Speaker 1: This is Bloombird Law with June Brusso from Bloomberg Radio.
Speaker 1: So hard to compare these things, but I think it's
Speaker 1: fair to say that by any anyone's license is one
Speaker 1: of the biggest financial frauds in American history. Federal prosecutors
Speaker 1: moved at warp speed to charge f t X founder
Speaker 1: Sam Bankman Freed in a sweeping eight count indictment for
Speaker 1: allegedly misappropriating billions of dollars in customer funds for his
Speaker 1: personal use and risky bets by sister trading house Alameda, Manhattan.
Speaker 1: US attorney Damien Williams said Bankman Freed scammed ft X
Speaker 1: customers and venture capital backers out of billions. Even though
Speaker 1: the cryptome Maven might not fit the typical profile of
Speaker 1: a fraud ster, Well, you can commit fraud and chorts
Speaker 1: and t shirts in the sun the best possible to
Speaker 1: Just a few weeks ago, Bankman Freed was on ABC
Speaker 1: TV denying any comparison to Bernie made Off. When you
Speaker 1: look at the classic Bernie made Off story, there is
Speaker 1: no real business there. The whole thing, as I understand it,
Speaker 1: I think was was just one one big Ponzi scheme,
Speaker 1: right f t X, that was a real business, but
Speaker 1: prosecutors say f t X was just a scam from
Speaker 1: day one, or as John ray It's new CEO put it,
Speaker 1: this is really old fashioned and embezzlement. This is just
Speaker 1: taking money from customers and using it for your own purpose,
Speaker 1: not sophisticated at all. My guest is former federal prosecutor
Speaker 1: Renato Marianti, a partner at Brian Cave Layton Paisner. With
Speaker 1: complex financial crimes, it usually takes prosecutors a while to
Speaker 1: bring charges. It took the Feds more than two years
Speaker 1: to charge Jeff Skilling after the Enron collapsed. So what
Speaker 1: do you make of the speed with which these charges
Speaker 1: were brought. It's remarkable, absolutely remarkable. I have never seen
Speaker 1: a case of this scope within weeks of the precipitating
Speaker 1: event before. In other words, I used to investigate when
Speaker 1: I was a federal prosecutor complex financial crime. Those investigations
Speaker 1: would typically take years. A fast investigation would take months,
Speaker 1: and now we're seeing a case that was brought a
Speaker 1: little over a month after the collapse of FDx. So
Speaker 1: that's just absolutely sounding and I think what it speaks
Speaker 1: to when you look at that end the breath of
Speaker 1: the charges that are brought against Mr Bankman Free. It
Speaker 1: really suggested me a confidence that prosecutors have in this
Speaker 1: case that's remarkable that I haven't seen before. This is
Speaker 1: a sweeping indictment charging conspiracy, fraud, money laundering, among other things.
Speaker 1: What struck you most about it a couple of things
Speaker 1: to make this stand out. One is the sheer, breath
Speaker 1: and brazen nature of the alleged fraud. This is not
Speaker 1: a fraud scheam related to a very particul killer portion
Speaker 1: of FDx business, not related to a specific deal or
Speaker 1: a specific customer. Was the beds of alleged is that
Speaker 1: effectively all of fd X was a giant fraud on
Speaker 1: its customers, that all Alameda with the frauding and customers
Speaker 1: and investors, very widescale frauds, very simple, straightforwards, garden variety frauds.
Speaker 1: So that I think certainly contributes to the confidence the
Speaker 1: Feds have. Another thing that's unusual here is that Mr
Speaker 1: Banker Freed, he took it upon himself to answer everyone's
Speaker 1: question about this and really locked himself into a story
Speaker 1: more than I've ever seen before. We're not talking about
Speaker 1: one lone interview. Mr bank the greed spokes the many
Speaker 1: reporters he spoke on Twitter spaces really answered very insight
Speaker 1: the questions for hours, making it very difficult for defense
Speaker 1: councils to weave a story that isn't already locked in.
Speaker 1: So fraud guters not that they can contradict the story
Speaker 1: that he's already locked himself into. I think that could
Speaker 1: explain a lot of their compas. Yeah, surprising because I'm
Speaker 1: sure his lawyers told him to be quiet. But do
Speaker 1: you think he was trying to set up a defense
Speaker 1: basically saying I made mistakes, I may have commingled funds, whatever,
Speaker 1: but I didn't mean to defraud anyone. I think that's right,
Speaker 1: to be fair. That is not an uncommon defense in
Speaker 1: a froud case. In fact, I would say that that
Speaker 1: is in many ways the typical defense that you would
Speaker 1: see in a froud case. In other words, I may
Speaker 1: have been in intentive or enough, or a bad businessman,
Speaker 1: but I'm not a fraudster. I wasn't intending to do that.
Speaker 1: Because the prosecution has to prove beyond a reasonable doubt
Speaker 1: that the defense it had the intense defraud. But that said,
Speaker 1: the problem for Mr Banker free is really with how
Speaker 1: this is going to play out of the trial. This
Speaker 1: is why he really did himself a disservice by concluding
Speaker 1: that he didn't need lawyers. You know, he's ad at
Speaker 1: one point that he understood the law better than lawyers did,
Speaker 1: and that sort of thing. And I think he did
Speaker 1: himself a disservice because under the federal rules of evidence,
Speaker 1: he cannot introduce his out of court statements in his defense.
Speaker 1: They are inadmissible here says, but if the government wants
Speaker 1: to pick and choose and find bits of those interviews
Speaker 1: that are incriminating, they can introduce those specific pieces of
Speaker 1: his interviews as admissions by a party opponent. And so
Speaker 1: he put himself in a situation with a lot of
Speaker 1: downside and no upside. He is going to be facing,
Speaker 1: in a criminal case, a lot of negative statements that
Speaker 1: the Feds candy playing his way, and he can't play
Speaker 1: any positive statements. His response has to be to take
Speaker 1: the stand, and if he does that, he's going to
Speaker 1: be facing a barrage of his own prior statements. He's
Speaker 1: effectively locked himself into regarding his own testimony and put
Speaker 1: himself in a situation where he's got to remember and
Speaker 1: beginsistent with all the things he said in the past,
Speaker 1: even if his lawyers later realized that some of the
Speaker 1: things he said previously we're not the smart thing for
Speaker 1: him to say at trial. So what strikes me is
Speaker 1: that prosecutors have said this was one of the biggest
Speaker 1: financial frauds in American history, billions of dollars disappearing. Yet
Speaker 1: as you said, and as John Ray, who has taken
Speaker 1: over f t X said, this is just plain old embezzlement.
Speaker 1: So why did it take so long then for it
Speaker 1: to be discovered for it to fall apart? That's a
Speaker 1: great question. I think there's a number of reasons why.
Speaker 1: One is that SPS was able to successfully convince not
Speaker 1: only the customers of FTX and his investors, but also
Speaker 1: the public at large that he was some sort of visionary,
Speaker 1: you know, potentially the world's first trillion era because he
Speaker 1: had this large personality, and I think that that caused
Speaker 1: many people not to exercise the appropriate judgment and conduct
Speaker 1: the appropriate due diligence. I think another factor is that
Speaker 1: it's fair to say that there has been a lot
Speaker 1: of excitement about CRIPTO, and enthusiasm that has caused many
Speaker 1: who are not sophisticated in that space to put money
Speaker 1: into visional assets without carefully considering that investment. And I
Speaker 1: think it's also fair to say that he's really good
Speaker 1: at fooling people and that it's not entirely unusual for
Speaker 1: fraudsters to get away with their fraudulent activity for years.
Speaker 1: I mean, Bernie Madoff got away with it for years
Speaker 1: and pretty made not had obviously a lot of institutional
Speaker 1: validation that came from his prior position, but SPP over
Speaker 1: time was heralded by many people as some sort of visionary.
Speaker 1: You know, he is photo on covers of Major MAGA.
Speaker 1: He was seeing as some larger than life entrepreneur, and
Speaker 1: I think that contributed to the trust that people have
Speaker 1: for now. As far as the evidence at trial, John
Speaker 1: Ray said, we're dealing with a literal, paperless bankruptcy. It
Speaker 1: makes it difficult to track. They didn't put things in writing,
Speaker 1: communications that disappeared, etcetera. Will that also make it more
Speaker 1: difficult to prosecute. When I was a prosecutor, I used
Speaker 1: to always say that emails are prosecutor's best friends. And
Speaker 1: it's certainly a white collar prosecuters typically emails, text messages.
Speaker 1: I am the other types of communications usually are what
Speaker 1: you rely on to establish intensive to fraud. In addition,
Speaker 1: other types of documents, whether they're ledgers or other types
Speaker 1: of financial records, are really important to provide a snapshot
Speaker 1: not only of what the company's books look like at
Speaker 1: a certain time, but also what people like SPF new
Speaker 1: at particular points time that doesn't exist here. I do
Speaker 1: think that in a different kind of case it might
Speaker 1: matter more. The beauty of the government's case from their
Speaker 1: perspectives is that they're not really claiming anything that relies
Speaker 1: too much in the detail. I think at its core
Speaker 1: the fraud case, the main fraudcasts a number of different
Speaker 1: frauds that are really set a charge, a number different
Speaker 1: schemes that are charged. But I would say the main
Speaker 1: scheme is that FBX was taking customer money, promised customers
Speaker 1: that their money would remain at fb ACT it wouldn't
Speaker 1: be used by FDx for a different purpose that can't
Speaker 1: be disputed, and the money went elsewhere. And so given
Speaker 1: that the government can prove that he signed off on
Speaker 1: those money transfers, I think between that and his public statements,
Speaker 1: they appear confident, and so I think that will mitigate
Speaker 1: the lack of paper and the disappearing chats and all
Speaker 1: the other things that Mr Ray mentioned which otherwise might
Speaker 1: prove fatal to a criminal case. So bank and Freed
Speaker 1: has said that he had little involvement in the management
Speaker 1: of Alameda after he passed control of it to Caroline Ellison,
Speaker 1: and then statements that customer funds were passed to Alamita
Speaker 1: because of an accounting error that might be part of
Speaker 1: his defense. Do you think it has any weight? It
Speaker 1: certainly maybe part of this defense. What I would say
Speaker 1: is that it would have been a lot smarter for
Speaker 1: him to wait for his lawyers to get discovery from
Speaker 1: the government, determine whether or not the evidence back those
Speaker 1: claims up, and then have his lawyers asserts those claims
Speaker 1: rather than him. But now, yes, I do think you've
Speaker 1: got to hang his hat on those things, and the
Speaker 1: question is whether or not it ends up being true.
Speaker 1: What I will say is, if it turns out that
Speaker 1: those statements are not accurate, that's a major problem for
Speaker 1: him because it's going to be impossible for him to
Speaker 1: successfully pivot away from that at trial given his prior statements.
Speaker 1: What I do is suspect is that the government, whether
Speaker 1: or not there's paper or not, to get to the
Speaker 1: point you're raising earlier, they're going to be able to
Speaker 1: establish from a variety be of different individuals and different
Speaker 1: documents what exactly happened and what SPF do. And it's
Speaker 1: worth noting that the other individuals involved have different interests
Speaker 1: than Mr bankmet Freed. They're not his servants, and ultimately
Speaker 1: they have their own potential liability to consider. And presumably,
Speaker 1: for example, the people at Alameda are not gonna want
Speaker 1: to suggest that they were responsible for fd X is
Speaker 1: misused to customer funds. Presumably what they're gonna say is
Speaker 1: that Mr banknet Freed authorizes and told all of them
Speaker 1: that this was appropriate, and would anticipate that that's their
Speaker 1: testimony would be something along those lines. What do you
Speaker 1: think the hardest part of the prosecution's case against him
Speaker 1: will be? Well, that's a very very good question. I
Speaker 1: think that one thing that's really surprising about the government's
Speaker 1: case is the breath of the case that they brought. Now,
Speaker 1: part of that is because they're extraditing. In once you
Speaker 1: extradite someone, you cannot add charges you can always dismis
Speaker 1: charges you can't add charges um and so I do
Speaker 1: think they were probably trying to be over inclusive. If
Speaker 1: I was the supervisor looking at this indictment, that sense
Speaker 1: to me. For a review, I would really question why
Speaker 1: we're charging campaign finance case as part of fraud case.
Speaker 1: In other words, if you're going to prison for fraud,
Speaker 1: what do we care? I mean, just tell the judge
Speaker 1: about the campaign finance stuff. She can consider that a
Speaker 1: sentence thing. But like, let's just charge our strong counts
Speaker 1: and let's just argue the rest of us and the
Speaker 1: judge that sentence. Think, you know, it's not like you
Speaker 1: need those talents. So I think that similarly with money laundring,
Speaker 1: that as a complexity and a bunch of elements that
Speaker 1: you have to prove. That makes your case more complicated.
Speaker 1: And I tend to believe that, particularly in a white
Speaker 1: collar crime case, the simpler story usually with SO I
Speaker 1: would try to keep my prosecution cases a simple and
Speaker 1: straightforward to prossible. He said he's going to fight extradition.
Speaker 1: What grounds can he possibly offer not to be extradited?
Speaker 1: And I don't know, off the top of my entieres,
Speaker 1: I'm not an expert on Bahamian law. M or Behavian law.
Speaker 1: But I would just say that, generally speaking, because I
Speaker 1: say this from the perspective someone who used to be
Speaker 1: on the federal prosecutions, I try and extradite the defendants,
Speaker 1: that of prosecuting he generally the offense needs to be
Speaker 1: a crime in both the US jurisdiction and the foreign jurisdiction.
Speaker 1: So he might try to argue that let's say the
Speaker 1: campaign finance fraud was conspiracy, was not actually a crime,
Speaker 1: and under Beahamian law, that's possible. You know, I don't
Speaker 1: really view that as um an important part of this
Speaker 1: defense strategy. In other words, I view that as buying time.
Speaker 1: You know, he he spoke during the Twitter space that
Speaker 1: I listened to, how he was completely broke and I
Speaker 1: was trying to figure out out to pay his lawyers.
Speaker 1: The unless a hund thousand dollars of his name. He
Speaker 1: was looking at the directors and officers, insurance and so
Speaker 1: forth to find a way to pay lawyers. So, you know,
Speaker 1: buying a little bit of time makes sense for someone
Speaker 1: in this position, So that that may be part of it.
Speaker 1: As Danny and Williams also said, well, this is our
Speaker 1: first public announcement. It will not be our last. So
Speaker 1: for a U S attorney to say that with such confidence,
Speaker 1: and he sort of said it twice, do you think
Speaker 1: that they've already got more indictments ready to go? Yes.
Speaker 1: I was surprised by that because use certain you're supposed
Speaker 1: to be very careful, and they are generally very careful
Speaker 1: about their work when they make a announcement in a
Speaker 1: press release, because what they say can be used by
Speaker 1: defendants in emotions to try to argue that they have
Speaker 1: been unfairly prejudiced and so forth, So they're usually very
Speaker 1: their Their words are very carefully orchestrated and planned out,
Speaker 1: and I think they're he was trying to imply the
Speaker 1: charges against others who were down down the pike. He
Speaker 1: also appeared to be sending a message that anyone involved
Speaker 1: in this should cooperate, and so I think that that
Speaker 1: was definitely part of the point here. I think he
Speaker 1: was trying to send a message the people like Caroline
Speaker 1: Allison other associates of SPS that it was time for
Speaker 1: them to come forward and cooperate with the government and
Speaker 1: what they do. So finally, you know, you hear ridiculous
Speaker 1: numbers like a hundred and fifteen years that he's facing.
Speaker 1: If these charges are approved, will he get out of prison?
Speaker 1: I can explain why that's such a silly number. That
Speaker 1: a hundred something here is that he's looking at. You know,
Speaker 1: we often hear those depressed reports. I mean someone starts
Speaker 1: to facing hundred or hundreds of years up to hundreds
Speaker 1: of years in prison? Would that number constitute is all
Speaker 1: of the maximum possible sentences under law for each one
Speaker 1: of the counts if you stacked those counts one after another,
Speaker 1: And as a practical matter, that's never going to happen.
Speaker 1: So what Yes, that's the theoretical cap. But what really
Speaker 1: matters here are a couple of things. First of all,
Speaker 1: the judge is required under federal law to look at
Speaker 1: a variety of factors when fashioning a sentence. Those factors
Speaker 1: are very broad. They include things like the history and
Speaker 1: characteristics defendant, the nature and circumstances of the offense, essentially
Speaker 1: everything surrounding the defendant. And by the way, that includes
Speaker 1: thinks he wasn't charged with. That includes things he may
Speaker 1: have even been acquitted for. If he's acquitted on the
Speaker 1: campaign finance charge, the judge can notetheless consider that conduct.
Speaker 1: So you know, all of that will be thrown into
Speaker 1: the mix and the judge is going to make a judgment.
Speaker 1: In addition to that, there is something called the Federal
Speaker 1: Sentencing guidelines. They are just that, so they are only guidelines.
Speaker 1: They're not our rules, they're not laws, so it judge
Speaker 1: could disregards them, but they do have an influence on judges.
Speaker 1: I think they can anchorage judge's decision. So if I
Speaker 1: was getting handicap, what a sentence would look like for SBS,
Speaker 1: I would say at the starting point that it would
Speaker 1: probably be something in the range of multiple decades in prison. Uh.
Speaker 1: You know, we recently saw the founder of the atous
Speaker 1: sentence to fourteen years in prison, and she was pregnant
Speaker 1: at the time. Uh. In my experience too, I think
Speaker 1: that particularly someone who has a young child and a
Speaker 1: pregnant woman would get a lower sentence. I would expect
Speaker 1: Mr bankers Free to get a higher sentence in her
Speaker 1: And additionally, another factor that not only dramatically increases sentencing
Speaker 1: guidelines but also is heavily considered by judges one weighing
Speaker 1: a sentence in a proud game, it's called the loss amount.
Speaker 1: In others, a total amount of money at issue that
Speaker 1: was lost by victims. And I think that the loss
Speaker 1: amount here is likely to be substantially more than it
Speaker 1: was in the Farinos case. So I think that Mr Bank,
Speaker 1: the fred is going to likely receive a sentence so
Speaker 1: much more than those fourteen years. I think you should
Speaker 1: prepare himself for multiple decades. Thanks so much. That's we're
Speaker 1: not on. Marialti A partner Brian cave Layton Paisner coming up.
Speaker 1: We'll look at the sec complaint. This is Bloomberg questions
Speaker 1: we have are you know, where where are the assets?
Speaker 1: How we locate those assets? Uh, it's a mining exercise
Speaker 1: at this point. Uh and uh look, you know, at
Speaker 1: the end of the day, we're not going to be
Speaker 1: able to recover all the losses here. Money was spent
Speaker 1: that will never get back. John Ray, who's guided dozens
Speaker 1: of companies, including and Ron through bank see, called ft
Speaker 1: x is collapse one of the worst business failures he's
Speaker 1: ever seen, saying it was run by a small group
Speaker 1: of grossly inexperienced people, with a complete lack of oversight
Speaker 1: and financial controls and an unprecedented lack of documentation. You know,
Speaker 1: even the most failed companies you have a fair roadmap
Speaker 1: of what happened. Uh, we're dealing with literally a sort
Speaker 1: of a a paperless bankruptcy in terms of how they
Speaker 1: created this company. It makes it very difficult to UH
Speaker 1: to trace and track assets. Currently, f t x is
Speaker 1: founder Sam Bankman Freed is sitting in a Bahamas prison
Speaker 1: fighting almost certain extradition to the US to face criminal
Speaker 1: charges and civil lawsuits by the Securities and Exchange Commission
Speaker 1: and the Commodities Futures Exchange Commission. Joining me as securities
Speaker 1: law expert, Robert him a partner at Tartar, Krinsky and Drogn.
Speaker 1: How would you describe generally the sec is complaint. The
Speaker 1: SEC's complaint in this matter is very interesting because it
Speaker 1: really sells out a very basic fraud in a sense
Speaker 1: of misusing customer deposits at cfc X exchange and using
Speaker 1: those for personal purposes by banks and Freed and others
Speaker 1: supposed to you know, what some people thought might be
Speaker 1: a very complex fraud. It turns out to be very
Speaker 1: garden variety, except just on a very massive scale. The
Speaker 1: SEC's jurisdiction is limited to fraud and security sales, and
Speaker 1: there's ambiguity about whether crypto is a security so how
Speaker 1: did the SEC steer clear of that in its complaint?
Speaker 1: The SEC has brought securities fraud charges in its complaints,
Speaker 1: and the way they have done that is that they
Speaker 1: have alleged that's starting in twenty nineteen, so way back
Speaker 1: to the very beginning of when ft X was founded,
Speaker 1: that misrepresentations were made to investors, including US investors, to
Speaker 1: induce them invest in the equity of ft X. These
Speaker 1: are separate in the customers who traded crypto. There were
Speaker 1: institutional investors who invested billions of dollars into f t X,
Speaker 1: and the SEC said that that was done through misrepresentations
Speaker 1: and omissions, and that's how the SEC has crafted its
Speaker 1: security scrot complaints in this matter. Tell us a little
Speaker 1: about the SEC's allegations that Bankman Free concealed f t
Speaker 1: x is relationship with al ame To Research and used
Speaker 1: commingled customer funds. One of the key allegations in the
Speaker 1: SEC complaint has been that there is an affiliated hedge
Speaker 1: fund called Almita Research, which essentially traded crypto, made markets
Speaker 1: in crypto, and was supposed to have been a separate company.
Speaker 1: But the SEC is alleged there was a significant amount
Speaker 1: of commingling of asset, specifically customer assets and f t
Speaker 1: X that was used to fund Almeda's operations, and that
Speaker 1: was contrary to the representations that f TX was making
Speaker 1: to customers as well as to its lenders and investors.
Speaker 1: Let's go through different parts of the complaint explain how
Speaker 1: the SEC says that bank Man Freed misled investors. The
Speaker 1: SEC has laid out a number of specific claims with
Speaker 1: how bank Man Freed misled investors. They center around representations
Speaker 1: that Banksman's Freed made that there was risk controls in
Speaker 1: place at fc X, that investor money was safe, and
Speaker 1: also that Almeda was not given any sort of special
Speaker 1: treatment that had been a subject of repeated misrepresentations. According
Speaker 1: to the SEC, that ALMDA was just like any other
Speaker 1: customer on the ft X platform, but in fact, according
Speaker 1: to the SEC's complaint, it was treated very differently. The
Speaker 1: SEC is alleged that Almita had a virtually unlimited credit
Speaker 1: line with f t X, that it was the stempted
Speaker 1: from many of the margin requirements that typical customers had
Speaker 1: to comply with, a result that led to massive losses
Speaker 1: for UM investors and customers of FPS. What about the
Speaker 1: poor controls fd X had and risk management and those
Speaker 1: loans to Sam Bankman, Freed and other staff. Yeah, the
Speaker 1: loans are particularly incriminating fact that the SEC has alleged
Speaker 1: because what the complaints says is that customer money from
Speaker 1: the ft X exchange was transferred over to Almeda, and
Speaker 1: from there Almita made loans the hundreds of millions of
Speaker 1: dollars to insiders, including facts Banks and freed Um and
Speaker 1: also use the money to purchase lavish real estate and
Speaker 1: other expenses that were clearly personal in nature. And as
Speaker 1: a result of this sort of transactions, the SEC said
Speaker 1: that that was never disclosed to investors and f p
Speaker 1: X that that was going to happen, and in fact,
Speaker 1: the SEC alleges investors were told, uh completely the opposite,
Speaker 1: that fc X was completely fund separately from Almida, But
Speaker 1: that turns out, according to the SEC, not to have
Speaker 1: been the case. So the SEC alleges that bank Man
Speaker 1: Freed orchestrated this scheme to defraud equity investors. But yet
Speaker 1: John Ray said that this is really just old fashioned embezzlement,
Speaker 1: just taking money from customers and using it for your
Speaker 1: own purposes. So was there really an orchestrated scheme that
Speaker 1: makes it sound much more sophisticated. Yeah, that's a very
Speaker 1: good point. I think that even though the purpose of
Speaker 1: the scheme in namely using customer funds for personal expenses
Speaker 1: and embezzlement, is very basic, the way that it was
Speaker 1: done here shows a high degree of culpability, according to
Speaker 1: the SEC, because steps were taken by Frank and Freed
Speaker 1: and other executives to conceal the relationship with Almita and
Speaker 1: to conceal the amounts of money that was flowing from
Speaker 1: st X to Almita, And as a result of that,
Speaker 1: it makes it very hard for the new CEO, John
Speaker 1: Ray and regulators to piece together exactly how fun to
Speaker 1: fload And now that's an ongoing process to to really
Speaker 1: document how this money was moved and how much was
Speaker 1: moved and how much um was lost as result of
Speaker 1: these transactions. What would the SEC have to prove were
Speaker 1: the basics of what the SEC would have to prove
Speaker 1: if this went to trial. In addition to having to
Speaker 1: prove that the representations to investors were material, the key
Speaker 1: thing that the SEC has to prove is how it's
Speaker 1: called to enter, which is either intent or recklessness on
Speaker 1: the part of Banks and Freed, and in white collar
Speaker 1: cases like this one of dependants, intent is always a
Speaker 1: contested issue. And I think we've seen a preview of
Speaker 1: Banks and Free defense and prior public statements that he's
Speaker 1: given where he says that he wasn't aware that f
Speaker 1: t x IS customer deposits were being used to cover
Speaker 1: all Meda's debts and a liabilities. So he's trying to
Speaker 1: set off as a defense that the underlings at the
Speaker 1: two companies were doing this and he wasn't aware of it,
Speaker 1: and that's gonna be a tough defense to really be successful.
Speaker 1: On what kind of things were the SEC point to
Speaker 1: to show the ner. In order to show the nswer
Speaker 1: the SEC, it could prove a few different things. Number
Speaker 1: one is the personal benefits financially to Banks and Freed
Speaker 1: as a result of these transactions, and courts has held
Speaker 1: that when a person is getting personal benefits and money
Speaker 1: that that can be an indication of motive and an
Speaker 1: opportunity to engage in securities fraud. But even beyond that,
Speaker 1: the SEC is going to have to look and prove
Speaker 1: the corporate structure and show how banks and Free to
Speaker 1: prove transactions like money being moved from ft X customer
Speaker 1: account tal Meta. They're going to look at email correspondence
Speaker 1: between the other employees at f t X that may
Speaker 1: have updated Bank and Freed about what was happening. And
Speaker 1: I think importantly there's been a lot of speculation and
Speaker 1: rightfully so, as to whether they'll be cooperators in this case.
Speaker 1: Other employees like Carolyn Ellison, who was the CEO of Alameda,
Speaker 1: who may be wanting to cut deals with the SEC
Speaker 1: and the prosecutors in exchange for their testimony against Bank
Speaker 1: and Freed. SEC chair Gary Ginsler said, we alleged that
Speaker 1: Sam Bankman Freed built a house of cards on a
Speaker 1: foundation of deception while telling investors that it was one
Speaker 1: of the safest buildings in crypto. Does the SEC have
Speaker 1: to prove that investors relied on his alleged misrepresentations? The
Speaker 1: SEC itself does not have to prove reliance as part
Speaker 1: of its case. To the extent that there's going to
Speaker 1: be private lawsuits and class actions, those private lawsuits from
Speaker 1: the investors will have to prove reliance. So the SEC
Speaker 1: is set up in a way by statute that they
Speaker 1: have a lower burden in order to prove their case.
Speaker 1: The reliance is not part of the SEC's claims here.
Speaker 1: John Ray spoke about this unprecedented lack of documentation, the
Speaker 1: paperless bankruptcy. Is that going to make it much harder
Speaker 1: for the SEC? There's his view of very shocking lack
Speaker 1: of any sort of paper or documentation to support loans
Speaker 1: and why and how money was moved from FTX to
Speaker 1: Almeda Research and where the money went from there. However,
Speaker 1: with digital assets and crypto, there is going to be
Speaker 1: a record on the blockchain of a lot of these transactions.
Speaker 1: And while it may take more work for the investigators
Speaker 1: to come through all of those transactions for the last
Speaker 1: three years, I think ultimately they're going to be able
Speaker 1: to put together a pretty complete picture of what happened,
Speaker 1: even though SCXS records themselves don't appear to be very good.
Speaker 1: Is prosecuting a case with crypto? Is that a challenge
Speaker 1: for the SEC at this stage? I don't think that
Speaker 1: prosecuting a crypto based case like this is going to
Speaker 1: present any significant challenges. The SEC has been studying the
Speaker 1: market for years. They have a market abuse team that
Speaker 1: brought other cases in cryptos so there's a lot of
Speaker 1: institutional knowledge about the market, and I think one thing
Speaker 1: that's going to help is the fact that this appears
Speaker 1: to be more or less garden variety type of fraud
Speaker 1: and an embezzlement. Granted it involved billions of dollars of
Speaker 1: customer assets, but at the same time, I think that
Speaker 1: with the transactions being publicly availed on the blockchain and
Speaker 1: even having potential cooperators, is going to make the SEC's
Speaker 1: job a lot easier. One nagging question I've had throughout
Speaker 1: these revelations about what Gainsler called a house of cards
Speaker 1: is looking at the allegations, especially for example, something like
Speaker 1: the billion dollar loan to himself by a man who
Speaker 1: basked in publicity and self from ocean, the Super Bowl ads,
Speaker 1: the deals with sports teams, the political contributions, on and on.
Speaker 1: How did bank man Freed ever expect to get away
Speaker 1: with this? I mean, the house of cards was bound
Speaker 1: to collapse at some point. Yeah, absolutely, It's it's really shocking.
Speaker 1: And the SEC actually also discusses this in their complaints
Speaker 1: where they say for the past three years, bank man
Speaker 1: Freed has been now self promoting himself as responsible businessman
Speaker 1: and wanting to have regulation in the crypto industry and
Speaker 1: ethical practices. But you know, meanwhile, he used his reputation
Speaker 1: as a person who was running legitimate crypto exchange to
Speaker 1: help convince investors to put more and more money into
Speaker 1: sc X, and all the while, according to the SEC,
Speaker 1: Bankman freed knew that it was setting up to be
Speaker 1: a very risky investment and then also misusing customers deposits.
Speaker 1: So all his public statements now can potentially be used
Speaker 1: against him in this SEC case. And what is the
Speaker 1: SEC asking for if it wins. The SEC is asking
Speaker 1: for several different things, um like in all securities fraud cases.
Speaker 1: They want an injunction against future violations of the securities laws.
Speaker 1: They're asking thanks Freedman to give back any sort of
Speaker 1: money that was improperly taken out, and they're asking for
Speaker 1: civil penalties. The SEC is gonna be working closely with
Speaker 1: the Department of Justice on the criminal case to help
Speaker 1: coordinate that. But the SEC is a civil agency and
Speaker 1: as a result, it's limited to just monetary and adjunctive release.
Speaker 1: With the bankruptcy in place, and with all the money
Speaker 1: that appears to have been taken a year, is it
Speaker 1: likely that the SEC is going to recover any funds
Speaker 1: or get me penalties. I do think that there's a
Speaker 1: high likelihood that money is going to be recovered. Whether
Speaker 1: it's by the SEC or the do o J or
Speaker 1: even the bankruptcy receiver, it's all going to go into
Speaker 1: the same pot, so to speak, to help make invests
Speaker 1: and creditors full. But we have seen UM that John Ray,
Speaker 1: the new CEO, has already taken steps to secure assets,
Speaker 1: so there are assets left, and I think it's instructive
Speaker 1: when we look back to the to the main off situation.
Speaker 1: UM in the early days, there was huge losses, but
Speaker 1: over time through enforcement efforts and lawsuits against third parties
Speaker 1: like UM, auditors, law firms, and people who are supposed
Speaker 1: to be date keepers, because that that can also be
Speaker 1: another source of recovery for both customers as well as
Speaker 1: creditors in the bankruptcy. The Senate Banking Chairman Shared Brown
Speaker 1: is calling for the SEC to regulate the crypto industry.
Speaker 1: Do you think that it's about time that they did
Speaker 1: or someone else should do it. I think there's no
Speaker 1: question that this FTX case is a wake up call
Speaker 1: that's going to spurn significant new efforts and regulating the
Speaker 1: crypto industry. We've had a situation where billions of dollars
Speaker 1: of customer assets have been um diverted and misused. And
Speaker 1: there's a framework that's already in place for exchanges and
Speaker 1: regulations that I think will be the roadmap for how
Speaker 1: the regulators will look to regulate crypto industry and exchanges.
Speaker 1: The Commodity Futures Trading Commission has also filed a suit
Speaker 1: against him. Does that work in coordination with the SEC? Yes,
Speaker 1: the Commodities of Futures Trading Commission. The CFTC has also
Speaker 1: filed its own enforcement action in the same matter. It's
Speaker 1: going to be helpful for the SEC because it brings
Speaker 1: another area of expertise to bear on the facts of
Speaker 1: this case. And in general, the regulators are going to
Speaker 1: cooperate very closely, so they're not stepping on each other's toes,
Speaker 1: so they're not gonna be fighting over who has jurisdiction
Speaker 1: over this correct The regulators usually are going to defer
Speaker 1: to the Department of Justice, and they're going to be
Speaker 1: the lead agency and the crim case, and typically the
Speaker 1: SEC and the CFCC bill acting the supporting role for that.
Speaker 1: Thanks so much, Bob. That's Robert him a partner a
Speaker 1: Tartar Krinskin Droken as fd X founder Sam Bankman Freed
Speaker 1: sits in a Bahamas prison fighting extradition to face fraud
Speaker 1: charges in the US. John Ray the third has taken
Speaker 1: over as the CEO of f t X, dealing with
Speaker 1: one of the biggest corporate collapses since the Great Recession
Speaker 1: and trying to recover customer funds. Ray handled the in
Speaker 1: run bankruptcy, but says he's never seen such an utter
Speaker 1: failure of corporate controls at every level of an organization.
Speaker 1: We're dealing with literally a sort of a paperless bankruptcy
Speaker 1: in terms of how they created this company. It makes
Speaker 1: it very difficult to h to trace and track assets. Uh,
Speaker 1: and particularly as I've said, in the crypto world, UH,
Speaker 1: it's really unprecedented in terms of UH the lack of documentation.
Speaker 1: Joining me is restructuring expert Jim Bear, president of CMBG Advisors.
Speaker 1: How difficult is this bankruptcy? Even for someone with the
Speaker 1: experience of John Ray. I believe this is going to
Speaker 1: be qualitatively harder than most bankruptcy followings for a variety
Speaker 1: of reasons. You've got a lot of complexity here because
Speaker 1: there were rumored to be approximately a hundred different entities
Speaker 1: set up, so trying to break this down in a
Speaker 1: bankruptcy the most challenging thing is doing an accounting and
Speaker 1: getting your arms around what went on so that you
Speaker 1: have an ability to actually go out and in this
Speaker 1: type of situation recover assets for the million people have
Speaker 1: been harmed. If you look back to situations like made
Speaker 1: on in two thousand and eight, we're just now seeing
Speaker 1: distributions being made. Because it takes a long time to
Speaker 1: trace and recover assets. One of the things particularly difficult
Speaker 1: here is that there was such bad record keeping and
Speaker 1: there were so much complexity and commingling of asset that
Speaker 1: to actually determine how much money came in how much
Speaker 1: money went out is going to be difficult. And then
Speaker 1: one way to bring back money is through going to
Speaker 1: people that received distributions during the last ninety days or
Speaker 1: eight days or a year, depending on the different law
Speaker 1: of and applause, and pulling that asset back. And in
Speaker 1: some cases those are gonna be innocent people that just
Speaker 1: got paid before someone else, and so under bankruptcy law
Speaker 1: it is supposed to be done in a more pro
Speaker 1: rat of fashion, and so you're gonna have assets pulled
Speaker 1: back and then allocated to various people, and all of
Speaker 1: that is complex and takes a lot of time to do.
Speaker 1: So we've heard a lot about John Ray saying this
Speaker 1: is a paperless bankruptcy. But are the customer records the
Speaker 1: same as customer records elsewhere? So can he see who
Speaker 1: put in what? So I don't have access to actually
Speaker 1: the company records at this point, so all I can
Speaker 1: go on is what as you point out, John has testified,
Speaker 1: for instance, before Congress or otherwise, it appears as he
Speaker 1: said that he's never seen a lack of documentation to
Speaker 1: this extent. When people put money into the exchange for trading,
Speaker 1: presumably presumably that money should be accountable, because you would
Speaker 1: assume customer accounts were kept for the people so that
Speaker 1: you could in fact return money and or deal with
Speaker 1: those customers. Now that is an assumption I'm making because
Speaker 1: I haven't actually seen those customer records, but I'm assuming
Speaker 1: that that does exist. But from there, where that money when,
Speaker 1: and what checks and balances existed that I think, from
Speaker 1: what we've heard, is pretty much non existed. So he
Speaker 1: said at this point, it's a mining operation. What did
Speaker 1: he mean by that? Well, my speculation when he means
Speaker 1: by that is in a mining operation, you're digging to
Speaker 1: actually uncover the minerals that you're looking for. In this instance,
Speaker 1: we're also like archaeologically digging or mining to find out
Speaker 1: actually where the assets are, and we're looking for those
Speaker 1: in the various places and trying to uncover those assets.
Speaker 1: So he's been able to secure one billion dollars of
Speaker 1: assets to coal wallets in a secure location. First of all,
Speaker 1: explain what does he mean by coal wallets. This may
Speaker 1: be a crypto term. Yeah, So when I think of
Speaker 1: a wallet in the crypto space, think about it from
Speaker 1: the perspective of a wallet that is a physical wallet, right,
Speaker 1: so you have a place where, like a leather pouch
Speaker 1: where you put your money. When you're dealing with essentially
Speaker 1: a digital asset, think about a hard drive on a computer,
Speaker 1: Think about a thumb drive on a computer. You've got
Speaker 1: these storage devices which are very different than a typical
Speaker 1: storage device that's physical, like a wallet, because you don't
Speaker 1: have physical assets, you have digital assets. And so when
Speaker 1: we think of terms like wallets or digital wallets, what
Speaker 1: we're talking about is a storage device for these digital assets.
Speaker 1: Does the fact that this is cryptocurrency make this harder?
Speaker 1: I don't think it's just because it's cryptocurrency per se
Speaker 1: that makes it harder, Because you can trace cryptocurrency. I mean,
Speaker 1: in the same way you can trace a wire transfer
Speaker 1: from one bank to another, or from a bank to
Speaker 1: a customer. You can trace where these digital assets were transferred.
Speaker 1: From my understanding, from a technological perspective, you can trace that.
Speaker 1: So I don't think the fact that it was digital
Speaker 1: currency per se or digital assets per se that makes
Speaker 1: this harder. I think what makes this harder is the
Speaker 1: fact that it was so unregulated and it was so
Speaker 1: abused that the normal checks and balances, like an independent board,
Speaker 1: like audited financials, like SEC regulation, we're not exa instant.
Speaker 1: So one thing that confused me a little bit. Ray
Speaker 1: said that the collapse appears to stem from the absolute
Speaker 1: concentration of control in the hands of a very small
Speaker 1: group of grossly inexperienced and unsophisticated individuals. Is it that
Speaker 1: they were inexperienced and unsophisticated, or is it that they
Speaker 1: were swindlers who knew what they were doing. I suspect.
Speaker 1: But remember, we do have a concept of innocent until
Speaker 1: proven guilty, and so I like to try to be
Speaker 1: respectful of people and give them the benefit of the doubt.
Speaker 1: But here's what we do know. We do know their inexperienced. Meaning,
Speaker 1: if you've been in the business world for number of years,
Speaker 1: you understand the needs of checks and balances, you understand
Speaker 1: chain of control, you understand oversight. When you're youthful, right,
Speaker 1: and you haven't experienced some of the falls and the
Speaker 1: experiences of history, I think you're more prone to look
Speaker 1: for shortcuts, not knowing that shortcuts don't really work. You know,
Speaker 1: the tortoise and the hair. The hair is obviously a
Speaker 1: famous story, but when you're young, you're youthful exuberance can
Speaker 1: sometimes need you to believe that you know the rules
Speaker 1: don't necessarily apply to people in the same way. When
Speaker 1: they're young, there's a certain sense of invincibility. I think
Speaker 1: the inexperience is part of it. And then the concentration
Speaker 1: of so much power in so few people without those
Speaker 1: checks and balance is a huge problem. And again, power corrupts.
Speaker 1: Absolute power corrupts absolutely. When you look at the way
Speaker 1: our country is set up, with the three branches of government.
Speaker 1: It was specifically designed by the founding fathers so that
Speaker 1: there would be checks and balances. The corporate world really
Speaker 1: mirrors a lot of ways our government. There are boards
Speaker 1: of directors, there are shareholders, and there is a president.
Speaker 1: So think about that. The shareholders are essentially the voters
Speaker 1: in a republic. You've got the president of the company,
Speaker 1: which is like the chief executive officer. You have the
Speaker 1: board of directors, which really is kind of the oversight
Speaker 1: like the legislative body, and that has to approve things.
Speaker 1: And so there was designed that way to create these
Speaker 1: checks and balances. Unfortunately, in the crypto space, especially and
Speaker 1: miss specific situation, those checks and balances did not exist.
Speaker 1: There's an excess of seven billion dollars in losses. Ray
Speaker 1: has been able to secure one billion at this point.
Speaker 1: Does that sound hopeful to you? So I spent a
Speaker 1: lot of my time doing what John Ray does, which
Speaker 1: is restructuring, overseeing bankruptcies, liquidating companies. We do a lot
Speaker 1: of work in the space called assignments for the benefit
Speaker 1: of creditors, which is a state alternative to federal bankruptcy.
Speaker 1: And so in these situations, one of the things you
Speaker 1: focus on is your job is as a producer is
Speaker 1: to maximize the value for creditors, and every situation is different.
Speaker 1: You have sometimes hard assets to recover. You could be
Speaker 1: working in a jewelry industry where you have diamonds that
Speaker 1: you can recover and sell off, or you can be
Speaker 1: in a situation where the assets disappeared. The challenge in
Speaker 1: this situation is that we know there was a lot
Speaker 1: of commingling of money. We know that Alameda was a
Speaker 1: hedge fund. We know that there were investments being made,
Speaker 1: loans that were being made, and many of those investments
Speaker 1: went bad. If the investments turned out to be profitable,
Speaker 1: you could actually pull back those investments, or you have
Speaker 1: those investments and you could share that with the creditors.
Speaker 1: But when you're dealing with the situation where actually loans
Speaker 1: were made with no ability to pay them back, investments
Speaker 1: were made in the worthless companies or the bad investments,
Speaker 1: that money has gone forever. So then the question is
Speaker 1: what do you look to for recovery. One is insurance.
Speaker 1: My understanding is there's very little insurance here. Another is
Speaker 1: you look to negligent people where there are people on
Speaker 1: the board or other deep pockets with insurance that you
Speaker 1: might go after. My understanding is there's not a lot
Speaker 1: here in that situation. So one of the ways that
Speaker 1: you pull back money is you look at the people
Speaker 1: that did receive distributions and return of money, and you
Speaker 1: pull that money back and then you share in a
Speaker 1: more equitable pro rat of fashion with the other creditors.
Speaker 1: And we just don't know at this point how much
Speaker 1: money that's going to be, but realistically, I think we're
Speaker 1: gonna look at billions of dollars of losses here. The
Speaker 1: liquidators appointed by a court in the Bahamas are fighting
Speaker 1: with f t x IS bankruptcy lawyers. Can you tell
Speaker 1: us a little bit about what's happening there? Sure? So
Speaker 1: remember we started by talking about the complexity of a
Speaker 1: hundred different entities. When you have offshore operations and you
Speaker 1: have domestic operations, you have different jurisdictional issues, and each
Speaker 1: jurisdiction has a duty to look after its constituents. So
Speaker 1: in the US, we're looking at US investors and US
Speaker 1: citizens in the Bahamas, their regulatory bodies are supposed to
Speaker 1: be protecting investors in the constituencies in the Bombas. My
Speaker 1: understanding is that's one of the hundred companies was a
Speaker 1: real estate company, and there's real estate that was actually
Speaker 1: owned and invested in in the Bahamas. From a jurisdictional perspective,
Speaker 1: the legislatures and the judges and the people passed with
Speaker 1: protecting the assets in those jurisdictions are fighting for their
Speaker 1: jurisdictional rights over those assets. And of course that's being
Speaker 1: challenged by the US regulators and lawyers and so forth,
Speaker 1: because we want to get our hands on those assets
Speaker 1: for the people in the US that have been harmed.
Speaker 1: So what I see going on here is there are
Speaker 1: some accusations flying back and forth. But but even putting
Speaker 1: that aside, they're just legitimate jurisdictional legal challenges that go
Speaker 1: back and forth when you have different jurisdictions involved in
Speaker 1: a dispute like this. The Bahamians want to remove the
Speaker 1: company that owns the real estate in the Bahamas from
Speaker 1: the US bankruptcy. Is that an unusual thing to do
Speaker 1: in bankruptcy to take one piece and say no, this
Speaker 1: is separate. No, not at all. So again, you got
Speaker 1: a holding company structure in certain cases, and that's where
Speaker 1: there's a company that owns other companies. As I mentioned, allegedly,
Speaker 1: we're dealing with a hundred entities, right, and so my
Speaker 1: understanding is that those all run up and are essentially
Speaker 1: controlled by SAM. But at the end of the day,
Speaker 1: there are jurisdictional issues and different companies, maybe because they're
Speaker 1: incorporated admiss all in different jurisdictions, there will be different
Speaker 1: rules that apply to those entities. Sometimes you can pull
Speaker 1: it all back to one jurisdiction, like a Delaware bankruptcy,
Speaker 1: but there may be very legitimate reasons why, for instance,
Speaker 1: this real estate company was set up in a manner
Speaker 1: that it really does belong in the Bahamas. Again, I
Speaker 1: haven't seen the documentation, but in complex bankruptcies it's not
Speaker 1: unusual to have these kind of fights. How long is
Speaker 1: this likely to take? Are we talking months? Are we
Speaker 1: talking years? We're talking years. The reason is this follow
Speaker 1: us again iron a coming called CNDG Advisors that does
Speaker 1: this type of work, and we do forensic accounting, and
Speaker 1: we do restructuring and we trace that this and you know,
Speaker 1: we try to help fix companies or or sell them off.
Speaker 1: And you've got simple assignments that can take a year,
Speaker 1: or you have assignments that can take many years. When
Speaker 1: you're dealing with complexity. Complexity is not your friend in
Speaker 1: these situations. It just isn't. And more often than not,
Speaker 1: when you see these levels of complexity, it's either intentionally
Speaker 1: or otherwise a way of obfuscation, and it's very, very
Speaker 1: difficult to trace through that. And you don't have unlimited money,
Speaker 1: you don't have unlimited resources, and even in a situation
Speaker 1: like this where you do have more resources than you
Speaker 1: would typically have, there's a lot of posturing. There's a
Speaker 1: lot of digging, as you said, mining that goes on,
Speaker 1: and as much as we like it to get done quickly,
Speaker 1: the reality is the more entities involved, the more money involved,
Speaker 1: and the less record keeping, the harder it is to
Speaker 1: actually figure these things out. To put this in perspective,
Speaker 1: because I've dealt with this in a recent case. When
Speaker 1: you don't have proper account owning records, it is incredibly
Speaker 1: difficult to figure out where you know the money went
Speaker 1: and to really understand the arguments for the payment or
Speaker 1: not for the payment because you don't have the normal
Speaker 1: record keeping that you would use to document the money
Speaker 1: out and the money in. I think they're in chapter eleven,
Speaker 1: But is this a restructuring or is this a liquidation?
Speaker 1: I mean, does anyone expect f t X to come back?
Speaker 1: So that's a good question. Chapter eleven, as you point out,
Speaker 1: is designed primarily for restructuring companies, whereas Chapter seven is
Speaker 1: to liquid a company, and Chapter eleven can end up
Speaker 1: with the sale of the company outside through what's called
Speaker 1: Section three sixty three sale, but it is generally designed
Speaker 1: as a restructuring tool. In a situation like this, I
Speaker 1: do not expect f t X to come out as
Speaker 1: a viable company and exit bankruptcy and remain and operating entity.
Speaker 1: And having said that, there's a hundred entities. So there's
Speaker 1: this this alleged real estate company, for instance. It's too
Speaker 1: early to say will there be any salvageable parts of
Speaker 1: this estate that could emerge and continue on in some
Speaker 1: form or fashion. I think it's unlikely. I think, as
Speaker 1: you point out, it's likely to just be a liquidation
Speaker 1: over time. But the tools of investigation and forensic accounting
Speaker 1: and otherwise you will enable the bankruptcy judge and the
Speaker 1: trusty to dig deep to actually figure out what went on,
Speaker 1: even if the company does end up liquidating. So, on
Speaker 1: a personal note, is this the kind of bankruptcy you'd
Speaker 1: like to take over or is it like, are there
Speaker 1: challenges interesting or is it just too much? Well, it's
Speaker 1: for those of us who are in this space. I
Speaker 1: think that there is something challenging about being confronted with
Speaker 1: the situation like this. So I would think that the
Speaker 1: complexity for those people to thrive on complexity and challenges
Speaker 1: would be intriguing. What I would find challenging here would
Speaker 1: be the fact that there are so many hurt people
Speaker 1: that I wouldn't be able to help. And one of
Speaker 1: the things that see in the cases that I'm working
Speaker 1: on is that sometimes we have the ability to really
Speaker 1: make a meaningful payment to creditors, and there's something very
Speaker 1: satisfying about that. On the other hand, some of people
Speaker 1: on my team, for instance, get incredibly frustrated when it
Speaker 1: just seems like it's a wash and there's no money
Speaker 1: going back to creditors. And so what I think will
Speaker 1: be painful for people in this situation working on this
Speaker 1: is to the extent they are frustrated and unable to
Speaker 1: return material amounts of money. I think that's going to
Speaker 1: be challenging. Do you think this is going to lead
Speaker 1: to more regulation of crypto you know, in my career
Speaker 1: because I started out as a corporate lawyer and was
Speaker 1: very involved in antitrust and SEC enforcement. And know, there's
Speaker 1: always been a tension between lazy fear economics and you know,
Speaker 1: the a Rand belief in libertarian operations and that you know,
Speaker 1: the all powerful business community and the idea of trickle
Speaker 1: down economics and letting businesses really do what's you know,
Speaker 1: in their interests, because it's what's what's good for business
Speaker 1: is good for the American people. Right, that's one extreme,
Speaker 1: and the other extreme is you know, real real hands
Speaker 1: on regulation that can cripple business because of the complexity
Speaker 1: of the regulation, it makes it so difficult to operate.
Speaker 1: And so there's that balance, right. I think there are areas,
Speaker 1: you know, when we see in our country the ability
Speaker 1: to build high speed rail, for instance, where it's environmentally
Speaker 1: and otherwise really really difficult to get anything done, whether
Speaker 1: or it's John Stewart talking about getting things built in California,
Speaker 1: or the fact that it's still so hard to build
Speaker 1: affordable housing in California, You've got situations where regulation really
Speaker 1: does need to be refined and pulled back. In the
Speaker 1: area of crypto, I think We have got a lot
Speaker 1: of work to do in terms of better regulation, and
Speaker 1: this hands off approach I think has been a mistake,
Speaker 1: and I think that we need to realize that balance
Speaker 1: regulation is important, and in this instance it's it's sad
Speaker 1: that so many people are going to be hurt by this,
Speaker 1: but I hope that the regulators wake up and realize
Speaker 1: that this has to be properly regulated like all other industries,
Speaker 1: and that we will get back to a happy medium.
Speaker 1: Thanks for being on the show, Jim. That's Jim Bear,
Speaker 1: restructuring expert and president of CMBG Advisors. And that's it
Speaker 1: for this edition of The Bloomberg Law Show. Remember you
Speaker 1: can always get the latest legal news on our Bloomberg
Speaker 1: Law Podcast. You can find them on Apple Podcasts, Spotify,
Speaker 1: and at www dot Bloomberg dot com, slash podcast Slash Law,
Speaker 1: and remember to tune into The Bloomberg Law Show every
Speaker 1: week night at ten b m. Wall Street Time. I'm
Speaker 1: June Grosso and you're listening to Bloomberg m