wasn't too keen on the crypto world, but everyone liked research.
Speaker 1: The name was a perfect way to conceal the nature
Speaker 1: of his business. A problematic behavior was initiated.
Speaker 2: Sam's band of crypto novices began exploiting a Bitcoin price
Speaker 2: difference between the Asian and American markets, where they purchased
Speaker 2: bitcoin in the United States and re sold it at
Speaker 2: a higher price in countries like Japan. Sam would eventually
Speaker 2: move Alameda Research out of the United States at.
Speaker 4: This point, whereas most of crypto happening, it's not in
Speaker 4: the States, it's in Asia.
Speaker 2: That's Sam bankman Free explaining his company's move, and so.
Speaker 4: It also kind of became clear that, you know, we
Speaker 4: really want relationships with their customers. The police to be
Speaker 4: was well, at least somewhere in Asia.
Speaker 2: Sam chose Hong Kong.
Speaker 4: And then why Hong Kong, Well, we thought about a
Speaker 4: bunch of different things here, including like what's centrally located,
Speaker 4: where is the bulk of crypto happening, what's the relationship
Speaker 4: of the country like to the important jurisdictions in crypto,
Speaker 4: and how easy is it for foreigners to get to
Speaker 4: set up shop there, and sort of all of those.
Speaker 1: Mind together more.
Speaker 2: In markets like Hong Kong also didn't have the tight
Speaker 2: regulations that were in place in the United States. Sam's
Speaker 2: Alameda Research was at times shifting as much as twenty
Speaker 2: five million dollars a day, but the good times didn't
Speaker 2: last for long. The bitcoin price difference began to shrink,
Speaker 2: shrinking Sam's profits along with it. By late twenty eighteen,
Speaker 2: Alameda Research was already in trouble. The algorithm SAM created
Speaker 2: for automated trading ran up a series of losses on
Speaker 2: some bad trades. SAM was in need of money, so
Speaker 2: Alameda began to approach investors for loans. They missed high returns,
Speaker 2: as much as twenty percent. And here's the kicker. They
Speaker 2: promised their investors that there was no risk. In one
Speaker 2: presentation deck, Alameda Research claim to quote, these loans have
Speaker 2: no downside end quote in the world of finance, guaranteeing
Speaker 2: this level of return while promising no risk should have
Speaker 2: been a giant red flag.
Speaker 3: Be wary of fast growing financial services companies because ultimately
Speaker 3: anybody could grow a financial services company quickly if you
Speaker 3: just give away a lot of stuff.
Speaker 2: That's a representative from Doomberg, one of the most widely
Speaker 2: read finance newsletters on subscription based platform Substack. We'll be
Speaker 2: hearing more from Doomberg throughout this series. Alameda's presentation deck
Speaker 2: went on stating, quote, we guarantee full payment the principle
Speaker 2: and interest enforceable under US law and established by all
Speaker 2: parties legal counsel. To any seasoned finance veteran, it was
Speaker 2: a staggering claim. No less so because of who was
Speaker 2: likely shepherding Sam's legal efforts.
Speaker 6: I was the one that hired our early lawyers.
Speaker 2: That's Sam's father, Joe Bankman, in an August twenty twenty
Speaker 2: two podcasts discussing his early work with his son. According
Speaker 2: to Joe, Sam had been asking him for help in
Speaker 2: the early days of his cryptocurrency ventures.
Speaker 7: I wanted to make sure that I could do it
Speaker 7: and be useful. But I think from the start, whenever
Speaker 7: I was useful, I lend a hand, And it was
Speaker 7: clear at the start that on things like law, I mean,
Speaker 7: the company didn't have any lawyers, So I think my
Speaker 7: utility there was pretty obvious.
Speaker 2: From the beginning. There was a problem with Alameda Research's
Speaker 2: business model. To make big money in the trading business
Speaker 2: of buying low and selling high, you need to be
Speaker 2: right practically every time. If you're wrong, if you instead
Speaker 2: buy high and sell low, you can lose everything in
Speaker 2: one day, Especially for using algorithms to trade in the
Speaker 2: volatile ecosystem of crypto. The smart money in a world
Speaker 2: of finance typically tries to go a different route. They
Speaker 2: try to become a middleman, where fees are made on
Speaker 2: both sides of a trade. As a middleman, you don't
Speaker 2: have to be right all the time. You just need
Speaker 2: to be in the room, matching buyers with sellers and
Speaker 2: shaving a little off the top in the form of fees. Now,
Speaker 2: in the early crypto world of just bitcoin, a middleman
Speaker 2: may not have had as many opportunities to be this matchmaker.
Speaker 2: Imagine one or two stocks trading on the stock exchange,
Speaker 2: not much action. But if the ecosystem expanded a bit,
Speaker 2: if there were more things to trade, there may be
Speaker 2: enough trades to make a killing as a middleman. And
Speaker 2: that's exactly what was developing in the world of crypto.
Speaker 1: By twenty eighteen, the industry was quietly undergoing an evolution.
Speaker 1: Just as the bitcoin price difference began to fade, a
Speaker 1: new type of cryptocurrency was flooding the market. Bitcoin was,
Speaker 1: no doubt that dominant crypto, grabbing all the headlines, but
Speaker 1: there were new cryptotokens popping up outside of the mainstream
Speaker 1: that started to change the character of the crypto community.
Speaker 1: Before we explained the significance of this phenomenon. We should
Speaker 1: give a quick refresher on Bitcoin and the initial problem
Speaker 1: it was purportedly created to solve. Bitcoin was the original
Speaker 1: decentralized cryptocurrency, launched in early two thousand and nine by
Speaker 1: an anonymous figure or group of figures no one really knows,
Speaker 1: known as Satoshi Nakamoto. Bitcoin was pitched as a digital
Speaker 1: cash that looked to bypass the out of control dollar
Speaker 1: printing press of the Federal Reserve, the United States central
Speaker 1: bank that was causing massive inflation and wreaking havoc on
Speaker 1: the American economy. To bypass the Federal Reserve, Satoshi needed
Speaker 1: to overcome a critical problem that until the two thousand
Speaker 1: and eight financial crisis, had gone unsolved. For decades. Prior
Speaker 1: to the crisis, computer programmers called cryptographers had been trying
Speaker 1: to figure out how to create a digital coin that
Speaker 1: could only be possessed by one person at a time.
Speaker 1: When I send an email to someone, both I and
Speaker 1: the person receiving it have a copy of the email.
Speaker 1: So Toshi's technology devised a way to send what some
Speaker 1: consider a digital object to someone without leaving a copy
Speaker 1: with the sender. He called that digital object, the bitcoin.
Speaker 1: So when I send a bitcoin to someone, I no
Speaker 1: longer have a copy of the bitcoin. The person I
Speaker 1: send it to now has sole possession of the digital coin.
Speaker 1: It's handed off, just like cash. The technology that performs
Speaker 1: this task is called the blockchain. It records the transaction
Speaker 1: into a public ledger through an automated system of computers
Speaker 1: throughout the world, removing the costly middleman like Bank of America, Visa,
Speaker 1: and PayPal that deduct large transaction fees. Bitcoin was thought
Speaker 1: to be the first functioning Internet cash. Instead of gold
Speaker 1: coins or paper dollars, this new internet cash used bitcoins.
Speaker 1: A crucial feature of this bitcoin system is that there's
Speaker 1: a limit to the amount of bitcoins in circulation. Unlike
Speaker 1: the US dollar that can be printed by the Federal
Speaker 1: Reserve at will. The maximum number of bitcoins that will
Speaker 1: ever exist is twenty one million, and the bitcoins come
Speaker 1: into existence in a not so easy way. Computers raised
Speaker 1: to solve the complicated math problems of the blockchain, and
Speaker 1: when they do, they're rewarded with bitcoins. This is called
Speaker 1: bitcoin mining. The bitcoin system was designed to mimic the
Speaker 1: old gold standard, where the number of US dollars were
Speaker 1: confined to the amount of gold in the Treasury Department.
Speaker 1: This is a very important point today. As the Federal
Speaker 1: Reserve continues to print money, the US dollar loses purchasing
Speaker 1: power over time because there are more dollars in circulation.
Speaker 1: If you think of dollars as shares of stock in
Speaker 1: the United States, the more dollars that there are, the
Speaker 1: smaller the share of the United States you own. So
Speaker 1: the value of a US dollar decreases from year to year.
Speaker 1: That's why the price of products continue to rise every year.
Speaker 1: It's because your dollars are losing value. Sotoshi Nakamoto allegedly
Speaker 1: wanted to solve the this inflation problem by limiting the
Speaker 1: number of bitcoins that could ever be in circulation to
Speaker 1: a finite number that's twenty one million, so from year
Speaker 1: to year. Unlike the US dollar, bitcoins can't just be
Speaker 1: printed at will. When the Bitcoin network first launched on
Speaker 1: January third, two thousand and nine, almost no one was
Speaker 1: paying attention, but as a single bitcoin went from zero
Speaker 1: to one hundred, then to one thousand, then to nearly
Speaker 1: twenty thousand dollars, a crypto gold rush infected the globe
Speaker 1: and people wanted in. By twenty eighteen, hidden behind the
Speaker 1: bitcoin headlines, a dramatic shift was underway. Speculators entered the
Speaker 1: market wanting to make fast money on crypto, but it
Speaker 1: was a bit too late to ride the bitcoin shuttle
Speaker 1: to the moon. Gone were the days of buying a
Speaker 1: single bitcoin fo one hundred dollars, then watching the price
Speaker 1: skyrocket to twenty thousand. These speculators needed something new to
Speaker 1: happen in crypto so that they could try to ride
Speaker 1: the wave. And that's something new was a whole new
Speaker 1: job of cryptotokens going against Bitcoin's decentralized ethos. Hundreds of
Speaker 1: unscrupulous characters began creating their own cryptocurrencies controlled by the
Speaker 1: person creating them. Bitcoin's decentralization ethos went out the door,
Speaker 1: and these new tokens presented an opportunity, an opportunity that
Speaker 1: Sam Bankman Freed and his inner circle appeared to recognize.
Speaker 6: After we close today, I'm going to visit one of
Speaker 6: my sons who has a startup in Berkeley.
Speaker 2: That's again Sam Bankman Freed's father, Joe Bankman. In early
Speaker 2: twenty eighteen.
Speaker 6: It's a business and my father was a businessman and
Speaker 6: while I'm not quite evidently, I feel my father jumping
Speaker 6: into my skin a little bit and appreciating the intricacies
Speaker 6: of the business's built.
Speaker 2: Joe was a law professor at Stanford, but in the
Speaker 2: early days of Sam's crypto ventures, Joe had a side
Speaker 2: hustle helping his son. While Sam was busy trying to
Speaker 2: grow alume to research his father, Joe was exploring some
Speaker 2: of the legal issues surrounding cryptocurrency.
Speaker 8: Welcome to Stanford Legal, where we look at the cases, questions, conflicts,
Speaker 8: and legal stories that affect us all every day. I'm
Speaker 8: Pam Carlin along with Joe Bankman.
Speaker 2: Joe co hosted at Stanford Legal podcast. Just as hundreds
Speaker 2: of new cryptocurrencies flooded the market, Joe and his co
Speaker 2: host were introducing the industry to his audience.
Speaker 8: So, Joe, suppose that you and I decide to go
Speaker 8: in on a gift certificate to send a beloved friend
Speaker 8: to a day spa, and I owe you a bunch
Speaker 8: of money for it. I could hand you the cash
Speaker 8: as I did, or I could I could write you
Speaker 8: a check. You could tell me your bank account please,
Speaker 8: and then I could make a deposit or else, maybe
Speaker 8: a withdrawal. I could use a credit card if I
Speaker 8: was buying the gift certificate from the spy itself, where
Speaker 8: I could use PayPal, although I wouldn't. Those aren't the
Speaker 8: only ways to pay people these days.
Speaker 6: That's right. You could also also use blockchain technology. Blockchain's
Speaker 6: kind of a master electronic ledger that records transactions. It's
Speaker 6: often used with a cryptocurrency like bitcoin, and supporters say
Speaker 6: that blockchain technology is actually faster and cheaper as a
Speaker 6: way of sending money.
Speaker 2: By September twenty eighteen, most people had already heard of bitcoin,
Speaker 2: but far less new about the alternative crypto tookens flooding
Speaker 2: the market. Joe Bankman asked two crypto experts about some
Speaker 2: of the growing oddities within the industry.
Speaker 6: How about these things that are called icos. There's thousands
Speaker 6: of cryptocurrencies. I don't know if you'd call those digital assets.
Speaker 6: Tell us about those.
Speaker 9: Icos are at the next level of complexity.
Speaker 2: An ICO is an abbreviation for initial coin offering. It's
Speaker 2: probably not an accident that ICO sounds a lot like IPO,
Speaker 2: or initial public offering, when a private company issue shares
Speaker 2: of its stock to the public for the first time,
Speaker 2: the expert went.
Speaker 9: On, Generally, icos describe a system that's going to use
Speaker 9: something like blockchain technology at some point in the future
Speaker 9: to do something that isn't done now, and you most
Speaker 9: frequently pay for these icos by using crypto now. In
Speaker 9: my own personal opinion, the large majority of these icos
Speaker 9: or frauds or they're going to fail.
Speaker 1: I'll totally agree with that.
Speaker 2: By the way, according to these experts, a new type
Speaker 2: of fraud was entering the crypto community, and it was
Speaker 2: entering through these initial coin offerings. These new digital tokens
Speaker 2: may have used blockchain technology, but in many ways they
Speaker 2: were controlled by the companies that created them. The cryptocurrency
Speaker 2: world was taking a detour away from the ethos of bitcoin,
Speaker 2: where bitcoin was about freedom and used the blockchain to
Speaker 2: create a decentralized digital cache that bypassed the central banking system.
Speaker 2: These new digital tokens were something entirely different. Joe Bankman's
Speaker 2: co host asked the expert to elaborate on these initial
Speaker 2: coin offerings.
Speaker 8: Can you give me a for instance of like, what
Speaker 8: is it they promised to you?
Speaker 9: Sure, let me use one that the sec sued. It
Speaker 9: was called Munchies all right, that if you sent crypto
Speaker 9: to the people who are going to issue these Munchie tokens,
Speaker 9: you would in the future get a token or a
Speaker 9: coin or a bit of code that would allow you
Speaker 9: to get discounts at restaurants, and in return for that,
Speaker 9: you would instagram photos of the food, you'd write reviews
Speaker 9: of the food. So it would be a mini economy
Speaker 9: built around food and restaurants and the like, and the
Speaker 9: currency that you would use would be these Munchies.
Speaker 2: In essence, these new types of cryptocurrencies looked more like
Speaker 2: vehicles to invest in a company rather than a form
Speaker 2: of digital cash. At least that's what the Security Exchange
Speaker 2: Commission thought.
Speaker 9: The SEC wasn't thrilled with this, and they actually went
Speaker 9: and they sued the people that were launching the Munchies.
Speaker 9: They said you had to register these. You didn't register them,
Speaker 9: and they settled and they withdrew the plan to raise
Speaker 9: crypto for the Munchies.
Speaker 2: Sam Beakman Fried's father seemed dumbfounded by the scheme.
Speaker 6: You know, it's so outlandish that I'm tempted to accuse
Speaker 6: you of just making that up. How many of these
Speaker 6: have been sold? Who's buying them?
Speaker 1: Encounter.
Speaker 10: You're twenty seventeen. There was about three billion dollars raised
Speaker 10: through icos this year. In twenty eighteen, year to date,
Speaker 10: you've already had ten billion dollars raised through icos. So
Speaker 10: it's actually increased a lot, and I don't see it
Speaker 10: slowing down a any time real soon, in part because
Speaker 10: I think we haven't seen as many regulators get as
Speaker 10: aggressive as I think they probably should in regulating what
Speaker 10: is a little bit of a chaotic market.
Speaker 2: Joe Begman concluded the discussion with an obvious question.
Speaker 6: Let me maybe close by covering something a lot of
Speaker 6: people are wondering about, which is, how do we value
Speaker 6: these assets? I mean, bitcoin goes from nothing to fifteen
Speaker 6: thousand to six thousand, however useful they are, how do
Speaker 6: we know what they're worth?
Speaker 9: The short answer is, who the hell knows. They're all
Speaker 9: sorts of theories. I don't think a single one of
Speaker 9: them actually works. I have profound concerns about the reliability
Speaker 9: of information in the market. This isn't a market like
Speaker 9: the SEC where we know that we have credible information
Speaker 9: about secondary market trading and the like. It is very
Speaker 9: easy to spam. The information networks have false transactions, have
Speaker 9: false prices, and the like a lot of it is
Speaker 9: who the hell knows?
Speaker 2: These ico tokens sounded outlandish to Joe Bankman, but this
Speaker 2: new genre of digital token was clearly making money, big money,
Speaker 2: with very little regulatory oversight. People were, in essence, issuing
Speaker 2: company stock in the form of a private cryptocurrency token
Speaker 2: without having to undergo much of the oversight of an
Speaker 2: initial public offering, and this is where the opportunity was presented.
Speaker 2: Creating a cryptocurrency and becoming a middleman in the trading
Speaker 2: of them could be very lucrative, much more so than
Speaker 2: being a trading firm like Alimta Research, where you need
Speaker 2: it to be right on every trade to make money.
Speaker 2: Sam Bankment, Freed and its inner circle could no doubt
Speaker 2: see the possibilities and they wanted in on the action.
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Speaker 1: Welcome back to Red Pilled America. So by twenty eighteen,
Speaker 1: the cryptocurrency world was quietly undergoing an evolution. Bitcoin was
Speaker 1: monopolizing the headlines, but new types of cryptocurrencies were entering
Speaker 1: the market. Unlike Bitcoin, where computers had to work hard
Speaker 1: solving mathematic problems to mine a limited number of bitcoin.
Speaker 1: Some of these new cryptotokens were just created at will.
Speaker 1: They looked less like digital cash and more like an
Speaker 1: initial public offering of a stock. In fact, they were
Speaker 1: even called by a similar name, Initial coin Offering or ICO.
Speaker 1: Joe Bankman thought the whole scheme sounded outlandish. How could
Speaker 1: the value of these lines of computer code even be determined,
Speaker 1: he thought out loud. But the astonishing thing is. Within
Speaker 1: a matter of months, his son, Sam Bankman Freed decided
Speaker 1: he wanted to become a crypto middleman and use his
Speaker 1: own initial coin offering. To get that idea off the ground,
Speaker 1: Sam reached out to an old friend, a guy named
Speaker 1: Gary Wang, a Chinese American. Gary first met Sam way
Speaker 1: back in high school when they both attended a math
Speaker 1: summer camp. The two became roommates at MIT. Gary got
Speaker 1: a degree in mathematics and computer science and could write
Speaker 1: the code necessary to build a cryptocurrency exchange and also
Speaker 1: any backdoor in the system that could be used to
Speaker 1: hide shenanigans. The two became co founders in Sam's new idea,
Speaker 1: and in May twenty nineteen, Sam announced his crypto middleman
Speaker 1: venture to the world.
Speaker 4: We also recently launched a derivatives exchange in crypto called FTX.
Speaker 1: FTX was in exchange where people could trade and store
Speaker 1: different cryptocurrencies. With Gary's knowledge of writing code and Sam's
Speaker 1: experience working as a Wall Street trader, the two could
Speaker 1: create a cryptocurrency exchange that had the look and feel
Speaker 1: of a legitimate stock exchange platform, a platform so sleek
Speaker 1: that it could attract the traditional trading community. As Sam
Speaker 1: and Gary were developing FTX, alternative cryptocurrencies got a jolt
Speaker 1: of credibility.
Speaker 8: Facebook announcing a new digital currency called Libra, and Facebook
Speaker 8: says this digital currency aims to make it as easy
Speaker 8: to send money around the world as it is to
Speaker 8: send a photo.
Speaker 1: With Facebook entering the race, the crypto gold rush expanded,
Speaker 1: no doubt. Seeing the opportunity, Sam quickly jumped in the game.
Speaker 1: In July twenty nineteen, he launched his own initial coin,
Speaker 1: offering the same type of cryptocurrency offering that his father,
Speaker 1: just a few months earlier learned was rife with fraud.
Speaker 9: Now, in my own personal opinion, the large majority of
Speaker 9: these icos are frauds or they're going to fail.
Speaker 10: I'll totally agree with that.
Speaker 1: By the way, Sam called his new cryptocurrency FTT. It
Speaker 1: may have been a digital token like bitcoin, but unlike
Speaker 1: Satoshi Nakamoto's brainchild, FTT was not mined by computers performing
Speaker 1: massive amounts of computational work. Sam just made FTT tokens
Speaker 1: himself out of thin air. These tokens functioned kind of
Speaker 1: like a stock in his company FTX. He now just
Speaker 1: needed investors to put their money into that stock.
Speaker 2: It was around this time that a man entered Sam's life.
Speaker 11: So I was born in China and then I moved
Speaker 11: to Canada when.
Speaker 6: I was twelve.
Speaker 2: That's Chong Peng Chow that goes by the moniker CZ.
Speaker 2: CZ got his feet wet in finance working at Bloomberg.
Speaker 11: And then in two thousand and five, I returned to
Speaker 11: Shanghai to do a startup together with five other funders.
Speaker 2: While at this startup, cz began to hear about something
Speaker 2: called bitcoin. And at the time in twenty thirteen, many
Speaker 2: people from traditional Wall Street were let's just say they
Speaker 2: weren't too fond of this new cryptocurrency.
Speaker 8: I just had to get your thought on bitcoin.
Speaker 2: Famed investor and vice chairman of Berkshire Hathaway, Charlie Munger
Speaker 2: was asked for his thoughts on bitcoin.
Speaker 12: This digital currency that's out there that people say, oh,
Speaker 12: it might be the next big thing. What do you think.
Speaker 1: I think it's rat poison.
Speaker 5: Put him down?
Speaker 3: Is on de side.
Speaker 5: Do you understand what they're trying to do with it?
Speaker 1: No, but I regard it as deep belief.
Speaker 2: Lagy CZ, coming from a traditional Wall Street from Bloomberg,
Speaker 2: may have taken Charlie Munger words on the matter is
Speaker 2: gospel that then he attended an event, But the.
Speaker 11: Thing that turned for me was the Vegas conference in
Speaker 11: December twent thirteen.
Speaker 6: Where are you coming from Toronto?
Speaker 3: He recommended to other people, and I'm going to recommend
Speaker 3: to everybody so I find the best compass of event.
Speaker 2: Series Inside Bitcoin's twenty thirteen was one of the industry's
Speaker 2: first large scale bitcoin conferences. Again CZ, so I went there.
Speaker 11: I went to Vegas to learn about bitcoin and met
Speaker 11: a bunch of people, but it was really a group
Speaker 11: of nice people. They're non money driven, they're very nice.
Speaker 2: CZ understood the blockchain technology behind bitcoin and thought it worked.
Speaker 11: So after that conference, I said, Okay, if this is
Speaker 11: the community that's around. I'm very happy to join this industry,
Speaker 11: and I know that it will be the future, So
Speaker 11: I know, basically it's like he's covering the Internet. In
Speaker 11: nineteen eighteen nine, by.
Speaker 2: The end of the conference, CZ decided to leave the
Speaker 2: startup he was working.
Speaker 11: At and I decided to jump full into crypto. Back then,
Speaker 11: he was called the bitcoin industry. So I worked at
Speaker 11: a couple other cryptic changes first, and then by two seventeen,
Speaker 11: we thought the timing was about right. We want to
Speaker 11: take a shot at it.
Speaker 2: CZ launched Binance, a cryptocurrency exchange.
Speaker 11: We just said, well, let's take a shot at see
Speaker 11: if it works. When we started staling seventeen, most of
Speaker 11: the exchanges are unusable on half of the days because
Speaker 11: of the volumes too high, so we thought we could
Speaker 11: improve that.
Speaker 2: So by the time Sam bankmin Freed was developing FTX
Speaker 2: in twenty nineteen, CZ was as veteran as they come
Speaker 2: in the cryptocurrency industry. He was running a wildly successful
Speaker 2: crypto exchange himself and was just the type of man
Speaker 2: that Sam needed to put his crypto exchange FTX on
Speaker 2: the map. CZ would later recall his early relationship with
Speaker 2: Sam Tulana nineteen.
Speaker 11: Sam and I actually talked about potentially collaborating our futures
Speaker 11: exchange together. Somehow you didn't pan out, but we actually
Speaker 11: ended up investing in FTX.
Speaker 2: By the end of twenty nineteen, Cz became one of
Speaker 2: the first major investors in FTX, and in return for
Speaker 2: his investment, Sam gave Cz a bundle of FTT tokens.
Speaker 2: To get others to invest in his venture, Sam offered
Speaker 2: FTX users rewards and discounts if they stored their funds
Speaker 2: in his FTT tokens. In a way, Sam was getting
Speaker 2: people to buy a kind of stock in his company,
Speaker 2: but all they really owned were bits of computer code
Speaker 2: that Sam created out of thin air. Money began flowing
Speaker 2: into Sam's coffers. He was not only making a fee
Speaker 2: from the trades on his ftx platform. People used ftx
Speaker 2: to store their cryptocurrency like a bank account, so he
Speaker 2: also acquired access to ftx users crypto funds.
Speaker 3: Again, Dumberg, when you study the history of frauds in
Speaker 3: the middle of Manias, again, there's sort of I think
Speaker 3: there's two categories of frauds. The frauds that happen all
Speaker 3: the time, those con games and conference schemes. But then
Speaker 3: there's people who are attracted to manias with the maybe
Speaker 3: not the intent originally to commit fraud, but very early
Speaker 3: on occurs. And we wrote about this in one of
Speaker 3: our pieces, sort of incrementalism. Once you institutionalize stealing a penny,
Speaker 3: stealing a nickela diamond, a quarter become a lot easier.
Speaker 2: Alamina Research may have had an unsustainable business model that
Speaker 2: with FTX, Sam's crypto ventures began to stabilize, just long
Speaker 2: enough for Sam to catch a ride on a crypto's tsunami.
Speaker 13: We begin tonight with the growing concern as the toll
Speaker 13: from that deadly coronavirus now grows, spreading from Wuhan, China,
Speaker 13: and tonight that first case here in the US, the
Speaker 13: patient in isolation now being treated by that robot.
Speaker 14: The coronavirus outbreak maybe battering stock prices, but it's boosting
Speaker 14: the fortunes of bitcoin. The value of the cryptocurrency is
Speaker 14: now hovering at around ninety three hundred dollars. That's up
Speaker 14: nearly ten percent over just the last week.
Speaker 1: As the price of bitcoin rose. In twenty twenty, Sam
Speaker 1: Bankman Freed began to explore his effective altruism, But in
Speaker 1: practice the philosophy looked familiar.
Speaker 4: When you think about how much impact something like the
Speaker 4: presidency can have on the world. I mean, whatever you
Speaker 4: think about it, you know, whoever you think would be
Speaker 4: good or bad at it, it clearly matters.
Speaker 1: I let me to research. Donated five million dollars to
Speaker 1: Joe Biden's twenty twenty campaign, making Sam the second largest
Speaker 1: donor to Biden's campaign. Sam's brand of effective altruism looked
Speaker 1: a lot like old fashioned political lobbying.
Speaker 4: You know, you could look at like the budget, you know,
Speaker 4: and like how much impact does the president have on
Speaker 4: the budget? You know, I think we're up to like
Speaker 4: twenty trillion dollars over a term or something like that.
Speaker 1: He'd spread his effective altruism donations to other politicians as well,
Speaker 1: on both sides of the aisle. After Biden's win, Sam's
Speaker 1: business exploded along with the price of bitcoin.
Speaker 3: You know, we have low volumes between Christmas and New
Speaker 3: Year's Yet Christmas Eve to Sunday it rose or over
Speaker 3: twenty percent, breaching that twenty eight thousand.
Speaker 12: I mean, can this actually last?
Speaker 9: So the next level we're kind of looking at year
Speaker 9: is the thirty thousand level, which is really astonishing thinking
Speaker 9: about from where we started at the beginning of the year.
Speaker 12: Bitcoin it broke through the fifty thousand dollars level just
Speaker 12: a short time ago. It's now at more than seventy
Speaker 12: percent since January first.
Speaker 9: The price of bitcoin has passed sixty thousand US dollars
Speaker 9: for the first time this weekend.
Speaker 13: But take a look at this to the moon.
Speaker 1: As Bitcoin's price rose, the price of Sam's FTT token
Speaker 1: skyrocketed along with it. FTT tokens went from roughly three
Speaker 1: dollars and fifty cents on election Day twenty twenty to
Speaker 1: nearly sixty dollars a token just six months later. At
Speaker 1: the time, no one quite understood why ftt's price rose.
Speaker 1: Sam and his inner circle looked like geniuses that could
Speaker 1: do no wrong, an idea that they started buying into.
Speaker 1: The team became a bit drunk with their crypto success,
Speaker 1: so drunk that they became sloppy in public. Sam tweeted,
Speaker 1: quote stimulants when you wake up, sleeping pills if you
Speaker 1: need them while you sleep. The CEO of Alameda Research,
Speaker 1: Carolina Ellison, even tweeted, nothing like regular amphetamine use to
Speaker 1: make you appreciate how dumb a lot of normal, non
Speaker 1: meta cadd human experience is. The crew obviously felt invincible,
Speaker 1: and Sam started spending money as if he was printing
Speaker 1: it himself. He lathered the wallets of the world's biggest
Speaker 1: cultural influencers, and it was around this time he got
Speaker 1: the attention of corporate media.
Speaker 9: Sam, it's good to have you.
Speaker 4: Yours exchange is the one that Tom Brady and does
Speaker 4: Giselle Bunch and now have an equity stake in what
Speaker 4: is going on there. Yeah, it's been super fun working
Speaker 4: with them and talking with them. You know, I think
Speaker 4: they've been interested in crypto for a while and they're
Speaker 4: obviously extremely impressive people.
Speaker 3: Again, Dumberg, it was when bitcoin was at sixty five thousand.
Speaker 3: It was our first introduction to Sam Bank my feet,
Speaker 3: of all people, he was on CNBC in his pajamas,
Speaker 3: looked like he hadn't showered in several days, and they
Speaker 3: were treating him. And I thought to myself that this
Speaker 3: guy must be a billionaire, Like, what am I doing wrong?
Speaker 3: This guy's clearly a billionaire, and they'd never heard of
Speaker 3: him before, and here was and I saw his name,
Speaker 3: and his name flashed up on CNBC and I was
Speaker 3: looking at this guy on television and look, I've never
Speaker 3: been on CNBC, but I would wear a suit, i
Speaker 3: would comb my hair, I'd probably have a shower. This
Speaker 3: guy was in a bean chair, basically in his pajamas,
Speaker 3: with a big moth on his head, and they were
Speaker 3: treating this guy like he was a guru.
Speaker 8: How did you do this so quickly?
Speaker 10: I mean, your company is two years old and you're
Speaker 10: doing something like four hundred billion dollars worth of volume
Speaker 10: per month.
Speaker 3: And having been around a few of these market cycles
Speaker 3: like I'm sure you have, I just couldn't believe what
Speaker 3: I was seeing now. Of course it was way too early,
Speaker 3: and you know, Bitcoin did its thing, but from the
Speaker 3: moment I saw the man, it stuck to me.
Speaker 1: But the finance world was buying into Sam's sloppy persona literally,
Speaker 1: Sequoia Capital, one of Silicon Valley's most storied venture capitalist firms,
Speaker 1: jumped in line to give Sam money. I mean, this
Speaker 1: was a firm that invested in Google, PayPal, Instagram, Zoom,
Speaker 1: and Apple. But Sam seemed unimpressed by their track record.
Speaker 1: When he pitched the firm. He was playing the video
Speaker 1: game League of legends. The team at Sequoia Capital swooned
Speaker 1: over this homeless she crypto boy. I love this, founder,
Speaker 1: said one partner. I'm a ten for ten, added another.
Speaker 1: They felt so strongly about Sam that they chronicled their
Speaker 1: reaction to his antics on their company website, again Doomberg.
Speaker 3: In the history of financial manias. At their apex, they
Speaker 3: all suffer from the same characteristic, which is fear of
Speaker 3: missing out. So we've been asked, how is it that
Speaker 3: one point eight billion dollars of VC money from the
Speaker 3: most prestigious venture capital firms in the world would find
Speaker 3: its way into Sam bankmcfreed's scheme, if you can convince
Speaker 3: the world that you're the hot deal, you can get
Speaker 3: away with anything, and he did. And I do think
Speaker 3: this is sort of a universal trait of humans and
Speaker 3: con artists and grifter's play onto this trait. The fear
Speaker 3: of missing out is a very intoxicating drug.
Speaker 1: Sequoya eventually forked over two hundred and ten million dollars
Speaker 1: to Sam bankman Freed and Sam was just getting started.
Speaker 3: And if you look literally the terms of those investments
Speaker 3: that Sekoja and soft Bank and the Antaro Pensions Fund
Speaker 3: and Dan Low and pick your favorite big name investor
Speaker 3: who has you know, Forducier obligations to their own investors
Speaker 3: to do some semblances due dilligence in this regard. Literally,
Speaker 3: the terms of engagement were here's the price, here's the timing.
Speaker 3: You fund by Friday, or you're not in the deal.
Speaker 3: And they just said, I'm in. I'd rather be in
Speaker 3: the deal because in a mania, access the deals is
Speaker 3: the number one driver of returns, and so people who
Speaker 3: were willing to do due diligence were just left out
Speaker 3: of the deal.
Speaker 5: He pitched us in that seventeen billion dollar round.
Speaker 2: That's famed Canadian American venture capitalist Chamath Polyapatia recalling the
Speaker 2: time Sam and his team pitched his firm in the
Speaker 2: summer of twenty twenty one.
Speaker 5: And I did a zoom with him, and after the zoom,
Speaker 5: I'm like, this doesn't make much sense, but I'll have
Speaker 5: my team do some work. We did some work, and
Speaker 5: we sent him a two page deck and we said,
Speaker 5: here are our recommendations for taking the next step.
Speaker 11: One was the.
Speaker 5: Formation of a board and was the creation of dual
Speaker 5: class STOC. The third was some reps and warranties around
Speaker 5: affiliated transactions and related party transactions, and the person that
Speaker 5: worked there called us back in literally and I'm not
Speaker 5: kidding you said go yourself was quote unquote the response
Speaker 5: to us.
Speaker 2: The finance world was throwing so much money at Sam
Speaker 2: with no questions, asked that he could tell investors like
Speaker 2: Chamath to go pound sand. When he was done with
Speaker 2: his fundraising tour, FTX raked in an industry record nine
Speaker 2: hundred million dollars. FTX, a company that created their FTT
Speaker 2: tokens out of thin air, was now valued at eighteen
Speaker 2: billion dollars.
Speaker 11: Can I talk to you about something?
Speaker 1: Yeah, we talked about it. I got another ten years left,
Speaker 1: maybe fifteen, not that this is big.
Speaker 2: With his windfall, Sam began running ads for FTX with
Speaker 2: celebrity endorsements like Tom Brady and Giselle.
Speaker 4: FTX is the safest and easiest way to buy and
Speaker 4: sell crypto.
Speaker 9: It's the best way to get in the game.
Speaker 2: By September, Sam moved his companies from Hong Kong to
Speaker 2: the Bahamas, and when he stated his reason for the move,
Speaker 2: he hinted at a plan that was in motion.
Speaker 10: What was pushed you over the edge to need to
Speaker 10: move the company away?
Speaker 1: From Hong Kong.
Speaker 4: Yeah, so I think the biggest things that we're thinking.
Speaker 4: We'd never had a single sort of formal headquarters before
Speaker 4: and we were really excited about establishing one. And the Mhammads,
Speaker 4: I think the biggest things. First of all, they passed
Speaker 4: a really progressive, forward looking bill regulating the crypto industry.
Speaker 15: There.
Speaker 4: It's one of the only countries in the world that
Speaker 4: has a comprehensive licensing him from crypto exchanges. That's really exciting.
Speaker 2: Sam appeared to have something up his sleeve. By the
Speaker 2: end of twenty twenty one. A plan was in motion,
Speaker 2: a plan to take out his biggest competitor, Finance, owned
Speaker 2: by his friend CZ. You see, a few months earlier,
Speaker 2: Sam decided to distance himself from CZ by buying out
Speaker 2: his stake in FTX. He then proceeded to bad mouth
Speaker 2: CZ's efforts in complying with government regulators.
Speaker 4: How you viewede what's been happening with finance throughout the
Speaker 4: world in recent months of weeks. Yeah, it's been quite
Speaker 4: the barge. I guess you know. Something else say is that,
Speaker 4: you know, we try really hard to be as cooperative
Speaker 4: as we can with regulators. We try to be proactive
Speaker 4: about doing what we think is not just compliant but
Speaker 4: also you know, within the intentions of where regulators want
Speaker 4: to go. When you don't do that, and when you
Speaker 4: sort of appear less flexible or responsive, I think that
Speaker 4: more likely to lead to cases where regulators might feel like,
Speaker 4: you know, they have no choice but to start, you know,
Speaker 4: bringing the hammer.
Speaker 2: It appeared that SAM was trying to position himself as
Speaker 2: regulator friendly, while as primary competitor CZ was not. As
Speaker 2: the end of twenty twenty one approached, SAM was openly
Speaker 2: talking about the need for regulations in the cryptocurrency industry.
Speaker 4: And I think you know you've heard share Genzler say,
Speaker 4: you know again again, Look, we would love to see
Speaker 4: crypto platforms coming in register.
Speaker 2: Gary Gensler is a chairman of the Security and Exchange Mission,
Speaker 2: the federal commission that sets some police's stock market regulations.
Speaker 4: If I guess, I would guess that you know, he
Speaker 4: and the SEC have been thinking about what the regime
Speaker 4: like that might look like. I would not be surprised
Speaker 4: to see developments over the.
Speaker 1: Next year on that.
Speaker 2: If Sam could influence the industry's US regulator, he could
Speaker 2: help enact rules that his companies could meet, but his
Speaker 2: competitors could not. All he'd need to do is become
Speaker 2: the go to voice in Washington, d C. On the
Speaker 2: crypto industry. Do you want to hear red pilled America
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Speaker 2: So around mid twenty twenty one, it appeared that Sam
Speaker 2: Bankment Freed had a plan in motion. If he could
Speaker 2: influence the industry's US regulators, he could help enact rules
Speaker 2: that his company could meet but that other competitors could not.
Speaker 2: All he needed to do was become the go to
Speaker 2: voice in Washington, d C. On the crypto industry. By
Speaker 2: the close of the year, Sam Bankman Freed's political donations
Speaker 2: seem to have paid off.
Speaker 3: Mister Bankman Freed, you are now recognized for five minutes
Speaker 3: to present your oral testimony.
Speaker 4: Thank you Chairwaters, Ranking Member mckenry, and all the members
Speaker 4: of the committee for having me here today to testify.
Speaker 4: It's an honor to be here.
Speaker 2: Sam testified before Congress about the future of finance, and
Speaker 2: he argued for the need for more regulations in the
Speaker 2: cryptocurrency industry.
Speaker 4: I think that it is coming, and I think it
Speaker 4: is important, and I think that is healthy that the
Speaker 4: industry will be regulated. I think it is also already
Speaker 4: regulated in a number of ways. I think that there
Speaker 4: are points that need to be addressed to give oversight
Speaker 4: of various aspects of the industry that do not have
Speaker 4: sufficient oversight right now, and I also think that it
Speaker 4: is important to do so in a reasonable and common
Speaker 4: sense way that understands the industry. Well.
Speaker 15: If you look at the history of FTX, what you'll
Speaker 15: see is there is a constant need to defeat opponents.
Speaker 15: Any competitor to FTX as an exchange or Alameda is
Speaker 15: a VC arm They went after their competitors.
Speaker 2: That's been Armstrong, crypto enthusiast and creator of bitboycrypto dot com.
Speaker 15: And I always say, you know, the easiest way to
Speaker 15: become the tallest building in town is to tear down
Speaker 15: all the other buildings, and that was what they were
Speaker 15: trying to do. They were trying to create a monopoly
Speaker 15: through tearing other companies down.
Speaker 2: It appeared that Sam was making a play to gain
Speaker 2: monopoly control of the American crypto industry by taking out
Speaker 2: his primary competitor, CZ's crypto exchange finance that Sam wasn't
Speaker 2: the only alpha predator in the crypto space, you see.
Speaker 2: To buy out he's investment in FTX, Sam gave CZ
Speaker 2: a bunch of his FTT tokens as a part of
Speaker 2: the deal, and when he did, he unwittingly gave CZ
Speaker 2: a deadly weapon.
Speaker 15: When you really look at you know, CZ vers Sam
Speaker 15: for about six months there was a deterioration of that relationship.
Speaker 15: Is I believe Caz found out more and more about
Speaker 15: what Sam was doing, and then at some point he
Speaker 15: found something out that was like, Okay, now I can't
Speaker 15: I can't look back, I can't turn away. At this
Speaker 15: point I got to, you know, slam down on this
Speaker 15: and do something.
Speaker 1: That's what he did. Coming up on Red Pilled America.
Speaker 3: This guy's just flippantly saying we had people wired to
Speaker 3: Alamito's bank accounts because FTX quote didn't have banking is incredible,
Speaker 3: Like you're just admitting wirefrad which is all the more
Speaker 3: incredible when you consider that his parents are professors at
Speaker 3: Stanford University.
Speaker 12: I think there's been a number of headlines, as you
Speaker 12: know about FTX, the company buying a lot of real
Speaker 12: estate up in the Bahamas. But then there's also reports
Speaker 12: that your parents signed and were effectively provided with what
Speaker 12: seemed like a vacation home.
Speaker 4: I don't know the details of that house for my parents.
Speaker 15: And when they needed more money, they would just print
Speaker 15: more FTT and then they would be able to immediately
Speaker 15: add value to their balance sheets.
Speaker 16: I am no cryptocurrency expert of no finance ex but
Speaker 16: I don't think you answered my question. I always ask, yeah,
Speaker 16: did you know that FTX deposits were used to pay
Speaker 16: off Alameda creditors?
Speaker 4: I don't know of FTX deposits being used to pay
Speaker 4: off Alameda creditors.
Speaker 2: Red Pilled America is an iHeartRadio original podcast. It's owned
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