WEBVTT - Judging Sam: Judging the FTX Bankruptcy 0:00:15.316 --> 0:00:26.036 Push Kim. Hey everyone, it's Michael Lewis here and this 0:00:26.116 --> 0:00:29.156 is judging Sam. For the past few months, we've been 0:00:29.156 --> 0:00:32.116 covering the story of Sam Bankman Freed. He's the founder 0:00:32.156 --> 0:00:36.236 of the cryptocurrency exchange FTX. It was worth billions of 0:00:36.236 --> 0:00:39.196 dollars before it came a part at the scenes. I 0:00:39.236 --> 0:00:41.836 wrote a book about all this and Sam called Going 0:00:41.876 --> 0:00:45.356 Infinite and reported on his trial here on the podcast. 0:00:46.556 --> 0:00:49.036 He was found guilty of fraud and conspiracy in his 0:00:49.116 --> 0:00:53.676 sentencing a schedule for later this week. Meanwhile, FTX has 0:00:53.716 --> 0:00:57.476 been going through bankruptcy proceedings, and in a surprising twist, 0:00:57.716 --> 0:01:01.356 ftx's lawyers recently announced that all the creditors will likely 0:01:01.436 --> 0:01:04.876 be paid in full. All the FDx customers who couldn't 0:01:04.916 --> 0:01:07.916 get their money out when FTX collapsed will probably get 0:01:07.956 --> 0:01:11.156 their money back. But my guest today argues that the 0:01:11.196 --> 0:01:15.996 bankruptcy process has been handled badly. His name is Jonathan Lipson. 0:01:16.676 --> 0:01:20.276 He's a bankruptcy expert at Temple University and he co 0:01:20.356 --> 0:01:23.996 wrote a research paper about the FTX bankruptcy that will 0:01:24.036 --> 0:01:29.796 be published next year in the Stanford Law Review. So 0:01:30.076 --> 0:01:33.236 Sam bachmcfreed has been tried, convicted, and is going to jail, 0:01:33.356 --> 0:01:35.716 and everybody's been paying attention to that, and that is 0:01:35.996 --> 0:01:38.556 seems to be the human drama. But there's this whole 0:01:38.716 --> 0:01:42.716 other legal process, the bankruptcy process, that's getting very little attention, 0:01:42.996 --> 0:01:45.196 and that you have written about. Why is it important? 0:01:46.596 --> 0:01:48.916 It's important for a number of reasons. You know, it 0:01:48.996 --> 0:01:51.556 is important because we're concerned about how the bankruptcy was 0:01:51.636 --> 0:01:56.316 run for the benefit of you know, creditors and investors 0:01:56.356 --> 0:01:57.836 and so on. There are millions of people who have 0:01:57.996 --> 0:02:01.276 lost money in this company, and if it was handled properly, 0:02:01.316 --> 0:02:04.916 perhaps they would do better. Number Two, it appears that 0:02:05.156 --> 0:02:10.516 the bankruptcy process itself and the company itself were you know, 0:02:10.556 --> 0:02:15.596 in effect accelerating and perhaps distorting the criminal prosecution. And 0:02:15.876 --> 0:02:18.876 you know, like that's a really serious problem because we 0:02:18.956 --> 0:02:23.236 have certain legitimate expectations about how prosecutors do their job, 0:02:23.636 --> 0:02:25.876 and for that matter, we have certain basic expectations about 0:02:25.996 --> 0:02:27.636 how lawyers are supposed to act. 0:02:27.676 --> 0:02:30.356 So let's back up. Can you just tell me what 0:02:30.436 --> 0:02:32.436 caught your eye in the first place. Let's start there, 0:02:32.516 --> 0:02:33.356 like what caught your fry. 0:02:34.716 --> 0:02:37.556 A lot of my work involves bankruptcy. I researched it, 0:02:37.596 --> 0:02:42.276 I write about it, teach it, and really I had 0:02:42.316 --> 0:02:44.756 no particular interest in crypto at all. I was interested 0:02:44.796 --> 0:02:47.756 in FTX only because it was the kind of a 0:02:47.836 --> 0:02:51.276 bankruptcy where you would have expected to see something that 0:02:51.316 --> 0:02:54.796 I had studied in the past, an examiner. The idea 0:02:55.556 --> 0:02:58.356 being that when Congress created the Bankruptcy Code, they said, 0:02:58.476 --> 0:03:01.316 in some cases, you really need somebody from the outside 0:03:01.396 --> 0:03:04.836 to come in and conduct an investigation of what happened 0:03:05.316 --> 0:03:08.676 and write a report about it for the public. In FTX, 0:03:08.796 --> 0:03:11.996 the the United States Trustee has sought an examiner at 0:03:12.036 --> 0:03:15.636 the beginning of the bankruptcy case, and to my surprise, 0:03:15.676 --> 0:03:17.996 and I think the surprised that some folks, the bankruptcy 0:03:18.036 --> 0:03:20.556 judge said no. And we can talk more about why 0:03:20.596 --> 0:03:23.516 it was surprising, but the short answer was that when 0:03:23.556 --> 0:03:27.356 the US Trustee sought to appeal that decision to the 0:03:27.356 --> 0:03:30.236 Third Circuit, I agreed to write an amikus brief in 0:03:30.316 --> 0:03:33.916 support of the US Trustee, basically seeking to have an 0:03:33.916 --> 0:03:37.396 examiner appointed. We won in the Third Circuit, and you know, 0:03:37.956 --> 0:03:41.436 as you probably know your listeners probably know, an examiner 0:03:41.436 --> 0:03:43.516 has been appointed in the case. As of a couple 0:03:43.516 --> 0:03:44.116 of days ago. 0:03:44.356 --> 0:03:46.876 I doubt our listeners do know because it's also our kane, 0:03:46.916 --> 0:03:49.276 and it's been striking to me how little attention the 0:03:49.276 --> 0:03:51.796 bankruptcy has gotten compared to the rest of the case. 0:03:52.116 --> 0:03:55.076 So act, let's go in a little more detail. Why 0:03:55.156 --> 0:03:57.436 would you have expected in this case for there to 0:03:57.436 --> 0:04:01.156 be an examiner? And actually backup, backup even further than that, 0:04:01.876 --> 0:04:05.796 just explain what the checks are on the bankruptcy process generally, 0:04:05.876 --> 0:04:09.116 like how we did this with your co author, David's. 0:04:09.276 --> 0:04:12.556 But let's deal a little refresher, Like a company goes 0:04:12.556 --> 0:04:14.356 into bankruptcy, then what happens. 0:04:14.756 --> 0:04:17.316 So you know, to take a step back, bankruptcy in 0:04:17.356 --> 0:04:20.956 the US is for companies like FTX that are purporting 0:04:20.996 --> 0:04:24.596 to reorganize. The basic intuition that Congress had in the 0:04:24.676 --> 0:04:28.196 nineteen seventies was, well, we shouldn't just kill the company 0:04:28.236 --> 0:04:31.756 and sell off the assets to pay the creditors if 0:04:31.756 --> 0:04:33.796 we could avoid it, because if we can keep the 0:04:33.796 --> 0:04:37.036 company going, then everybody's probably going to be better off. 0:04:37.036 --> 0:04:39.116 We'll save jobs, the company will make more money because 0:04:39.156 --> 0:04:42.636 it'll be profitable, maybe if it returns to profitability, and 0:04:42.836 --> 0:04:44.756 you know, it's just just much better than what used 0:04:44.796 --> 0:04:48.356 to happen, which was a liquidation. But Congress realized that, 0:04:48.796 --> 0:04:50.916 you know, if you allow the company to stay in 0:04:50.956 --> 0:04:54.836 business even when it's in bankruptcy, then maybe the guys 0:04:54.876 --> 0:04:58.076 who got the company into trouble are still running the roost, 0:04:58.276 --> 0:05:00.316 and maybe that's not so great. So they said, look 0:05:00.596 --> 0:05:02.836 in large cases, in cases where we have any concerns 0:05:02.836 --> 0:05:06.116 about what happened before bankruptcy, an examiner should be appointed. 0:05:06.116 --> 0:05:08.796 Should be mandatory, right, the statute says an examiner shall 0:05:08.796 --> 0:05:10.556 be a I did in a certain class of cases. 0:05:11.516 --> 0:05:13.236 And the reason I got involved in all this in 0:05:13.276 --> 0:05:14.956 part is because you know, I did a study on 0:05:15.156 --> 0:05:17.156 these guys many years ago, because everybody sort of knew 0:05:17.156 --> 0:05:18.996 it didn't really happen the way Congress expected. 0:05:20.156 --> 0:05:23.276 How how did it not happen the way Congress expected? 0:05:23.396 --> 0:05:23.956 What was different? 0:05:24.676 --> 0:05:26.396 What was different is that, you know, while debtors and 0:05:26.436 --> 0:05:28.836 creditors fight all the time about all sorts of things, 0:05:29.236 --> 0:05:31.036 there is one thing they agree on, and that is 0:05:31.076 --> 0:05:32.076 that they hate examiners. 0:05:32.436 --> 0:05:32.676 Huh. 0:05:32.676 --> 0:05:36.236 They don't want somebody coming in from the outside poking 0:05:36.276 --> 0:05:40.116 around in their negotiations because basically, a Chapter eleven bankruptcy 0:05:40.196 --> 0:05:44.236 is just a protracted negotiation in the shadow of a 0:05:44.316 --> 0:05:47.716 court with some procedural rules that are designed to facilitate 0:05:47.756 --> 0:05:51.236 that negotiation. Right, So an examiner is a problem for that, right, 0:05:51.276 --> 0:05:54.756 because the examiner is coming in from the outside, maybe 0:05:54.836 --> 0:05:58.396 you know, asking questions of management that management doesn't necessarily 0:05:58.436 --> 0:06:03.156 want to answer, maybe, you know, interfering with or distracting 0:06:03.156 --> 0:06:07.196 from the negotiations that are happening, and certainly costing money. Right. 0:06:07.276 --> 0:06:10.076 The examiner doesn't work for free. The government doesn't pay 0:06:10.116 --> 0:06:14.196 the examiner. The examiner is paid really ultimately by creditors, right, 0:06:14.396 --> 0:06:16.556 in the same way that all of the folks who 0:06:16.676 --> 0:06:18.996 run the bankruptcy are ultimately paid by creditors. 0:06:19.276 --> 0:06:19.396 Right. 0:06:20.036 --> 0:06:22.276 So, you know, if you think about it, kind of intuitively, 0:06:22.276 --> 0:06:23.996 the folks on the ground who run these cases are 0:06:24.036 --> 0:06:26.996 lawyers who see each other all the time in different cases, 0:06:27.476 --> 0:06:29.716 and you know, they fight sometimes and they get along sometimes. 0:06:29.716 --> 0:06:32.956 But what they don't want as an outsider, like for example, 0:06:32.956 --> 0:06:35.356 Bob Cleary, the prosecutor's now been appointed to be the 0:06:35.396 --> 0:06:39.196 examiner in FTX, coming in from the outside and saying, actually, 0:06:39.876 --> 0:06:42.876 let's do a little forensics here and see what actually happened. 0:06:43.396 --> 0:06:45.636 And so even though Congress said, oh, well, you know, 0:06:45.756 --> 0:06:49.876 we should have these, you know, examiners routinely, as you know, 0:06:49.916 --> 0:06:53.716 a way of serving the public interest in understanding what happened, 0:06:54.276 --> 0:06:57.756 Like nobody ever asks for them, and you know frequently 0:06:58.236 --> 0:07:01.156 judges say, yeah, we know the statute requires it, but 0:07:01.316 --> 0:07:04.516 you know, when in those rare cases they're asked, they've 0:07:04.556 --> 0:07:06.876 often said no. But the one exception that we found 0:07:06.916 --> 0:07:09.716 in our research was, well, look, when there's a massive 0:07:09.876 --> 0:07:13.996 free fall case like Enron or Lehman Brothers or World 0:07:14.076 --> 0:07:16.636 Commra any of these, you know, then you know, all 0:07:16.676 --> 0:07:18.756 the inside guys are like, well, right, we get it, 0:07:18.996 --> 0:07:22.116 like you do need somebody to come in and explain 0:07:22.196 --> 0:07:25.116 what the hell happened. And so in FTX, you're like, well, 0:07:25.116 --> 0:07:27.356 that certainly looks like that, right, it looks like Lehman 0:07:27.636 --> 0:07:29.916 and Ron or something. So that's why I was surprising 0:07:29.956 --> 0:07:33.796 that you didn't see an examiner appointed in FTX, although 0:07:33.996 --> 0:07:37.396 you know, the explanation that was given at the time was, well, 0:07:37.956 --> 0:07:39.596 you know, Bankment Freed had given up control of the 0:07:39.596 --> 0:07:41.676 company to a guy named John Ray, who I'm sure 0:07:41.676 --> 0:07:45.116 we'll talk about, who clearly was independent of Bankman Freed 0:07:45.196 --> 0:07:47.476 and who was a bankruptcy expert. He'd done a lot 0:07:47.476 --> 0:07:49.996 of work in a lot of cases. And so if 0:07:50.036 --> 0:07:51.956 you think that, you know, an examiner is just going 0:07:51.996 --> 0:07:55.636 to be independent of prior management, you know, Ray is 0:07:55.636 --> 0:07:58.876 that guy. I think the bigger problem than certainly the 0:07:58.876 --> 0:08:00.756 one that we focus on in the paper that we've 0:08:00.796 --> 0:08:04.516 just released, is the law firm of Sullivan and Cromwell, 0:08:04.556 --> 0:08:08.356 who had been company counsel for certain purposes before bankruptcy, 0:08:08.556 --> 0:08:11.396 brought Ray in and you know, as far as we 0:08:11.436 --> 0:08:14.756 can tell, had a very specific set of interests in 0:08:14.836 --> 0:08:18.156 seeing how the bankruptcy was going to proceed, and so 0:08:18.676 --> 0:08:22.196 maybe they weren't quite as independent in a in a 0:08:22.356 --> 0:08:26.076 in a problematic way from Bankman Freed as you would 0:08:26.116 --> 0:08:26.436 have thought. 0:08:26.676 --> 0:08:29.796 My understanding, and this is from interviewing John Ray, is 0:08:29.836 --> 0:08:33.396 that Sullivan and Cromwell, who had been Sam Bankman Fried's 0:08:33.436 --> 0:08:38.076 lawyers before the bankruptcy in Good Times, had found John 0:08:38.156 --> 0:08:40.876 Ray to come in and take over from Sam Bankman Freed. 0:08:41.196 --> 0:08:43.996 And then the minute Sam Bankminfreed signs the documents handing 0:08:43.996 --> 0:08:46.876 the company to John Ray, he hires Sullivan and Cromwell 0:08:46.876 --> 0:08:49.156 to run the bankruptcy. And that's going to be worth 0:08:49.356 --> 0:08:52.276 hundreds of millions of dollars to Sullivan and Cromwell. Is 0:08:53.716 --> 0:08:54.116 that right? 0:08:54.196 --> 0:08:58.436 That's I think that's I think that's mostly correct. I mean, 0:08:58.436 --> 0:09:01.196 I think that you know, the the kind of the 0:09:01.236 --> 0:09:04.796 three different versions of the story about this law firm, Sullivan, Cromwell, 0:09:06.196 --> 0:09:07.876 and just to be clear, like we are not out 0:09:07.916 --> 0:09:11.236 to get Cromwell, were not out to fight the verdict, 0:09:11.276 --> 0:09:13.076 like we just want to understand what happened here. But 0:09:14.756 --> 0:09:16.756 you know, there's a little bit of detail on all this. 0:09:16.836 --> 0:09:19.996 But you know, Solomon Cromwell was clearly doing important work 0:09:20.036 --> 0:09:24.036 for FTX before bankruptcy, and it was mostly work involving 0:09:24.956 --> 0:09:28.556 the acquisition of other companies like ledger X and other subsidiaries, 0:09:28.996 --> 0:09:36.036 and even more importantly representing FTX in dealings with regulators, 0:09:36.076 --> 0:09:40.036 in particular the CFTC, the Commodity Futures Trading Commission, which 0:09:40.076 --> 0:09:43.116 was super important for FTX because they wanted to, you know, 0:09:43.236 --> 0:09:46.756 establish some kind of regulatory legitimacy for crypto. And it 0:09:46.836 --> 0:09:49.156 was really important for Solivon Cromwell because they're one of 0:09:49.156 --> 0:09:52.836 the premier firms at interacting with regulators. Many of the 0:09:52.876 --> 0:09:56.036 folks at the firm were former regulators themselves, and you know, 0:09:56.196 --> 0:09:59.876 they're an extremely well regarded firm precisely because they do 0:09:59.916 --> 0:10:03.396 that stuff really well. And you know, I think that 0:10:03.596 --> 0:10:06.636 the short version of the story is that Solomon Cromwell 0:10:07.236 --> 0:10:11.676 didn't probably know about the underlying problems at FTX until 0:10:11.756 --> 0:10:15.116 November eighth of twenty twenty two. But they were telling 0:10:15.196 --> 0:10:18.516 the world that everything was fine. They were implying that 0:10:18.716 --> 0:10:22.356 actually they did know everything they needed to know to 0:10:22.396 --> 0:10:26.316 say to the CFTC and to creditors and contract counterparts. 0:10:26.956 --> 0:10:29.156 FTX is rock solid, in the words of one of 0:10:29.196 --> 0:10:33.196 the Solovon Cromol lawyers, and I think probably on November 0:10:33.236 --> 0:10:35.836 eighth or around then, they woke up to the fact 0:10:35.836 --> 0:10:38.916 that things were not rock solid, that there was a 0:10:38.956 --> 0:10:42.436 problem because the company was commingling assets, even though Sam 0:10:42.476 --> 0:10:44.356 had promised everybody that would never happen. 0:10:44.916 --> 0:10:45.876 What is com mingling. 0:10:46.956 --> 0:10:50.796 It simply means that that FTX and Bankment Free had 0:10:50.836 --> 0:10:55.396 promised depositors that their crypto would be held by FTX, 0:10:55.436 --> 0:10:57.556 it would be on the FTX exchange and nobody else 0:10:57.596 --> 0:10:59.596 would have it. But that turned out to be false 0:10:59.676 --> 0:11:02.716 for some very important number of depositors because it ended 0:11:02.796 --> 0:11:05.716 up at a related company known as Alameda, and that 0:11:05.956 --> 0:11:08.836 was you know, a big problem because Alameda used the 0:11:08.876 --> 0:11:13.276 money for all these other purposes that obviously depositors didn't expect. 0:11:13.596 --> 0:11:16.676 And so, you know, I don't know that the most 0:11:17.116 --> 0:11:20.916 sort of the you know, nefarious version of the story 0:11:21.036 --> 0:11:23.036 of Solomon Promwell is true, namely that they you know, 0:11:23.076 --> 0:11:24.876 they got John ready to come in and steal the 0:11:24.876 --> 0:11:27.916 company from bankman free. I think that's improbable, if only 0:11:27.956 --> 0:11:30.436 because Suli Cromwell has tons of money already, Like they 0:11:30.436 --> 0:11:32.436 don't really need hundreds of millions of dollars because they 0:11:32.436 --> 0:11:35.396 already have hundreds of millions of dollars. I do, however, 0:11:35.476 --> 0:11:37.076 think they might have panicked, and I think in that 0:11:37.116 --> 0:11:39.756 moment of panic did several things that we'd describe in 0:11:39.796 --> 0:11:43.636 our paper that I think at minimum were ethically problematic 0:11:43.676 --> 0:11:48.916 and from our perspective, more importantly problematic, from the bankruptcy perspective, 0:11:48.916 --> 0:11:51.196 from the process, the perspective of the goals of the 0:11:51.196 --> 0:11:52.076 bankruptcy process. 0:11:52.116 --> 0:11:54.036 And they're all going that are going on behind closed 0:11:54.076 --> 0:11:57.516 doors because there's no examiner to reveal all this. Describe 0:11:57.556 --> 0:12:01.036 those things that you think Sulimon Crumwell did that are problematic. 0:12:02.156 --> 0:12:07.316 Sure, So I think the first thing that happens is 0:12:07.556 --> 0:12:10.516 you know, on November eighth, Tourney named Andy Dieterrik, who's 0:12:10.516 --> 0:12:13.476 an important person in the story as a bankruptcy lawyer, 0:12:13.716 --> 0:12:17.276 I think, realizes, you know, because he gets at a 0:12:17.276 --> 0:12:20.476 panic call from some lower level attorneys at FTX that 0:12:21.716 --> 0:12:24.396 there's commingling going on that there's a real problem that 0:12:24.436 --> 0:12:26.396 the company is having a liquidity crisis because they can't 0:12:26.436 --> 0:12:30.596 honor withdrawals. We don't know what happens internally at S 0:12:30.596 --> 0:12:32.356 and C, but we do know that the very next 0:12:32.516 --> 0:12:36.836 day Sullivan and Cromwell does something very important, which is 0:12:36.876 --> 0:12:41.596 that they go to the prosecutors. Now that's a problem 0:12:41.676 --> 0:12:44.356 for a couple of reasons. Number One, you're not really 0:12:44.396 --> 0:12:47.236 supposed to go to the prosecutors and rat your client 0:12:47.276 --> 0:12:50.476 out unless a couple of things are true. Number One, 0:12:50.516 --> 0:12:52.876 you're sure there's a crime, and we don't know that 0:12:52.916 --> 0:12:56.316 they had determined that. Number Two, you've gone to the 0:12:56.396 --> 0:13:00.396 highest authority in the company to confirm that there's a 0:13:00.396 --> 0:13:01.796 crime and confront them and say, by the way, we 0:13:01.796 --> 0:13:04.276 think there's a crime, you should stop committing that crime. 0:13:04.676 --> 0:13:06.676 We don't think there's any evidence of that. And then 0:13:06.756 --> 0:13:09.316 number three, say to that highest authority, if you don't stop. 0:13:09.596 --> 0:13:11.636 We might have to go to the authorities because otherwise 0:13:11.676 --> 0:13:13.596 we'll be implicated in it, and we don't want that. 0:13:13.916 --> 0:13:16.396 We don't see any evidence that that happened either, quite 0:13:16.476 --> 0:13:20.676 the contrary. So the second thing that happens that's really 0:13:20.676 --> 0:13:24.996 problematic is that on that same day, November ninth, when 0:13:25.596 --> 0:13:28.876 they went to the prosecutors, the same lawyer, Andy Dieterrick, 0:13:28.956 --> 0:13:31.756 sent Sam Bateman Freed what I think is a very 0:13:31.796 --> 0:13:36.236 important email. I call it the reassurance email. At nine 0:13:36.236 --> 0:13:39.236 point thirty two that evening, he sends Sam an email 0:13:39.276 --> 0:13:42.876 basically saying, look, we are here to help you in 0:13:42.916 --> 0:13:47.276 your efforts to rescue FTX however we can. And that 0:13:47.716 --> 0:13:50.876 meant something very specific because basically Sam's view of life, 0:13:50.916 --> 0:13:52.796 as far as I can tell, was he thought there 0:13:52.836 --> 0:13:55.876 was just a liquidity crisis and that crisis could be 0:13:55.956 --> 0:13:59.356 solved by finding more liquidity, finding new loans, which is 0:13:59.396 --> 0:14:02.636 normally what happens when companies have liquidity crises but are 0:14:02.636 --> 0:14:07.356 otherwise basically sound. So Solivon Cromwell, this attorney, mister Deeter, 0:14:07.596 --> 0:14:09.996 sends Sam this email saying we're here to help you 0:14:10.156 --> 0:14:13.796 do that however we can, and you know by the way, 0:14:13.836 --> 0:14:16.836 we need you to sign a contract to hire Genre. 0:14:17.756 --> 0:14:20.796 He'll come in as what's known as the Chief Restructuring 0:14:20.836 --> 0:14:24.796 Officer a CRO, which implies that Sam would remain the 0:14:24.836 --> 0:14:28.156 CEO of the chief executive officer. Sam, we want you 0:14:28.236 --> 0:14:30.796 to remain director, Sam. We want you to continue to 0:14:30.796 --> 0:14:33.476 go out and find resources for the company. You know, 0:14:33.676 --> 0:14:37.396 financing for the company. Sam, you know, the bankruptcy if 0:14:37.396 --> 0:14:39.276 that happens at all, it's just an alternative, and it's 0:14:39.276 --> 0:14:43.076 a couple of weeks away, but we need to be ready. 0:14:43.116 --> 0:14:44.796 And here are some things that we need you to do. 0:14:45.916 --> 0:14:48.596 All very normal things to say to a client that 0:14:48.796 --> 0:14:51.036 is facing a liquidity crisis and may have to go 0:14:51.036 --> 0:14:53.916 into bankruptcy, but not what you say to a client 0:14:54.676 --> 0:14:57.516 who you think is committed crimes, and when you've already, 0:14:57.756 --> 0:15:00.116 you know, without the knowledge of that client, gone to 0:15:00.156 --> 0:15:04.316 the prosecutors to inform the prosecutors apparently that there were 0:15:04.356 --> 0:15:07.476 crimes ongoing. So, to me, the second big problem, and 0:15:07.476 --> 0:15:10.036 in some ways, you know, I don't know if it's 0:15:10.036 --> 0:15:11.676 the biggest, but it's a really big one, is what 0:15:11.756 --> 0:15:14.596 I appears to us to have been deception. Now, maybe 0:15:14.756 --> 0:15:16.556 it turns out that there's more to the story than 0:15:16.596 --> 0:15:19.756 we know. Maybe Sam knew. Sam has you know, I 0:15:19.756 --> 0:15:21.556 talked to him. He said no, absolutely not. We had 0:15:21.596 --> 0:15:24.676 no idea. He did have his own lawyers by this point, right, 0:15:24.716 --> 0:15:27.156 Paul Weiss was involved, and you know, I don't know 0:15:27.196 --> 0:15:29.156 if they knew or not. If they did, there's a 0:15:29.156 --> 0:15:31.556 different kind of problem. But in any case, you know 0:15:31.596 --> 0:15:34.636 that this reassurance email I think is all in service 0:15:34.636 --> 0:15:37.356 of getting Sam to do the thing that he did 0:15:37.556 --> 0:15:39.916 then in the early morning hours I guess the eleventh 0:15:39.956 --> 0:15:43.396 of November, which is sign over not just control of 0:15:43.436 --> 0:15:47.156 the company but all of his powers, you know, having 0:15:47.196 --> 0:15:49.476 anything to do with company to John Ray, which you 0:15:49.516 --> 0:15:53.516 know ends up being I think, from bankman Freed's perspective, disasters. 0:15:53.876 --> 0:15:57.036 Given how that, it's unusual that Sullivan and Cromwell would 0:15:57.036 --> 0:16:00.436 have gone to the prosecutors right away. Do you have 0:16:00.436 --> 0:16:02.556 any thoughts about why they might have done that. 0:16:04.436 --> 0:16:07.316 I do. I think that that's to me most consistent 0:16:07.356 --> 0:16:11.596 with a story panic. I think they correctly view themselves 0:16:11.356 --> 0:16:17.756 as being really important intermediaries between large, important regulated companies 0:16:18.236 --> 0:16:21.796 and the folks who regulate those companies, and if you've 0:16:21.836 --> 0:16:25.756 been making a significant mistake with those regulators for a 0:16:25.796 --> 0:16:30.916 while with a prominent company, and you wake up one 0:16:30.916 --> 0:16:33.516 morning and realize that, like maybe you panic, Maybe that's 0:16:33.556 --> 0:16:37.156 a problem for you. Now there are a variety of 0:16:37.196 --> 0:16:38.676 ways you could fix that. They could have, you know, 0:16:38.716 --> 0:16:41.836 withdrawn and perhaps tried to ameliorate that with the regulators. 0:16:42.996 --> 0:16:44.516 And maybe they even did that. We don't know, because 0:16:44.556 --> 0:16:48.796 although they had filed an application for FTX with the CFTC, 0:16:48.836 --> 0:16:52.396 they withdrew it the same day that the company went 0:16:52.436 --> 0:16:54.996 into bankruptcy, the eleventh of November, and nobody's ever seen 0:16:55.036 --> 0:16:57.316 it since then. So we don't really know what else 0:16:57.356 --> 0:16:59.516 they said to the CFTC, but we know a little bit. 0:17:00.836 --> 0:17:02.716 But so I think they were just concerned about protecting 0:17:02.716 --> 0:17:04.556 their reputation. I think it's also true that, you know, 0:17:04.596 --> 0:17:06.276 Dieter k had said like, look, we want to build 0:17:06.276 --> 0:17:08.836 a Chapter eleven practice here. We don't have one. Right. 0:17:08.876 --> 0:17:11.636 We are great litigators, we're great regulatory lawyers, we're great 0:17:11.636 --> 0:17:15.036 corporate lawyers. But we should also be doing Chapter eleven work. 0:17:15.036 --> 0:17:18.156 And this might be an entree into it. More importantly, 0:17:18.196 --> 0:17:20.636 I think, from a very strategic standpoint, is if you're 0:17:21.156 --> 0:17:24.356 the lawyer for the company in bankruptcy, as Solving promo is, 0:17:24.716 --> 0:17:27.516 you control the process, You control all of the information 0:17:27.716 --> 0:17:30.396 at the company. As a practical matter, unless you have 0:17:30.436 --> 0:17:34.196 a fight with management, you and management will be aligned 0:17:34.396 --> 0:17:37.676 on really everything having to do with the company. And 0:17:37.716 --> 0:17:39.836 so one of the things that we figured out very 0:17:39.876 --> 0:17:44.556 early on is that it appeared that Solving, Cromwell and 0:17:44.596 --> 0:17:48.356 Ray were actually providing significant support to the prosecution of 0:17:48.396 --> 0:17:48.996 Bankman Freed. 0:17:49.316 --> 0:17:51.596 How unusual is that? I mean, the creditors are paying 0:17:51.636 --> 0:17:56.156 for that. Solivan and Crommell's billing the company to provide 0:17:56.196 --> 0:17:58.516 the prosecutors with information that will help them make their 0:17:58.556 --> 0:18:01.956 case against Sam Bankman Freed. Creditors don't sign off on that. 0:18:01.996 --> 0:18:04.956 It's unclear why that's even in the creditors' interests. So 0:18:06.076 --> 0:18:09.956 how do they is that? Is that unusual? I mean, 0:18:09.996 --> 0:18:12.396 I just don't know. Is it unusual? And yeah, it's unusual? 0:18:12.396 --> 0:18:13.356 Hous it unusual? 0:18:13.756 --> 0:18:16.596 Yeah, it's a great question. So I want to be 0:18:16.636 --> 0:18:19.036 careful here. I mean, you know there the creditors are 0:18:19.076 --> 0:18:22.116 represented in the case by an official committee of unsecured 0:18:22.156 --> 0:18:24.076 creditors yep, and they have their own lawyers of firm 0:18:24.116 --> 0:18:26.676 called Paul Hasting's a very good firm, and you know, 0:18:27.036 --> 0:18:29.796 one response, you can imagine Solving Cromwell having to anything 0:18:29.836 --> 0:18:32.116 we have to say as well, like, look, the creditors 0:18:32.116 --> 0:18:34.236 have lawyers and they haven't objected to it. I have 0:18:34.436 --> 0:18:38.116 never seen this level of support by a company in 0:18:38.156 --> 0:18:41.876 bankruptcy for the prosecution of its insiders at you know, 0:18:41.956 --> 0:18:45.516 this level, this cost, this intensity. I haven't studied it 0:18:45.556 --> 0:18:48.956 carefully because it doesn't happen much. And certainly it makes 0:18:48.996 --> 0:18:52.476 sense for the company to cooperate and to enter into 0:18:52.476 --> 0:18:55.796 some kind of plea agreement or something of some sort 0:18:55.876 --> 0:18:58.756 with the prosecutors, you know, which I think does happen 0:18:58.756 --> 0:19:01.316 fairly frequently, and part of that will, you know, undoubtedly 0:19:01.356 --> 0:19:05.996 require some cooperation. The cooperation is different from running analyzes. 0:19:06.036 --> 0:19:07.476 And you know, one of the lawyers for Solving and 0:19:07.476 --> 0:19:11.196 Cromwell gets up in court in I think February of 0:19:11.356 --> 0:19:14.996 twenty three at the hearing on the appointment of the Examiner, 0:19:15.036 --> 0:19:17.556 initial hearing on that and says, you know, we've been 0:19:17.636 --> 0:19:20.316 doing tens of millions of dollars worth of work in 0:19:20.356 --> 0:19:24.196 support of the prosecution and other interactions with regulars. Well, 0:19:24.236 --> 0:19:28.436 that's shocking, that's shocking, because that's tens of millions of 0:19:28.516 --> 0:19:32.276 creditor dollars that they're spending on this, and I think 0:19:32.316 --> 0:19:34.716 he thought that that was in service of the argument 0:19:34.756 --> 0:19:36.316 that we don't need an examiner because we'd have to 0:19:36.356 --> 0:19:38.956 spend tens of millions of dollars on an examiner too, 0:19:39.076 --> 0:19:41.716 which isn't really true because the examiner is really just 0:19:41.716 --> 0:19:44.036 focusing on Solivan and Cromwell, not all the other stuff. 0:19:44.836 --> 0:19:47.396 But it was pretty surprising. It was pretty surprising. 0:19:47.396 --> 0:19:50.196 I guess how much ConTroll do John Ray and Sullivan 0:19:50.196 --> 0:19:54.116 and Cromwell have of the information inside of FTX, Like 0:19:54.436 --> 0:19:58.156 how easily accessed is that information by either the prosecutors 0:19:58.196 --> 0:20:00.476 or the defense attorneys, And how hard is it to 0:20:00.516 --> 0:20:03.436 see inside and see why they're doing what they're doing. 0:20:03.956 --> 0:20:07.436 Yeah, great question. So first of all, I think Ray, 0:20:07.636 --> 0:20:09.716 you know, is the CEO of a company, has, you know, 0:20:09.756 --> 0:20:12.316 all the powers that bankman free would have had enhanced 0:20:12.316 --> 0:20:15.076 to a certain extent by the bankruptcy good, so he 0:20:15.116 --> 0:20:19.436 controls it all. Counsel to the company solventing problem was 0:20:19.796 --> 0:20:22.276 retained by Ray. That was I think one of the 0:20:22.316 --> 0:20:25.956 first things he did. So they too have unfettered access 0:20:25.996 --> 0:20:29.236 to all of the company's information, all the company's resources. 0:20:29.516 --> 0:20:31.276 I think that's a lot of money, a lot of 0:20:31.276 --> 0:20:34.236 other assets, and they can decide who gets to see 0:20:34.236 --> 0:20:36.556 it and who doesn't. So, for example, I think they 0:20:36.596 --> 0:20:39.356 decided to let the prosecutor see, you know, if not 0:20:39.396 --> 0:20:41.116 all of it, a great deal of it, and to 0:20:41.236 --> 0:20:44.716 perform significant analyzes. That's certainly what Bankman Freed's lawyers alleged 0:20:45.036 --> 0:20:47.876 in the criminal case, and we've seen some evidence of 0:20:47.956 --> 0:20:51.756 that independently. But they're not obligated to share it with 0:20:51.796 --> 0:20:53.716 anybody else if they don't want to, so they haven't, 0:20:53.756 --> 0:20:56.516 for example, allowed Bankment Freed access to any of the 0:20:56.556 --> 0:20:59.196 information as far as I can tell at all, which 0:20:59.236 --> 0:21:01.716 creates a very basic problem in criminal law, which is 0:21:01.756 --> 0:21:04.556 a little outside of my expertise, but basically, you know, 0:21:04.596 --> 0:21:07.076 the concern that was raised in the criminal trial is, look, 0:21:08.036 --> 0:21:10.676 the government has a due need to provide what's called 0:21:10.716 --> 0:21:13.756 for exculpatory information, evidence that you know they have that 0:21:13.956 --> 0:21:17.556