1 00:00:03,160 --> 00:00:07,960 Speaker 1: This is Bloombird Law with June Brusso from Bloomberg Radio. 2 00:00:09,119 --> 00:00:11,319 Speaker 1: So hard to compare these things, but I think it's 3 00:00:11,360 --> 00:00:14,040 Speaker 1: fair to say that by any anyone's license is one 4 00:00:14,080 --> 00:00:17,880 Speaker 1: of the biggest financial frauds in American history. Federal prosecutors 5 00:00:17,960 --> 00:00:20,840 Speaker 1: moved at warp speed to charge f t X founder 6 00:00:20,920 --> 00:00:24,599 Speaker 1: Sam Bankman Freed in a sweeping eight count indictment for 7 00:00:24,640 --> 00:00:28,760 Speaker 1: allegedly misappropriating billions of dollars in customer funds for his 8 00:00:28,920 --> 00:00:33,559 Speaker 1: personal use and risky bets by sister trading house Alameda, Manhattan. 9 00:00:33,600 --> 00:00:37,600 Speaker 1: US attorney Damien Williams said Bankman Freed scammed ft X 10 00:00:37,760 --> 00:00:41,559 Speaker 1: customers and venture capital backers out of billions. Even though 11 00:00:41,560 --> 00:00:45,120 Speaker 1: the cryptome Maven might not fit the typical profile of 12 00:00:45,120 --> 00:00:47,720 Speaker 1: a fraud ster, Well, you can commit fraud and chorts 13 00:00:47,720 --> 00:00:49,600 Speaker 1: and t shirts in the sun the best possible to 14 00:00:49,960 --> 00:00:52,919 Speaker 1: Just a few weeks ago, Bankman Freed was on ABC 15 00:00:53,200 --> 00:00:57,000 Speaker 1: TV denying any comparison to Bernie made Off. When you 16 00:00:57,040 --> 00:01:00,600 Speaker 1: look at the classic Bernie made Off story, there is 17 00:01:00,640 --> 00:01:05,720 Speaker 1: no real business there. The whole thing, as I understand it, 18 00:01:05,760 --> 00:01:09,199 Speaker 1: I think was was just one one big Ponzi scheme, 19 00:01:09,360 --> 00:01:13,080 Speaker 1: right f t X, that was a real business, but 20 00:01:13,240 --> 00:01:16,759 Speaker 1: prosecutors say f t X was just a scam from 21 00:01:16,840 --> 00:01:20,280 Speaker 1: day one, or as John ray It's new CEO put it, 22 00:01:20,680 --> 00:01:23,959 Speaker 1: this is really old fashioned and embezzlement. This is just 23 00:01:24,360 --> 00:01:28,800 Speaker 1: taking money from customers and using it for your own purpose, 24 00:01:29,600 --> 00:01:33,520 Speaker 1: not sophisticated at all. My guest is former federal prosecutor 25 00:01:33,600 --> 00:01:38,120 Speaker 1: Renato Marianti, a partner at Brian Cave Layton Paisner. With 26 00:01:38,280 --> 00:01:42,520 Speaker 1: complex financial crimes, it usually takes prosecutors a while to 27 00:01:42,560 --> 00:01:45,679 Speaker 1: bring charges. It took the Feds more than two years 28 00:01:45,720 --> 00:01:49,920 Speaker 1: to charge Jeff Skilling after the Enron collapsed. So what 29 00:01:50,000 --> 00:01:52,680 Speaker 1: do you make of the speed with which these charges 30 00:01:52,680 --> 00:01:57,320 Speaker 1: were brought. It's remarkable, absolutely remarkable. I have never seen 31 00:01:57,720 --> 00:02:03,640 Speaker 1: a case of this scope within weeks of the precipitating 32 00:02:03,640 --> 00:02:07,000 Speaker 1: event before. In other words, I used to investigate when 33 00:02:07,000 --> 00:02:11,400 Speaker 1: I was a federal prosecutor complex financial crime. Those investigations 34 00:02:11,400 --> 00:02:15,800 Speaker 1: would typically take years. A fast investigation would take months, 35 00:02:15,960 --> 00:02:18,720 Speaker 1: and now we're seeing a case that was brought a 36 00:02:18,760 --> 00:02:22,760 Speaker 1: little over a month after the collapse of FDx. So 37 00:02:22,840 --> 00:02:26,040 Speaker 1: that's just absolutely sounding and I think what it speaks 38 00:02:26,080 --> 00:02:29,680 Speaker 1: to when you look at that end the breath of 39 00:02:29,720 --> 00:02:32,720 Speaker 1: the charges that are brought against Mr Bankman Free. It 40 00:02:32,880 --> 00:02:36,639 Speaker 1: really suggested me a confidence that prosecutors have in this 41 00:02:36,720 --> 00:02:40,000 Speaker 1: case that's remarkable that I haven't seen before. This is 42 00:02:40,040 --> 00:02:46,320 Speaker 1: a sweeping indictment charging conspiracy, fraud, money laundering, among other things. 43 00:02:46,360 --> 00:02:49,280 Speaker 1: What struck you most about it a couple of things 44 00:02:49,320 --> 00:02:52,600 Speaker 1: to make this stand out. One is the sheer, breath 45 00:02:52,880 --> 00:02:56,440 Speaker 1: and brazen nature of the alleged fraud. This is not 46 00:02:56,600 --> 00:03:00,920 Speaker 1: a fraud scheam related to a very particul killer portion 47 00:03:01,200 --> 00:03:04,640 Speaker 1: of FDx business, not related to a specific deal or 48 00:03:04,680 --> 00:03:08,799 Speaker 1: a specific customer. Was the beds of alleged is that 49 00:03:09,160 --> 00:03:12,400 Speaker 1: effectively all of fd X was a giant fraud on 50 00:03:12,520 --> 00:03:16,000 Speaker 1: its customers, that all Alameda with the frauding and customers 51 00:03:16,000 --> 00:03:22,000 Speaker 1: and investors, very widescale frauds, very simple, straightforwards, garden variety frauds. 52 00:03:22,120 --> 00:03:25,239 Speaker 1: So that I think certainly contributes to the confidence the 53 00:03:25,280 --> 00:03:29,760 Speaker 1: Feds have. Another thing that's unusual here is that Mr 54 00:03:29,840 --> 00:03:33,640 Speaker 1: Banker Freed, he took it upon himself to answer everyone's 55 00:03:33,720 --> 00:03:37,600 Speaker 1: question about this and really locked himself into a story 56 00:03:38,000 --> 00:03:40,800 Speaker 1: more than I've ever seen before. We're not talking about 57 00:03:40,800 --> 00:03:45,000 Speaker 1: one lone interview. Mr bank the greed spokes the many 58 00:03:45,080 --> 00:03:49,720 Speaker 1: reporters he spoke on Twitter spaces really answered very insight 59 00:03:49,840 --> 00:03:54,360 Speaker 1: the questions for hours, making it very difficult for defense 60 00:03:54,440 --> 00:03:58,520 Speaker 1: councils to weave a story that isn't already locked in. 61 00:03:58,720 --> 00:04:02,000 Speaker 1: So fraud guters not that they can contradict the story 62 00:04:02,040 --> 00:04:05,200 Speaker 1: that he's already locked himself into. I think that could 63 00:04:05,400 --> 00:04:08,480 Speaker 1: explain a lot of their compas. Yeah, surprising because I'm 64 00:04:08,520 --> 00:04:11,920 Speaker 1: sure his lawyers told him to be quiet. But do 65 00:04:11,960 --> 00:04:14,960 Speaker 1: you think he was trying to set up a defense 66 00:04:15,040 --> 00:04:19,200 Speaker 1: basically saying I made mistakes, I may have commingled funds, whatever, 67 00:04:19,640 --> 00:04:22,680 Speaker 1: but I didn't mean to defraud anyone. I think that's right, 68 00:04:22,839 --> 00:04:25,640 Speaker 1: to be fair. That is not an uncommon defense in 69 00:04:25,680 --> 00:04:27,839 Speaker 1: a froud case. In fact, I would say that that 70 00:04:28,000 --> 00:04:30,640 Speaker 1: is in many ways the typical defense that you would 71 00:04:30,640 --> 00:04:32,720 Speaker 1: see in a froud case. In other words, I may 72 00:04:32,760 --> 00:04:36,080 Speaker 1: have been in intentive or enough, or a bad businessman, 73 00:04:36,360 --> 00:04:40,240 Speaker 1: but I'm not a fraudster. I wasn't intending to do that. 74 00:04:40,320 --> 00:04:44,200 Speaker 1: Because the prosecution has to prove beyond a reasonable doubt 75 00:04:44,240 --> 00:04:47,719 Speaker 1: that the defense it had the intense defraud. But that said, 76 00:04:48,160 --> 00:04:52,239 Speaker 1: the problem for Mr Banker free is really with how 77 00:04:52,360 --> 00:04:54,240 Speaker 1: this is going to play out of the trial. This 78 00:04:54,440 --> 00:04:57,880 Speaker 1: is why he really did himself a disservice by concluding 79 00:04:58,080 --> 00:05:00,480 Speaker 1: that he didn't need lawyers. You know, he's ad at 80 00:05:00,480 --> 00:05:03,000 Speaker 1: one point that he understood the law better than lawyers did, 81 00:05:03,040 --> 00:05:05,080 Speaker 1: and that sort of thing. And I think he did 82 00:05:05,160 --> 00:05:08,800 Speaker 1: himself a disservice because under the federal rules of evidence, 83 00:05:09,080 --> 00:05:13,160 Speaker 1: he cannot introduce his out of court statements in his defense. 84 00:05:13,400 --> 00:05:16,839 Speaker 1: They are inadmissible here says, but if the government wants 85 00:05:16,880 --> 00:05:20,120 Speaker 1: to pick and choose and find bits of those interviews 86 00:05:20,160 --> 00:05:24,400 Speaker 1: that are incriminating, they can introduce those specific pieces of 87 00:05:24,440 --> 00:05:28,400 Speaker 1: his interviews as admissions by a party opponent. And so 88 00:05:28,480 --> 00:05:30,520 Speaker 1: he put himself in a situation with a lot of 89 00:05:30,560 --> 00:05:33,960 Speaker 1: downside and no upside. He is going to be facing, 90 00:05:34,000 --> 00:05:38,160 Speaker 1: in a criminal case, a lot of negative statements that 91 00:05:38,279 --> 00:05:41,880 Speaker 1: the Feds candy playing his way, and he can't play 92 00:05:41,920 --> 00:05:45,880 Speaker 1: any positive statements. His response has to be to take 93 00:05:45,960 --> 00:05:48,680 Speaker 1: the stand, and if he does that, he's going to 94 00:05:48,800 --> 00:05:52,960 Speaker 1: be facing a barrage of his own prior statements. He's 95 00:05:53,120 --> 00:05:57,200 Speaker 1: effectively locked himself into regarding his own testimony and put 96 00:05:57,279 --> 00:06:00,440 Speaker 1: himself in a situation where he's got to remember and 97 00:06:00,480 --> 00:06:03,120 Speaker 1: beginsistent with all the things he said in the past, 98 00:06:03,360 --> 00:06:06,000 Speaker 1: even if his lawyers later realized that some of the 99 00:06:06,080 --> 00:06:09,120 Speaker 1: things he said previously we're not the smart thing for 100 00:06:09,200 --> 00:06:11,960 Speaker 1: him to say at trial. So what strikes me is 101 00:06:12,000 --> 00:06:14,400 Speaker 1: that prosecutors have said this was one of the biggest 102 00:06:14,400 --> 00:06:19,279 Speaker 1: financial frauds in American history, billions of dollars disappearing. Yet 103 00:06:19,560 --> 00:06:22,599 Speaker 1: as you said, and as John Ray, who has taken 104 00:06:22,640 --> 00:06:26,200 Speaker 1: over f t X said, this is just plain old embezzlement. 105 00:06:26,640 --> 00:06:28,840 Speaker 1: So why did it take so long then for it 106 00:06:28,920 --> 00:06:32,200 Speaker 1: to be discovered for it to fall apart? That's a 107 00:06:32,279 --> 00:06:35,359 Speaker 1: great question. I think there's a number of reasons why. 108 00:06:35,680 --> 00:06:42,200 Speaker 1: One is that SPS was able to successfully convince not 109 00:06:42,240 --> 00:06:46,560 Speaker 1: only the customers of FTX and his investors, but also 110 00:06:46,640 --> 00:06:50,479 Speaker 1: the public at large that he was some sort of visionary, 111 00:06:50,839 --> 00:06:54,599 Speaker 1: you know, potentially the world's first trillion era because he 112 00:06:54,720 --> 00:06:59,080 Speaker 1: had this large personality, and I think that that caused 113 00:06:59,160 --> 00:07:05,799 Speaker 1: many people not to exercise the appropriate judgment and conduct 114 00:07:05,920 --> 00:07:09,240 Speaker 1: the appropriate due diligence. I think another factor is that 115 00:07:09,320 --> 00:07:12,080 Speaker 1: it's fair to say that there has been a lot 116 00:07:12,160 --> 00:07:17,760 Speaker 1: of excitement about CRIPTO, and enthusiasm that has caused many 117 00:07:18,040 --> 00:07:23,000 Speaker 1: who are not sophisticated in that space to put money 118 00:07:23,080 --> 00:07:27,960 Speaker 1: into visional assets without carefully considering that investment. And I 119 00:07:28,000 --> 00:07:31,040 Speaker 1: think it's also fair to say that he's really good 120 00:07:31,280 --> 00:07:35,400 Speaker 1: at fooling people and that it's not entirely unusual for 121 00:07:35,680 --> 00:07:40,120 Speaker 1: fraudsters to get away with their fraudulent activity for years. 122 00:07:40,160 --> 00:07:43,320 Speaker 1: I mean, Bernie Madoff got away with it for years 123 00:07:43,400 --> 00:07:46,960 Speaker 1: and pretty made not had obviously a lot of institutional 124 00:07:47,440 --> 00:07:52,120 Speaker 1: validation that came from his prior position, but SPP over 125 00:07:52,280 --> 00:07:56,960 Speaker 1: time was heralded by many people as some sort of visionary. 126 00:07:57,040 --> 00:07:59,880 Speaker 1: You know, he is photo on covers of Major MAGA. 127 00:08:00,280 --> 00:08:03,480 Speaker 1: He was seeing as some larger than life entrepreneur, and 128 00:08:03,520 --> 00:08:05,760 Speaker 1: I think that contributed to the trust that people have 129 00:08:05,920 --> 00:08:09,320 Speaker 1: for now. As far as the evidence at trial, John 130 00:08:09,400 --> 00:08:13,600 Speaker 1: Ray said, we're dealing with a literal, paperless bankruptcy. It 131 00:08:13,640 --> 00:08:16,960 Speaker 1: makes it difficult to track. They didn't put things in writing, 132 00:08:17,280 --> 00:08:21,120 Speaker 1: communications that disappeared, etcetera. Will that also make it more 133 00:08:21,160 --> 00:08:24,360 Speaker 1: difficult to prosecute. When I was a prosecutor, I used 134 00:08:24,360 --> 00:08:27,240 Speaker 1: to always say that emails are prosecutor's best friends. And 135 00:08:27,240 --> 00:08:31,840 Speaker 1: it's certainly a white collar prosecuters typically emails, text messages. 136 00:08:32,120 --> 00:08:35,760 Speaker 1: I am the other types of communications usually are what 137 00:08:35,840 --> 00:08:40,000 Speaker 1: you rely on to establish intensive to fraud. In addition, 138 00:08:40,200 --> 00:08:43,400 Speaker 1: other types of documents, whether they're ledgers or other types 139 00:08:43,480 --> 00:08:47,400 Speaker 1: of financial records, are really important to provide a snapshot 140 00:08:47,520 --> 00:08:50,280 Speaker 1: not only of what the company's books look like at 141 00:08:50,280 --> 00:08:53,360 Speaker 1: a certain time, but also what people like SPF new 142 00:08:53,640 --> 00:08:57,079 Speaker 1: at particular points time that doesn't exist here. I do 143 00:08:57,240 --> 00:09:00,280 Speaker 1: think that in a different kind of case it might 144 00:09:00,320 --> 00:09:03,400 Speaker 1: matter more. The beauty of the government's case from their 145 00:09:03,440 --> 00:09:07,280 Speaker 1: perspectives is that they're not really claiming anything that relies 146 00:09:07,360 --> 00:09:09,840 Speaker 1: too much in the detail. I think at its core 147 00:09:10,080 --> 00:09:13,360 Speaker 1: the fraud case, the main fraudcasts a number of different 148 00:09:13,600 --> 00:09:15,839 Speaker 1: frauds that are really set a charge, a number different 149 00:09:15,880 --> 00:09:18,160 Speaker 1: schemes that are charged. But I would say the main 150 00:09:18,240 --> 00:09:24,120 Speaker 1: scheme is that FBX was taking customer money, promised customers 151 00:09:24,160 --> 00:09:26,640 Speaker 1: that their money would remain at fb ACT it wouldn't 152 00:09:26,679 --> 00:09:29,480 Speaker 1: be used by FDx for a different purpose that can't 153 00:09:29,480 --> 00:09:33,000 Speaker 1: be disputed, and the money went elsewhere. And so given 154 00:09:33,040 --> 00:09:36,200 Speaker 1: that the government can prove that he signed off on 155 00:09:36,280 --> 00:09:40,920 Speaker 1: those money transfers, I think between that and his public statements, 156 00:09:40,960 --> 00:09:44,400 Speaker 1: they appear confident, and so I think that will mitigate 157 00:09:44,640 --> 00:09:48,559 Speaker 1: the lack of paper and the disappearing chats and all 158 00:09:48,600 --> 00:09:51,079 Speaker 1: the other things that Mr Ray mentioned which otherwise might 159 00:09:51,120 --> 00:09:53,920 Speaker 1: prove fatal to a criminal case. So bank and Freed 160 00:09:54,120 --> 00:09:57,000 Speaker 1: has said that he had little involvement in the management 161 00:09:57,559 --> 00:10:02,120 Speaker 1: of Alameda after he passed control of it to Caroline Ellison, 162 00:10:02,720 --> 00:10:05,800 Speaker 1: and then statements that customer funds were passed to Alamita 163 00:10:05,840 --> 00:10:08,600 Speaker 1: because of an accounting error that might be part of 164 00:10:08,679 --> 00:10:11,920 Speaker 1: his defense. Do you think it has any weight? It 165 00:10:12,040 --> 00:10:15,080 Speaker 1: certainly maybe part of this defense. What I would say 166 00:10:15,160 --> 00:10:16,920 Speaker 1: is that it would have been a lot smarter for 167 00:10:17,000 --> 00:10:20,800 Speaker 1: him to wait for his lawyers to get discovery from 168 00:10:20,840 --> 00:10:25,120 Speaker 1: the government, determine whether or not the evidence back those 169 00:10:25,160 --> 00:10:28,680 Speaker 1: claims up, and then have his lawyers asserts those claims 170 00:10:28,800 --> 00:10:31,640 Speaker 1: rather than him. But now, yes, I do think you've 171 00:10:31,640 --> 00:10:33,440 Speaker 1: got to hang his hat on those things, and the 172 00:10:33,520 --> 00:10:35,680 Speaker 1: question is whether or not it ends up being true. 173 00:10:36,040 --> 00:10:38,320 Speaker 1: What I will say is, if it turns out that 174 00:10:38,360 --> 00:10:41,400 Speaker 1: those statements are not accurate, that's a major problem for 175 00:10:41,480 --> 00:10:44,560 Speaker 1: him because it's going to be impossible for him to 176 00:10:44,600 --> 00:10:48,960 Speaker 1: successfully pivot away from that at trial given his prior statements. 177 00:10:49,160 --> 00:10:52,439 Speaker 1: What I do is suspect is that the government, whether 178 00:10:52,520 --> 00:10:55,200 Speaker 1: or not there's paper or not, to get to the 179 00:10:55,240 --> 00:10:57,840 Speaker 1: point you're raising earlier, they're going to be able to 180 00:10:58,000 --> 00:11:02,360 Speaker 1: establish from a variety be of different individuals and different 181 00:11:02,440 --> 00:11:07,240 Speaker 1: documents what exactly happened and what SPF do. And it's 182 00:11:07,280 --> 00:11:12,239 Speaker 1: worth noting that the other individuals involved have different interests 183 00:11:12,240 --> 00:11:16,120 Speaker 1: than Mr bankmet Freed. They're not his servants, and ultimately 184 00:11:16,600 --> 00:11:20,960 Speaker 1: they have their own potential liability to consider. And presumably, 185 00:11:21,080 --> 00:11:25,240 Speaker 1: for example, the people at Alameda are not gonna want 186 00:11:25,280 --> 00:11:30,040 Speaker 1: to suggest that they were responsible for fd X is 187 00:11:30,160 --> 00:11:33,920 Speaker 1: misused to customer funds. Presumably what they're gonna say is 188 00:11:33,960 --> 00:11:38,520 Speaker 1: that Mr banknet Freed authorizes and told all of them 189 00:11:38,559 --> 00:11:41,839 Speaker 1: that this was appropriate, and would anticipate that that's their 190 00:11:41,920 --> 00:11:44,560 Speaker 1: testimony would be something along those lines. What do you 191 00:11:44,600 --> 00:11:48,079 Speaker 1: think the hardest part of the prosecution's case against him 192 00:11:48,120 --> 00:11:51,320 Speaker 1: will be? Well, that's a very very good question. I 193 00:11:51,360 --> 00:11:55,440 Speaker 1: think that one thing that's really surprising about the government's 194 00:11:55,480 --> 00:11:58,719 Speaker 1: case is the breath of the case that they brought. Now, 195 00:11:59,080 --> 00:12:01,640 Speaker 1: part of that is because they're extraditing. In once you 196 00:12:01,720 --> 00:12:06,240 Speaker 1: extradite someone, you cannot add charges you can always dismis 197 00:12:06,280 --> 00:12:09,400 Speaker 1: charges you can't add charges um and so I do 198 00:12:09,520 --> 00:12:12,439 Speaker 1: think they were probably trying to be over inclusive. If 199 00:12:12,480 --> 00:12:16,680 Speaker 1: I was the supervisor looking at this indictment, that sense 200 00:12:16,679 --> 00:12:19,560 Speaker 1: to me. For a review, I would really question why 201 00:12:19,679 --> 00:12:23,240 Speaker 1: we're charging campaign finance case as part of fraud case. 202 00:12:23,440 --> 00:12:26,199 Speaker 1: In other words, if you're going to prison for fraud, 203 00:12:27,240 --> 00:12:29,600 Speaker 1: what do we care? I mean, just tell the judge 204 00:12:29,600 --> 00:12:32,720 Speaker 1: about the campaign finance stuff. She can consider that a 205 00:12:32,760 --> 00:12:36,480 Speaker 1: sentence thing. But like, let's just charge our strong counts 206 00:12:36,559 --> 00:12:38,920 Speaker 1: and let's just argue the rest of us and the 207 00:12:39,000 --> 00:12:41,280 Speaker 1: judge that sentence. Think, you know, it's not like you 208 00:12:41,400 --> 00:12:45,000 Speaker 1: need those talents. So I think that similarly with money laundring, 209 00:12:45,360 --> 00:12:48,040 Speaker 1: that as a complexity and a bunch of elements that 210 00:12:48,080 --> 00:12:50,920 Speaker 1: you have to prove. That makes your case more complicated. 211 00:12:50,960 --> 00:12:54,240 Speaker 1: And I tend to believe that, particularly in a white 212 00:12:54,240 --> 00:12:58,640 Speaker 1: collar crime case, the simpler story usually with SO I 213 00:12:58,640 --> 00:13:01,920 Speaker 1: would try to keep my prosecution cases a simple and 214 00:13:01,960 --> 00:13:05,160 Speaker 1: straightforward to prossible. He said he's going to fight extradition. 215 00:13:05,559 --> 00:13:09,800 Speaker 1: What grounds can he possibly offer not to be extradited? 216 00:13:10,200 --> 00:13:12,160 Speaker 1: And I don't know, off the top of my entieres, 217 00:13:12,200 --> 00:13:16,040 Speaker 1: I'm not an expert on Bahamian law. M or Behavian law. 218 00:13:16,320 --> 00:13:19,680 Speaker 1: But I would just say that, generally speaking, because I 219 00:13:19,760 --> 00:13:22,160 Speaker 1: say this from the perspective someone who used to be 220 00:13:22,320 --> 00:13:25,800 Speaker 1: on the federal prosecutions, I try and extradite the defendants, 221 00:13:25,800 --> 00:13:29,120 Speaker 1: that of prosecuting he generally the offense needs to be 222 00:13:29,679 --> 00:13:35,800 Speaker 1: a crime in both the US jurisdiction and the foreign jurisdiction. 223 00:13:35,880 --> 00:13:38,559 Speaker 1: So he might try to argue that let's say the 224 00:13:38,640 --> 00:13:43,280 Speaker 1: campaign finance fraud was conspiracy, was not actually a crime, 225 00:13:43,360 --> 00:13:47,960 Speaker 1: and under Beahamian law, that's possible. You know, I don't 226 00:13:48,000 --> 00:13:51,920 Speaker 1: really view that as um an important part of this 227 00:13:52,000 --> 00:13:54,840 Speaker 1: defense strategy. In other words, I view that as buying time. 228 00:13:55,480 --> 00:13:58,439 Speaker 1: You know, he he spoke during the Twitter space that 229 00:13:58,520 --> 00:14:02,000 Speaker 1: I listened to, how he was completely broke and I 230 00:14:02,040 --> 00:14:03,800 Speaker 1: was trying to figure out out to pay his lawyers. 231 00:14:03,840 --> 00:14:06,319 Speaker 1: The unless a hund thousand dollars of his name. He 232 00:14:06,440 --> 00:14:09,079 Speaker 1: was looking at the directors and officers, insurance and so 233 00:14:09,240 --> 00:14:11,920 Speaker 1: forth to find a way to pay lawyers. So, you know, 234 00:14:12,000 --> 00:14:14,640 Speaker 1: buying a little bit of time makes sense for someone 235 00:14:14,679 --> 00:14:17,120 Speaker 1: in this position, So that that may be part of it. 236 00:14:17,160 --> 00:14:20,880 Speaker 1: As Danny and Williams also said, well, this is our 237 00:14:20,920 --> 00:14:24,560 Speaker 1: first public announcement. It will not be our last. So 238 00:14:24,640 --> 00:14:27,760 Speaker 1: for a U S attorney to say that with such confidence, 239 00:14:27,760 --> 00:14:30,000 Speaker 1: and he sort of said it twice, do you think 240 00:14:30,040 --> 00:14:34,800 Speaker 1: that they've already got more indictments ready to go? Yes. 241 00:14:35,000 --> 00:14:38,560 Speaker 1: I was surprised by that because use certain you're supposed 242 00:14:38,560 --> 00:14:41,040 Speaker 1: to be very careful, and they are generally very careful 243 00:14:41,040 --> 00:14:43,720 Speaker 1: about their work when they make a announcement in a 244 00:14:43,800 --> 00:14:47,600 Speaker 1: press release, because what they say can be used by 245 00:14:47,640 --> 00:14:50,640 Speaker 1: defendants in emotions to try to argue that they have 246 00:14:50,680 --> 00:14:54,240 Speaker 1: been unfairly prejudiced and so forth, So they're usually very 247 00:14:54,400 --> 00:14:58,720 Speaker 1: their Their words are very carefully orchestrated and planned out, 248 00:14:59,120 --> 00:15:02,520 Speaker 1: and I think they're he was trying to imply the 249 00:15:02,640 --> 00:15:06,080 Speaker 1: charges against others who were down down the pike. He 250 00:15:06,200 --> 00:15:09,640 Speaker 1: also appeared to be sending a message that anyone involved 251 00:15:09,640 --> 00:15:13,200 Speaker 1: in this should cooperate, and so I think that that 252 00:15:13,320 --> 00:15:16,640 Speaker 1: was definitely part of the point here. I think he 253 00:15:16,760 --> 00:15:19,640 Speaker 1: was trying to send a message the people like Caroline 254 00:15:19,640 --> 00:15:24,720 Speaker 1: Allison other associates of SPS that it was time for 255 00:15:24,800 --> 00:15:27,520 Speaker 1: them to come forward and cooperate with the government and 256 00:15:28,520 --> 00:15:32,520 Speaker 1: what they do. So finally, you know, you hear ridiculous 257 00:15:32,640 --> 00:15:35,320 Speaker 1: numbers like a hundred and fifteen years that he's facing. 258 00:15:36,240 --> 00:15:40,280 Speaker 1: If these charges are approved, will he get out of prison? 259 00:15:40,880 --> 00:15:45,400 Speaker 1: I can explain why that's such a silly number. That 260 00:15:45,520 --> 00:15:48,560 Speaker 1: a hundred something here is that he's looking at. You know, 261 00:15:48,600 --> 00:15:51,880 Speaker 1: we often hear those depressed reports. I mean someone starts 262 00:15:51,960 --> 00:15:55,720 Speaker 1: to facing hundred or hundreds of years up to hundreds 263 00:15:55,760 --> 00:16:00,920 Speaker 1: of years in prison? Would that number constitute is all 264 00:16:00,960 --> 00:16:05,680 Speaker 1: of the maximum possible sentences under law for each one 265 00:16:05,680 --> 00:16:10,640 Speaker 1: of the counts if you stacked those counts one after another, 266 00:16:11,480 --> 00:16:14,360 Speaker 1: And as a practical matter, that's never going to happen. 267 00:16:15,440 --> 00:16:19,600 Speaker 1: So what Yes, that's the theoretical cap. But what really 268 00:16:19,680 --> 00:16:22,360 Speaker 1: matters here are a couple of things. First of all, 269 00:16:22,920 --> 00:16:26,880 Speaker 1: the judge is required under federal law to look at 270 00:16:26,880 --> 00:16:31,440 Speaker 1: a variety of factors when fashioning a sentence. Those factors 271 00:16:31,440 --> 00:16:34,320 Speaker 1: are very broad. They include things like the history and 272 00:16:34,440 --> 00:16:40,240 Speaker 1: characteristics defendant, the nature and circumstances of the offense, essentially 273 00:16:40,240 --> 00:16:43,800 Speaker 1: everything surrounding the defendant. And by the way, that includes 274 00:16:44,240 --> 00:16:47,520 Speaker 1: thinks he wasn't charged with. That includes things he may 275 00:16:47,560 --> 00:16:49,600 Speaker 1: have even been acquitted for. If he's acquitted on the 276 00:16:49,640 --> 00:16:53,760 Speaker 1: campaign finance charge, the judge can notetheless consider that conduct. 277 00:16:54,280 --> 00:16:57,280 Speaker 1: So you know, all of that will be thrown into 278 00:16:57,320 --> 00:16:59,440 Speaker 1: the mix and the judge is going to make a judgment. 279 00:17:00,000 --> 00:17:03,720 Speaker 1: In addition to that, there is something called the Federal 280 00:17:03,800 --> 00:17:07,879 Speaker 1: Sentencing guidelines. They are just that, so they are only guidelines. 281 00:17:07,920 --> 00:17:12,080 Speaker 1: They're not our rules, they're not laws, so it judge 282 00:17:12,080 --> 00:17:14,800 Speaker 1: could disregards them, but they do have an influence on judges. 283 00:17:14,840 --> 00:17:18,199 Speaker 1: I think they can anchorage judge's decision. So if I 284 00:17:18,320 --> 00:17:23,160 Speaker 1: was getting handicap, what a sentence would look like for SBS, 285 00:17:23,600 --> 00:17:26,040 Speaker 1: I would say at the starting point that it would 286 00:17:26,119 --> 00:17:32,040 Speaker 1: probably be something in the range of multiple decades in prison. Uh. 287 00:17:32,080 --> 00:17:35,040 Speaker 1: You know, we recently saw the founder of the atous 288 00:17:35,080 --> 00:17:39,199 Speaker 1: sentence to fourteen years in prison, and she was pregnant 289 00:17:39,320 --> 00:17:42,440 Speaker 1: at the time. Uh. In my experience too, I think 290 00:17:42,480 --> 00:17:45,919 Speaker 1: that particularly someone who has a young child and a 291 00:17:46,040 --> 00:17:49,240 Speaker 1: pregnant woman would get a lower sentence. I would expect 292 00:17:49,359 --> 00:17:51,720 Speaker 1: Mr bankers Free to get a higher sentence in her 293 00:17:52,320 --> 00:17:58,600 Speaker 1: And additionally, another factor that not only dramatically increases sentencing 294 00:17:58,640 --> 00:18:03,560 Speaker 1: guidelines but also is heavily considered by judges one weighing 295 00:18:03,560 --> 00:18:06,560 Speaker 1: a sentence in a proud game, it's called the loss amount. 296 00:18:06,560 --> 00:18:08,720 Speaker 1: In others, a total amount of money at issue that 297 00:18:08,840 --> 00:18:12,520 Speaker 1: was lost by victims. And I think that the loss 298 00:18:12,520 --> 00:18:15,919 Speaker 1: amount here is likely to be substantially more than it 299 00:18:16,040 --> 00:18:19,160 Speaker 1: was in the Farinos case. So I think that Mr Bank, 300 00:18:19,240 --> 00:18:21,320 Speaker 1: the fred is going to likely receive a sentence so 301 00:18:21,400 --> 00:18:24,440 Speaker 1: much more than those fourteen years. I think you should 302 00:18:24,440 --> 00:18:28,520 Speaker 1: prepare himself for multiple decades. Thanks so much. That's we're 303 00:18:28,520 --> 00:18:32,600 Speaker 1: not on. Marialti A partner Brian cave Layton Paisner coming up. 304 00:18:32,600 --> 00:18:37,040 Speaker 1: We'll look at the sec complaint. This is Bloomberg questions 305 00:18:37,040 --> 00:18:39,240 Speaker 1: we have are you know, where where are the assets? 306 00:18:39,720 --> 00:18:43,719 Speaker 1: How we locate those assets? Uh, it's a mining exercise 307 00:18:43,760 --> 00:18:48,199 Speaker 1: at this point. Uh and uh look, you know, at 308 00:18:48,200 --> 00:18:50,359 Speaker 1: the end of the day, we're not going to be 309 00:18:50,359 --> 00:18:53,720 Speaker 1: able to recover all the losses here. Money was spent 310 00:18:53,800 --> 00:18:57,280 Speaker 1: that will never get back. John Ray, who's guided dozens 311 00:18:57,280 --> 00:19:01,440 Speaker 1: of companies, including and Ron through bank see, called ft 312 00:19:01,720 --> 00:19:04,640 Speaker 1: x is collapse one of the worst business failures he's 313 00:19:04,680 --> 00:19:07,600 Speaker 1: ever seen, saying it was run by a small group 314 00:19:07,680 --> 00:19:12,160 Speaker 1: of grossly inexperienced people, with a complete lack of oversight 315 00:19:12,200 --> 00:19:17,560 Speaker 1: and financial controls and an unprecedented lack of documentation. You know, 316 00:19:17,640 --> 00:19:21,359 Speaker 1: even the most failed companies you have a fair roadmap 317 00:19:21,520 --> 00:19:24,960 Speaker 1: of what happened. Uh, we're dealing with literally a sort 318 00:19:24,960 --> 00:19:28,000 Speaker 1: of a a paperless bankruptcy in terms of how they 319 00:19:28,000 --> 00:19:31,760 Speaker 1: created this company. It makes it very difficult to UH 320 00:19:32,040 --> 00:19:37,359 Speaker 1: to trace and track assets. Currently, f t x is 321 00:19:37,440 --> 00:19:41,080 Speaker 1: founder Sam Bankman Freed is sitting in a Bahamas prison 322 00:19:41,320 --> 00:19:45,080 Speaker 1: fighting almost certain extradition to the US to face criminal 323 00:19:45,200 --> 00:19:49,119 Speaker 1: charges and civil lawsuits by the Securities and Exchange Commission 324 00:19:49,280 --> 00:19:52,840 Speaker 1: and the Commodities Futures Exchange Commission. Joining me as securities 325 00:19:52,920 --> 00:19:56,480 Speaker 1: law expert, Robert him a partner at Tartar, Krinsky and Drogn. 326 00:19:56,880 --> 00:20:01,919 Speaker 1: How would you describe generally the sec is complaint. The 327 00:20:02,040 --> 00:20:05,879 Speaker 1: SEC's complaint in this matter is very interesting because it 328 00:20:06,040 --> 00:20:09,440 Speaker 1: really sells out a very basic fraud in a sense 329 00:20:09,480 --> 00:20:15,119 Speaker 1: of misusing customer deposits at cfc X exchange and using 330 00:20:15,160 --> 00:20:18,720 Speaker 1: those for personal purposes by banks and Freed and others 331 00:20:18,880 --> 00:20:21,440 Speaker 1: supposed to you know, what some people thought might be 332 00:20:21,480 --> 00:20:24,400 Speaker 1: a very complex fraud. It turns out to be very 333 00:20:24,680 --> 00:20:28,040 Speaker 1: garden variety, except just on a very massive scale. The 334 00:20:28,200 --> 00:20:32,960 Speaker 1: SEC's jurisdiction is limited to fraud and security sales, and 335 00:20:33,000 --> 00:20:37,800 Speaker 1: there's ambiguity about whether crypto is a security so how 336 00:20:37,800 --> 00:20:41,480 Speaker 1: did the SEC steer clear of that in its complaint? 337 00:20:42,160 --> 00:20:46,040 Speaker 1: The SEC has brought securities fraud charges in its complaints, 338 00:20:46,160 --> 00:20:48,880 Speaker 1: and the way they have done that is that they 339 00:20:48,880 --> 00:20:52,200 Speaker 1: have alleged that's starting in twenty nineteen, so way back 340 00:20:52,240 --> 00:20:55,119 Speaker 1: to the very beginning of when ft X was founded, 341 00:20:55,280 --> 00:21:00,040 Speaker 1: that misrepresentations were made to investors, including US investors, to 342 00:21:00,160 --> 00:21:03,400 Speaker 1: induce them invest in the equity of ft X. These 343 00:21:03,400 --> 00:21:06,840 Speaker 1: are separate in the customers who traded crypto. There were 344 00:21:06,880 --> 00:21:11,280 Speaker 1: institutional investors who invested billions of dollars into f t X, 345 00:21:11,440 --> 00:21:15,760 Speaker 1: and the SEC said that that was done through misrepresentations 346 00:21:15,840 --> 00:21:19,680 Speaker 1: and omissions, and that's how the SEC has crafted its 347 00:21:19,720 --> 00:21:23,000 Speaker 1: security scrot complaints in this matter. Tell us a little 348 00:21:23,040 --> 00:21:28,200 Speaker 1: about the SEC's allegations that Bankman Free concealed f t 349 00:21:28,440 --> 00:21:32,560 Speaker 1: x is relationship with al ame To Research and used 350 00:21:32,600 --> 00:21:37,040 Speaker 1: commingled customer funds. One of the key allegations in the 351 00:21:37,160 --> 00:21:41,480 Speaker 1: SEC complaint has been that there is an affiliated hedge 352 00:21:41,480 --> 00:21:47,320 Speaker 1: fund called Almita Research, which essentially traded crypto, made markets 353 00:21:47,359 --> 00:21:51,160 Speaker 1: in crypto, and was supposed to have been a separate company. 354 00:21:51,440 --> 00:21:54,440 Speaker 1: But the SEC is alleged there was a significant amount 355 00:21:54,440 --> 00:21:58,240 Speaker 1: of commingling of asset, specifically customer assets and f t 356 00:21:58,560 --> 00:22:02,439 Speaker 1: X that was used to fund Almeda's operations, and that 357 00:22:02,600 --> 00:22:06,200 Speaker 1: was contrary to the representations that f TX was making 358 00:22:06,320 --> 00:22:09,480 Speaker 1: to customers as well as to its lenders and investors. 359 00:22:10,440 --> 00:22:14,239 Speaker 1: Let's go through different parts of the complaint explain how 360 00:22:14,240 --> 00:22:20,280 Speaker 1: the SEC says that bank Man Freed misled investors. The 361 00:22:20,440 --> 00:22:24,159 Speaker 1: SEC has laid out a number of specific claims with 362 00:22:24,240 --> 00:22:28,880 Speaker 1: how bank Man Freed misled investors. They center around representations 363 00:22:28,880 --> 00:22:31,800 Speaker 1: that Banksman's Freed made that there was risk controls in 364 00:22:31,880 --> 00:22:35,440 Speaker 1: place at fc X, that investor money was safe, and 365 00:22:35,520 --> 00:22:39,160 Speaker 1: also that Almeda was not given any sort of special 366 00:22:39,160 --> 00:22:43,840 Speaker 1: treatment that had been a subject of repeated misrepresentations. According 367 00:22:43,880 --> 00:22:46,880 Speaker 1: to the SEC, that ALMDA was just like any other 368 00:22:47,000 --> 00:22:50,440 Speaker 1: customer on the ft X platform, but in fact, according 369 00:22:50,440 --> 00:22:53,960 Speaker 1: to the SEC's complaint, it was treated very differently. The 370 00:22:54,119 --> 00:22:57,760 Speaker 1: SEC is alleged that Almita had a virtually unlimited credit 371 00:22:57,800 --> 00:23:00,480 Speaker 1: line with f t X, that it was the stempted 372 00:23:00,600 --> 00:23:03,920 Speaker 1: from many of the margin requirements that typical customers had 373 00:23:04,000 --> 00:23:07,840 Speaker 1: to comply with, a result that led to massive losses 374 00:23:07,920 --> 00:23:12,280 Speaker 1: for UM investors and customers of FPS. What about the 375 00:23:12,320 --> 00:23:17,360 Speaker 1: poor controls fd X had and risk management and those 376 00:23:17,560 --> 00:23:23,320 Speaker 1: loans to Sam Bankman, Freed and other staff. Yeah, the 377 00:23:23,359 --> 00:23:28,119 Speaker 1: loans are particularly incriminating fact that the SEC has alleged 378 00:23:28,240 --> 00:23:32,680 Speaker 1: because what the complaints says is that customer money from 379 00:23:32,800 --> 00:23:37,359 Speaker 1: the ft X exchange was transferred over to Almeda, and 380 00:23:37,480 --> 00:23:40,720 Speaker 1: from there Almita made loans the hundreds of millions of 381 00:23:40,760 --> 00:23:44,600 Speaker 1: dollars to insiders, including facts Banks and freed Um and 382 00:23:44,640 --> 00:23:48,200 Speaker 1: also use the money to purchase lavish real estate and 383 00:23:48,280 --> 00:23:53,320 Speaker 1: other expenses that were clearly personal in nature. And as 384 00:23:53,320 --> 00:23:57,840 Speaker 1: a result of this sort of transactions, the SEC said 385 00:23:57,840 --> 00:24:00,359 Speaker 1: that that was never disclosed to investors and f p 386 00:24:00,600 --> 00:24:02,720 Speaker 1: X that that was going to happen, and in fact, 387 00:24:02,880 --> 00:24:06,879 Speaker 1: the SEC alleges investors were told, uh completely the opposite, 388 00:24:07,000 --> 00:24:11,960 Speaker 1: that fc X was completely fund separately from Almida, But 389 00:24:12,040 --> 00:24:14,439 Speaker 1: that turns out, according to the SEC, not to have 390 00:24:14,480 --> 00:24:19,040 Speaker 1: been the case. So the SEC alleges that bank Man 391 00:24:19,119 --> 00:24:25,520 Speaker 1: Freed orchestrated this scheme to defraud equity investors. But yet 392 00:24:25,880 --> 00:24:31,280 Speaker 1: John Ray said that this is really just old fashioned embezzlement, 393 00:24:31,400 --> 00:24:34,080 Speaker 1: just taking money from customers and using it for your 394 00:24:34,080 --> 00:24:38,840 Speaker 1: own purposes. So was there really an orchestrated scheme that 395 00:24:38,880 --> 00:24:43,160 Speaker 1: makes it sound much more sophisticated. Yeah, that's a very 396 00:24:43,160 --> 00:24:46,639 Speaker 1: good point. I think that even though the purpose of 397 00:24:46,680 --> 00:24:51,160 Speaker 1: the scheme in namely using customer funds for personal expenses 398 00:24:51,200 --> 00:24:53,919 Speaker 1: and embezzlement, is very basic, the way that it was 399 00:24:54,000 --> 00:24:57,000 Speaker 1: done here shows a high degree of culpability, according to 400 00:24:57,040 --> 00:25:00,720 Speaker 1: the SEC, because steps were taken by Frank and Freed 401 00:25:00,760 --> 00:25:05,720 Speaker 1: and other executives to conceal the relationship with Almita and 402 00:25:05,800 --> 00:25:08,440 Speaker 1: to conceal the amounts of money that was flowing from 403 00:25:08,640 --> 00:25:12,200 Speaker 1: st X to Almita, And as a result of that, 404 00:25:12,359 --> 00:25:15,560 Speaker 1: it makes it very hard for the new CEO, John 405 00:25:15,640 --> 00:25:19,800 Speaker 1: Ray and regulators to piece together exactly how fun to 406 00:25:19,920 --> 00:25:23,720 Speaker 1: fload And now that's an ongoing process to to really 407 00:25:23,760 --> 00:25:26,800 Speaker 1: document how this money was moved and how much was 408 00:25:26,880 --> 00:25:29,600 Speaker 1: moved and how much um was lost as result of 409 00:25:29,600 --> 00:25:33,720 Speaker 1: these transactions. What would the SEC have to prove were 410 00:25:33,760 --> 00:25:36,280 Speaker 1: the basics of what the SEC would have to prove 411 00:25:36,400 --> 00:25:39,439 Speaker 1: if this went to trial. In addition to having to 412 00:25:39,520 --> 00:25:44,320 Speaker 1: prove that the representations to investors were material, the key 413 00:25:44,400 --> 00:25:47,360 Speaker 1: thing that the SEC has to prove is how it's 414 00:25:47,400 --> 00:25:52,000 Speaker 1: called to enter, which is either intent or recklessness on 415 00:25:52,080 --> 00:25:54,840 Speaker 1: the part of Banks and Freed, and in white collar 416 00:25:54,920 --> 00:25:58,240 Speaker 1: cases like this one of dependants, intent is always a 417 00:25:58,240 --> 00:26:01,600 Speaker 1: contested issue. And I think we've seen a preview of 418 00:26:01,720 --> 00:26:05,080 Speaker 1: Banks and Free defense and prior public statements that he's 419 00:26:05,119 --> 00:26:08,159 Speaker 1: given where he says that he wasn't aware that f 420 00:26:08,280 --> 00:26:11,160 Speaker 1: t x IS customer deposits were being used to cover 421 00:26:11,400 --> 00:26:14,879 Speaker 1: all Meda's debts and a liabilities. So he's trying to 422 00:26:14,920 --> 00:26:17,560 Speaker 1: set off as a defense that the underlings at the 423 00:26:17,560 --> 00:26:20,439 Speaker 1: two companies were doing this and he wasn't aware of it, 424 00:26:20,920 --> 00:26:23,600 Speaker 1: and that's gonna be a tough defense to really be successful. 425 00:26:23,640 --> 00:26:27,560 Speaker 1: On what kind of things were the SEC point to 426 00:26:27,560 --> 00:26:31,160 Speaker 1: to show the ner. In order to show the nswer 427 00:26:31,240 --> 00:26:33,800 Speaker 1: the SEC, it could prove a few different things. Number 428 00:26:33,800 --> 00:26:37,359 Speaker 1: one is the personal benefits financially to Banks and Freed 429 00:26:37,400 --> 00:26:40,920 Speaker 1: as a result of these transactions, and courts has held 430 00:26:40,960 --> 00:26:44,439 Speaker 1: that when a person is getting personal benefits and money 431 00:26:44,760 --> 00:26:47,040 Speaker 1: that that can be an indication of motive and an 432 00:26:47,040 --> 00:26:50,920 Speaker 1: opportunity to engage in securities fraud. But even beyond that, 433 00:26:51,000 --> 00:26:52,840 Speaker 1: the SEC is going to have to look and prove 434 00:26:52,960 --> 00:26:55,879 Speaker 1: the corporate structure and show how banks and Free to 435 00:26:56,000 --> 00:26:59,960 Speaker 1: prove transactions like money being moved from ft X customer 436 00:27:00,000 --> 00:27:03,919 Speaker 1: account tal Meta. They're going to look at email correspondence 437 00:27:04,000 --> 00:27:06,680 Speaker 1: between the other employees at f t X that may 438 00:27:06,680 --> 00:27:10,120 Speaker 1: have updated Bank and Freed about what was happening. And 439 00:27:10,240 --> 00:27:12,800 Speaker 1: I think importantly there's been a lot of speculation and 440 00:27:12,880 --> 00:27:16,600 Speaker 1: rightfully so, as to whether they'll be cooperators in this case. 441 00:27:16,760 --> 00:27:21,119 Speaker 1: Other employees like Carolyn Ellison, who was the CEO of Alameda, 442 00:27:21,320 --> 00:27:24,119 Speaker 1: who may be wanting to cut deals with the SEC 443 00:27:24,280 --> 00:27:27,200 Speaker 1: and the prosecutors in exchange for their testimony against Bank 444 00:27:27,320 --> 00:27:31,800 Speaker 1: and Freed. SEC chair Gary Ginsler said, we alleged that 445 00:27:31,880 --> 00:27:34,960 Speaker 1: Sam Bankman Freed built a house of cards on a 446 00:27:35,040 --> 00:27:38,800 Speaker 1: foundation of deception while telling investors that it was one 447 00:27:38,840 --> 00:27:42,760 Speaker 1: of the safest buildings in crypto. Does the SEC have 448 00:27:42,920 --> 00:27:49,480 Speaker 1: to prove that investors relied on his alleged misrepresentations? The 449 00:27:49,600 --> 00:27:52,960 Speaker 1: SEC itself does not have to prove reliance as part 450 00:27:53,040 --> 00:27:55,320 Speaker 1: of its case. To the extent that there's going to 451 00:27:55,359 --> 00:27:59,359 Speaker 1: be private lawsuits and class actions, those private lawsuits from 452 00:27:59,400 --> 00:28:02,760 Speaker 1: the investors will have to prove reliance. So the SEC 453 00:28:02,960 --> 00:28:05,240 Speaker 1: is set up in a way by statute that they 454 00:28:05,320 --> 00:28:08,399 Speaker 1: have a lower burden in order to prove their case. 455 00:28:08,520 --> 00:28:11,960 Speaker 1: The reliance is not part of the SEC's claims here. 456 00:28:12,680 --> 00:28:17,919 Speaker 1: John Ray spoke about this unprecedented lack of documentation, the 457 00:28:18,040 --> 00:28:21,359 Speaker 1: paperless bankruptcy. Is that going to make it much harder 458 00:28:21,400 --> 00:28:24,640 Speaker 1: for the SEC? There's his view of very shocking lack 459 00:28:24,800 --> 00:28:29,160 Speaker 1: of any sort of paper or documentation to support loans 460 00:28:29,359 --> 00:28:32,720 Speaker 1: and why and how money was moved from FTX to 461 00:28:33,119 --> 00:28:36,479 Speaker 1: Almeda Research and where the money went from there. However, 462 00:28:36,520 --> 00:28:39,280 Speaker 1: with digital assets and crypto, there is going to be 463 00:28:39,280 --> 00:28:42,240 Speaker 1: a record on the blockchain of a lot of these transactions. 464 00:28:42,240 --> 00:28:45,120 Speaker 1: And while it may take more work for the investigators 465 00:28:45,160 --> 00:28:48,440 Speaker 1: to come through all of those transactions for the last 466 00:28:48,440 --> 00:28:51,120 Speaker 1: three years, I think ultimately they're going to be able 467 00:28:51,120 --> 00:28:53,760 Speaker 1: to put together a pretty complete picture of what happened, 468 00:28:54,080 --> 00:28:57,960 Speaker 1: even though SCXS records themselves don't appear to be very good. 469 00:28:58,720 --> 00:29:01,920 Speaker 1: Is prosecuting a case with crypto? Is that a challenge 470 00:29:02,000 --> 00:29:05,200 Speaker 1: for the SEC at this stage? I don't think that 471 00:29:05,440 --> 00:29:08,600 Speaker 1: prosecuting a crypto based case like this is going to 472 00:29:08,680 --> 00:29:12,600 Speaker 1: present any significant challenges. The SEC has been studying the 473 00:29:12,640 --> 00:29:15,400 Speaker 1: market for years. They have a market abuse team that 474 00:29:15,480 --> 00:29:18,160 Speaker 1: brought other cases in cryptos so there's a lot of 475 00:29:18,280 --> 00:29:22,000 Speaker 1: institutional knowledge about the market, and I think one thing 476 00:29:22,040 --> 00:29:24,520 Speaker 1: that's going to help is the fact that this appears 477 00:29:24,520 --> 00:29:27,480 Speaker 1: to be more or less garden variety type of fraud 478 00:29:27,520 --> 00:29:30,640 Speaker 1: and an embezzlement. Granted it involved billions of dollars of 479 00:29:30,680 --> 00:29:33,200 Speaker 1: customer assets, but at the same time, I think that 480 00:29:33,400 --> 00:29:36,640 Speaker 1: with the transactions being publicly availed on the blockchain and 481 00:29:36,720 --> 00:29:40,440 Speaker 1: even having potential cooperators, is going to make the SEC's 482 00:29:40,520 --> 00:29:44,440 Speaker 1: job a lot easier. One nagging question I've had throughout 483 00:29:44,480 --> 00:29:49,120 Speaker 1: these revelations about what Gainsler called a house of cards 484 00:29:49,800 --> 00:29:53,719 Speaker 1: is looking at the allegations, especially for example, something like 485 00:29:53,800 --> 00:29:57,400 Speaker 1: the billion dollar loan to himself by a man who 486 00:29:57,640 --> 00:30:01,800 Speaker 1: basked in publicity and self from ocean, the Super Bowl ads, 487 00:30:01,880 --> 00:30:05,480 Speaker 1: the deals with sports teams, the political contributions, on and on. 488 00:30:05,800 --> 00:30:09,400 Speaker 1: How did bank man Freed ever expect to get away 489 00:30:09,440 --> 00:30:12,120 Speaker 1: with this? I mean, the house of cards was bound 490 00:30:12,160 --> 00:30:16,160 Speaker 1: to collapse at some point. Yeah, absolutely, It's it's really shocking. 491 00:30:16,280 --> 00:30:19,640 Speaker 1: And the SEC actually also discusses this in their complaints 492 00:30:19,640 --> 00:30:22,200 Speaker 1: where they say for the past three years, bank man 493 00:30:22,240 --> 00:30:26,920 Speaker 1: Freed has been now self promoting himself as responsible businessman 494 00:30:27,320 --> 00:30:31,240 Speaker 1: and wanting to have regulation in the crypto industry and 495 00:30:31,400 --> 00:30:35,720 Speaker 1: ethical practices. But you know, meanwhile, he used his reputation 496 00:30:35,960 --> 00:30:39,360 Speaker 1: as a person who was running legitimate crypto exchange to 497 00:30:39,480 --> 00:30:42,760 Speaker 1: help convince investors to put more and more money into 498 00:30:42,880 --> 00:30:45,840 Speaker 1: sc X, and all the while, according to the SEC, 499 00:30:46,080 --> 00:30:48,720 Speaker 1: Bankman freed knew that it was setting up to be 500 00:30:48,760 --> 00:30:52,840 Speaker 1: a very risky investment and then also misusing customers deposits. 501 00:30:52,880 --> 00:30:56,320 Speaker 1: So all his public statements now can potentially be used 502 00:30:56,320 --> 00:30:59,320 Speaker 1: against him in this SEC case. And what is the 503 00:30:59,480 --> 00:31:03,240 Speaker 1: SEC asking for if it wins. The SEC is asking 504 00:31:03,280 --> 00:31:07,440 Speaker 1: for several different things, um like in all securities fraud cases. 505 00:31:07,480 --> 00:31:11,720 Speaker 1: They want an injunction against future violations of the securities laws. 506 00:31:11,840 --> 00:31:15,440 Speaker 1: They're asking thanks Freedman to give back any sort of 507 00:31:15,560 --> 00:31:18,800 Speaker 1: money that was improperly taken out, and they're asking for 508 00:31:19,040 --> 00:31:22,240 Speaker 1: civil penalties. The SEC is gonna be working closely with 509 00:31:22,280 --> 00:31:24,720 Speaker 1: the Department of Justice on the criminal case to help 510 00:31:24,840 --> 00:31:28,320 Speaker 1: coordinate that. But the SEC is a civil agency and 511 00:31:28,440 --> 00:31:32,360 Speaker 1: as a result, it's limited to just monetary and adjunctive release. 512 00:31:32,880 --> 00:31:37,320 Speaker 1: With the bankruptcy in place, and with all the money 513 00:31:37,360 --> 00:31:40,600 Speaker 1: that appears to have been taken a year, is it 514 00:31:40,680 --> 00:31:43,600 Speaker 1: likely that the SEC is going to recover any funds 515 00:31:43,800 --> 00:31:46,920 Speaker 1: or get me penalties. I do think that there's a 516 00:31:47,000 --> 00:31:50,600 Speaker 1: high likelihood that money is going to be recovered. Whether 517 00:31:50,640 --> 00:31:53,720 Speaker 1: it's by the SEC or the do o J or 518 00:31:53,720 --> 00:31:57,000 Speaker 1: even the bankruptcy receiver, it's all going to go into 519 00:31:57,080 --> 00:32:00,360 Speaker 1: the same pot, so to speak, to help make invests 520 00:32:00,440 --> 00:32:05,160 Speaker 1: and creditors full. But we have seen UM that John Ray, 521 00:32:05,400 --> 00:32:09,720 Speaker 1: the new CEO, has already taken steps to secure assets, 522 00:32:09,760 --> 00:32:13,120 Speaker 1: so there are assets left, and I think it's instructive 523 00:32:13,120 --> 00:32:15,640 Speaker 1: when we look back to the to the main off situation. 524 00:32:16,200 --> 00:32:18,840 Speaker 1: UM in the early days, there was huge losses, but 525 00:32:18,960 --> 00:32:23,680 Speaker 1: over time through enforcement efforts and lawsuits against third parties 526 00:32:23,840 --> 00:32:28,040 Speaker 1: like UM, auditors, law firms, and people who are supposed 527 00:32:28,080 --> 00:32:30,640 Speaker 1: to be date keepers, because that that can also be 528 00:32:30,680 --> 00:32:34,280 Speaker 1: another source of recovery for both customers as well as 529 00:32:34,400 --> 00:32:38,880 Speaker 1: creditors in the bankruptcy. The Senate Banking Chairman Shared Brown 530 00:32:39,160 --> 00:32:44,000 Speaker 1: is calling for the SEC to regulate the crypto industry. 531 00:32:44,280 --> 00:32:46,360 Speaker 1: Do you think that it's about time that they did 532 00:32:46,600 --> 00:32:49,479 Speaker 1: or someone else should do it. I think there's no 533 00:32:49,560 --> 00:32:52,280 Speaker 1: question that this FTX case is a wake up call 534 00:32:52,720 --> 00:32:56,520 Speaker 1: that's going to spurn significant new efforts and regulating the 535 00:32:56,560 --> 00:33:00,480 Speaker 1: crypto industry. We've had a situation where billions of dollars 536 00:33:00,480 --> 00:33:05,760 Speaker 1: of customer assets have been um diverted and misused. And 537 00:33:05,840 --> 00:33:09,000 Speaker 1: there's a framework that's already in place for exchanges and 538 00:33:09,200 --> 00:33:12,800 Speaker 1: regulations that I think will be the roadmap for how 539 00:33:12,840 --> 00:33:17,360 Speaker 1: the regulators will look to regulate crypto industry and exchanges. 540 00:33:17,960 --> 00:33:22,280 Speaker 1: The Commodity Futures Trading Commission has also filed a suit 541 00:33:22,320 --> 00:33:27,520 Speaker 1: against him. Does that work in coordination with the SEC? Yes, 542 00:33:27,560 --> 00:33:31,040 Speaker 1: the Commodities of Futures Trading Commission. The CFTC has also 543 00:33:31,120 --> 00:33:34,920 Speaker 1: filed its own enforcement action in the same matter. It's 544 00:33:34,920 --> 00:33:37,680 Speaker 1: going to be helpful for the SEC because it brings 545 00:33:37,760 --> 00:33:41,640 Speaker 1: another area of expertise to bear on the facts of 546 00:33:41,680 --> 00:33:44,400 Speaker 1: this case. And in general, the regulators are going to 547 00:33:44,480 --> 00:33:48,800 Speaker 1: cooperate very closely, so they're not stepping on each other's toes, 548 00:33:49,240 --> 00:33:51,560 Speaker 1: so they're not gonna be fighting over who has jurisdiction 549 00:33:51,680 --> 00:33:55,560 Speaker 1: over this correct The regulators usually are going to defer 550 00:33:55,680 --> 00:33:58,480 Speaker 1: to the Department of Justice, and they're going to be 551 00:33:58,520 --> 00:34:01,520 Speaker 1: the lead agency and the crim case, and typically the 552 00:34:01,640 --> 00:34:05,760 Speaker 1: SEC and the CFCC bill acting the supporting role for that. 553 00:34:06,160 --> 00:34:09,080 Speaker 1: Thanks so much, Bob. That's Robert him a partner a 554 00:34:09,160 --> 00:34:14,400 Speaker 1: Tartar Krinskin Droken as fd X founder Sam Bankman Freed 555 00:34:14,560 --> 00:34:18,480 Speaker 1: sits in a Bahamas prison fighting extradition to face fraud 556 00:34:18,600 --> 00:34:21,960 Speaker 1: charges in the US. John Ray the third has taken 557 00:34:22,040 --> 00:34:24,920 Speaker 1: over as the CEO of f t X, dealing with 558 00:34:24,960 --> 00:34:28,160 Speaker 1: one of the biggest corporate collapses since the Great Recession 559 00:34:28,560 --> 00:34:32,360 Speaker 1: and trying to recover customer funds. Ray handled the in 560 00:34:32,560 --> 00:34:36,280 Speaker 1: run bankruptcy, but says he's never seen such an utter 561 00:34:36,360 --> 00:34:40,160 Speaker 1: failure of corporate controls at every level of an organization. 562 00:34:40,800 --> 00:34:44,680 Speaker 1: We're dealing with literally a sort of a paperless bankruptcy 563 00:34:44,719 --> 00:34:47,080 Speaker 1: in terms of how they created this company. It makes 564 00:34:47,080 --> 00:34:53,560 Speaker 1: it very difficult to h to trace and track assets. Uh, 565 00:34:53,600 --> 00:34:56,839 Speaker 1: and particularly as I've said, in the crypto world, UH, 566 00:34:57,360 --> 00:35:01,279 Speaker 1: it's really unprecedented in terms of UH the lack of documentation. 567 00:35:02,080 --> 00:35:08,000 Speaker 1: Joining me is restructuring expert Jim Bear, president of CMBG Advisors. 568 00:35:08,000 --> 00:35:12,000 Speaker 1: How difficult is this bankruptcy? Even for someone with the 569 00:35:12,080 --> 00:35:16,560 Speaker 1: experience of John Ray. I believe this is going to 570 00:35:16,719 --> 00:35:22,320 Speaker 1: be qualitatively harder than most bankruptcy followings for a variety 571 00:35:22,320 --> 00:35:26,520 Speaker 1: of reasons. You've got a lot of complexity here because 572 00:35:26,600 --> 00:35:31,120 Speaker 1: there were rumored to be approximately a hundred different entities 573 00:35:31,280 --> 00:35:34,160 Speaker 1: set up, so trying to break this down in a 574 00:35:34,200 --> 00:35:38,759 Speaker 1: bankruptcy the most challenging thing is doing an accounting and 575 00:35:38,840 --> 00:35:42,160 Speaker 1: getting your arms around what went on so that you 576 00:35:42,200 --> 00:35:44,759 Speaker 1: have an ability to actually go out and in this 577 00:35:44,800 --> 00:35:47,920 Speaker 1: type of situation recover assets for the million people have 578 00:35:48,000 --> 00:35:50,799 Speaker 1: been harmed. If you look back to situations like made 579 00:35:50,800 --> 00:35:53,040 Speaker 1: on in two thousand and eight, we're just now seeing 580 00:35:53,320 --> 00:35:56,880 Speaker 1: distributions being made. Because it takes a long time to 581 00:35:57,000 --> 00:36:01,640 Speaker 1: trace and recover assets. One of the things particularly difficult 582 00:36:01,680 --> 00:36:05,279 Speaker 1: here is that there was such bad record keeping and 583 00:36:05,280 --> 00:36:08,799 Speaker 1: there were so much complexity and commingling of asset that 584 00:36:08,880 --> 00:36:12,399 Speaker 1: to actually determine how much money came in how much 585 00:36:12,440 --> 00:36:15,120 Speaker 1: money went out is going to be difficult. And then 586 00:36:15,480 --> 00:36:18,160 Speaker 1: one way to bring back money is through going to 587 00:36:18,280 --> 00:36:22,719 Speaker 1: people that received distributions during the last ninety days or 588 00:36:23,239 --> 00:36:25,120 Speaker 1: eight days or a year, depending on the different law 589 00:36:25,160 --> 00:36:27,520 Speaker 1: of and applause, and pulling that asset back. And in 590 00:36:27,560 --> 00:36:29,759 Speaker 1: some cases those are gonna be innocent people that just 591 00:36:29,800 --> 00:36:33,279 Speaker 1: got paid before someone else, and so under bankruptcy law 592 00:36:33,280 --> 00:36:34,680 Speaker 1: it is supposed to be done in a more pro 593 00:36:34,840 --> 00:36:37,800 Speaker 1: rat of fashion, and so you're gonna have assets pulled 594 00:36:37,840 --> 00:36:41,400 Speaker 1: back and then allocated to various people, and all of 595 00:36:41,440 --> 00:36:44,000 Speaker 1: that is complex and takes a lot of time to do. 596 00:36:44,320 --> 00:36:46,799 Speaker 1: So we've heard a lot about John Ray saying this 597 00:36:46,880 --> 00:36:51,440 Speaker 1: is a paperless bankruptcy. But are the customer records the 598 00:36:51,520 --> 00:36:55,000 Speaker 1: same as customer records elsewhere? So can he see who 599 00:36:55,280 --> 00:36:59,160 Speaker 1: put in what? So I don't have access to actually 600 00:36:59,480 --> 00:37:01,960 Speaker 1: the company records at this point, so all I can 601 00:37:02,000 --> 00:37:05,279 Speaker 1: go on is what as you point out, John has testified, 602 00:37:05,320 --> 00:37:08,239 Speaker 1: for instance, before Congress or otherwise, it appears as he 603 00:37:08,280 --> 00:37:10,960 Speaker 1: said that he's never seen a lack of documentation to 604 00:37:11,000 --> 00:37:15,680 Speaker 1: this extent. When people put money into the exchange for trading, 605 00:37:16,080 --> 00:37:23,200 Speaker 1: presumably presumably that money should be accountable, because you would 606 00:37:23,200 --> 00:37:26,279 Speaker 1: assume customer accounts were kept for the people so that 607 00:37:26,360 --> 00:37:29,040 Speaker 1: you could in fact return money and or deal with 608 00:37:29,120 --> 00:37:31,839 Speaker 1: those customers. Now that is an assumption I'm making because 609 00:37:31,880 --> 00:37:35,080 Speaker 1: I haven't actually seen those customer records, but I'm assuming 610 00:37:35,120 --> 00:37:39,080 Speaker 1: that that does exist. But from there, where that money when, 611 00:37:39,560 --> 00:37:43,279 Speaker 1: and what checks and balances existed that I think, from 612 00:37:43,280 --> 00:37:45,799 Speaker 1: what we've heard, is pretty much non existed. So he 613 00:37:45,880 --> 00:37:50,279 Speaker 1: said at this point, it's a mining operation. What did 614 00:37:50,280 --> 00:37:53,319 Speaker 1: he mean by that? Well, my speculation when he means 615 00:37:53,360 --> 00:37:56,600 Speaker 1: by that is in a mining operation, you're digging to 616 00:37:56,719 --> 00:38:01,680 Speaker 1: actually uncover the minerals that you're looking for. In this instance, 617 00:38:01,760 --> 00:38:06,800 Speaker 1: we're also like archaeologically digging or mining to find out 618 00:38:06,840 --> 00:38:11,520 Speaker 1: actually where the assets are, and we're looking for those 619 00:38:11,560 --> 00:38:14,600 Speaker 1: in the various places and trying to uncover those assets. 620 00:38:14,640 --> 00:38:18,400 Speaker 1: So he's been able to secure one billion dollars of 621 00:38:18,560 --> 00:38:23,000 Speaker 1: assets to coal wallets in a secure location. First of all, 622 00:38:23,040 --> 00:38:26,600 Speaker 1: explain what does he mean by coal wallets. This may 623 00:38:26,640 --> 00:38:30,600 Speaker 1: be a crypto term. Yeah, So when I think of 624 00:38:30,960 --> 00:38:33,719 Speaker 1: a wallet in the crypto space, think about it from 625 00:38:33,760 --> 00:38:38,279 Speaker 1: the perspective of a wallet that is a physical wallet, right, 626 00:38:38,360 --> 00:38:41,520 Speaker 1: so you have a place where, like a leather pouch 627 00:38:41,560 --> 00:38:45,160 Speaker 1: where you put your money. When you're dealing with essentially 628 00:38:45,320 --> 00:38:49,160 Speaker 1: a digital asset, think about a hard drive on a computer, 629 00:38:49,320 --> 00:38:52,000 Speaker 1: Think about a thumb drive on a computer. You've got 630 00:38:52,040 --> 00:38:56,000 Speaker 1: these storage devices which are very different than a typical 631 00:38:56,080 --> 00:38:59,600 Speaker 1: storage device that's physical, like a wallet, because you don't 632 00:38:59,600 --> 00:39:03,520 Speaker 1: have physical assets, you have digital assets. And so when 633 00:39:03,520 --> 00:39:06,600 Speaker 1: we think of terms like wallets or digital wallets, what 634 00:39:06,719 --> 00:39:11,440 Speaker 1: we're talking about is a storage device for these digital assets. 635 00:39:11,600 --> 00:39:16,280 Speaker 1: Does the fact that this is cryptocurrency make this harder? 636 00:39:16,760 --> 00:39:20,040 Speaker 1: I don't think it's just because it's cryptocurrency per se 637 00:39:20,120 --> 00:39:23,879 Speaker 1: that makes it harder, Because you can trace cryptocurrency. I mean, 638 00:39:24,160 --> 00:39:26,560 Speaker 1: in the same way you can trace a wire transfer 639 00:39:26,600 --> 00:39:29,200 Speaker 1: from one bank to another, or from a bank to 640 00:39:29,280 --> 00:39:33,800 Speaker 1: a customer. You can trace where these digital assets were transferred. 641 00:39:33,840 --> 00:39:37,560 Speaker 1: From my understanding, from a technological perspective, you can trace that. 642 00:39:37,920 --> 00:39:40,240 Speaker 1: So I don't think the fact that it was digital 643 00:39:40,280 --> 00:39:43,520 Speaker 1: currency per se or digital assets per se that makes 644 00:39:43,560 --> 00:39:46,839 Speaker 1: this harder. I think what makes this harder is the 645 00:39:46,880 --> 00:39:49,680 Speaker 1: fact that it was so unregulated and it was so 646 00:39:49,760 --> 00:39:54,800 Speaker 1: abused that the normal checks and balances, like an independent board, 647 00:39:55,360 --> 00:40:00,360 Speaker 1: like audited financials, like SEC regulation, we're not exa instant. 648 00:40:00,680 --> 00:40:03,319 Speaker 1: So one thing that confused me a little bit. Ray 649 00:40:03,440 --> 00:40:07,040 Speaker 1: said that the collapse appears to stem from the absolute 650 00:40:07,080 --> 00:40:10,600 Speaker 1: concentration of control in the hands of a very small 651 00:40:10,640 --> 00:40:15,839 Speaker 1: group of grossly inexperienced and unsophisticated individuals. Is it that 652 00:40:15,880 --> 00:40:19,279 Speaker 1: they were inexperienced and unsophisticated, or is it that they 653 00:40:19,280 --> 00:40:22,719 Speaker 1: were swindlers who knew what they were doing. I suspect. 654 00:40:23,040 --> 00:40:26,120 Speaker 1: But remember, we do have a concept of innocent until 655 00:40:26,200 --> 00:40:29,239 Speaker 1: proven guilty, and so I like to try to be 656 00:40:29,320 --> 00:40:31,960 Speaker 1: respectful of people and give them the benefit of the doubt. 657 00:40:32,400 --> 00:40:36,160 Speaker 1: But here's what we do know. We do know their inexperienced. Meaning, 658 00:40:36,320 --> 00:40:39,520 Speaker 1: if you've been in the business world for number of years, 659 00:40:39,680 --> 00:40:44,279 Speaker 1: you understand the needs of checks and balances, you understand 660 00:40:44,360 --> 00:40:49,399 Speaker 1: chain of control, you understand oversight. When you're youthful, right, 661 00:40:49,520 --> 00:40:52,640 Speaker 1: and you haven't experienced some of the falls and the 662 00:40:52,680 --> 00:40:56,680 Speaker 1: experiences of history, I think you're more prone to look 663 00:40:56,719 --> 00:41:00,880 Speaker 1: for shortcuts, not knowing that shortcuts don't really work. You know, 664 00:41:00,920 --> 00:41:03,920 Speaker 1: the tortoise and the hair. The hair is obviously a 665 00:41:04,000 --> 00:41:07,920 Speaker 1: famous story, but when you're young, you're youthful exuberance can 666 00:41:08,000 --> 00:41:10,560 Speaker 1: sometimes need you to believe that you know the rules 667 00:41:10,640 --> 00:41:12,560 Speaker 1: don't necessarily apply to people in the same way. When 668 00:41:12,560 --> 00:41:15,919 Speaker 1: they're young, there's a certain sense of invincibility. I think 669 00:41:15,960 --> 00:41:21,920 Speaker 1: the inexperience is part of it. And then the concentration 670 00:41:22,040 --> 00:41:25,479 Speaker 1: of so much power in so few people without those 671 00:41:25,560 --> 00:41:28,920 Speaker 1: checks and balance is a huge problem. And again, power corrupts. 672 00:41:28,960 --> 00:41:31,759 Speaker 1: Absolute power corrupts absolutely. When you look at the way 673 00:41:31,920 --> 00:41:34,920 Speaker 1: our country is set up, with the three branches of government. 674 00:41:35,040 --> 00:41:38,080 Speaker 1: It was specifically designed by the founding fathers so that 675 00:41:38,120 --> 00:41:42,040 Speaker 1: there would be checks and balances. The corporate world really 676 00:41:42,160 --> 00:41:45,480 Speaker 1: mirrors a lot of ways our government. There are boards 677 00:41:45,480 --> 00:41:49,040 Speaker 1: of directors, there are shareholders, and there is a president. 678 00:41:49,120 --> 00:41:52,480 Speaker 1: So think about that. The shareholders are essentially the voters 679 00:41:52,560 --> 00:41:55,400 Speaker 1: in a republic. You've got the president of the company, 680 00:41:55,440 --> 00:41:58,319 Speaker 1: which is like the chief executive officer. You have the 681 00:41:58,400 --> 00:42:01,399 Speaker 1: board of directors, which really is kind of the oversight 682 00:42:01,560 --> 00:42:04,359 Speaker 1: like the legislative body, and that has to approve things. 683 00:42:04,480 --> 00:42:07,160 Speaker 1: And so there was designed that way to create these 684 00:42:07,239 --> 00:42:11,840 Speaker 1: checks and balances. Unfortunately, in the crypto space, especially and 685 00:42:12,040 --> 00:42:16,280 Speaker 1: miss specific situation, those checks and balances did not exist. 686 00:42:16,840 --> 00:42:21,600 Speaker 1: There's an excess of seven billion dollars in losses. Ray 687 00:42:21,680 --> 00:42:25,320 Speaker 1: has been able to secure one billion at this point. 688 00:42:26,040 --> 00:42:29,960 Speaker 1: Does that sound hopeful to you? So I spent a 689 00:42:29,960 --> 00:42:32,319 Speaker 1: lot of my time doing what John Ray does, which 690 00:42:32,360 --> 00:42:37,520 Speaker 1: is restructuring, overseeing bankruptcies, liquidating companies. We do a lot 691 00:42:37,520 --> 00:42:40,440 Speaker 1: of work in the space called assignments for the benefit 692 00:42:40,480 --> 00:42:43,719 Speaker 1: of creditors, which is a state alternative to federal bankruptcy. 693 00:42:43,960 --> 00:42:46,640 Speaker 1: And so in these situations, one of the things you 694 00:42:46,880 --> 00:42:49,600 Speaker 1: focus on is your job is as a producer is 695 00:42:49,600 --> 00:42:52,840 Speaker 1: to maximize the value for creditors, and every situation is different. 696 00:42:53,000 --> 00:42:56,440 Speaker 1: You have sometimes hard assets to recover. You could be 697 00:42:56,560 --> 00:42:59,640 Speaker 1: working in a jewelry industry where you have diamonds that 698 00:42:59,680 --> 00:43:02,160 Speaker 1: you can recover and sell off, or you can be 699 00:43:02,200 --> 00:43:06,040 Speaker 1: in a situation where the assets disappeared. The challenge in 700 00:43:06,080 --> 00:43:09,120 Speaker 1: this situation is that we know there was a lot 701 00:43:09,120 --> 00:43:11,840 Speaker 1: of commingling of money. We know that Alameda was a 702 00:43:11,880 --> 00:43:14,840 Speaker 1: hedge fund. We know that there were investments being made, 703 00:43:15,080 --> 00:43:17,840 Speaker 1: loans that were being made, and many of those investments 704 00:43:17,920 --> 00:43:21,000 Speaker 1: went bad. If the investments turned out to be profitable, 705 00:43:21,280 --> 00:43:23,759 Speaker 1: you could actually pull back those investments, or you have 706 00:43:23,920 --> 00:43:26,799 Speaker 1: those investments and you could share that with the creditors. 707 00:43:26,800 --> 00:43:29,840 Speaker 1: But when you're dealing with the situation where actually loans 708 00:43:29,840 --> 00:43:32,680 Speaker 1: were made with no ability to pay them back, investments 709 00:43:32,680 --> 00:43:35,560 Speaker 1: were made in the worthless companies or the bad investments, 710 00:43:35,600 --> 00:43:38,120 Speaker 1: that money has gone forever. So then the question is 711 00:43:38,160 --> 00:43:41,319 Speaker 1: what do you look to for recovery. One is insurance. 712 00:43:41,600 --> 00:43:44,640 Speaker 1: My understanding is there's very little insurance here. Another is 713 00:43:44,640 --> 00:43:47,040 Speaker 1: you look to negligent people where there are people on 714 00:43:47,080 --> 00:43:49,840 Speaker 1: the board or other deep pockets with insurance that you 715 00:43:49,920 --> 00:43:52,439 Speaker 1: might go after. My understanding is there's not a lot 716 00:43:52,520 --> 00:43:55,360 Speaker 1: here in that situation. So one of the ways that 717 00:43:55,440 --> 00:43:58,000 Speaker 1: you pull back money is you look at the people 718 00:43:58,040 --> 00:44:01,520 Speaker 1: that did receive distributions and return of money, and you 719 00:44:01,600 --> 00:44:03,640 Speaker 1: pull that money back and then you share in a 720 00:44:03,680 --> 00:44:07,440 Speaker 1: more equitable pro rat of fashion with the other creditors. 721 00:44:07,520 --> 00:44:09,680 Speaker 1: And we just don't know at this point how much 722 00:44:09,719 --> 00:44:13,040 Speaker 1: money that's going to be, but realistically, I think we're 723 00:44:13,040 --> 00:44:15,480 Speaker 1: gonna look at billions of dollars of losses here. The 724 00:44:15,560 --> 00:44:19,680 Speaker 1: liquidators appointed by a court in the Bahamas are fighting 725 00:44:19,800 --> 00:44:23,759 Speaker 1: with f t x IS bankruptcy lawyers. Can you tell 726 00:44:23,840 --> 00:44:27,040 Speaker 1: us a little bit about what's happening there? Sure? So 727 00:44:27,400 --> 00:44:30,000 Speaker 1: remember we started by talking about the complexity of a 728 00:44:30,040 --> 00:44:34,160 Speaker 1: hundred different entities. When you have offshore operations and you 729 00:44:34,200 --> 00:44:38,640 Speaker 1: have domestic operations, you have different jurisdictional issues, and each 730 00:44:38,719 --> 00:44:42,759 Speaker 1: jurisdiction has a duty to look after its constituents. So 731 00:44:42,800 --> 00:44:45,399 Speaker 1: in the US, we're looking at US investors and US 732 00:44:45,480 --> 00:44:49,719 Speaker 1: citizens in the Bahamas, their regulatory bodies are supposed to 733 00:44:49,800 --> 00:44:53,200 Speaker 1: be protecting investors in the constituencies in the Bombas. My 734 00:44:53,280 --> 00:44:56,440 Speaker 1: understanding is that's one of the hundred companies was a 735 00:44:56,440 --> 00:44:59,320 Speaker 1: real estate company, and there's real estate that was actually 736 00:44:59,360 --> 00:45:03,799 Speaker 1: owned and invested in in the Bahamas. From a jurisdictional perspective, 737 00:45:04,520 --> 00:45:08,719 Speaker 1: the legislatures and the judges and the people passed with 738 00:45:09,200 --> 00:45:12,960 Speaker 1: protecting the assets in those jurisdictions are fighting for their 739 00:45:13,040 --> 00:45:17,080 Speaker 1: jurisdictional rights over those assets. And of course that's being 740 00:45:17,160 --> 00:45:21,320 Speaker 1: challenged by the US regulators and lawyers and so forth, 741 00:45:21,600 --> 00:45:23,880 Speaker 1: because we want to get our hands on those assets 742 00:45:23,920 --> 00:45:25,800 Speaker 1: for the people in the US that have been harmed. 743 00:45:26,200 --> 00:45:29,080 Speaker 1: So what I see going on here is there are 744 00:45:29,120 --> 00:45:32,440 Speaker 1: some accusations flying back and forth. But but even putting 745 00:45:32,480 --> 00:45:37,080 Speaker 1: that aside, they're just legitimate jurisdictional legal challenges that go 746 00:45:37,160 --> 00:45:40,759 Speaker 1: back and forth when you have different jurisdictions involved in 747 00:45:40,760 --> 00:45:44,560 Speaker 1: a dispute like this. The Bahamians want to remove the 748 00:45:44,600 --> 00:45:48,839 Speaker 1: company that owns the real estate in the Bahamas from 749 00:45:48,880 --> 00:45:52,560 Speaker 1: the US bankruptcy. Is that an unusual thing to do 750 00:45:52,640 --> 00:45:55,839 Speaker 1: in bankruptcy to take one piece and say no, this 751 00:45:55,920 --> 00:46:00,759 Speaker 1: is separate. No, not at all. So again, you got 752 00:46:00,800 --> 00:46:03,839 Speaker 1: a holding company structure in certain cases, and that's where 753 00:46:03,840 --> 00:46:07,839 Speaker 1: there's a company that owns other companies. As I mentioned, allegedly, 754 00:46:07,880 --> 00:46:10,880 Speaker 1: we're dealing with a hundred entities, right, and so my 755 00:46:10,960 --> 00:46:14,160 Speaker 1: understanding is that those all run up and are essentially 756 00:46:14,160 --> 00:46:16,839 Speaker 1: controlled by SAM. But at the end of the day, 757 00:46:16,880 --> 00:46:21,640 Speaker 1: there are jurisdictional issues and different companies, maybe because they're 758 00:46:21,800 --> 00:46:25,360 Speaker 1: incorporated admiss all in different jurisdictions, there will be different 759 00:46:25,440 --> 00:46:27,839 Speaker 1: rules that apply to those entities. Sometimes you can pull 760 00:46:27,880 --> 00:46:30,440 Speaker 1: it all back to one jurisdiction, like a Delaware bankruptcy, 761 00:46:30,560 --> 00:46:33,520 Speaker 1: but there may be very legitimate reasons why, for instance, 762 00:46:33,560 --> 00:46:35,600 Speaker 1: this real estate company was set up in a manner 763 00:46:35,640 --> 00:46:38,319 Speaker 1: that it really does belong in the Bahamas. Again, I 764 00:46:38,360 --> 00:46:42,759 Speaker 1: haven't seen the documentation, but in complex bankruptcies it's not 765 00:46:42,840 --> 00:46:45,560 Speaker 1: unusual to have these kind of fights. How long is 766 00:46:45,560 --> 00:46:47,840 Speaker 1: this likely to take? Are we talking months? Are we 767 00:46:47,920 --> 00:46:51,440 Speaker 1: talking years? We're talking years. The reason is this follow 768 00:46:51,520 --> 00:46:54,640 Speaker 1: us again iron a coming called CNDG Advisors that does 769 00:46:54,840 --> 00:46:57,200 Speaker 1: this type of work, and we do forensic accounting, and 770 00:46:57,239 --> 00:47:00,880 Speaker 1: we do restructuring and we trace that this and you know, 771 00:47:00,880 --> 00:47:03,680 Speaker 1: we try to help fix companies or or sell them off. 772 00:47:04,120 --> 00:47:07,160 Speaker 1: And you've got simple assignments that can take a year, 773 00:47:07,360 --> 00:47:10,040 Speaker 1: or you have assignments that can take many years. When 774 00:47:10,040 --> 00:47:13,440 Speaker 1: you're dealing with complexity. Complexity is not your friend in 775 00:47:13,480 --> 00:47:16,719 Speaker 1: these situations. It just isn't. And more often than not, 776 00:47:16,760 --> 00:47:20,000 Speaker 1: when you see these levels of complexity, it's either intentionally 777 00:47:20,200 --> 00:47:24,800 Speaker 1: or otherwise a way of obfuscation, and it's very, very 778 00:47:24,840 --> 00:47:28,440 Speaker 1: difficult to trace through that. And you don't have unlimited money, 779 00:47:28,840 --> 00:47:31,920 Speaker 1: you don't have unlimited resources, and even in a situation 780 00:47:31,960 --> 00:47:34,320 Speaker 1: like this where you do have more resources than you 781 00:47:34,320 --> 00:47:36,799 Speaker 1: would typically have, there's a lot of posturing. There's a 782 00:47:36,840 --> 00:47:39,279 Speaker 1: lot of digging, as you said, mining that goes on, 783 00:47:39,680 --> 00:47:42,320 Speaker 1: and as much as we like it to get done quickly, 784 00:47:42,760 --> 00:47:47,320 Speaker 1: the reality is the more entities involved, the more money involved, 785 00:47:47,800 --> 00:47:51,319 Speaker 1: and the less record keeping, the harder it is to 786 00:47:51,400 --> 00:47:54,880 Speaker 1: actually figure these things out. To put this in perspective, 787 00:47:54,920 --> 00:47:57,839 Speaker 1: because I've dealt with this in a recent case. When 788 00:47:57,960 --> 00:48:02,520 Speaker 1: you don't have proper account owning records, it is incredibly 789 00:48:02,600 --> 00:48:05,879 Speaker 1: difficult to figure out where you know the money went 790 00:48:06,360 --> 00:48:10,040 Speaker 1: and to really understand the arguments for the payment or 791 00:48:10,120 --> 00:48:12,920 Speaker 1: not for the payment because you don't have the normal 792 00:48:13,000 --> 00:48:17,000 Speaker 1: record keeping that you would use to document the money 793 00:48:17,040 --> 00:48:19,960 Speaker 1: out and the money in. I think they're in chapter eleven, 794 00:48:20,040 --> 00:48:23,399 Speaker 1: But is this a restructuring or is this a liquidation? 795 00:48:23,440 --> 00:48:26,280 Speaker 1: I mean, does anyone expect f t X to come back? 796 00:48:27,440 --> 00:48:31,360 Speaker 1: So that's a good question. Chapter eleven, as you point out, 797 00:48:31,560 --> 00:48:36,840 Speaker 1: is designed primarily for restructuring companies, whereas Chapter seven is 798 00:48:36,880 --> 00:48:40,719 Speaker 1: to liquid a company, and Chapter eleven can end up 799 00:48:40,719 --> 00:48:44,000 Speaker 1: with the sale of the company outside through what's called 800 00:48:44,160 --> 00:48:47,920 Speaker 1: Section three sixty three sale, but it is generally designed 801 00:48:48,000 --> 00:48:52,560 Speaker 1: as a restructuring tool. In a situation like this, I 802 00:48:52,640 --> 00:48:56,120 Speaker 1: do not expect f t X to come out as 803 00:48:56,160 --> 00:49:01,280 Speaker 1: a viable company and exit bankruptcy and remain and operating entity. 804 00:49:01,480 --> 00:49:04,000 Speaker 1: And having said that, there's a hundred entities. So there's 805 00:49:04,120 --> 00:49:06,959 Speaker 1: this this alleged real estate company, for instance. It's too 806 00:49:06,960 --> 00:49:11,239 Speaker 1: early to say will there be any salvageable parts of 807 00:49:11,280 --> 00:49:15,000 Speaker 1: this estate that could emerge and continue on in some 808 00:49:15,120 --> 00:49:17,680 Speaker 1: form or fashion. I think it's unlikely. I think, as 809 00:49:17,719 --> 00:49:20,440 Speaker 1: you point out, it's likely to just be a liquidation 810 00:49:20,480 --> 00:49:25,520 Speaker 1: over time. But the tools of investigation and forensic accounting 811 00:49:25,520 --> 00:49:29,920 Speaker 1: and otherwise you will enable the bankruptcy judge and the 812 00:49:29,960 --> 00:49:33,560 Speaker 1: trusty to dig deep to actually figure out what went on, 813 00:49:33,800 --> 00:49:36,840 Speaker 1: even if the company does end up liquidating. So, on 814 00:49:36,920 --> 00:49:40,000 Speaker 1: a personal note, is this the kind of bankruptcy you'd 815 00:49:40,080 --> 00:49:43,120 Speaker 1: like to take over or is it like, are there 816 00:49:43,200 --> 00:49:47,839 Speaker 1: challenges interesting or is it just too much? Well, it's 817 00:49:48,880 --> 00:49:51,480 Speaker 1: for those of us who are in this space. I 818 00:49:51,480 --> 00:49:56,680 Speaker 1: think that there is something challenging about being confronted with 819 00:49:56,760 --> 00:49:59,000 Speaker 1: the situation like this. So I would think that the 820 00:49:59,120 --> 00:50:02,600 Speaker 1: complexity for those people to thrive on complexity and challenges 821 00:50:02,920 --> 00:50:07,280 Speaker 1: would be intriguing. What I would find challenging here would 822 00:50:07,280 --> 00:50:09,840 Speaker 1: be the fact that there are so many hurt people 823 00:50:09,920 --> 00:50:13,160 Speaker 1: that I wouldn't be able to help. And one of 824 00:50:13,160 --> 00:50:15,240 Speaker 1: the things that see in the cases that I'm working 825 00:50:15,320 --> 00:50:18,680 Speaker 1: on is that sometimes we have the ability to really 826 00:50:18,800 --> 00:50:22,360 Speaker 1: make a meaningful payment to creditors, and there's something very 827 00:50:22,400 --> 00:50:25,320 Speaker 1: satisfying about that. On the other hand, some of people 828 00:50:25,360 --> 00:50:29,360 Speaker 1: on my team, for instance, get incredibly frustrated when it 829 00:50:29,480 --> 00:50:32,160 Speaker 1: just seems like it's a wash and there's no money 830 00:50:32,600 --> 00:50:34,960 Speaker 1: going back to creditors. And so what I think will 831 00:50:35,000 --> 00:50:37,920 Speaker 1: be painful for people in this situation working on this 832 00:50:38,520 --> 00:50:41,440 Speaker 1: is to the extent they are frustrated and unable to 833 00:50:41,520 --> 00:50:44,360 Speaker 1: return material amounts of money. I think that's going to 834 00:50:44,440 --> 00:50:47,240 Speaker 1: be challenging. Do you think this is going to lead 835 00:50:47,320 --> 00:50:51,240 Speaker 1: to more regulation of crypto you know, in my career 836 00:50:51,440 --> 00:50:54,960 Speaker 1: because I started out as a corporate lawyer and was 837 00:50:55,040 --> 00:51:00,359 Speaker 1: very involved in antitrust and SEC enforcement. And know, there's 838 00:51:00,400 --> 00:51:06,960 Speaker 1: always been a tension between lazy fear economics and you know, 839 00:51:07,000 --> 00:51:11,239 Speaker 1: the a Rand belief in libertarian operations and that you know, 840 00:51:11,280 --> 00:51:15,480 Speaker 1: the all powerful business community and the idea of trickle 841 00:51:15,520 --> 00:51:19,319 Speaker 1: down economics and letting businesses really do what's you know, 842 00:51:19,360 --> 00:51:21,760 Speaker 1: in their interests, because it's what's what's good for business 843 00:51:21,800 --> 00:51:24,280 Speaker 1: is good for the American people. Right, that's one extreme, 844 00:51:24,520 --> 00:51:28,800 Speaker 1: and the other extreme is you know, real real hands 845 00:51:28,800 --> 00:51:32,880 Speaker 1: on regulation that can cripple business because of the complexity 846 00:51:32,880 --> 00:51:36,200 Speaker 1: of the regulation, it makes it so difficult to operate. 847 00:51:36,400 --> 00:51:40,160 Speaker 1: And so there's that balance, right. I think there are areas, 848 00:51:40,480 --> 00:51:42,360 Speaker 1: you know, when we see in our country the ability 849 00:51:42,400 --> 00:51:46,239 Speaker 1: to build high speed rail, for instance, where it's environmentally 850 00:51:46,239 --> 00:51:49,479 Speaker 1: and otherwise really really difficult to get anything done, whether 851 00:51:49,560 --> 00:51:52,799 Speaker 1: or it's John Stewart talking about getting things built in California, 852 00:51:52,960 --> 00:51:55,360 Speaker 1: or the fact that it's still so hard to build 853 00:51:55,520 --> 00:51:59,600 Speaker 1: affordable housing in California, You've got situations where regulation really 854 00:51:59,680 --> 00:52:03,120 Speaker 1: does need to be refined and pulled back. In the 855 00:52:03,200 --> 00:52:08,160 Speaker 1: area of crypto, I think We have got a lot 856 00:52:08,200 --> 00:52:12,600 Speaker 1: of work to do in terms of better regulation, and 857 00:52:13,000 --> 00:52:16,240 Speaker 1: this hands off approach I think has been a mistake, 858 00:52:16,360 --> 00:52:21,200 Speaker 1: and I think that we need to realize that balance 859 00:52:21,280 --> 00:52:24,520 Speaker 1: regulation is important, and in this instance it's it's sad 860 00:52:24,560 --> 00:52:26,400 Speaker 1: that so many people are going to be hurt by this, 861 00:52:26,560 --> 00:52:29,560 Speaker 1: but I hope that the regulators wake up and realize 862 00:52:29,600 --> 00:52:33,400 Speaker 1: that this has to be properly regulated like all other industries, 863 00:52:33,440 --> 00:52:35,320 Speaker 1: and that we will get back to a happy medium. 864 00:52:35,760 --> 00:52:38,479 Speaker 1: Thanks for being on the show, Jim. That's Jim Bear, 865 00:52:38,640 --> 00:52:43,759 Speaker 1: restructuring expert and president of CMBG Advisors. And that's it 866 00:52:43,840 --> 00:52:46,400 Speaker 1: for this edition of The Bloomberg Law Show. Remember you 867 00:52:46,440 --> 00:52:48,880 Speaker 1: can always get the latest legal news on our Bloomberg 868 00:52:49,000 --> 00:52:52,760 Speaker 1: Law Podcast. You can find them on Apple Podcasts, Spotify, 869 00:52:52,800 --> 00:52:57,840 Speaker 1: and at www dot Bloomberg dot com, slash podcast Slash Law, 870 00:52:58,239 --> 00:53:00,840 Speaker 1: and remember to tune into The Bloomberg Law Show every 871 00:53:00,880 --> 00:53:03,960 Speaker 1: week night at ten b m. Wall Street Time. I'm 872 00:53:04,040 --> 00:53:11,920 Speaker 1: June Grosso and you're listening to Bloomberg m