1
00:00:15,316 --> 00:00:26,036
Speaker 1: Push Kim. Hey everyone, it's Michael Lewis here and this

2
00:00:26,116 --> 00:00:29,156
Speaker 1: is judging Sam. For the past few months, we've been

3
00:00:29,156 --> 00:00:32,116
Speaker 1: covering the story of Sam Bankman Freed. He's the founder

4
00:00:32,156 --> 00:00:36,236
Speaker 1: of the cryptocurrency exchange FTX. It was worth billions of

5
00:00:36,236 --> 00:00:39,196
Speaker 1: dollars before it came a part at the scenes. I

6
00:00:39,236 --> 00:00:41,836
Speaker 1: wrote a book about all this and Sam called Going

7
00:00:41,876 --> 00:00:45,356
Speaker 1: Infinite and reported on his trial here on the podcast.

8
00:00:46,556 --> 00:00:49,036
Speaker 1: He was found guilty of fraud and conspiracy in his

9
00:00:49,116 --> 00:00:53,676
Speaker 1: sentencing a schedule for later this week. Meanwhile, FTX has

10
00:00:53,716 --> 00:00:57,476
Speaker 1: been going through bankruptcy proceedings, and in a surprising twist,

11
00:00:57,716 --> 00:01:01,356
Speaker 1: ftx's lawyers recently announced that all the creditors will likely

12
00:01:01,436 --> 00:01:04,876
Speaker 1: be paid in full. All the FDx customers who couldn't

13
00:01:04,916 --> 00:01:07,916
Speaker 1: get their money out when FTX collapsed will probably get

14
00:01:07,956 --> 00:01:11,156
Speaker 1: their money back. But my guest today argues that the

15
00:01:11,196 --> 00:01:15,996
Speaker 1: bankruptcy process has been handled badly. His name is Jonathan Lipson.

16
00:01:16,676 --> 00:01:20,276
Speaker 1: He's a bankruptcy expert at Temple University and he co

17
00:01:20,356 --> 00:01:23,996
Speaker 1: wrote a research paper about the FTX bankruptcy that will

18
00:01:24,036 --> 00:01:29,796
Speaker 1: be published next year in the Stanford Law Review. So

19
00:01:30,076 --> 00:01:33,236
Speaker 1: Sam bachmcfreed has been tried, convicted, and is going to jail,

20
00:01:33,356 --> 00:01:35,716
Speaker 1: and everybody's been paying attention to that, and that is

21
00:01:35,996 --> 00:01:38,556
Speaker 1: seems to be the human drama. But there's this whole

22
00:01:38,716 --> 00:01:42,716
Speaker 1: other legal process, the bankruptcy process, that's getting very little attention,

23
00:01:42,996 --> 00:01:45,196
Speaker 1: and that you have written about. Why is it important?

24
00:01:46,596 --> 00:01:48,916
Speaker 2: It's important for a number of reasons. You know, it

25
00:01:48,996 --> 00:01:51,556
Speaker 2: is important because we're concerned about how the bankruptcy was

26
00:01:51,636 --> 00:01:56,316
Speaker 2: run for the benefit of you know, creditors and investors

27
00:01:56,356 --> 00:01:57,836
Speaker 2: and so on. There are millions of people who have

28
00:01:57,996 --> 00:02:01,276
Speaker 2: lost money in this company, and if it was handled properly,

29
00:02:01,316 --> 00:02:04,916
Speaker 2: perhaps they would do better. Number Two, it appears that

30
00:02:05,156 --> 00:02:10,516
Speaker 2: the bankruptcy process itself and the company itself were you know,

31
00:02:10,556 --> 00:02:15,596
Speaker 2: in effect accelerating and perhaps distorting the criminal prosecution. And

32
00:02:15,876 --> 00:02:18,876
Speaker 2: you know, like that's a really serious problem because we

33
00:02:18,956 --> 00:02:23,236
Speaker 2: have certain legitimate expectations about how prosecutors do their job,

34
00:02:23,636 --> 00:02:25,876
Speaker 2: and for that matter, we have certain basic expectations about

35
00:02:25,996 --> 00:02:27,636
Speaker 2: how lawyers are supposed to act.

36
00:02:27,676 --> 00:02:30,356
Speaker 1: So let's back up. Can you just tell me what

37
00:02:30,436 --> 00:02:32,436
Speaker 1: caught your eye in the first place. Let's start there,

38
00:02:32,516 --> 00:02:33,356
Speaker 1: like what caught your fry.

39
00:02:34,716 --> 00:02:37,556
Speaker 2: A lot of my work involves bankruptcy. I researched it,

40
00:02:37,596 --> 00:02:42,276
Speaker 2: I write about it, teach it, and really I had

41
00:02:42,316 --> 00:02:44,756
Speaker 2: no particular interest in crypto at all. I was interested

42
00:02:44,796 --> 00:02:47,756
Speaker 2: in FTX only because it was the kind of a

43
00:02:47,836 --> 00:02:51,276
Speaker 2: bankruptcy where you would have expected to see something that

44
00:02:51,316 --> 00:02:54,796
Speaker 2: I had studied in the past, an examiner. The idea

45
00:02:55,556 --> 00:02:58,356
Speaker 2: being that when Congress created the Bankruptcy Code, they said,

46
00:02:58,476 --> 00:03:01,316
Speaker 2: in some cases, you really need somebody from the outside

47
00:03:01,396 --> 00:03:04,836
Speaker 2: to come in and conduct an investigation of what happened

48
00:03:05,316 --> 00:03:08,676
Speaker 2: and write a report about it for the public. In FTX,

49
00:03:08,796 --> 00:03:11,996
Speaker 2: the the United States Trustee has sought an examiner at

50
00:03:12,036 --> 00:03:15,636
Speaker 2: the beginning of the bankruptcy case, and to my surprise,

51
00:03:15,676 --> 00:03:17,996
Speaker 2: and I think the surprised that some folks, the bankruptcy

52
00:03:18,036 --> 00:03:20,556
Speaker 2: judge said no. And we can talk more about why

53
00:03:20,596 --> 00:03:23,516
Speaker 2: it was surprising, but the short answer was that when

54
00:03:23,556 --> 00:03:27,356
Speaker 2: the US Trustee sought to appeal that decision to the

55
00:03:27,356 --> 00:03:30,236
Speaker 2: Third Circuit, I agreed to write an amikus brief in

56
00:03:30,316 --> 00:03:33,916
Speaker 2: support of the US Trustee, basically seeking to have an

57
00:03:33,916 --> 00:03:37,396
Speaker 2: examiner appointed. We won in the Third Circuit, and you know,

58
00:03:37,956 --> 00:03:41,436
Speaker 2: as you probably know your listeners probably know, an examiner

59
00:03:41,436 --> 00:03:43,516
Speaker 2: has been appointed in the case. As of a couple

60
00:03:43,516 --> 00:03:44,116
Speaker 2: of days ago.

61
00:03:44,356 --> 00:03:46,876
Speaker 1: I doubt our listeners do know because it's also our kane,

62
00:03:46,916 --> 00:03:49,276
Speaker 1: and it's been striking to me how little attention the

63
00:03:49,276 --> 00:03:51,796
Speaker 1: bankruptcy has gotten compared to the rest of the case.

64
00:03:52,116 --> 00:03:55,076
Speaker 1: So act, let's go in a little more detail. Why

65
00:03:55,156 --> 00:03:57,436
Speaker 1: would you have expected in this case for there to

66
00:03:57,436 --> 00:04:01,156
Speaker 1: be an examiner? And actually backup, backup even further than that,

67
00:04:01,876 --> 00:04:05,796
Speaker 1: just explain what the checks are on the bankruptcy process generally,

68
00:04:05,876 --> 00:04:09,116
Speaker 1: like how we did this with your co author, David's.

69
00:04:09,276 --> 00:04:12,556
Speaker 1: But let's deal a little refresher, Like a company goes

70
00:04:12,556 --> 00:04:14,356
Speaker 1: into bankruptcy, then what happens.

71
00:04:14,756 --> 00:04:17,316
Speaker 2: So you know, to take a step back, bankruptcy in

72
00:04:17,356 --> 00:04:20,956
Speaker 2: the US is for companies like FTX that are purporting

73
00:04:20,996 --> 00:04:24,596
Speaker 2: to reorganize. The basic intuition that Congress had in the

74
00:04:24,676 --> 00:04:28,196
Speaker 2: nineteen seventies was, well, we shouldn't just kill the company

75
00:04:28,236 --> 00:04:31,756
Speaker 2: and sell off the assets to pay the creditors if

76
00:04:31,756 --> 00:04:33,796
Speaker 2: we could avoid it, because if we can keep the

77
00:04:33,796 --> 00:04:37,036
Speaker 2: company going, then everybody's probably going to be better off.

78
00:04:37,036 --> 00:04:39,116
Speaker 2: We'll save jobs, the company will make more money because

79
00:04:39,156 --> 00:04:42,636
Speaker 2: it'll be profitable, maybe if it returns to profitability, and

80
00:04:42,836 --> 00:04:44,756
Speaker 2: you know, it's just just much better than what used

81
00:04:44,796 --> 00:04:48,356
Speaker 2: to happen, which was a liquidation. But Congress realized that,

82
00:04:48,796 --> 00:04:50,916
Speaker 2: you know, if you allow the company to stay in

83
00:04:50,956 --> 00:04:54,836
Speaker 2: business even when it's in bankruptcy, then maybe the guys

84
00:04:54,876 --> 00:04:58,076
Speaker 2: who got the company into trouble are still running the roost,

85
00:04:58,276 --> 00:05:00,316
Speaker 2: and maybe that's not so great. So they said, look

86
00:05:00,596 --> 00:05:02,836
Speaker 2: in large cases, in cases where we have any concerns

87
00:05:02,836 --> 00:05:06,116
Speaker 2: about what happened before bankruptcy, an examiner should be appointed.

88
00:05:06,116 --> 00:05:08,796
Speaker 2: Should be mandatory, right, the statute says an examiner shall

89
00:05:08,796 --> 00:05:10,556
Speaker 2: be a I did in a certain class of cases.

90
00:05:11,516 --> 00:05:13,236
Speaker 2: And the reason I got involved in all this in

91
00:05:13,276 --> 00:05:14,956
Speaker 2: part is because you know, I did a study on

92
00:05:15,156 --> 00:05:17,156
Speaker 2: these guys many years ago, because everybody sort of knew

93
00:05:17,156 --> 00:05:18,996
Speaker 2: it didn't really happen the way Congress expected.

94
00:05:20,156 --> 00:05:23,276
Speaker 1: How how did it not happen the way Congress expected?

95
00:05:23,396 --> 00:05:23,956
Speaker 1: What was different?

96
00:05:24,676 --> 00:05:26,396
Speaker 2: What was different is that, you know, while debtors and

97
00:05:26,436 --> 00:05:28,836
Speaker 2: creditors fight all the time about all sorts of things,

98
00:05:29,236 --> 00:05:31,036
Speaker 2: there is one thing they agree on, and that is

99
00:05:31,076 --> 00:05:32,076
Speaker 2: that they hate examiners.

100
00:05:32,436 --> 00:05:32,676
Speaker 1: Huh.

101
00:05:32,676 --> 00:05:36,236
Speaker 2: They don't want somebody coming in from the outside poking

102
00:05:36,276 --> 00:05:40,116
Speaker 2: around in their negotiations because basically, a Chapter eleven bankruptcy

103
00:05:40,196 --> 00:05:44,236
Speaker 2: is just a protracted negotiation in the shadow of a

104
00:05:44,316 --> 00:05:47,716
Speaker 2: court with some procedural rules that are designed to facilitate

105
00:05:47,756 --> 00:05:51,236
Speaker 2: that negotiation. Right, So an examiner is a problem for that, right,

106
00:05:51,276 --> 00:05:54,756
Speaker 2: because the examiner is coming in from the outside, maybe

107
00:05:54,836 --> 00:05:58,396
Speaker 2: you know, asking questions of management that management doesn't necessarily

108
00:05:58,436 --> 00:06:03,156
Speaker 2: want to answer, maybe, you know, interfering with or distracting

109
00:06:03,156 --> 00:06:07,196
Speaker 2: from the negotiations that are happening, and certainly costing money. Right.

110
00:06:07,276 --> 00:06:10,076
Speaker 2: The examiner doesn't work for free. The government doesn't pay

111
00:06:10,116 --> 00:06:14,196
Speaker 2: the examiner. The examiner is paid really ultimately by creditors, right,

112
00:06:14,396 --> 00:06:16,556
Speaker 2: in the same way that all of the folks who

113
00:06:16,676 --> 00:06:18,996
Speaker 2: run the bankruptcy are ultimately paid by creditors.

114
00:06:19,276 --> 00:06:19,396
Speaker 1: Right.

115
00:06:20,036 --> 00:06:22,276
Speaker 2: So, you know, if you think about it, kind of intuitively,

116
00:06:22,276 --> 00:06:23,996
Speaker 2: the folks on the ground who run these cases are

117
00:06:24,036 --> 00:06:26,996
Speaker 2: lawyers who see each other all the time in different cases,

118
00:06:27,476 --> 00:06:29,716
Speaker 2: and you know, they fight sometimes and they get along sometimes.

119
00:06:29,716 --> 00:06:32,956
Speaker 2: But what they don't want as an outsider, like for example,

120
00:06:32,956 --> 00:06:35,356
Speaker 2: Bob Cleary, the prosecutor's now been appointed to be the

121
00:06:35,396 --> 00:06:39,196
Speaker 2: examiner in FTX, coming in from the outside and saying, actually,

122
00:06:39,876 --> 00:06:42,876
Speaker 2: let's do a little forensics here and see what actually happened.

123
00:06:43,396 --> 00:06:45,636
Speaker 2: And so even though Congress said, oh, well, you know,

124
00:06:45,756 --> 00:06:49,876
Speaker 2: we should have these, you know, examiners routinely, as you know,

125
00:06:49,916 --> 00:06:53,716
Speaker 2: a way of serving the public interest in understanding what happened,

126
00:06:54,276 --> 00:06:57,756
Speaker 2: Like nobody ever asks for them, and you know frequently

127
00:06:58,236 --> 00:07:01,156
Speaker 2: judges say, yeah, we know the statute requires it, but

128
00:07:01,316 --> 00:07:04,516
Speaker 2: you know, when in those rare cases they're asked, they've

129
00:07:04,556 --> 00:07:06,876
Speaker 2: often said no. But the one exception that we found

130
00:07:06,916 --> 00:07:09,716
Speaker 2: in our research was, well, look, when there's a massive

131
00:07:09,876 --> 00:07:13,996
Speaker 2: free fall case like Enron or Lehman Brothers or World

132
00:07:14,076 --> 00:07:16,636
Speaker 2: Commra any of these, you know, then you know, all

133
00:07:16,676 --> 00:07:18,756
Speaker 2: the inside guys are like, well, right, we get it,

134
00:07:18,996 --> 00:07:22,116
Speaker 2: like you do need somebody to come in and explain

135
00:07:22,196 --> 00:07:25,116
Speaker 2: what the hell happened. And so in FTX, you're like, well,

136
00:07:25,116 --> 00:07:27,356
Speaker 2: that certainly looks like that, right, it looks like Lehman

137
00:07:27,636 --> 00:07:29,916
Speaker 2: and Ron or something. So that's why I was surprising

138
00:07:29,956 --> 00:07:33,796
Speaker 2: that you didn't see an examiner appointed in FTX, although

139
00:07:33,996 --> 00:07:37,396
Speaker 2: you know, the explanation that was given at the time was, well,

140
00:07:37,956 --> 00:07:39,596
Speaker 2: you know, Bankment Freed had given up control of the

141
00:07:39,596 --> 00:07:41,676
Speaker 2: company to a guy named John Ray, who I'm sure

142
00:07:41,676 --> 00:07:45,116
Speaker 2: we'll talk about, who clearly was independent of Bankman Freed

143
00:07:45,196 --> 00:07:47,476
Speaker 2: and who was a bankruptcy expert. He'd done a lot

144
00:07:47,476 --> 00:07:49,996
Speaker 2: of work in a lot of cases. And so if

145
00:07:50,036 --> 00:07:51,956
Speaker 2: you think that, you know, an examiner is just going

146
00:07:51,996 --> 00:07:55,636
Speaker 2: to be independent of prior management, you know, Ray is

147
00:07:55,636 --> 00:07:58,876
Speaker 2: that guy. I think the bigger problem than certainly the

148
00:07:58,876 --> 00:08:00,756
Speaker 2: one that we focus on in the paper that we've

149
00:08:00,796 --> 00:08:04,516
Speaker 2: just released, is the law firm of Sullivan and Cromwell,

150
00:08:04,556 --> 00:08:08,356
Speaker 2: who had been company counsel for certain purposes before bankruptcy,

151
00:08:08,556 --> 00:08:11,396
Speaker 2: brought Ray in and you know, as far as we

152
00:08:11,436 --> 00:08:14,756
Speaker 2: can tell, had a very specific set of interests in

153
00:08:14,836 --> 00:08:18,156
Speaker 2: seeing how the bankruptcy was going to proceed, and so

154
00:08:18,676 --> 00:08:22,196
Speaker 2: maybe they weren't quite as independent in a in a

155
00:08:22,356 --> 00:08:26,076
Speaker 2: in a problematic way from Bankman Freed as you would

156
00:08:26,116 --> 00:08:26,436
Speaker 2: have thought.

157
00:08:26,676 --> 00:08:29,796
Speaker 1: My understanding, and this is from interviewing John Ray, is

158
00:08:29,836 --> 00:08:33,396
Speaker 1: that Sullivan and Cromwell, who had been Sam Bankman Fried's

159
00:08:33,436 --> 00:08:38,076
Speaker 1: lawyers before the bankruptcy in Good Times, had found John

160
00:08:38,156 --> 00:08:40,876
Speaker 1: Ray to come in and take over from Sam Bankman Freed.

161
00:08:41,196 --> 00:08:43,996
Speaker 1: And then the minute Sam Bankminfreed signs the documents handing

162
00:08:43,996 --> 00:08:46,876
Speaker 1: the company to John Ray, he hires Sullivan and Cromwell

163
00:08:46,876 --> 00:08:49,156
Speaker 1: to run the bankruptcy. And that's going to be worth

164
00:08:49,356 --> 00:08:52,276
Speaker 1: hundreds of millions of dollars to Sullivan and Cromwell. Is

165
00:08:53,716 --> 00:08:54,116
Speaker 1: that right?

166
00:08:54,196 --> 00:08:58,436
Speaker 2: That's I think that's I think that's mostly correct. I mean,

167
00:08:58,436 --> 00:09:01,196
Speaker 2: I think that you know, the the kind of the

168
00:09:01,236 --> 00:09:04,796
Speaker 2: three different versions of the story about this law firm, Sullivan, Cromwell,

169
00:09:06,196 --> 00:09:07,876
Speaker 2: and just to be clear, like we are not out

170
00:09:07,916 --> 00:09:11,236
Speaker 2: to get Cromwell, were not out to fight the verdict,

171
00:09:11,276 --> 00:09:13,076
Speaker 2: like we just want to understand what happened here. But

172
00:09:14,756 --> 00:09:16,756
Speaker 2: you know, there's a little bit of detail on all this.

173
00:09:16,836 --> 00:09:19,996
Speaker 2: But you know, Solomon Cromwell was clearly doing important work

174
00:09:20,036 --> 00:09:24,036
Speaker 2: for FTX before bankruptcy, and it was mostly work involving

175
00:09:24,956 --> 00:09:28,556
Speaker 2: the acquisition of other companies like ledger X and other subsidiaries,

176
00:09:28,996 --> 00:09:36,036
Speaker 2: and even more importantly representing FTX in dealings with regulators,

177
00:09:36,076 --> 00:09:40,036
Speaker 2: in particular the CFTC, the Commodity Futures Trading Commission, which

178
00:09:40,076 --> 00:09:43,116
Speaker 2: was super important for FTX because they wanted to, you know,

179
00:09:43,236 --> 00:09:46,756
Speaker 2: establish some kind of regulatory legitimacy for crypto. And it

180
00:09:46,836 --> 00:09:49,156
Speaker 2: was really important for Solivon Cromwell because they're one of

181
00:09:49,156 --> 00:09:52,836
Speaker 2: the premier firms at interacting with regulators. Many of the

182
00:09:52,876 --> 00:09:56,036
Speaker 2: folks at the firm were former regulators themselves, and you know,

183
00:09:56,196 --> 00:09:59,876
Speaker 2: they're an extremely well regarded firm precisely because they do

184
00:09:59,916 --> 00:10:03,396
Speaker 2: that stuff really well. And you know, I think that

185
00:10:03,596 --> 00:10:06,636
Speaker 2: the short version of the story is that Solomon Cromwell

186
00:10:07,236 --> 00:10:11,676
Speaker 2: didn't probably know about the underlying problems at FTX until

187
00:10:11,756 --> 00:10:15,116
Speaker 2: November eighth of twenty twenty two. But they were telling

188
00:10:15,196 --> 00:10:18,516
Speaker 2: the world that everything was fine. They were implying that

189
00:10:18,716 --> 00:10:22,356
Speaker 2: actually they did know everything they needed to know to

190
00:10:22,396 --> 00:10:26,316
Speaker 2: say to the CFTC and to creditors and contract counterparts.

191
00:10:26,956 --> 00:10:29,156
Speaker 2: FTX is rock solid, in the words of one of

192
00:10:29,196 --> 00:10:33,196
Speaker 2: the Solovon Cromol lawyers, and I think probably on November

193
00:10:33,236 --> 00:10:35,836
Speaker 2: eighth or around then, they woke up to the fact

194
00:10:35,836 --> 00:10:38,916
Speaker 2: that things were not rock solid, that there was a

195
00:10:38,956 --> 00:10:42,436
Speaker 2: problem because the company was commingling assets, even though Sam

196
00:10:42,476 --> 00:10:44,356
Speaker 2: had promised everybody that would never happen.

197
00:10:44,916 --> 00:10:45,876
Speaker 1: What is com mingling.

198
00:10:46,956 --> 00:10:50,796
Speaker 2: It simply means that that FTX and Bankment Free had

199
00:10:50,836 --> 00:10:55,396
Speaker 2: promised depositors that their crypto would be held by FTX,

200
00:10:55,436 --> 00:10:57,556
Speaker 2: it would be on the FTX exchange and nobody else

201
00:10:57,596 --> 00:10:59,596
Speaker 2: would have it. But that turned out to be false

202
00:10:59,676 --> 00:11:02,716
Speaker 2: for some very important number of depositors because it ended

203
00:11:02,796 --> 00:11:05,716
Speaker 2: up at a related company known as Alameda, and that

204
00:11:05,956 --> 00:11:08,836
Speaker 2: was you know, a big problem because Alameda used the

205
00:11:08,876 --> 00:11:13,276
Speaker 2: money for all these other purposes that obviously depositors didn't expect.

206
00:11:13,596 --> 00:11:16,676
Speaker 2: And so, you know, I don't know that the most

207
00:11:17,116 --> 00:11:20,916
Speaker 2: sort of the you know, nefarious version of the story

208
00:11:21,036 --> 00:11:23,036
Speaker 2: of Solomon Promwell is true, namely that they you know,

209
00:11:23,076 --> 00:11:24,876
Speaker 2: they got John ready to come in and steal the

210
00:11:24,876 --> 00:11:27,916
Speaker 2: company from bankman free. I think that's improbable, if only

211
00:11:27,956 --> 00:11:30,436
Speaker 2: because Suli Cromwell has tons of money already, Like they

212
00:11:30,436 --> 00:11:32,436
Speaker 2: don't really need hundreds of millions of dollars because they

213
00:11:32,436 --> 00:11:35,396
Speaker 2: already have hundreds of millions of dollars. I do, however,

214
00:11:35,476 --> 00:11:37,076
Speaker 2: think they might have panicked, and I think in that

215
00:11:37,116 --> 00:11:39,756
Speaker 2: moment of panic did several things that we'd describe in

216
00:11:39,796 --> 00:11:43,636
Speaker 2: our paper that I think at minimum were ethically problematic

217
00:11:43,676 --> 00:11:48,916
Speaker 2: and from our perspective, more importantly problematic, from the bankruptcy perspective,

218
00:11:48,916 --> 00:11:51,196
Speaker 2: from the process, the perspective of the goals of the

219
00:11:51,196 --> 00:11:52,076
Speaker 2: bankruptcy process.

220
00:11:52,116 --> 00:11:54,036
Speaker 1: And they're all going that are going on behind closed

221
00:11:54,076 --> 00:11:57,516
Speaker 1: doors because there's no examiner to reveal all this. Describe

222
00:11:57,556 --> 00:12:01,036
Speaker 1: those things that you think Sulimon Crumwell did that are problematic.

223
00:12:02,156 --> 00:12:07,316
Speaker 2: Sure, So I think the first thing that happens is

224
00:12:07,556 --> 00:12:10,516
Speaker 2: you know, on November eighth, Tourney named Andy Dieterrik, who's

225
00:12:10,516 --> 00:12:13,476
Speaker 2: an important person in the story as a bankruptcy lawyer,

226
00:12:13,716 --> 00:12:17,276
Speaker 2: I think, realizes, you know, because he gets at a

227
00:12:17,276 --> 00:12:20,476
Speaker 2: panic call from some lower level attorneys at FTX that

228
00:12:21,716 --> 00:12:24,396
Speaker 2: there's commingling going on that there's a real problem that

229
00:12:24,436 --> 00:12:26,396
Speaker 2: the company is having a liquidity crisis because they can't

230
00:12:26,436 --> 00:12:30,596
Speaker 2: honor withdrawals. We don't know what happens internally at S

231
00:12:30,596 --> 00:12:32,356
Speaker 2: and C, but we do know that the very next

232
00:12:32,516 --> 00:12:36,836
Speaker 2: day Sullivan and Cromwell does something very important, which is

233
00:12:36,876 --> 00:12:41,596
Speaker 2: that they go to the prosecutors. Now that's a problem

234
00:12:41,676 --> 00:12:44,356
Speaker 2: for a couple of reasons. Number One, you're not really

235
00:12:44,396 --> 00:12:47,236
Speaker 2: supposed to go to the prosecutors and rat your client

236
00:12:47,276 --> 00:12:50,476
Speaker 2: out unless a couple of things are true. Number One,

237
00:12:50,516 --> 00:12:52,876
Speaker 2: you're sure there's a crime, and we don't know that

238
00:12:52,916 --> 00:12:56,316
Speaker 2: they had determined that. Number Two, you've gone to the

239
00:12:56,396 --> 00:13:00,396
Speaker 2: highest authority in the company to confirm that there's a

240
00:13:00,396 --> 00:13:01,796
Speaker 2: crime and confront them and say, by the way, we

241
00:13:01,796 --> 00:13:04,276
Speaker 2: think there's a crime, you should stop committing that crime.

242
00:13:04,676 --> 00:13:06,676
Speaker 2: We don't think there's any evidence of that. And then

243
00:13:06,756 --> 00:13:09,316
Speaker 2: number three, say to that highest authority, if you don't stop.

244
00:13:09,596 --> 00:13:11,636
Speaker 2: We might have to go to the authorities because otherwise

245
00:13:11,676 --> 00:13:13,596
Speaker 2: we'll be implicated in it, and we don't want that.

246
00:13:13,916 --> 00:13:16,396
Speaker 2: We don't see any evidence that that happened either, quite

247
00:13:16,476 --> 00:13:20,676
Speaker 2: the contrary. So the second thing that happens that's really

248
00:13:20,676 --> 00:13:24,996
Speaker 2: problematic is that on that same day, November ninth, when

249
00:13:25,596 --> 00:13:28,876
Speaker 2: they went to the prosecutors, the same lawyer, Andy Dieterrick,

250
00:13:28,956 --> 00:13:31,756
Speaker 2: sent Sam Bateman Freed what I think is a very

251
00:13:31,796 --> 00:13:36,236
Speaker 2: important email. I call it the reassurance email. At nine

252
00:13:36,236 --> 00:13:39,236
Speaker 2: point thirty two that evening, he sends Sam an email

253
00:13:39,276 --> 00:13:42,876
Speaker 2: basically saying, look, we are here to help you in

254
00:13:42,916 --> 00:13:47,276
Speaker 2: your efforts to rescue FTX however we can. And that

255
00:13:47,716 --> 00:13:50,876
Speaker 2: meant something very specific because basically Sam's view of life,

256
00:13:50,916 --> 00:13:52,796
Speaker 2: as far as I can tell, was he thought there

257
00:13:52,836 --> 00:13:55,876
Speaker 2: was just a liquidity crisis and that crisis could be

258
00:13:55,956 --> 00:13:59,356
Speaker 2: solved by finding more liquidity, finding new loans, which is

259
00:13:59,396 --> 00:14:02,636
Speaker 2: normally what happens when companies have liquidity crises but are

260
00:14:02,636 --> 00:14:07,356
Speaker 2: otherwise basically sound. So Solivon Cromwell, this attorney, mister Deeter,

261
00:14:07,596 --> 00:14:09,996
Speaker 2: sends Sam this email saying we're here to help you

262
00:14:10,156 --> 00:14:13,796
Speaker 2: do that however we can, and you know by the way,

263
00:14:13,836 --> 00:14:16,836
Speaker 2: we need you to sign a contract to hire Genre.

264
00:14:17,756 --> 00:14:20,796
Speaker 2: He'll come in as what's known as the Chief Restructuring

265
00:14:20,836 --> 00:14:24,796
Speaker 2: Officer a CRO, which implies that Sam would remain the

266
00:14:24,836 --> 00:14:28,156
Speaker 2: CEO of the chief executive officer. Sam, we want you

267
00:14:28,236 --> 00:14:30,796
Speaker 2: to remain director, Sam. We want you to continue to

268
00:14:30,796 --> 00:14:33,476
Speaker 2: go out and find resources for the company. You know,

269
00:14:33,676 --> 00:14:37,396
Speaker 2: financing for the company. Sam, you know, the bankruptcy if

270
00:14:37,396 --> 00:14:39,276
Speaker 2: that happens at all, it's just an alternative, and it's

271
00:14:39,276 --> 00:14:43,076
Speaker 2: a couple of weeks away, but we need to be ready.

272
00:14:43,116 --> 00:14:44,796
Speaker 2: And here are some things that we need you to do.

273
00:14:45,916 --> 00:14:48,596
Speaker 2: All very normal things to say to a client that

274
00:14:48,796 --> 00:14:51,036
Speaker 2: is facing a liquidity crisis and may have to go

275
00:14:51,036 --> 00:14:53,916
Speaker 2: into bankruptcy, but not what you say to a client

276
00:14:54,676 --> 00:14:57,516
Speaker 2: who you think is committed crimes, and when you've already,

277
00:14:57,756 --> 00:15:00,116
Speaker 2: you know, without the knowledge of that client, gone to

278
00:15:00,156 --> 00:15:04,316
Speaker 2: the prosecutors to inform the prosecutors apparently that there were

279
00:15:04,356 --> 00:15:07,476
Speaker 2: crimes ongoing. So, to me, the second big problem, and

280
00:15:07,476 --> 00:15:10,036
Speaker 2: in some ways, you know, I don't know if it's

281
00:15:10,036 --> 00:15:11,676
Speaker 2: the biggest, but it's a really big one, is what

282
00:15:11,756 --> 00:15:14,596
Speaker 2: I appears to us to have been deception. Now, maybe

283
00:15:14,756 --> 00:15:16,556
Speaker 2: it turns out that there's more to the story than

284
00:15:16,596 --> 00:15:19,756
Speaker 2: we know. Maybe Sam knew. Sam has you know, I

285
00:15:19,756 --> 00:15:21,556
Speaker 2: talked to him. He said no, absolutely not. We had

286
00:15:21,596 --> 00:15:24,676
Speaker 2: no idea. He did have his own lawyers by this point, right,

287
00:15:24,716 --> 00:15:27,156
Speaker 2: Paul Weiss was involved, and you know, I don't know

288
00:15:27,196 --> 00:15:29,156
Speaker 2: if they knew or not. If they did, there's a

289
00:15:29,156 --> 00:15:31,556
Speaker 2: different kind of problem. But in any case, you know

290
00:15:31,596 --> 00:15:34,636
Speaker 2: that this reassurance email I think is all in service

291
00:15:34,636 --> 00:15:37,356
Speaker 2: of getting Sam to do the thing that he did

292
00:15:37,556 --> 00:15:39,916
Speaker 2: then in the early morning hours I guess the eleventh

293
00:15:39,956 --> 00:15:43,396
Speaker 2: of November, which is sign over not just control of

294
00:15:43,436 --> 00:15:47,156
Speaker 2: the company but all of his powers, you know, having

295
00:15:47,196 --> 00:15:49,476
Speaker 2: anything to do with company to John Ray, which you

296
00:15:49,516 --> 00:15:53,516
Speaker 2: know ends up being I think, from bankman Freed's perspective, disasters.

297
00:15:53,876 --> 00:15:57,036
Speaker 1: Given how that, it's unusual that Sullivan and Cromwell would

298
00:15:57,036 --> 00:16:00,436
Speaker 1: have gone to the prosecutors right away. Do you have

299
00:16:00,436 --> 00:16:02,556
Speaker 1: any thoughts about why they might have done that.

300
00:16:04,436 --> 00:16:07,316
Speaker 2: I do. I think that that's to me most consistent

301
00:16:07,356 --> 00:16:11,596
Speaker 2: with a story panic. I think they correctly view themselves

302
00:16:11,356 --> 00:16:17,756
Speaker 2: as being really important intermediaries between large, important regulated companies

303
00:16:18,236 --> 00:16:21,796
Speaker 2: and the folks who regulate those companies, and if you've

304
00:16:21,836 --> 00:16:25,756
Speaker 2: been making a significant mistake with those regulators for a

305
00:16:25,796 --> 00:16:30,916
Speaker 2: while with a prominent company, and you wake up one

306
00:16:30,916 --> 00:16:33,516
Speaker 2: morning and realize that, like maybe you panic, Maybe that's

307
00:16:33,556 --> 00:16:37,156
Speaker 2: a problem for you. Now there are a variety of

308
00:16:37,196 --> 00:16:38,676
Speaker 2: ways you could fix that. They could have, you know,

309
00:16:38,716 --> 00:16:41,836
Speaker 2: withdrawn and perhaps tried to ameliorate that with the regulators.

310
00:16:42,996 --> 00:16:44,516
Speaker 2: And maybe they even did that. We don't know, because

311
00:16:44,556 --> 00:16:48,796
Speaker 2: although they had filed an application for FTX with the CFTC,

312
00:16:48,836 --> 00:16:52,396
Speaker 2: they withdrew it the same day that the company went

313
00:16:52,436 --> 00:16:54,996
Speaker 2: into bankruptcy, the eleventh of November, and nobody's ever seen

314
00:16:55,036 --> 00:16:57,316
Speaker 2: it since then. So we don't really know what else

315
00:16:57,356 --> 00:16:59,516
Speaker 2: they said to the CFTC, but we know a little bit.

316
00:17:00,836 --> 00:17:02,716
Speaker 2: But so I think they were just concerned about protecting

317
00:17:02,716 --> 00:17:04,556
Speaker 2: their reputation. I think it's also true that, you know,

318
00:17:04,596 --> 00:17:06,276
Speaker 2: Dieter k had said like, look, we want to build

319
00:17:06,276 --> 00:17:08,836
Speaker 2: a Chapter eleven practice here. We don't have one. Right.

320
00:17:08,876 --> 00:17:11,636
Speaker 2: We are great litigators, we're great regulatory lawyers, we're great

321
00:17:11,636 --> 00:17:15,036
Speaker 2: corporate lawyers. But we should also be doing Chapter eleven work.

322
00:17:15,036 --> 00:17:18,156
Speaker 2: And this might be an entree into it. More importantly,

323
00:17:18,196 --> 00:17:20,636
Speaker 2: I think, from a very strategic standpoint, is if you're

324
00:17:21,156 --> 00:17:24,356
Speaker 2: the lawyer for the company in bankruptcy, as Solving promo is,

325
00:17:24,716 --> 00:17:27,516
Speaker 2: you control the process, You control all of the information

326
00:17:27,716 --> 00:17:30,396
Speaker 2: at the company. As a practical matter, unless you have

327
00:17:30,436 --> 00:17:34,196
Speaker 2: a fight with management, you and management will be aligned

328
00:17:34,396 --> 00:17:37,676
Speaker 2: on really everything having to do with the company. And

329
00:17:37,716 --> 00:17:39,836
Speaker 2: so one of the things that we figured out very

330
00:17:39,876 --> 00:17:44,556
Speaker 2: early on is that it appeared that Solving, Cromwell and

331
00:17:44,596 --> 00:17:48,356
Speaker 2: Ray were actually providing significant support to the prosecution of

332
00:17:48,396 --> 00:17:48,996
Speaker 2: Bankman Freed.

333
00:17:49,316 --> 00:17:51,596
Speaker 1: How unusual is that? I mean, the creditors are paying

334
00:17:51,636 --> 00:17:56,156
Speaker 1: for that. Solivan and Crommell's billing the company to provide

335
00:17:56,196 --> 00:17:58,516
Speaker 1: the prosecutors with information that will help them make their

336
00:17:58,556 --> 00:18:01,956
Speaker 1: case against Sam Bankman Freed. Creditors don't sign off on that.

337
00:18:01,996 --> 00:18:04,956
Speaker 1: It's unclear why that's even in the creditors' interests. So

338
00:18:06,076 --> 00:18:09,956
Speaker 1: how do they is that? Is that unusual? I mean,

339
00:18:09,996 --> 00:18:12,396
Speaker 1: I just don't know. Is it unusual? And yeah, it's unusual?

340
00:18:12,396 --> 00:18:13,356
Speaker 1: Hous it unusual?

341
00:18:13,756 --> 00:18:16,596
Speaker 2: Yeah, it's a great question. So I want to be

342
00:18:16,636 --> 00:18:19,036
Speaker 2: careful here. I mean, you know there the creditors are

343
00:18:19,076 --> 00:18:22,116
Speaker 2: represented in the case by an official committee of unsecured

344
00:18:22,156 --> 00:18:24,076
Speaker 2: creditors yep, and they have their own lawyers of firm

345
00:18:24,116 --> 00:18:26,676
Speaker 2: called Paul Hasting's a very good firm, and you know,

346
00:18:27,036 --> 00:18:29,796
Speaker 2: one response, you can imagine Solving Cromwell having to anything

347
00:18:29,836 --> 00:18:32,116
Speaker 2: we have to say as well, like, look, the creditors

348
00:18:32,116 --> 00:18:34,236
Speaker 2: have lawyers and they haven't objected to it. I have

349
00:18:34,436 --> 00:18:38,116
Speaker 2: never seen this level of support by a company in

350
00:18:38,156 --> 00:18:41,876
Speaker 2: bankruptcy for the prosecution of its insiders at you know,

351
00:18:41,956 --> 00:18:45,516
Speaker 2: this level, this cost, this intensity. I haven't studied it

352
00:18:45,556 --> 00:18:48,956
Speaker 2: carefully because it doesn't happen much. And certainly it makes

353
00:18:48,996 --> 00:18:52,476
Speaker 2: sense for the company to cooperate and to enter into

354
00:18:52,476 --> 00:18:55,796
Speaker 2: some kind of plea agreement or something of some sort

355
00:18:55,876 --> 00:18:58,756
Speaker 2: with the prosecutors, you know, which I think does happen

356
00:18:58,756 --> 00:19:01,316
Speaker 2: fairly frequently, and part of that will, you know, undoubtedly

357
00:19:01,356 --> 00:19:05,996
Speaker 2: require some cooperation. The cooperation is different from running analyzes.

358
00:19:06,036 --> 00:19:07,476
Speaker 2: And you know, one of the lawyers for Solving and

359
00:19:07,476 --> 00:19:11,196
Speaker 2: Cromwell gets up in court in I think February of

360
00:19:11,356 --> 00:19:14,996
Speaker 2: twenty three at the hearing on the appointment of the Examiner,

361
00:19:15,036 --> 00:19:17,556
Speaker 2: initial hearing on that and says, you know, we've been

362
00:19:17,636 --> 00:19:20,316
Speaker 2: doing tens of millions of dollars worth of work in

363
00:19:20,356 --> 00:19:24,196
Speaker 2: support of the prosecution and other interactions with regulars. Well,

364
00:19:24,236 --> 00:19:28,436
Speaker 2: that's shocking, that's shocking, because that's tens of millions of

365
00:19:28,516 --> 00:19:32,276
Speaker 2: creditor dollars that they're spending on this, and I think

366
00:19:32,316 --> 00:19:34,716
Speaker 2: he thought that that was in service of the argument

367
00:19:34,756 --> 00:19:36,316
Speaker 2: that we don't need an examiner because we'd have to

368
00:19:36,356 --> 00:19:38,956
Speaker 2: spend tens of millions of dollars on an examiner too,

369
00:19:39,076 --> 00:19:41,716
Speaker 2: which isn't really true because the examiner is really just

370
00:19:41,716 --> 00:19:44,036
Speaker 2: focusing on Solivan and Cromwell, not all the other stuff.

371
00:19:44,836 --> 00:19:47,396
Speaker 2: But it was pretty surprising. It was pretty surprising.

372
00:19:47,396 --> 00:19:50,196
Speaker 1: I guess how much ConTroll do John Ray and Sullivan

373
00:19:50,196 --> 00:19:54,116
Speaker 1: and Cromwell have of the information inside of FTX, Like

374
00:19:54,436 --> 00:19:58,156
Speaker 1: how easily accessed is that information by either the prosecutors

375
00:19:58,196 --> 00:20:00,476
Speaker 1: or the defense attorneys, And how hard is it to

376
00:20:00,516 --> 00:20:03,436
Speaker 1: see inside and see why they're doing what they're doing.

377
00:20:03,956 --> 00:20:07,436
Speaker 2: Yeah, great question. So first of all, I think Ray,

378
00:20:07,636 --> 00:20:09,716
Speaker 2: you know, is the CEO of a company, has, you know,

379
00:20:09,756 --> 00:20:12,316
Speaker 2: all the powers that bankman free would have had enhanced

380
00:20:12,316 --> 00:20:15,076
Speaker 2: to a certain extent by the bankruptcy good, so he

381
00:20:15,116 --> 00:20:19,436
Speaker 2: controls it all. Counsel to the company solventing problem was

382
00:20:19,796 --> 00:20:22,276
Speaker 2: retained by Ray. That was I think one of the

383
00:20:22,316 --> 00:20:25,956
Speaker 2: first things he did. So they too have unfettered access

384
00:20:25,996 --> 00:20:29,236
Speaker 2: to all of the company's information, all the company's resources.

385
00:20:29,516 --> 00:20:31,276
Speaker 2: I think that's a lot of money, a lot of

386
00:20:31,276 --> 00:20:34,236
Speaker 2: other assets, and they can decide who gets to see

387
00:20:34,236 --> 00:20:36,556
Speaker 2: it and who doesn't. So, for example, I think they

388
00:20:36,596 --> 00:20:39,356
Speaker 2: decided to let the prosecutor see, you know, if not

389
00:20:39,396 --> 00:20:41,116
Speaker 2: all of it, a great deal of it, and to

390
00:20:41,236 --> 00:20:44,716
Speaker 2: perform significant analyzes. That's certainly what Bankman Freed's lawyers alleged

391
00:20:45,036 --> 00:20:47,876
Speaker 2: in the criminal case, and we've seen some evidence of

392
00:20:47,956 --> 00:20:51,756
Speaker 2: that independently. But they're not obligated to share it with

393
00:20:51,796 --> 00:20:53,716
Speaker 2: anybody else if they don't want to, so they haven't,

394
00:20:53,756 --> 00:20:56,516
Speaker 2: for example, allowed Bankment Freed access to any of the

395
00:20:56,556 --> 00:20:59,196
Speaker 2: information as far as I can tell at all, which

396
00:20:59,236 --> 00:21:01,716
Speaker 2: creates a very basic problem in criminal law, which is

397
00:21:01,756 --> 00:21:04,556
Speaker 2: a little outside of my expertise, but basically, you know,

398
00:21:04,596 --> 00:21:07,076
Speaker 2: the concern that was raised in the criminal trial is, look,

399
00:21:08,036 --> 00:21:10,676
Speaker 2: the government has a due need to provide what's called

400
00:21:10,716 --> 00:21:13,756
Speaker 2: for exculpatory information, evidence that you know they have that

401
00:21:13,956 --> 00:21:17,556
Speaker 2: would exonerate Sam. The government has that duty, but other

402
00:21:17,596 --> 00:21:21,636
Speaker 2: private actors don't have that duty. And so the fight

403
00:21:21,716 --> 00:21:24,556
Speaker 2: in the criminal trial and part was about whether ft

404
00:21:24,796 --> 00:21:28,276
Speaker 2: X had the duty to provide exculpatory evidence to help

405
00:21:28,316 --> 00:21:31,156
Speaker 2: Sam's defense, and the answer was no, right, they didn't

406
00:21:31,196 --> 00:21:32,476
Speaker 2: have to do that and didn't do that. And so

407
00:21:32,516 --> 00:21:34,516
Speaker 2: it's not at all difficult to imagine that the prosecutors

408
00:21:34,556 --> 00:21:37,236
Speaker 2: were like, this is awesome. This is the best thing

409
00:21:37,276 --> 00:21:41,276
Speaker 2: that's ever happened to us, because we have really smart

410
00:21:41,356 --> 00:21:44,756
Speaker 2: lawyers and other people to analyze this stuff, and we

411
00:21:44,796 --> 00:21:47,476
Speaker 2: don't have to share hardly any of it unless we

412
00:21:47,596 --> 00:21:51,876
Speaker 2: choose to with the defense. It's like kaching, like it's

413
00:21:51,916 --> 00:21:54,316
Speaker 2: awesome for the prosecutors, right, I mean, it's you know,

414
00:21:54,396 --> 00:21:56,956
Speaker 2: it's and you can imagine that. And I don't mean,

415
00:21:57,116 --> 00:21:58,796
Speaker 2: you know, cast us persons on the prosecutors, like, I

416
00:21:58,796 --> 00:22:02,396
Speaker 2: think they have very good reason to want to take

417
00:22:02,436 --> 00:22:03,356
Speaker 2: advantage of this right.

418
00:22:03,356 --> 00:22:06,716
Speaker 1: They would to win. They would to win exactly right.

419
00:22:06,836 --> 00:22:09,556
Speaker 1: I mean, your paper pointed out something it had not.

420
00:22:09,796 --> 00:22:12,796
Speaker 1: It's an idiocy of mine had not occurred to me,

421
00:22:13,316 --> 00:22:17,276
Speaker 1: and that was that the check on the bankruptcy process

422
00:22:17,476 --> 00:22:20,116
Speaker 1: is the Department of Justice. The person in the bankruptcy,

423
00:22:20,356 --> 00:22:23,036
Speaker 1: the trustee is a is an employee of the Department

424
00:22:23,076 --> 00:22:26,156
Speaker 1: of Justice. But it's also the Department of Justice that's

425
00:22:26,196 --> 00:22:28,836
Speaker 1: bringing the case against Sam Bankman free. And so you

426
00:22:28,876 --> 00:22:32,796
Speaker 1: wonder what happened between when you see that the trustee

427
00:22:32,836 --> 00:22:36,436
Speaker 1: not pressing really hard for an examiner or not making

428
00:22:36,476 --> 00:22:39,156
Speaker 1: a huge stink when the examiner is not appointed, you

429
00:22:39,196 --> 00:22:42,476
Speaker 1: wonder what conversations occurred within the Department of Justice on

430
00:22:42,516 --> 00:22:43,116
Speaker 1: this subject.

431
00:22:44,076 --> 00:22:45,876
Speaker 2: No, that's a great point, and yes, I mean we

432
00:22:46,356 --> 00:22:48,636
Speaker 2: you know that the subtitle of the paper is conflicts

433
00:22:48,636 --> 00:22:51,596
Speaker 2: of you know, public and private interests in chapter eleven,

434
00:22:51,636 --> 00:22:54,116
Speaker 2: because you know, it's easy enough to say, well, it

435
00:22:54,116 --> 00:22:56,796
Speaker 2: looks like there might be some evidence that Sullivan and

436
00:22:56,836 --> 00:22:59,036
Speaker 2: Cromwell had a kind of private conflict of interest. They

437
00:22:59,076 --> 00:23:03,036
Speaker 2: didn't want any of their mistakes, you know, before bankruptcy

438
00:23:03,076 --> 00:23:04,796
Speaker 2: to be revealed, and so they're you know, use the

439
00:23:04,836 --> 00:23:08,916
Speaker 2: bankruptcy to conceal that. But it's also apparently the case

440
00:23:08,956 --> 00:23:11,236
Speaker 2: that there was some kind of conflict between the public

441
00:23:11,276 --> 00:23:14,076
Speaker 2: actors here, as you point out. So the US Trustee

442
00:23:14,116 --> 00:23:17,916
Speaker 2: Program is the watchdog for the bankruptcy system, and they're

443
00:23:17,956 --> 00:23:19,436
Speaker 2: not the only people are going to ask for an examiner,

444
00:23:19,436 --> 00:23:20,876
Speaker 2: but they did here, and they often are the ones

445
00:23:20,916 --> 00:23:23,356
Speaker 2: who do. They're the ones who was supposed to police

446
00:23:23,356 --> 00:23:26,636
Speaker 2: for conflicts of interest, and they did object to solvent

447
00:23:26,676 --> 00:23:28,956
Speaker 2: Cromwell's retention. But I'm not sure they knew any of

448
00:23:28,996 --> 00:23:32,796
Speaker 2: the stuff that we've now put forward. But at the

449
00:23:32,836 --> 00:23:37,076
Speaker 2: same time, the Southern District of New York US Attorney

450
00:23:37,076 --> 00:23:39,836
Speaker 2: program is part of the Department of Justice, and it's

451
00:23:39,836 --> 00:23:41,916
Speaker 2: not at all difficult to imagine that there were tough

452
00:23:41,956 --> 00:23:46,276
Speaker 2: negotiations between them, Because if the prosecutors are getting really

453
00:23:46,316 --> 00:23:50,236
Speaker 2: important support from FTX and Solivan Cromwell, you know, who

454
00:23:50,316 --> 00:23:53,476
Speaker 2: have a very large and very well respected white collar practice,

455
00:23:54,836 --> 00:24:00,156
Speaker 2: maybe the US attorneys in New York don't want anybody

456
00:24:00,196 --> 00:24:02,876
Speaker 2: to toss Solivan Cromwell out on grounds that they have

457
00:24:02,956 --> 00:24:05,556
Speaker 2: some kind of conflict. Maybe you don't want an examiner

458
00:24:05,596 --> 00:24:08,476
Speaker 2: coming in and poking around to figure any of that

459
00:24:08,516 --> 00:24:11,516
Speaker 2: stuff out. So there's a tension. There's a kind of conflict,

460
00:24:11,556 --> 00:24:15,316
Speaker 2: we think, between the US trustee, who wants this transparency

461
00:24:15,356 --> 00:24:17,596
Speaker 2: and wants this stuff to come out because that's their job,

462
00:24:18,396 --> 00:24:21,596
Speaker 2: and the prosecutors, who, under these circumstances, which we think

463
00:24:21,596 --> 00:24:25,756
Speaker 2: are probably unusual, to say no, no, no, no, this is like

464
00:24:25,836 --> 00:24:28,596
Speaker 2: a really good thing, do not mess it up. And

465
00:24:28,676 --> 00:24:30,436
Speaker 2: you know, obviously we have no idea if that's really true,

466
00:24:30,436 --> 00:24:32,596
Speaker 2: although we have good reason to think it is. Certainly

467
00:24:32,636 --> 00:24:34,556
Speaker 2: we have no idea how it gets resolved, because there

468
00:24:34,596 --> 00:24:37,116
Speaker 2: is no rule book for resolving those kinds of you know,

469
00:24:37,436 --> 00:24:39,436
Speaker 2: internal disputes in the Department of Justice, at least not

470
00:24:39,516 --> 00:24:40,356
Speaker 2: one that's public.

471
00:24:43,316 --> 00:24:56,636
Speaker 1: Judging. Sam will be right back. We're back. So there's

472
00:24:56,636 --> 00:24:58,116
Speaker 1: one other thing I wanted to ask you about. It

473
00:24:58,596 --> 00:25:01,356
Speaker 1: seems that's one of the unusual things about the ftics

474
00:25:01,356 --> 00:25:06,916
Speaker 1: bankruptcy is just how many assets were still there. It's

475
00:25:06,916 --> 00:25:09,556
Speaker 1: sounding more and more like the deposit are going to

476
00:25:09,556 --> 00:25:11,756
Speaker 1: get all their money back with interest, that they're sitting

477
00:25:11,756 --> 00:25:15,036
Speaker 1: on a pile of many, many billions of dollars of assets.

478
00:25:15,556 --> 00:25:19,356
Speaker 1: And is that unusual? Is it unusual for the bankrupt

479
00:25:19,396 --> 00:25:23,276
Speaker 1: company to have such wealth inside of it? And does

480
00:25:23,316 --> 00:25:25,836
Speaker 1: that change? Does that have is that queering in any

481
00:25:25,836 --> 00:25:29,516
Speaker 1: way the way the bankruptcy might be conducted, Like, does it,

482
00:25:29,556 --> 00:25:31,996
Speaker 1: for example, create an incentive to string it out longer

483
00:25:32,036 --> 00:25:34,676
Speaker 1: because it's because you can actually bill so much more

484
00:25:34,756 --> 00:25:35,956
Speaker 1: because the money is there.

485
00:25:36,636 --> 00:25:38,796
Speaker 2: Yeah, So put that incentive question to one side, because

486
00:25:38,796 --> 00:25:40,196
Speaker 2: that is the right question, and we'll come back to

487
00:25:40,236 --> 00:25:44,316
Speaker 2: it in a second. You know, the crypto cases are

488
00:25:44,436 --> 00:25:49,036
Speaker 2: kind of unusual because you know, these firms, especially the exchanges,

489
00:25:49,076 --> 00:25:50,796
Speaker 2: seem to look a little bit like banks, but they

490
00:25:50,796 --> 00:25:54,316
Speaker 2: weren't regulated like banks, and banks themselves are not allowed

491
00:25:54,316 --> 00:25:56,756
Speaker 2: to go into bankruptcy for a good reason, like it

492
00:25:56,796 --> 00:26:00,036
Speaker 2: would totally screw up the system if they could. You know,

493
00:26:00,036 --> 00:26:02,996
Speaker 2: I think most companies when they go into bankruptcy that

494
00:26:03,156 --> 00:26:06,316
Speaker 2: have you know, any real business that's going you know,

495
00:26:06,356 --> 00:26:07,716
Speaker 2: they're not going to be solvent, and they're not going

496
00:26:07,756 --> 00:26:10,356
Speaker 2: to pay creditors in full, but they'll pay something. Probably

497
00:26:10,396 --> 00:26:12,956
Speaker 2: they will pay them, you know, partially in cash and

498
00:26:12,996 --> 00:26:15,916
Speaker 2: partially in stock of the company will issue new stock,

499
00:26:15,956 --> 00:26:19,276
Speaker 2: and they'll wipe out the old shareholders, which is intuitive, right,

500
00:26:19,356 --> 00:26:21,316
Speaker 2: Like all right, well, you know, the old shared holders

501
00:26:21,316 --> 00:26:23,996
Speaker 2: took the risk and they lost you know, the kinds

502
00:26:24,036 --> 00:26:27,636
Speaker 2: of assets that the peers saw that FTX was sitting on,

503
00:26:28,076 --> 00:26:30,436
Speaker 2: you know, like anthropic stock, like all that stuff seems

504
00:26:30,436 --> 00:26:32,676
Speaker 2: extraordinary to me. I think you called it in your

505
00:26:32,676 --> 00:26:36,236
Speaker 2: book the Dragon's Layer, which I thought was such a colorful,

506
00:26:36,516 --> 00:26:40,716
Speaker 2: you know, way of capturing this strange collection of assets,

507
00:26:40,716 --> 00:26:42,716
Speaker 2: many of which turned out to be quite valuable that

508
00:26:42,836 --> 00:26:45,956
Speaker 2: Alameda or you know, other entities and the complex were

509
00:26:45,956 --> 00:26:48,876
Speaker 2: holding on to and that's highly unusual. The other thing

510
00:26:48,916 --> 00:26:51,796
Speaker 2: to bear in mind is that even though the company

511
00:26:51,796 --> 00:26:55,196
Speaker 2: has said, well, we think that customers may get their

512
00:26:55,236 --> 00:27:01,396
Speaker 2: deposits back, they've said that the value of those deposits

513
00:27:01,436 --> 00:27:04,756
Speaker 2: has been determined as of the data of the bankruptcy petition,

514
00:27:05,156 --> 00:27:07,996
Speaker 2: which is November eleventh, when the value of those deposits

515
00:27:08,076 --> 00:27:10,076
Speaker 2: was quite a bit lower, right, So, well.

516
00:27:10,396 --> 00:27:12,756
Speaker 1: Means they all got dollarized. Then it was sort of

517
00:27:12,796 --> 00:27:15,596
Speaker 1: like if you had crypto, you got the dollar value

518
00:27:15,596 --> 00:27:17,516
Speaker 1: equivalent and that's what you're going to get back.

519
00:27:17,556 --> 00:27:19,836
Speaker 2: So you right, And that's very different from actually getting

520
00:27:19,916 --> 00:27:23,556
Speaker 2: your crypto back, because to day that crypto is it

521
00:27:23,596 --> 00:27:26,836
Speaker 2: sounds like it's worth a great deal more than it

522
00:27:26,996 --> 00:27:30,276
Speaker 2: was back then. And so you know, if if in

523
00:27:30,356 --> 00:27:33,316
Speaker 2: fact it was your crypto, always, even if the company

524
00:27:33,356 --> 00:27:35,156
Speaker 2: was comingling, it should just be your crypto. They should

525
00:27:35,156 --> 00:27:36,556
Speaker 2: just give it back to you. And if it's worth more,

526
00:27:36,956 --> 00:27:39,076
Speaker 2: muzzle tough. And if it's not worth more, it's too

527
00:27:39,076 --> 00:27:41,516
Speaker 2: bad for you. But neither way, right, the company is

528
00:27:41,516 --> 00:27:44,076
Speaker 2: getting the delta there. The company is getting the delta there,

529
00:27:44,076 --> 00:27:48,836
Speaker 2: and that in part is presumably subsidizing everything else that's happening.

530
00:27:49,556 --> 00:27:51,876
Speaker 2: On top of the fact that the company did have

531
00:27:52,036 --> 00:27:53,796
Speaker 2: all of these assets, some of which looked like they

532
00:27:53,836 --> 00:27:57,956
Speaker 2: were extremely valuable. Now your question about incentives is the

533
00:27:57,996 --> 00:28:00,036
Speaker 2: right one, which is like, well, who's got what incentives here?

534
00:28:00,756 --> 00:28:04,116
Speaker 2: You know, ordinarily in a reorganization, the lawyers always get

535
00:28:04,116 --> 00:28:06,196
Speaker 2: paid off the top, and you know, people grouse about it,

536
00:28:06,196 --> 00:28:07,956
Speaker 2: but it's not a big deal because otherwise, how are

537
00:28:07,996 --> 00:28:08,956
Speaker 2: you going to get it done? Right?

538
00:28:09,196 --> 00:28:09,476
Speaker 1: Can't?

539
00:28:10,836 --> 00:28:13,236
Speaker 2: And so you know, the company make sure that its

540
00:28:13,436 --> 00:28:18,036
Speaker 2: plan to reorganize has you know, sufficient cash build into

541
00:28:18,116 --> 00:28:20,356
Speaker 2: it to make sure that those lawyers get paid. But

542
00:28:20,396 --> 00:28:21,836
Speaker 2: mostly the money is going to go to keep the

543
00:28:21,836 --> 00:28:25,796
Speaker 2: company going. One of the most troubling things in the

544
00:28:25,836 --> 00:28:28,956
Speaker 2: bankruptcy here is that it doesn't really look like Ray

545
00:28:29,596 --> 00:28:33,236
Speaker 2: ever honored the promise that deeterrik had made to Bankman

546
00:28:33,316 --> 00:28:36,796
Speaker 2: Free back in November ninth of twenty twenty two, which

547
00:28:36,836 --> 00:28:39,796
Speaker 2: is like, we're here to help you rescue this company.

548
00:28:40,636 --> 00:28:44,156
Speaker 2: And you know that would presumably have involved finding new

549
00:28:44,196 --> 00:28:47,436
Speaker 2: financing to you know, provide the liquidity that you needed

550
00:28:47,476 --> 00:28:51,356
Speaker 2: to permit withdrawals to start again and to then keep going.

551
00:28:51,476 --> 00:28:55,516
Speaker 2: Because if the company was fundamentally profitable but have this

552
00:28:56,076 --> 00:28:58,316
Speaker 2: you know, serious problem. I don't think anybody disputes there

553
00:28:58,396 --> 00:29:00,956
Speaker 2: was a serious problem of commingling, right, But you've stopped

554
00:29:00,956 --> 00:29:03,356
Speaker 2: that problem and you've found ways to fix it. And

555
00:29:03,436 --> 00:29:08,156
Speaker 2: otherwise these exchanges are pretty viable, like the most value

556
00:29:08,236 --> 00:29:10,396
Speaker 2: for the most people, but would come from keeping the

557
00:29:10,436 --> 00:29:14,036
Speaker 2: business going. One of the other remarkable things about the

558
00:29:14,076 --> 00:29:16,556
Speaker 2: Examiner hearing again from you know about a year ago,

559
00:29:16,596 --> 00:29:19,956
Speaker 2: little over a year ago, is that Ray testifies extensively

560
00:29:19,996 --> 00:29:23,836
Speaker 2: and he says, I never talked to Bangman Freed Yea.

561
00:29:24,356 --> 00:29:27,196
Speaker 1: He told me that I couldn't. That blew my mind too,

562
00:29:27,236 --> 00:29:32,916
Speaker 1: because it's he and the other executives are trove of information.

563
00:29:33,356 --> 00:29:35,756
Speaker 1: You would think you'd want the information, but he told

564
00:29:35,796 --> 00:29:37,796
Speaker 1: me he didn't. As a matter of principle, he said

565
00:29:37,796 --> 00:29:39,276
Speaker 1: he didn't speak to him.

566
00:29:39,556 --> 00:29:41,596
Speaker 2: Very early in the case. Because what did Sam do

567
00:29:42,836 --> 00:29:44,716
Speaker 2: in the middle of November of twenty twenty two. He

568
00:29:44,796 --> 00:29:48,596
Speaker 2: did what Sullivan Cromwell encouraged him to do and what

569
00:29:48,636 --> 00:29:50,036
Speaker 2: he thought he should be doing, which is trying to

570
00:29:50,036 --> 00:29:52,716
Speaker 2: find rescue financing. So he goes out and he gets

571
00:29:53,196 --> 00:29:55,276
Speaker 2: Tron and Numura and who knows, you know, all these

572
00:29:55,316 --> 00:29:57,676
Speaker 2: other folks to say, yeah, we'll lend you three or

573
00:29:57,676 --> 00:30:01,436
Speaker 2: four billion dollars. Now I have no idea if those

574
00:30:01,436 --> 00:30:04,796
Speaker 2: were worth the paper that they were written on, Like,

575
00:30:04,796 --> 00:30:06,956
Speaker 2: I just don't know. I do know that your job

576
00:30:07,076 --> 00:30:10,316
Speaker 2: as the CEO of the company in chapter eleven is

577
00:30:10,356 --> 00:30:12,516
Speaker 2: to at least figure it out right, take a look

578
00:30:12,556 --> 00:30:14,916
Speaker 2: at them, say ah hm, are these good or not?

579
00:30:15,156 --> 00:30:18,036
Speaker 2: Like Sam, tell me about these things. We understand you

580
00:30:18,116 --> 00:30:20,596
Speaker 2: might have some other issues, but at least at least, like,

581
00:30:20,836 --> 00:30:22,956
Speaker 2: you know, make the connection, help us understand how we

582
00:30:22,956 --> 00:30:25,556
Speaker 2: can do this. And they didn't do that, and that

583
00:30:25,636 --> 00:30:29,516
Speaker 2: to me is extraordinary, right, It's extraordinary for a couple

584
00:30:29,556 --> 00:30:32,196
Speaker 2: of reasons, one being that, like if the point of

585
00:30:32,356 --> 00:30:35,556
Speaker 2: having this whole system Congress created in the seventies is

586
00:30:35,876 --> 00:30:39,956
Speaker 2: to keep viable companies going, then for whatever reasons, a

587
00:30:40,036 --> 00:30:43,236
Speaker 2: decision was made to not do that. Now we don't

588
00:30:43,276 --> 00:30:45,516
Speaker 2: know obviously internally what was going on, and they definitely

589
00:30:45,516 --> 00:30:48,876
Speaker 2: made they being FTX and Solvent Promo made some you know,

590
00:30:48,956 --> 00:30:52,236
Speaker 2: statements about possibly restarting the exchange, and so maybe they tried.

591
00:30:52,436 --> 00:30:54,716
Speaker 2: I know, ultimately they didn't, and they just blamed it

592
00:30:54,716 --> 00:30:57,156
Speaker 2: on Bateman Free But again it you know, if Ray

593
00:30:57,236 --> 00:30:58,676
Speaker 2: was correct when he said, well, this is just old

594
00:30:58,716 --> 00:31:02,476
Speaker 2: fashion embezzlement, and we know factually everybody agrees that there

595
00:31:02,516 --> 00:31:06,516
Speaker 2: was commingling between Alameda and FTX, and that I think

596
00:31:06,556 --> 00:31:10,636
Speaker 2: that was stopped then, Like this was a simple problem

597
00:31:10,716 --> 00:31:12,996
Speaker 2: and that the criminal part of it was solved a

598
00:31:13,036 --> 00:31:16,916
Speaker 2: while ago or very easily. So why not restart the

599
00:31:16,916 --> 00:31:19,596
Speaker 2: exchanges if you think they're fundamentally sound? Like this problem

600
00:31:19,796 --> 00:31:21,516
Speaker 2: it was like, you know, it was like a benign tumor.

601
00:31:21,556 --> 00:31:23,316
Speaker 2: It was a tumor. It had to be taken out,

602
00:31:23,356 --> 00:31:25,036
Speaker 2: but it was benign and there was no reason to

603
00:31:25,036 --> 00:31:26,156
Speaker 2: think that it had metastasie.

604
00:31:26,676 --> 00:31:29,436
Speaker 1: And so getting back to you, why wouldn't they have

605
00:31:29,476 --> 00:31:32,876
Speaker 1: done that? What are their incentives and the.

606
00:31:32,676 --> 00:31:35,276
Speaker 2: Incentives I think they're sort of two conflicting ones. One

607
00:31:35,316 --> 00:31:37,836
Speaker 2: is the one kind of on the surface that you identify,

608
00:31:37,876 --> 00:31:40,036
Speaker 2: which is like, well, you know, the lawyers can make

609
00:31:40,116 --> 00:31:43,676
Speaker 2: lots and lots of money in the case by billing,

610
00:31:43,796 --> 00:31:45,636
Speaker 2: and so in fact they have, I mean, the billing

611
00:31:45,676 --> 00:31:48,156
Speaker 2: rate in the case has been extraordinary. So that's on

612
00:31:48,196 --> 00:31:50,476
Speaker 2: the surface. But as I said earlier, like I don't

613
00:31:50,516 --> 00:31:52,956
Speaker 2: think Sullivan Cromwell was interested in stealing the business from

614
00:31:52,996 --> 00:31:56,476
Speaker 2: bankman Freed like to make money on it, right, I mean,

615
00:31:56,916 --> 00:31:59,116
Speaker 2: like they don't need the money. I think they were

616
00:31:59,236 --> 00:32:03,916
Speaker 2: concerned about embarrassment. I think they wanted to maintain good

617
00:32:03,916 --> 00:32:07,316
Speaker 2: relations with the government and public actors. And number two

618
00:32:07,316 --> 00:32:09,396
Speaker 2: and this is a little more subtle. You know, you

619
00:32:09,436 --> 00:32:12,156
Speaker 2: can imagine that Sullivan Cromwell sort of shows up at

620
00:32:12,196 --> 00:32:16,236
Speaker 2: the prosecutor's office on November ninth and says, we know

621
00:32:16,276 --> 00:32:19,116
Speaker 2: you've been concerned about Crypto for a while. We've got

622
00:32:19,156 --> 00:32:24,236
Speaker 2: a story to tell you. And then you know, maybe

623
00:32:24,236 --> 00:32:26,756
Speaker 2: that prosecutors were already thinking about it and investigating whatever,

624
00:32:26,996 --> 00:32:30,036
Speaker 2: but they come to realize that, like, there's this incredibly

625
00:32:30,116 --> 00:32:33,876
Speaker 2: fortuitous set of events that can make it possible for

626
00:32:33,916 --> 00:32:37,076
Speaker 2: Sullivan and Cromwell to really be heroes to the prosecutors

627
00:32:37,076 --> 00:32:38,716
Speaker 2: that they work with all the time, to be heroes

628
00:32:38,756 --> 00:32:40,956
Speaker 2: to the regulators who they might have you know, misled

629
00:32:40,996 --> 00:32:43,756
Speaker 2: a little bit earlier, but who they've now made, you know,

630
00:32:43,876 --> 00:32:46,356
Speaker 2: functional amends with. And by the way, we get to

631
00:32:46,356 --> 00:32:49,676
Speaker 2: build a chapter eleven practice along the way. So I

632
00:32:49,716 --> 00:32:53,676
Speaker 2: think those are the kinds of incentives that are more

633
00:32:53,836 --> 00:32:55,516
Speaker 2: plausibly at work. But again, you know, we don't know

634
00:32:55,516 --> 00:32:56,796
Speaker 2: there's more to the story, and we don't know what

635
00:32:56,836 --> 00:32:57,436
Speaker 2: that story.

636
00:32:57,276 --> 00:32:59,636
Speaker 1: But why does that lead to not trying to restart

637
00:32:59,676 --> 00:33:01,636
Speaker 1: the company as a going enterprise.

638
00:33:01,716 --> 00:33:04,996
Speaker 2: Right, because if you restart the company is a going enterprise,

639
00:33:05,076 --> 00:33:08,316
Speaker 2: it comes out of bankruptcy sooner, and I think more

640
00:33:08,396 --> 00:33:13,596
Speaker 2: information about the company comes out sooner. What I think

641
00:33:13,716 --> 00:33:15,956
Speaker 2: is going to happen is, if you know, FTX and

642
00:33:15,996 --> 00:33:17,396
Speaker 2: Solvent and Promwell are able to do what they want

643
00:33:17,396 --> 00:33:18,956
Speaker 2: to do, they're going to liquidate the company and seal

644
00:33:18,956 --> 00:33:19,596
Speaker 2: all the records.

645
00:33:20,396 --> 00:33:23,196
Speaker 1: So no, don't do No one will ever know what happened.

646
00:33:23,676 --> 00:33:27,756
Speaker 2: Correct, And so if you reorganize the company instead and

647
00:33:27,796 --> 00:33:29,476
Speaker 2: it survives as a going concern, oh guess what. They're

648
00:33:29,476 --> 00:33:31,156
Speaker 2: going to be managers, and they're going to be shareholders,

649
00:33:31,196 --> 00:33:34,076
Speaker 2: and they're going to be other human beings interacting with

650
00:33:34,116 --> 00:33:36,236
Speaker 2: this large company, and they're going to learn all sorts

651
00:33:36,276 --> 00:33:38,076
Speaker 2: of stuff that might not be so great for Solving

652
00:33:38,076 --> 00:33:42,516
Speaker 2: and Cromwell, mostly about what happened in that moment of panic,

653
00:33:42,556 --> 00:33:44,476
Speaker 2: if it was in fact a moment of panic, and

654
00:33:44,516 --> 00:33:47,836
Speaker 2: then thereafter, because there were many, many puzzling decisions made

655
00:33:48,116 --> 00:33:51,676
Speaker 2: during the bankruptcy case that are hard to explain accept

656
00:33:51,796 --> 00:33:54,836
Speaker 2: perhaps as a way of helping Solve and Promwell manage

657
00:33:54,836 --> 00:33:57,356
Speaker 2: these other problems, which is, you know, if we're right,

658
00:33:57,436 --> 00:33:59,276
Speaker 2: is a very very big problem. All of that would

659
00:33:59,316 --> 00:34:01,916
Speaker 2: come out eventually if the company were reorganized.

660
00:34:13,436 --> 00:34:16,796
Speaker 1: So the Court of Appeals reversed the bankruptcy judge on

661
00:34:16,836 --> 00:34:20,076
Speaker 1: the subject of the examiner. How unusual is that? How

662
00:34:20,156 --> 00:34:21,956
Speaker 1: unusual is it for a court of appeals to say,

663
00:34:22,036 --> 00:34:24,076
Speaker 1: to tell the bankruptcy judge, know you did it wrong?

664
00:34:25,116 --> 00:34:27,036
Speaker 2: So it was this is the third Circuit Court of Appeals,

665
00:34:27,036 --> 00:34:28,676
Speaker 2: which is, you know, a very sort of well regarded

666
00:34:28,716 --> 00:34:32,316
Speaker 2: powerful court. I don't think the reversal rate. I don't

667
00:34:32,316 --> 00:34:34,556
Speaker 2: think it was that unusual, and especially in this case,

668
00:34:34,596 --> 00:34:39,756
Speaker 2: because the statute is clear. It's obvious. It's so obvious, right,

669
00:34:39,876 --> 00:34:42,476
Speaker 2: And so to me, part of what's so interesting about this,

670
00:34:42,556 --> 00:34:45,516
Speaker 2: and I don't know the answer is why Solivan Cromwell

671
00:34:45,516 --> 00:34:49,076
Speaker 2: didn't just settle this request for an examiner back when

672
00:34:49,076 --> 00:34:51,516
Speaker 2: the US Trustee made the request. Because if I'm Solivan

673
00:34:51,516 --> 00:34:55,756
Speaker 2: and Cromwell, like I should be like, sure, we have

674
00:34:55,796 --> 00:34:59,196
Speaker 2: nothing to hide here, guys, there's no problem here, bring

675
00:34:59,196 --> 00:35:01,676
Speaker 2: an examiner, and like, let's keep it focused on you know,

676
00:35:01,756 --> 00:35:03,676
Speaker 2: you concerned about our conflict. We have no conflict. We

677
00:35:03,716 --> 00:35:06,316
Speaker 2: got nothing to hide from you. And keep it short,

678
00:35:06,436 --> 00:35:09,076
Speaker 2: keep it sweet, keep it focused, all of which they

679
00:35:09,156 --> 00:35:13,076
Speaker 2: could have done by agreement with the US Trustee. And

680
00:35:13,076 --> 00:35:15,476
Speaker 2: that like, if I'm Solivan Promo, that's a total win

681
00:35:17,356 --> 00:35:18,996
Speaker 2: because you can say, hey, we had an examiner, We're

682
00:35:19,036 --> 00:35:20,716
Speaker 2: all fine, Like he gave us a clean bill of health.

683
00:35:20,796 --> 00:35:22,796
Speaker 2: Nothing to see here, guys. And by the way, if

684
00:35:22,836 --> 00:35:24,676
Speaker 2: that had happened, I wouldn't be here right.

685
00:35:24,996 --> 00:35:27,836
Speaker 1: An attorney named Bob Cleary has been appointed as the examiner,

686
00:35:27,876 --> 00:35:31,356
Speaker 1: and I'm curious what happens next. Is he a genuinely

687
00:35:31,396 --> 00:35:34,716
Speaker 1: independent person or is he Is he a bankruptcy person

688
00:35:34,716 --> 00:35:38,036
Speaker 1: who's is a repeat player in this in the bankruptcy system.

689
00:35:38,156 --> 00:35:40,996
Speaker 2: No, definitely not that he was the prosecutor. Apparently the

690
00:35:40,996 --> 00:35:45,076
Speaker 2: prosecutor who prosecuted the unibomber ted Kazinski. Oh, when he

691
00:35:45,116 --> 00:35:49,276
Speaker 2: was a prosecutor, and now he's a white collar, you know,

692
00:35:49,356 --> 00:35:52,676
Speaker 2: criminal defense lawyer at Patterson Bell Knapp is not a

693
00:35:52,716 --> 00:35:54,916
Speaker 2: bankruptcy insider. If I guess, I would say he's probably

694
00:35:54,996 --> 00:36:00,156
Speaker 2: very independent. I think the bigger question about Cleary is

695
00:36:00,196 --> 00:36:03,956
Speaker 2: going to be how much access he really has to

696
00:36:04,036 --> 00:36:07,116
Speaker 2: what really happened. And it's not at all difficult for

697
00:36:07,156 --> 00:36:10,236
Speaker 2: Solivan Promo FTX just row sand in his gears.

698
00:36:11,116 --> 00:36:13,116
Speaker 1: How would they do that? How would they do that?

699
00:36:14,356 --> 00:36:15,836
Speaker 1: So he does have the right to walk in and

700
00:36:15,876 --> 00:36:16,636
Speaker 1: ask for anything.

701
00:36:17,676 --> 00:36:21,316
Speaker 2: I have not seen the final order on the scope

702
00:36:21,356 --> 00:36:24,756
Speaker 2: of his retention, but unless it orders the company to

703
00:36:25,596 --> 00:36:30,836
Speaker 2: waive privilege and you know, gives him access to everything,

704
00:36:30,876 --> 00:36:33,676
Speaker 2: even if it's been designated confidential, he's going to have

705
00:36:33,676 --> 00:36:36,636
Speaker 2: to ask for it. And the company absolutely can fight

706
00:36:36,676 --> 00:36:39,956
Speaker 2: about things like privilege, attorney client privilege, and can absolutely

707
00:36:39,956 --> 00:36:42,996
Speaker 2: fight about things like confidentiality. My guess is that at

708
00:36:42,996 --> 00:36:46,356
Speaker 2: this point Sullivan and Cromwell probably won't fight too hard,

709
00:36:46,476 --> 00:36:49,596
Speaker 2: certainly not openly. I mean, they were fighting the examiner

710
00:36:49,636 --> 00:36:52,596
Speaker 2: tooth and nail until a couple of weeks ago, and

711
00:36:52,636 --> 00:36:55,196
Speaker 2: then they seem to have stopped. So I think they

712
00:36:55,276 --> 00:36:59,276
Speaker 2: understand that, you know, they should just sort of you know,

713
00:37:00,276 --> 00:37:02,996
Speaker 2: like take the medicine and deal with it. But they

714
00:37:02,996 --> 00:37:05,116
Speaker 2: can still you know, fight in sort of small ways.

715
00:37:05,236 --> 00:37:08,596
Speaker 2: And whether clearly has the resources meaning basically the money,

716
00:37:08,596 --> 00:37:11,516
Speaker 2: the budget for the bankruptcy court, you know, really from

717
00:37:11,516 --> 00:37:14,996
Speaker 2: the company, Whether the bankruptcy court has the patience to

718
00:37:15,036 --> 00:37:19,716
Speaker 2: deal with challenges buy cleary to whatever Solivon Cromwell, may

719
00:37:19,796 --> 00:37:22,636
Speaker 2: or FTX might be withholding. You know, those are questions

720
00:37:22,636 --> 00:37:24,636
Speaker 2: that will have to be answered. He's going to produce

721
00:37:24,676 --> 00:37:26,436
Speaker 2: a report in fairly short order. My hunt is that

722
00:37:26,436 --> 00:37:29,716
Speaker 2: it will say something like this. You know, we've investigated.

723
00:37:29,756 --> 00:37:31,476
Speaker 2: We couldn't get everything we wanted to see. We saw

724
00:37:31,476 --> 00:37:34,756
Speaker 2: a lot. We think there's some problems. This is not great,

725
00:37:36,316 --> 00:37:38,996
Speaker 2: but you know, mostly the problems that we've seen would

726
00:37:39,036 --> 00:37:42,636
Speaker 2: involve claims of you know, an ethical nature having to

727
00:37:42,676 --> 00:37:45,636
Speaker 2: do with bankment freed and they don't really affect the bankruptcy.

728
00:37:46,116 --> 00:37:48,076
Speaker 2: The scope of our retention really doesn't ask us to

729
00:37:48,076 --> 00:37:50,996
Speaker 2: look at the whole bankruptcy and everything else. So, you know,

730
00:37:51,076 --> 00:37:53,676
Speaker 2: unless the judge wants to do a fuller thing, you know,

731
00:37:53,836 --> 00:37:55,396
Speaker 2: we're not really going to say but we'll wag a

732
00:37:55,436 --> 00:38:00,036
Speaker 2: finger at Sulivan Cromwell and we'll let it go. Now

733
00:38:00,116 --> 00:38:02,596
Speaker 2: that's not great, but it wouldn't be terribly surprising. That's

734
00:38:02,596 --> 00:38:04,236
Speaker 2: why we say in the paper we think that most

735
00:38:04,236 --> 00:38:06,476
Speaker 2: of the damage has been done and it can't be undone.

736
00:38:07,236 --> 00:38:09,316
Speaker 1: Do you have any idea whether Bob Cleary is read

737
00:38:09,356 --> 00:38:10,116
Speaker 1: your paper.

738
00:38:11,396 --> 00:38:12,036
Speaker 2: Not a clue?

739
00:38:12,396 --> 00:38:14,156
Speaker 1: Well, he should write, I mean if he reads your

740
00:38:14,156 --> 00:38:15,716
Speaker 1: paper he's going to have, he's gonna be able to

741
00:38:15,756 --> 00:38:17,476
Speaker 1: ask some questions that he might it might not occur

742
00:38:17,516 --> 00:38:18,316
Speaker 1: to him otherwise.

743
00:38:18,796 --> 00:38:21,636
Speaker 2: Absolutely, and for that matter, Solivon Cromwell should read it, right,

744
00:38:21,676 --> 00:38:24,756
Speaker 2: I mean, like, you know, we are not hiding anything

745
00:38:24,796 --> 00:38:27,316
Speaker 2: from them. They may well have a different version of

746
00:38:27,356 --> 00:38:30,716
Speaker 2: the facts than we have. Undoubtedly they do. Undoubtedly they

747
00:38:30,716 --> 00:38:32,916
Speaker 2: know more facts than we know. And if they think

748
00:38:32,956 --> 00:38:35,236
Speaker 2: we have gotten something wrong, if they think we are

749
00:38:35,476 --> 00:38:38,356
Speaker 2: missing some important things, like they should tell us, like

750
00:38:38,436 --> 00:38:40,076
Speaker 2: you know, we're not. We're not here to get anybody.

751
00:38:40,076 --> 00:38:41,076
Speaker 2: We're just here to get the truth.

752
00:38:41,556 --> 00:38:44,116
Speaker 1: How did talking to Sam directly and his mom affect

753
00:38:44,116 --> 00:38:44,916
Speaker 1: your view of the case.

754
00:38:46,356 --> 00:38:49,716
Speaker 2: Yeah, that's a great question. I you know, got connected

755
00:38:49,716 --> 00:38:52,116
Speaker 2: to them initially through a colleague of mine at Stanford

756
00:38:52,116 --> 00:38:54,356
Speaker 2: who's you know, called me after I'd already agreed to

757
00:38:54,356 --> 00:38:56,396
Speaker 2: do the Amigas brief to say, you know, can I

758
00:38:56,436 --> 00:38:58,836
Speaker 2: tell you this crazy story and ask you a favor?

759
00:38:58,836 --> 00:39:02,036
Speaker 2: And he told me, you know, basically Sam's version of

760
00:39:02,076 --> 00:39:04,956
Speaker 2: the Solvent Cromwell stole the company from me story. And

761
00:39:04,956 --> 00:39:06,876
Speaker 2: I was like, yeah, that can't be right, that's nuts.

762
00:39:07,356 --> 00:39:08,916
Speaker 2: He's like, well, look would you talk to them? Would

763
00:39:08,956 --> 00:39:10,716
Speaker 2: you do me a favor and talk to them about this?

764
00:39:11,316 --> 00:39:13,076
Speaker 2: I'm like, of course, I'll talk to anybody. I can't

765
00:39:13,076 --> 00:39:14,636
Speaker 2: be the lawyer, but I'll talk to anybody. And I

766
00:39:14,676 --> 00:39:17,316
Speaker 2: did talk to them, and you know, he sent me,

767
00:39:17,556 --> 00:39:20,636
Speaker 2: They sent me the you know, all the stuff that

768
00:39:20,676 --> 00:39:23,276
Speaker 2: Sam was sending to everybody about this, and over time

769
00:39:24,476 --> 00:39:27,756
Speaker 2: I came to appreciate that there was more to the

770
00:39:27,796 --> 00:39:29,836
Speaker 2: story than just solving Cromwell's version of it.

771
00:39:30,316 --> 00:39:33,636
Speaker 1: What did do you come come away from this experience

772
00:39:33,716 --> 00:39:35,956
Speaker 1: thinking that the bankruptcy system needs to be reformed.

773
00:39:37,436 --> 00:39:40,596
Speaker 2: M That's a great question. So no, David and I

774
00:39:40,636 --> 00:39:44,036
Speaker 2: do have some pretty concrete recommendations in the final part

775
00:39:44,036 --> 00:39:48,036
Speaker 2: of the paper, like we think maybe, you know, we

776
00:39:48,076 --> 00:39:51,276
Speaker 2: should use examiners a little more frequently on a somewhat

777
00:39:51,276 --> 00:39:53,316
Speaker 2: more targeted basis, because again, you need this kind of

778
00:39:53,356 --> 00:39:57,196
Speaker 2: outside check. We think in a broader class of cases,

779
00:39:57,556 --> 00:40:00,996
Speaker 2: we absolutely think that judges should take much more seriously

780
00:40:01,836 --> 00:40:05,236
Speaker 2: questions about whether the lawyers for the company who have

781
00:40:05,316 --> 00:40:07,836
Speaker 2: so much control and power in these cases, really had

782
00:40:07,876 --> 00:40:11,956
Speaker 2: any pre bankruptcy relationships here, you know, or in any

783
00:40:11,996 --> 00:40:15,196
Speaker 2: case like this, and it's you know, it's it's tricky

784
00:40:15,236 --> 00:40:18,036
Speaker 2: because you know, every large firm has done something for

785
00:40:18,116 --> 00:40:21,236
Speaker 2: every large company, So I've always had some kind of relationship,

786
00:40:21,756 --> 00:40:23,596
Speaker 2: not always but frequently. It's not hard to imagine it,

787
00:40:24,356 --> 00:40:26,356
Speaker 2: but you really, you know, need to like take a

788
00:40:26,396 --> 00:40:30,316
Speaker 2: beat if you're the judge, think about like, okay, exactly

789
00:40:30,316 --> 00:40:32,796
Speaker 2: what's going on here. So, you know, we think judges

790
00:40:32,796 --> 00:40:35,196
Speaker 2: should be more mindful of this kind of problem. We

791
00:40:35,276 --> 00:40:37,116
Speaker 2: think that you should use examiners a little bit more.

792
00:40:37,196 --> 00:40:39,436
Speaker 2: We think the US Trustee should probably have more independence

793
00:40:39,836 --> 00:40:42,276
Speaker 2: in the Justice Department or from the Justice Department, maybe

794
00:40:42,276 --> 00:40:44,116
Speaker 2: be housed outside. You know, the truth is the US

795
00:40:44,156 --> 00:40:47,396
Speaker 2: Trustee is often the only person coming into the bankrupcy

796
00:40:47,436 --> 00:40:49,356
Speaker 2: court and saying like, hey, guys, we think there's a

797
00:40:49,356 --> 00:40:51,716
Speaker 2: problem here. Can you please slow this down? And you know,

798
00:40:51,796 --> 00:40:54,476
Speaker 2: the I think sometimes the judges feel like the US

799
00:40:54,516 --> 00:40:57,076
Speaker 2: Trustees are just kind of meddlesome bureaucrats and they don't

800
00:40:57,116 --> 00:40:59,676
Speaker 2: maybe you know, get quite the difference that they deserve.

801
00:40:59,716 --> 00:41:01,996
Speaker 2: You know, here they were I think, onto something very important,

802
00:41:02,156 --> 00:41:03,636
Speaker 2: even though they were limited in what they could do

803
00:41:03,676 --> 00:41:06,356
Speaker 2: because of the relationship with the prosecutors.

804
00:41:06,356 --> 00:41:09,316
Speaker 1: The paper was great. It's very very I mean for

805
00:41:08,996 --> 00:41:12,076
Speaker 1: a for this kind of thing, it was really it

806
00:41:12,116 --> 00:41:12,956
Speaker 1: was a page turner.

807
00:41:13,196 --> 00:41:16,156
Speaker 2: Se congratulations, Well, that is very kind of been thinking.

808
00:41:18,796 --> 00:41:22,876
Speaker 1: Jonathan Lipson is a bankruptcy expert at Temple University. And

809
00:41:22,956 --> 00:41:25,476
Speaker 1: as for Sullivan Cromwell, all I can say is that

810
00:41:25,516 --> 00:41:28,356
Speaker 1: a spokesperson for Sullivan and Cromwell referred me to a

811
00:41:28,396 --> 00:41:33,796
Speaker 1: statement from the FTX debtors which reads as follows quote.

812
00:41:34,956 --> 00:41:37,516
Speaker 1: In an effort to support mister Bankman Freed at the

813
00:41:37,516 --> 00:41:40,516
Speaker 1: expense of his victims and the dedicated professionals who have

814
00:41:40,556 --> 00:41:44,636
Speaker 1: worked tirelessly to rectify the harm he caused, certain academics

815
00:41:44,636 --> 00:41:48,756
Speaker 1: and others have parroted his false narratives, certain of which

816
00:41:48,796 --> 00:41:52,116
Speaker 1: cite their source as being interviews with Sam Bankmanfreed and

817
00:41:52,156 --> 00:41:55,236
Speaker 1: his parents in an attempt to elevate his standing and

818
00:41:55,356 --> 00:41:58,356
Speaker 1: image before the court that is about to sentence him.

819
00:41:59,076 --> 00:42:01,556
Speaker 1: In fact, but for the work of a large team

820
00:42:01,596 --> 00:42:05,356
Speaker 1: of committed advisors, including Sullivan and Cromwell and others who

821
00:42:05,396 --> 00:42:08,156
Speaker 1: have been unfairly maligned as part of mister Bankman Freed's

822
00:42:08,196 --> 00:42:12,076
Speaker 1: defense strategy, billions of additional dollars would have been lost

823
00:42:12,156 --> 00:42:15,636
Speaker 1: or stolen, and the recoveries to customers would be a

824
00:42:15,636 --> 00:42:18,836
Speaker 1: fraction of what we can now expect. It's time to

825
00:42:18,876 --> 00:42:23,596
Speaker 1: put blame where it rightfully belongs. And coming up on

826
00:42:23,716 --> 00:42:26,276
Speaker 1: Judging Sam, I'll be in court for a sentencing and

827
00:42:26,356 --> 00:42:28,996
Speaker 1: I'm also going to speak to a formal federal prosecutor

828
00:42:29,316 --> 00:42:34,796
Speaker 1: and possibly Sam Bagman freed himself. Judging Sam is hosted

829
00:42:34,796 --> 00:42:38,836
Speaker 1: by Me Michael Lewis Lydia Gene Kott is our court reporter.

830
00:42:40,076 --> 00:42:43,636
Speaker 1: This episode was produced by Ariella Markowitz and edited by

831
00:42:43,716 --> 00:42:48,596
Speaker 1: Jacob Goldstein. It was engineered by Sarah Bruguer. The music

832
00:42:48,676 --> 00:42:52,196
Speaker 1: was composed by Matthias Bossi and John Evans of stell

833
00:42:52,236 --> 00:42:56,196
Speaker 1: Wagon Symphonette. Judging Sam is a production of Pushkin Industries.

834
00:42:56,636 --> 00:43:00,116
Speaker 1: To find more Pushkin podcasts, listen on the iHeartRadio app,

835
00:43:00,276 --> 00:43:04,276
Speaker 1: Apple Podcasts, or wherever you listen to podcasts. If you'd

836
00:43:04,316 --> 00:43:07,516
Speaker 1: like to access bonus episodes and listen ad free, don't

837
00:43:07,516 --> 00:43:11,116
Speaker 1: forget to sign up for a Pushkin Play subscription at pushkin,

838
00:43:11,196 --> 00:43:16,236
Speaker 1: dot fm, slash plus, or on our Apple show page.