WEBVTT - Criminal and Civil Cases Against Bankman-Fried 0:00:03.160 --> 0:00:07.960 This is Bloombird Law with June Brusso from Bloomberg Radio. 0:00:09.119 --> 0:00:11.319 So hard to compare these things, but I think it's 0:00:11.360 --> 0:00:14.040 fair to say that by any anyone's license is one 0:00:14.080 --> 0:00:17.880 of the biggest financial frauds in American history. Federal prosecutors 0:00:17.960 --> 0:00:20.840 moved at warp speed to charge f t X founder 0:00:20.920 --> 0:00:24.599 Sam Bankman Freed in a sweeping eight count indictment for 0:00:24.640 --> 0:00:28.760 allegedly misappropriating billions of dollars in customer funds for his 0:00:28.920 --> 0:00:33.559 personal use and risky bets by sister trading house Alameda, Manhattan. 0:00:33.600 --> 0:00:37.600 US attorney Damien Williams said Bankman Freed scammed ft X 0:00:37.760 --> 0:00:41.559 customers and venture capital backers out of billions. Even though 0:00:41.560 --> 0:00:45.120 the cryptome Maven might not fit the typical profile of 0:00:45.120 --> 0:00:47.720 a fraud ster, Well, you can commit fraud and chorts 0:00:47.720 --> 0:00:49.600 and t shirts in the sun the best possible to 0:00:49.960 --> 0:00:52.919 Just a few weeks ago, Bankman Freed was on ABC 0:00:53.200 --> 0:00:57.000 TV denying any comparison to Bernie made Off. When you 0:00:57.040 --> 0:01:00.600 look at the classic Bernie made Off story, there is 0:01:00.640 --> 0:01:05.720 no real business there. The whole thing, as I understand it, 0:01:05.760 --> 0:01:09.199 I think was was just one one big Ponzi scheme, 0:01:09.360 --> 0:01:13.080 right f t X, that was a real business, but 0:01:13.240 --> 0:01:16.759 prosecutors say f t X was just a scam from 0:01:16.840 --> 0:01:20.280 day one, or as John ray It's new CEO put it, 0:01:20.680 --> 0:01:23.959 this is really old fashioned and embezzlement. This is just 0:01:24.360 --> 0:01:28.800 taking money from customers and using it for your own purpose, 0:01:29.600 --> 0:01:33.520 not sophisticated at all. My guest is former federal prosecutor 0:01:33.600 --> 0:01:38.120 Renato Marianti, a partner at Brian Cave Layton Paisner. With 0:01:38.280 --> 0:01:42.520 complex financial crimes, it usually takes prosecutors a while to 0:01:42.560 --> 0:01:45.679 bring charges. It took the Feds more than two years 0:01:45.720 --> 0:01:49.920 to charge Jeff Skilling after the Enron collapsed. So what 0:01:50.000 --> 0:01:52.680 do you make of the speed with which these charges 0:01:52.680 --> 0:01:57.320 were brought. It's remarkable, absolutely remarkable. I have never seen 0:01:57.720 --> 0:02:03.640 a case of this scope within weeks of the precipitating 0:02:03.640 --> 0:02:07.000 event before. In other words, I used to investigate when 0:02:07.000 --> 0:02:11.400 I was a federal prosecutor complex financial crime. Those investigations 0:02:11.400 --> 0:02:15.800 would typically take years. A fast investigation would take months, 0:02:15.960 --> 0:02:18.720 and now we're seeing a case that was brought a 0:02:18.760 --> 0:02:22.760 little over a month after the collapse of FDx. So 0:02:22.840 --> 0:02:26.040 that's just absolutely sounding and I think what it speaks 0:02:26.080 --> 0:02:29.680 to when you look at that end the breath of 0:02:29.720 --> 0:02:32.720 the charges that are brought against Mr Bankman Free. It 0:02:32.880 --> 0:02:36.639 really suggested me a confidence that prosecutors have in this 0:02:36.720 --> 0:02:40.000 case that's remarkable that I haven't seen before. This is 0:02:40.040 --> 0:02:46.320 a sweeping indictment charging conspiracy, fraud, money laundering, among other things. 0:02:46.360 --> 0:02:49.280 What struck you most about it a couple of things 0:02:49.320 --> 0:02:52.600 to make this stand out. One is the sheer, breath 0:02:52.880 --> 0:02:56.440 and brazen nature of the alleged fraud. This is not 0:02:56.600 --> 0:03:00.920 a fraud scheam related to a very particul killer portion 0:03:01.200 --> 0:03:04.640 of FDx business, not related to a specific deal or 0:03:04.680 --> 0:03:08.799 a specific customer. Was the beds of alleged is that 0:03:09.160 --> 0:03:12.400 effectively all of fd X was a giant fraud on 0:03:12.520 --> 0:03:16.000 its customers, that all Alameda with the frauding and customers 0:03:16.000 --> 0:03:22.000 and investors, very widescale frauds, very simple, straightforwards, garden variety frauds. 0:03:22.120 --> 0:03:25.239 So that I think certainly contributes to the confidence the 0:03:25.280 --> 0:03:29.760 Feds have. Another thing that's unusual here is that Mr 0:03:29.840 --> 0:03:33.640 Banker Freed, he took it upon himself to answer everyone's 0:03:33.720 --> 0:03:37.600 question about this and really locked himself into a story 0:03:38.000 --> 0:03:40.800 more than I've ever seen before. We're not talking about 0:03:40.800 --> 0:03:45.000 one lone interview. Mr bank the greed spokes the many 0:03:45.080 --> 0:03:49.720 reporters he spoke on Twitter spaces really answered very insight 0:03:49.840 --> 0:03:54.360 the questions for hours, making it very difficult for defense 0:03:54.440 --> 0:03:58.520 councils to weave a story that isn't already locked in. 0:03:58.720 --> 0:04:02.000 So fraud guters not that they can contradict the story 0:04:02.040 --> 0:04:05.200 that he's already locked himself into. I think that could 0:04:05.400 --> 0:04:08.480 explain a lot of their compas. Yeah, surprising because I'm 0:04:08.520 --> 0:04:11.920 sure his lawyers told him to be quiet. But do 0:04:11.960 --> 0:04:14.960 you think he was trying to set up a defense 0:04:15.040 --> 0:04:19.200 basically saying I made mistakes, I may have commingled funds, whatever, 0:04:19.640 --> 0:04:22.680 but I didn't mean to defraud anyone. I think that's right, 0:04:22.839 --> 0:04:25.640 to be fair. That is not an uncommon defense in 0:04:25.680 --> 0:04:27.839 a froud case. In fact, I would say that that 0:04:28.000 --> 0:04:30.640 is in many ways the typical defense that you would 0:04:30.640 --> 0:04:32.720 see in a froud case. In other words, I may 0:04:32.760 --> 0:04:36.080 have been in intentive or enough, or a bad businessman, 0:04:36.360 --> 0:04:40.240 but I'm not a fraudster. I wasn't intending to do that. 0:04:40.320 --> 0:04:44.200 Because the prosecution has to prove beyond a reasonable doubt 0:04:44.240 --> 0:04:47.719 that the defense it had the intense defraud. But that said, 0:04:48.160 --> 0:04:52.239 the problem for Mr Banker free is really with how 0:04:52.360 --> 0:04:54.240 this is going to play out of the trial. This 0:04:54.440 --> 0:04:57.880 is why he really did himself a disservice by concluding 0:04:58.080 --> 0:05:00.480 that he didn't need lawyers. You know, he's ad at 0:05:00.480 --> 0:05:03.000 one point that he understood the law better than lawyers did, 0:05:03.040 --> 0:05:05.080 and that sort of thing. And I think he did 0:05:05.160 --> 0:05:08.800 himself a disservice because under the federal rules of evidence, 0:05:09.080 --> 0:05:13.160 he cannot introduce his out of court statements in his defense. 0:05:13.400 --> 0:05:16.839 They are inadmissible here says, but if the government wants 0:05:16.880 --> 0:05:20.120 to pick and choose and find bits of those interviews 0:05:20.160 --> 0:05:24.400 that are incriminating, they can introduce those specific pieces of 0:05:24.440 --> 0:05:28.400 his interviews as admissions by a party opponent. And so 0:05:28.480 --> 0:05:30.520 he put himself in a situation with a lot of 0:05:30.560 --> 0:05:33.960 downside and no upside. He is going to be facing, 0:05:34.000 --> 0:05:38.160 in a criminal case, a lot of negative statements that 0:05:38.279 --> 0:05:41.880 the Feds candy playing his way, and he can't play 0:05:41.920 --> 0:05:45.880 any positive statements. His response has to be to take 0:05:45.960 --> 0:05:48.680 the stand, and if he does that, he's going to 0:05:48.800 --> 0:05:52.960 be facing a barrage of his own prior statements. He's 0:05:53.120 --> 0:05:57.200 effectively locked himself into regarding his own testimony and put 0:05:57.279 --> 0:06:00.440 himself in a situation where he's got to remember and 0:06:00.480 --> 0:06:03.120 beginsistent with all the things he said in the past, 0:06:03.360 --> 0:06:06.000 even if his lawyers later realized that some of the 0:06:06.080 --> 0:06:09.120 things he said previously we're not the smart thing for 0:06:09.200 --> 0:06:11.960 him to say at trial. So what strikes me is 0:06:12.000 --> 0:06:14.400 that prosecutors have said this was one of the biggest 0:06:14.400 --> 0:06:19.279 financial frauds in American history, billions of dollars disappearing. Yet 0:06:19.560 --> 0:06:22.599 as you said, and as John Ray, who has taken 0:06:22.640 --> 0:06:26.200 over f t X said, this is just plain old embezzlement. 0:06:26.640 --> 0:06:28.840 So why did it take so long then for it 0:06:28.920 --> 0:06:32.200 to be discovered for it to fall apart? That's a 0:06:32.279 --> 0:06:35.359 great question. I think there's a number of reasons why. 0:06:35.680 --> 0:06:42.200 One is that SPS was able to successfully convince not 0:06:42.240 --> 0:06:46.560 only the customers of FTX and his investors, but also 0:06:46.640 --> 0:06:50.479 the public at large that he was some sort of visionary, 0:06:50.839 --> 0:06:54.599 you know, potentially the world's first trillion era because he 0:06:54.720 --> 0:06:59.080 had this large personality, and I think that that caused 0:06:59.160 --> 0:07:05.799 many people not to exercise the appropriate judgment and conduct 0:07:05.920 --> 0:07:09.240 the appropriate due diligence. I think another factor is that 0:07:09.320 --> 0:07:12.080 it's fair to say that there has been a lot 0:07:12.160 --> 0:07:17.760 of excitement about CRIPTO, and enthusiasm that has caused many 0:07:18.040 --> 0:07:23.000 who are not sophisticated in that space to put money 0:07:23.080 --> 0:07:27.960 into visional assets without carefully considering that investment. And I 0:07:28.000 --> 0:07:31.040 think it's also fair to say that he's really good 0:07:31.280 --> 0:07:35.400 at fooling people and that it's not entirely unusual for 0:07:35.680 --> 0:07:40.120 fraudsters to get away with their fraudulent activity for years. 0:07:40.160 --> 0:07:43.320 I mean, Bernie Madoff got away with it for years 0:07:43.400 --> 0:07:46.960 and pretty made not had obviously a lot of institutional 0:07:47.440 --> 0:07:52.120 validation that came from his prior position, but SPP over 0:07:52.280 --> 0:07:56.960 time was heralded by many people as some sort of visionary. 0:07:57.040 --> 0:07:59.880 You know, he is photo on covers of Major MAGA. 0:08:00.280 --> 0:08:03.480 He was seeing as some larger than life entrepreneur, and 0:08:03.520 --> 0:08:05.760 I think that contributed to the trust that people have 0:08:05.920 --> 0:08:09.320 for now. As far as the evidence at trial, John 0:08:09.400 --> 0:08:13.600 Ray said, we're dealing with a literal, paperless bankruptcy. It 0:08:13.640 --> 0:08:16.960 makes it difficult to track. They didn't put things in writing, 0:08:17.280 --> 0:08:21.120 communications that disappeared, etcetera. Will that also make it more 0:08:21.160 --> 0:08:24.360 difficult to prosecute. When I was a prosecutor, I used 0:08:24.360 --> 0:08:27.240 to always say that emails are prosecutor's best friends. And 0:08:27.240 --> 0:08:31.840 it's certainly a white collar prosecuters typically emails, text messages. 0:08:32.120 --> 0:08:35.760 I am the other types of communications usually are what 0:08:35.840 --> 0:08:40.000 you rely on to establish intensive to fraud. In addition, 0:08:40.200 --> 0:08:43.400 other types of documents, whether they're ledgers or other types 0:08:43.480 --> 0:08:47.400 of financial records, are really important to provide a snapshot 0:08:47.520 --> 0:08:50.280 not only of what the company's books look like at 0:08:50.280 --> 0:08:53.360 a certain time, but also what people like SPF new 0:08:53.640 --> 0:08:57.079 at particular points time that doesn't exist here. I do 0:08:57.240 --> 0:09:00.280 think that in a different kind of case it might 0:09:00.320 --> 0:09:03.400 matter more. The beauty of the government's case from their 0:09:03.440 --> 0:09:07.280 perspectives is that they're not really claiming anything that relies 0:09:07.360 --> 0:09:09.840 too much in the detail. I think at its core 0:09:10.080 --> 0:09:13.360 the fraud case, the main fraudcasts a number of different 0:09:13.600 --> 0:09:15.839 frauds that are really set a charge, a number different 0:09:15.880 --> 0:09:18.160 schemes that are charged. But I would say the main 0:09:18.240 --> 0:09:24.120 scheme is that FBX was taking customer money, promised customers 0:09:24.160 --> 0:09:26.640 that their money would remain at fb ACT it wouldn't 0:09:26.679 --> 0:09:29.480 be used by FDx for a different purpose that can't 0:09:29.480 --> 0:09:33.000 be disputed, and the money went elsewhere. And so given 0:09:33.040 --> 0:09:36.200 that the government can prove that he signed off on 0:09:36.280 --> 0:09:40.920 those money transfers, I think between that and his public statements, 0:09:40.960 --> 0:09:44.400 they appear confident, and so I think that will mitigate 0:09:44.640 --> 0:09:48.559 the lack of paper and the disappearing chats and all 0:09:48.600 --> 0:09:51.079 the other things that Mr Ray mentioned which otherwise might 0:09:51.120 --> 0:09:53.920 prove fatal to a criminal case. So bank and Freed 0:09:54.120 --> 0:09:57.000 has said that he had little involvement in the management 0:09:57.559 --> 0:10:02.120 of Alameda after he passed control of it to Caroline Ellison, 0:10:02.720 --> 0:10:05.800 and then statements that customer funds were passed to Alamita 0:10:05.840 --> 0:10:08.600 because of an accounting error that might be part of 0:10:08.679 --> 0:10:11.920 his defense. Do you think it has any weight? It 0:10:12.040 --> 0:10:15.080 certainly maybe part of this defense. What I would say 0:10:15.160 --> 0:10:16.920 is that it would have been a lot smarter for 0:10:17.000 --> 0:10:20.800 him to wait for his lawyers to get discovery from 0:10:20.840 --> 0:10:25.120 the government, determine whether or not the evidence back those 0:10:25.160 --> 0:10:28.680 claims up, and then have his lawyers asserts those claims 0:10:28.800 --> 0:10:31.640 rather than him. But now, yes, I do think you've 0:10:31.640 --> 0:10:33.440 got to hang his hat on those things, and the 0:10:33.520 --> 0:10:35.680 question is whether or not it ends up being true. 0:10:36.040 --> 0:10:38.320 What I will say is, if it turns out that 0:10:38.360 --> 0:10:41.400 those statements are not accurate, that's a major problem for 0:10:41.480 --> 0:10:44.560 him because it's going to be impossible for him to 0:10:44.600 --> 0:10:48.960 successfully pivot away from that at trial given his prior statements. 0:10:49.160 --> 0:10:52.439 What I do is suspect is that the government, whether 0:10:52.520 --> 0:10:55.200 or not there's paper or not, to get to the 0:10:55.240 --> 0:10:57.840 point you're raising earlier, they're going to be able to 0:10:58.000 --> 0:11:02.360 establish from a variety be of different individuals and different 0:11:02.440 --> 0:11:07.240 documents what exactly happened and what SPF do. And it's 0:11:07.280 --> 0:11:12.239 worth noting that the other individuals involved have different interests 0:11:12.240 --> 0:11:16.120 than Mr bankmet Freed. They're not his servants, and ultimately 0:11:16.600 --> 0:11:20.960 they have their own potential liability to consider. And presumably, 0:11:21.080 --> 0:11:25.240 for example, the people at Alameda are not gonna want 0:11:25.280 --> 0:11:30.040 to suggest that they were responsible for fd X is 0:11:30.160 --> 0:11:33.920 misused to customer funds. Presumably what they're gonna say is 0:11:33.960 --> 0:11:38.520 that Mr banknet Freed authorizes and told all of them 0:11:38.559 --> 0:11:41.839 that this was appropriate, and would anticipate that that's their 0:11:41.920 --> 0:11:44.560 testimony would be something along those lines. What do you 0:11:44.600 --> 0:11:48.079 think the hardest part of the prosecution's case against him 0:11:48.120 --> 0:11:51.320 will be? Well, that's a very very good question. I 0:11:51.360 --> 0:11:55.440 think that one thing that's really surprising about the government's 0:11:55.480 --> 0:11:58.719 case is the breath of the case that they brought. Now, 0:11:59.080 --> 0:12:01.640 part of that is because they're extraditing. In once you 0:12:01.720 --> 0:12:06.240 extradite someone, you cannot add charges you can always dismis 0:12:06.280 --> 0:12:09.400 charges you can't add charges um and so I do 0:12:09.520 --> 0:12:12.439 think they were probably trying to be over inclusive. If 0:12:12.480 --> 0:12:16.680 I was the supervisor looking at this indictment, that sense 0:12:16.679 --> 0:12:19.560 to me. For a review, I would really question why 0:12:19.679 --> 0:12:23.240 we're charging campaign finance case as part of fraud case. 0:12:23.440 --> 0:12:26.199 In other words, if you're going to prison for fraud, 0:12:27.240 --> 0:12:29.600 what do we care? I mean, just tell the judge 0:12:29.600 --> 0:12:32.720 about the campaign finance stuff. She can consider that a 0:12:32.760 --> 0:12:36.480 sentence thing. But like, let's just charge our strong counts 0:12:36.559 --> 0:12:38.920 and let's just argue the rest of us and the 0:12:39.000 --> 0:12:41.280 judge that sentence. Think, you know, it's not like you 0:12:41.400 --> 0:12:45.000 need those talents. So I think that similarly with money laundring, 0:12:45.360 --> 0:12:48.040 that as a complexity and a bunch of elements that 0:12:48.080 --> 0:12:50.920 you have to prove. That makes your case more complicated. 0:12:50.960 --> 0:12:54.240 And I tend to believe that, particularly in a white 0:12:54.240 --> 0:12:58.640 collar crime case, the simpler story usually with SO I 0:12:58.640 --> 0:13:01.920 would try to keep my prosecution cases a simple and 0:13:01.960 --> 0:13:05.160 straightforward to prossible. He said he's going to fight extradition. 0:13:05.559 --> 0:13:09.800 What grounds can he possibly offer not to be extradited? 0:13:10.200 --> 0:13:12.160 And I don't know, off the top of my entieres, 0:13:12.200 --> 0:13:16.040 I'm not an expert on Bahamian law. M or Behavian law. 0:13:16.320 --> 0:13:19.680 But I would just say that, generally speaking, because I 0:13:19.760 --> 0:13:22.160 say this from the perspective someone who used to be 0:13:22.320 --> 0:13:25.800 on the federal prosecutions, I try and extradite the defendants, 0:13:25.800 --> 0:13:29.120 that of prosecuting he generally the offense needs to be 0:13:29.679 --> 0:13:35.800 a crime in both the US jurisdiction and the foreign jurisdiction. 0:13:35.880 --> 0:13:38.559 So he might try to argue that let's say the 0:13:38.640 --> 0:13:43.280 campaign finance fraud was conspiracy, was not actually a crime, 0:13:43.360 --> 0:13:47.960 and under Beahamian law, that's possible. You know, I don't 0:13:48.000 --> 0:13:51.920 really view that as um an important part of this 0:13:52.000 --> 0:13:54.840 defense strategy. In other words, I view that as buying time. 0:13:55.480 --> 0:13:58.439 You know, he he spoke during the Twitter space that 0:13:58.520 --> 0:14:02.000 I listened to, how he was completely broke and I 0:14:02.040 --> 0:14:03.800 was trying to figure out out to pay his lawyers. 0:14:03.840 --> 0:14:06.319 The unless a hund thousand dollars of his name. He 0:14:06.440 --> 0:14:09.079 was looking at the directors and officers, insurance and so 0:14:09.240 --> 0:14:11.920 forth to find a way to pay lawyers. So, you know, 0:14:12.000 --> 0:14:14.640 buying a little bit of time makes sense for someone 0:14:14.679 --> 0:14:17.120 in this position, So that that may be part of it. 0:14:17.160 --> 0:14:20.880 As Danny and Williams also said, well, this is our 0:14:20.920 --> 0:14:24.560 first public announcement. It will not be our last. So 0:14:24.640 --> 0:14:27.760 for a U S attorney to say that with such confidence, 0:14:27.760 --> 0:14:30.000 and he sort of said it twice, do you think 0:14:30.040 --> 0:14:34.800 that they've already got more indictments ready to go? Yes. 0:14:35.000 --> 0:14:38.560 I was surprised by that because use certain you're supposed 0:14:38.560 --> 0:14:41.040 to be very careful, and they are generally very careful 0:14:41.040 --> 0:14:43.720 about their work when they make a announcement in a 0:14:43.800 --> 0:14:47.600 press release, because what they say can be used by 0:14:47.640 --> 0:14:50.640 defendants in emotions to try to argue that they have 0:14:50.680 --> 0:14:54.240 been unfairly prejudiced and so forth, So they're usually very 0:14:54.400 --> 0:14:58.720 their Their words are very carefully orchestrated and planned out, 0:14:59.120 --> 0:15:02.520 and I think they're he was trying to imply the 0:15:02.640 --> 0:15:06.080 charges against others who were down down the pike. He 0:15:06.200 --> 0:15:09.640 also appeared to be sending a message that anyone involved 0:15:09.640 --> 0:15:13.200 in this should cooperate, and so I think that that 0:15:13.320 --> 0:15:16.640 was definitely part of the point here. I think he 0:15:16.760 --> 0:15:19.640 was trying to send a message the people like Caroline 0:15:19.640 --> 0:15:24.720 Allison other associates of SPS that it was time for 0:15:24.800 --> 0:15:27.520 them to come forward and cooperate with the government and 0:15:28.520 --> 0:15:32.520 what they do. So finally, you know, you hear ridiculous 0:15:32.640 --> 0:15:35.320 numbers like a hundred and fifteen years that he's facing. 0:15:36.240 --> 0:15:40.280 If these charges are approved, will he get out of prison? 0:15:40.880 --> 0:15:45.400 I can explain why that's such a silly number. That 0:15:45.520 --> 0:15:48.560 a hundred something here is that he's looking at. You know, 0:15:48.600 --> 0:15:51.880 we often hear those depressed reports. I mean someone starts 0:15:51.960 --> 0:15:55.720 to facing hundred or hundreds of years up to hundreds 0:15:55.760 --> 0:16:00.920 of years in prison? Would that number constitute is all 0:16:00.960 --> 0:16:05.680 of the maximum possible sentences under law for each one 0:16:05.680 --> 0:16:10.640 of the counts if you stacked those counts one after another, 0:16:11.480 --> 0:16:14.360 And as a practical matter, that's never going to happen. 0:16:15.440 --> 0:16:19.600 So what Yes, that's the theoretical cap. But what really 0:16:19.680 --> 0:16:22.360 matters here are a couple of things. First of all, 0:16:22.920 --> 0:16:26.880 the judge is required under federal law to look at 0:16:26.880 --> 0:16:31.440 a variety of factors when fashioning a sentence. Those factors 0:16:31.440 --> 0:16:34.320 are very broad. They include things like the history and 0:16:34.440 --> 0:16:40.240 characteristics defendant, the nature and circumstances of the offense, essentially 0:16:40.240 --> 0:16:43.800 everything surrounding the defendant. And by the way, that includes 0:16:44.240 --> 0:16:47.520 thinks he wasn't charged with. That includes things he may 0:16:47.560 --> 0:16:49.600 have even been acquitted for. If he's acquitted on the 0:16:49.640 --> 0:16:53.760 campaign finance charge, the judge can notetheless consider that conduct. 0:16:54.280 --> 0:16:57.280 So you know, all of that will be thrown into 0:16:57.320 --> 0:16:59.440 the mix and the judge is going to make a judgment. 0:17:00.000 --> 0:17:03.720 In addition to that, there is something called the Federal 0:17:03.800 --> 0:17:07.879 Sentencing guidelines. They are just that, so they are only guidelines. 0:17:07.920 --> 0:17:12.080 They're not our rules, they're not laws, so it judge 0:17:12.080 --> 0:17:14.800 could disregards them, but they do have an influence on judges. 0:17:14.840 --> 0:17:18.199 I think they can anchorage judge's decision. So if I 0:17:18.320 --> 0:17:23.160 was getting handicap, what a sentence would look like for SBS, 0:17:23.600 --> 0:17:26.040 I would say at the starting point that it would 0:17:26.119 --> 0:17:32.040 probably be something in the range of multiple decades in prison. Uh. 0:17:32.080 --> 0:17:35.040 You know, we recently saw the founder of the atous 0:17:35.080 --> 0:17:39.199 sentence to fourteen years in prison, and she was pregnant 0:17:39.320 --> 0:17:42.440 at the time. Uh. In my experience too, I think 0:17:42.480 --> 0:17:45.919 that particularly someone who has a young child and a 0:17:46.040 --> 0:17:49.240 pregnant woman would get a lower sentence. I would expect 0:17:49.359 --> 0:17:51.720 Mr bankers Free to get a higher sentence in her 0:17:52.320 --> 0:17:58.600 And additionally, another factor that not only dramatically increases sentencing 0:17:58.640 --> 0:18:03.560 guidelines but also is heavily considered by judges one weighing 0:18:03.560 --> 0:18:06.560 a sentence in a proud game, it's called the loss amount. 0:18:06.560 --> 0:18:08.720 In others, a total amount of money at issue that 0:18:08.840 --> 0:18:12.520 was lost by victims. And I think that the loss 0:18:12.520 --> 0:18:15.919 amount here is likely to be substantially more than it 0:18:16.040 --> 0:18:19.160 was in the Farinos case. So I think that Mr Bank, 0:18:19.240 --> 0:18:21.320 the fred is going to likely receive a sentence so 0:18:21.400 --> 0:18:24.440 much more than those fourteen years. I think you should 0:18:24.440 --> 0:18:28.520 prepare himself for multiple decades. Thanks so much. That's we're 0:18:28.520 --> 0:18:32.600 not on. Marialti A partner Brian cave Layton Paisner coming up. 0:18:32.600 --> 0:18:37.040 We'll look at the sec complaint. This is Bloomberg questions 0:18:37.040 --> 0:18:39.240 we have are you know, where where are the assets? 0:18:39.720 --> 0:18:43.719 How we locate those assets? Uh, it's a mining exercise 0:18:43.760 --> 0:18:48.199 at this point. Uh and uh look, you know, at 0:18:48.200 --> 0:18:50.359 the end of the day, we're not going to be 0:18:50.359 --> 0:18:53.720 able to recover all the losses here. Money was spent 0:18:53.800 --> 0:18:57.280 that will never get back. John Ray, who's guided dozens 0:18:57.280 --> 0:19:01.440 of companies, including and Ron through bank see, called ft 0:19:01.720 --> 0:19:04.640 x is collapse one of the worst business failures he's 0:19:04.680 --> 0:19:07.600 ever seen, saying it was run by a small group 0:19:07.680 --> 0:19:12.160 of grossly inexperienced people, with a complete lack of oversight 0:19:12.200 --> 0:19:17.560 and financial controls and an unprecedented lack of documentation. You know, 0:19:17.640 --> 0:19:21.359 even the most failed companies you have a fair roadmap 0:19:21.520 --> 0:19:24.960 of what happened. Uh, we're dealing with literally a sort 0:19:24.960 --> 0:19:28.000 of a a paperless bankruptcy in terms of how they 0:19:28.000 --> 0:19:31.760 created this company. It makes it very difficult to UH 0:19:32.040 --> 0:19:37.359 to trace and track assets. Currently, f t x is 0:19:37.440 --> 0:19:41.080 founder Sam Bankman Freed is sitting in a Bahamas prison 0:19:41.320 --> 0:19:45.080 fighting almost certain extradition to the US to face criminal 0:19:45.200 --> 0:19:49.119 charges and civil lawsuits by the Securities and Exchange Commission 0:19:49.280 --> 0:19:52.840 and the Commodities Futures Exchange Commission. Joining me as securities 0:19:52.920 --> 0:19:56.480 law expert, Robert him a partner at Tartar, Krinsky and Drogn. 0:19:56.880 --> 0:20:01.919 How would you describe generally the sec is complaint. The 0:20:02.040 --> 0:20:05.879 SEC's complaint in this matter is very interesting because it 0:20:06.040 --> 0:20:09.440 really sells out a very basic fraud in a sense 0:20:09.480 --> 0:20:15.119 of misusing customer deposits at cfc X exchange and using 0:20:15.160 --> 0:20:18.720 those for personal purposes by banks and Freed and others 0:20:18.880 --> 0:20:21.440 supposed to you know, what some people thought might be 0:20:21.480 --> 0:20:24.400 a very complex fraud. It turns out to be very 0:20:24.680 --> 0:20:28.040 garden variety, except just on a very massive scale. The 0:20:28.200 --> 0:20:32.960 SEC's jurisdiction is limited to fraud and security sales, and 0:20:33.000 --> 0:20:37.800 there's ambiguity about whether crypto is a security so how 0:20:37.800 --> 0:20:41.480 did the SEC steer clear of that in its complaint? 0:20:42.160 --> 0:20:46.040 The SEC has brought securities fraud charges in its complaints, 0:20:46.160 --> 0:20:48.880 and the way they have done that is that they 0:20:48.880 --> 0:20:52.200 have alleged that's starting in twenty nineteen, so way back 0:20:52.240 --> 0:20:55.119 to the very beginning of when ft X was founded, 0:20:55.280 --> 0:21:00.040 that misrepresentations were made to investors, including US investors, to 0:21:00.160 --> 0:21:03.400 induce them invest in the equity of ft X. These 0:21:03.400 --> 0:21:06.840 are separate in the customers who traded crypto. There were 0:21:06.880 --> 0:21:11.280 institutional investors who invested billions of dollars into f t X, 0:21:11.440 --> 0:21:15.760 and the SEC said that that was done through misrepresentations 0:21:15.840 --> 0:21:19.680 and omissions, and that's how the SEC has crafted its 0:21:19.720 --> 0:21:23.000 security scrot complaints in this matter. Tell us a little 0:21:23.040 --> 0:21:28.200 about the SEC's allegations that Bankman Free concealed f t 0:21:28.440 --> 0:21:32.560 x is relationship with al ame To Research and used 0:21:32.600 --> 0:21:37.040 commingled customer funds. One of the key allegations in the 0:21:37.160 --> 0:21:41.480 SEC complaint has been that there is an affiliated hedge 0:21:41.480 --> 0:21:47.320 fund called Almita Research, which essentially traded crypto, made markets 0:21:47.359 --> 0:21:51.160 in crypto, and was supposed to have been a separate company. 0:21:51.440 --> 0:21:54.440 But the SEC is alleged there was a significant amount 0:21:54.440 --> 0:21:58.240 of commingling of asset, specifically customer assets and f t 0:21:58.560 --> 0:22:02.439 X that was used to fund Almeda's operations, and that 0:22:02.600 --> 0:22:06.200 was contrary to the representations that f TX was making 0:22:06.320 --> 0:22:09.480 to customers as well as to its lenders and investors. 0:22:10.440 --> 0:22:14.239 Let's go through different parts of the complaint explain how 0:22:14.240 --> 0:22:20.280 the SEC says that bank Man Freed misled investors. The 0:22:20.440 --> 0:22:24.159 SEC has laid out a number of specific claims with 0:22:24.240 --> 0:22:28.880 how bank Man Freed misled investors. They center around representations 0:22:28.880 --> 0:22:31.800 that Banksman's Freed made that there was risk controls in 0:22:31.880 --> 0:22:35.440 place at fc X, that investor money was safe, and 0:22:35.520 --> 0:22:39.160 also that Almeda was not given any sort of special 0:22:39.160 --> 0:22:43.840 treatment that had been a subject of repeated misrepresentations. According 0:22:43.880 --> 0:22:46.880 to the SEC, that ALMDA was just like any other 0:22:47.000 --> 0:22:50.440 customer on the ft X platform, but in fact, according 0:22:50.440 --> 0:22:53.960 to the SEC's complaint, it was treated very differently. The 0:22:54.119 --> 0:22:57.760 SEC is alleged that Almita had a virtually unlimited credit 0:22:57.800 --> 0:23:00.480 line with f t X, that it was the stempted 0:23:00.600 --> 0:23:03.920 from many of the margin requirements that typical customers had 0:23:04.000 --> 0:23:07.840 to comply with, a result that led to massive losses 0:23:07.920 --> 0:23:12.280 for UM investors and customers of FPS. What about the 0:23:12.320 --> 0:23:17.360 poor controls fd X had and risk management and those 0:23:17.560 --> 0:23:23.320 loans to Sam Bankman, Freed and other staff. Yeah, the 0:23:23.359 --> 0:23:28.119 loans are particularly incriminating fact that the SEC has alleged 0:23:28.240 --> 0:23:32.680 because what the complaints says is that customer money from 0:23:32.800 --> 0:23:37.359 the ft X exchange was transferred over to Almeda, and 0:23:37.480 --> 0:23:40.720 from there Almita made loans the hundreds of millions of 0:23:40.760 --> 0:23:44.600 dollars to insiders, including facts Banks and freed Um and 0:23:44.640 --> 0:23:48.200 also use the money to purchase lavish real estate and 0:23:48.280 --> 0:23:53.320 other expenses that were clearly personal in nature. And as 0:23:53.320 --> 0:23:57.840 a result of this sort of transactions, the SEC said 0:23:57.840 --> 0:24:00.359 that that was never disclosed to investors and f p 0:24:00.600 --> 0:24:02.720 X that that was going to happen, and in fact, 0:24:02.880 --> 0:24:06.879 the SEC alleges investors were told, uh completely the opposite, 0:24:07.000 --> 0:24:11.960 that fc X was completely fund separately from Almida, But 0:24:12.040 --> 0:24:14.439 that turns out, according to the SEC, not to have 0:24:14.480 --> 0:24:19.040 been the case. So the SEC alleges that bank Man 0:24:19.119 --> 0:24:25.520 Freed orchestrated this scheme to defraud equity investors. But yet 0:24:25.880 --> 0:24:31.280 John Ray said that this is really just old fashioned embezzlement, 0:24:31.400 --> 0:24:34.080 just taking money from customers and using it for your 0:24:34.080 --> 0:24:38.840 own purposes. So was there really an orchestrated scheme that 0:24:38.880 --> 0:24:43.160 makes it sound much more sophisticated. Yeah, that's a very 0:24:43.160 --> 0:24:46.639 good point. I think that even though the purpose of 0:24:46.680 --> 0:24:51.160 the scheme in namely using customer funds for personal expenses 0:24:51.200 --> 0:24:53.919 and embezzlement, is very basic, the way that it was 0:24:54.000 --> 0:24:57.000 done here shows a high degree of culpability, according to 0:24:57.040 --> 0:25:00.720 the SEC, because steps were taken by Frank and Freed 0:25:00.760 --> 0:25:05.720