Speaker 1: This is Master's in Business with very rid holds on
Speaker 1: Bloomberg Radio this week on the podcast what Can I Say?
Speaker 1: Zeke Fox's book Number Go Up. Inside Crypto's Wild Rise
Speaker 1: and Staggering Fall is just a shocking and hilarious and
Speaker 1: fun read. I read it pretty quickly, in less than
Speaker 1: a week, and I thought it was just fascinating. It
Speaker 1: is a deep dive, a no holds barred look at
Speaker 1: crypto and the many, many scams that take place across
Speaker 1: everything from NFTs to icos, to hacks to bitcoin business models.
Speaker 1: He is especially unhappy with Tether, which, by the way,
Speaker 1: of all the scams in the book, Tether so far
Speaker 1: seems to be holding up. It's really the thing that
Speaker 1: pulled him into the world of crypto, and it's the
Speaker 1: one that has outlasted the writing of the book. Lots
Speaker 1: of other things fell apart, including FTX. I found the
Speaker 1: book to be really entertaining and amusing and a little
Speaker 1: bit horrifying. Parts of it are really just terrifying, But
Speaker 1: Zeke is a fascinating guy. He is an award winning
Speaker 1: investigative reporter for BusinessWeek and Bloomberg News. He won the
Speaker 1: Lobe Award the Civil Gavel Award. He was a National
Speaker 1: Magazine Award finalist. He's really an interesting guy with a
Speaker 1: fascinating history, and the story of how he unraveled all
Speaker 1: of the mayhem in the worlds of crypto is really
Speaker 1: quite fascinating. Starting with a buddy who made a little
Speaker 1: money and he just gets sucked into the netherworld of
Speaker 1: everything from Luna to Tara, to Celsius, to Tether to
Speaker 1: NFTs and the board Ape Yacht Club. It really is
Speaker 1: just a very entertaining book, and I thought this conversation
Speaker 1: was absolutely fascinating, with no further ado, my deep dive
Speaker 1: into crypto with Business Weeks Zeke Fox. Normally here I
Speaker 1: would say, welcome to Bloomberg. But Zeke Fox, you work
Speaker 1: at Bloomberg, so welcome to the fifth floor. Let's talk
Speaker 1: a little bit about your career and what led you
Speaker 1: to write this book. A little background. We're recording this
Speaker 1: in late October. Bitcoin touched thirty five thousand dollars. This
Speaker 1: week it's settled somewhere around thirty two thousand. The FTX
Speaker 1: trials are getting underway. Fun time to be covering crypto.
Speaker 2: Yes, and I mean the title of the book, number
Speaker 2: go up inside Crypto's wild rise and staggering fall. A
Speaker 2: little bit giveaway my perspective there. I think this whole
Speaker 2: thing is over and.
Speaker 1: Over done, never never to rise from the ashes.
Speaker 3: Sayin about it.
Speaker 1: Yeah, so we'll talk more about that. We'll talk about
Speaker 1: why number go up is a business mind and how
Speaker 1: Crypto Winter seems to come more and more frequently. But
Speaker 1: let's start a little bit with your background. Your beat
Speaker 1: seems to be financial related crimes. How did you ever
Speaker 1: find your way to this area of interest.
Speaker 2: I don't like to say that because my job depends
Speaker 2: on talking to people and getting me to tell their story.
Speaker 2: So I prefer to describe it as I write profiles
Speaker 2: of people who make a lot of money in an
Speaker 2: interesting way. And I was drawn to that because I'm
Speaker 2: somebody who plays by the rules.
Speaker 3: You know.
Speaker 2: I went to the school, I got pretty good grades,
Speaker 2: I got a job. I've worked at Bloomberg for more
Speaker 2: than a decade now. But I really like these characters
Speaker 2: who are willing to take like crazy risks, and they
Speaker 2: operate in great areas like loan sharks, pump and dump schemers,
Speaker 2: deck collectors like I have spent my whole career writing
Speaker 2: about these guys who operate on the fringes of Wall Street.
Speaker 2: And I love getting to know these cares and figuring
Speaker 2: out what makes them tick, because there's a lot you
Speaker 2: can do if you are willing to run the risk
Speaker 2: that like maybe the securities in exchange commission will suit you,
Speaker 2: or like maybe you'll go to jail for a year,
Speaker 2: you know, but maybe you're gonna make a lot of
Speaker 2: money first.
Speaker 1: Seems like a fair approach. Let's talk about how you
Speaker 1: fell into crypto. It cracked me up. Your buddy Jay
Speaker 1: made a bunch of money on doge coin. He's freaking
Speaker 1: nostra Damis. Tell us about your conversations with Jay.
Speaker 2: So I have a group text with a bunch of
Speaker 2: friends from high school. We call it Dan's Basement because
Speaker 2: that's where we used to hang out. And Jay is
Speaker 2: a smart guy. He's a funny guy. We used to
Speaker 2: write a humor call Umn together back in high school
Speaker 2: in Cambridge, Massachusetts, And out of the blue, he starts
Speaker 2: texting us about this thing that he calls doggy coin
Speaker 2: and he.
Speaker 1: Is not doge coin, doggie coin right.
Speaker 2: And me, being like the know it all, you know
Speaker 2: financial reporter, I tell him Jay it's call dogecoin, and
Speaker 2: it's dumb. It went because this is twenty twenty, it's
Speaker 2: the height of the pandemic. We're all stuck at home.
Speaker 2: We're really bored.
Speaker 1: Just before Elon starts tweeting about.
Speaker 3: It, Yeah, it's starting to bubble up a bit.
Speaker 2: I can see you here taking Jay's side in the
Speaker 2: argument ahead of time, right, I mean, he is like, hey,
Speaker 2: people are talking about it on Reddit, you know, let's
Speaker 2: I can see this going up.
Speaker 3: It's funny.
Speaker 2: People everybody likes doggy coin. Get in early. And I'm
Speaker 2: thinking to myself, I remember when this went sort of
Speaker 2: viral a few years earlier. Already there had already been
Speaker 2: a very funny segment on The Daily Show making fun
Speaker 2: of crypto and doagecoin. And I'm like, it's pointless, and
Speaker 2: he's like, I know it's pointless.
Speaker 3: I don't care.
Speaker 2: I just think it's funny. And I'm trying to argue
Speaker 2: it's not funny. It won't go up. And this goes
Speaker 2: on for like weeks and weeks, and it does go up,
Speaker 2: and he keeps telling us about it. I'm getting kind
Speaker 2: of jealous. Finally he sells out. I think he he
Speaker 2: may have even called it right and sold before Elon
Speaker 2: Musk hosted Saturday Night Live, which that was like a
Speaker 2: you know, buy the rumor so loose moment, and he
Speaker 2: went to Disney. He's sending selfie with his prosy. Yeah,
Speaker 2: he made enough on on diagecoin to go to Disney.
Speaker 2: He texted us, I am freaking noster Damis and I'm
Speaker 2: a little I'm jealous that he made money and I didn't.
Speaker 2: But more than that, I also I like being right,
Speaker 2: and I think of myself as the one who knows
Speaker 2: about finance and I'm an expert on pump and dump schemes, any.
Speaker 1: Sort of scam or you know, fast talking salesman who
Speaker 1: was gonna leave you holding the bag, right, Yeah, of
Speaker 1: course you're gonna be skeptical. In fact, in the book
Speaker 1: you describe bitcoin's first commercial application was silk Road. How
Speaker 1: did that work out for everybody?
Speaker 2: I mean it was pretty cool if you were not
Speaker 2: that I did. But if you wanted to buy drugs
Speaker 2: off the internet, you could just there was this new
Speaker 2: magic Internet money. Just fire up your tour browser and
Speaker 2: you know, send some of this new new fangled Internet
Speaker 2: money to what are your LSD or whatever.
Speaker 1: Actually, we're recording this October twenty twenty three. It was
Speaker 1: literally a decade ago October twenty thirteen when silk Road
Speaker 1: got busted, when the founder, Ross Olbright got busted, and
Speaker 1: you note in the book, hey, bitcoin might have crashed,
Speaker 1: but a month later it's up ten x to over
Speaker 1: one thousand dollars, and that looked very suspicious.
Speaker 2: Yeah, So silk Road was actually very important to the
Speaker 2: early years of bitcoin. It got it on the map,
Speaker 2: it got a lot of people buying. But really what
Speaker 2: made bitcoin popular was not so much that it was
Speaker 2: useful for anything. It was number go up. It was
Speaker 2: the price going up and people seeing headlines about somebody
Speaker 2: making money on bitcoin. Everybody had a friend like Jay
Speaker 2: who was telling them, hey, I made some money on crypto,
Speaker 2: maybe you should too, And it became hard to resist.
Speaker 2: And it's interesting that in these early years there wasn't
Speaker 2: much liquidity and bitcoin, and it was easy for people
Speaker 2: to manipulate the prices. So since then it's come out
Speaker 2: that some of the price changes that got people's attention
Speaker 2: these early years may have been from manipulation.
Speaker 1: A substantial portion of the volume were just various interested
Speaker 1: companies trading coins back and forth with each other.
Speaker 2: Yeah, I mean there's a coin called light coin, which
Speaker 2: is like a Bitcoin knockoff, and its sense come out
Speaker 2: that a lot of the early run up and light
Speaker 2: coin that got people interested in light Cooin was the
Speaker 2: result of just manipulation. But in those early years, even
Speaker 2: more than today, like anything went, the Securities and Exchange
Speaker 2: Commission was not following bitcoin trading closely at all.
Speaker 1: And you mentioned number. Go Up is the title of
Speaker 1: the book that's essentially the business model of bitcoin. It
Speaker 1: will go up because it has gone up. Explain.
Speaker 2: So I had resisted looking into crypto, took on the
Speaker 2: assignment after this argument with Jay, and one of the
Speaker 2: first places I went was Miami for Bitcoin twenty twenty one.
Speaker 2: It was one of the first big conferences of pretty
Speaker 2: much any kind since the COVID restrictions lifted. It was
Speaker 2: like ten thousand people descended on this warehouse in the
Speaker 2: Windwood district. And I'll go in kind of skeptical, but
Speaker 2: also bitcoin people and crypto people are great at pr
Speaker 2: and they spread this narrative that there's like this wave
Speaker 2: of institutional adoption that's just around the corner. I think
Speaker 2: at any time in like the last ten years, there's
Speaker 2: always been the sort of sense that, oh, you've seen
Speaker 2: a headline about like Blackrock or JP Morgan in Yeah,
Speaker 2: the big guys are getting in on it. So I
Speaker 2: go to this conference thinking, all right, I'm skeptical at crypto,
Speaker 2: but I'm also sort of expecting to see regular Wall
Speaker 2: Street guys there talking about financial technology in ways that
Speaker 2: I can understand. Instead, on stage, I see like the
Speaker 2: craziest guys that I've ever heard. People are just like screaming.
Speaker 2: At that time, they were down on Elon Musk. People
Speaker 2: are screaming about.
Speaker 1: A tewan as kaiser from Russia television or I don't
Speaker 1: know where he is today.
Speaker 3: But yeah.
Speaker 2: And one guy's on stage and he's talking about bitcoin
Speaker 2: and he says the most important innovation in bitcoin is
Speaker 2: number go up technology, and he's like, number go up
Speaker 2: technology is a powerful piece of technology. It means when
Speaker 2: the price goes up, more people will hear about it
Speaker 2: and they'll want to buy it, and that'll make the
Speaker 2: price go up some more, and then more people hear
Speaker 2: about it, and then they'll buy it, and it'll go up
Speaker 2: even higher, and pretty soon we'll all be rich.
Speaker 1: So number go up technology sounds a lot like the
Speaker 1: Greater fool theory of speculation.
Speaker 2: Yeah, I mean it's it's like the logic of a
Speaker 2: pyramid scheme. But for a couple of years there it
Speaker 2: seemed to work, and the crypto people like to say, wag.
Speaker 3: Me the w A G M I were all they
Speaker 3: made it.
Speaker 2: The idea was just buy, hold it, buy some more.
Speaker 2: It's going to go up. As long as we don't
Speaker 2: lose the faith and we keep promoting it to our friends,
Speaker 2: we're all going to be rich.
Speaker 1: The problem with that is at a certain point you
Speaker 1: run out of people to come in and buy it.
Speaker 1: This is true with every Pumpin' up scheme, every pyramid scheme,
Speaker 1: and it comes out in some of the court documents
Speaker 1: later that in some of the corporate slack accounts, one
Speaker 1: of the people say they should be the director of
Speaker 1: Ponzi economics. Tell us what is ponzi nomics?
Speaker 2: This is slightly related to number go up technology. It's
Speaker 2: about on that level. And some of these new coins
Speaker 2: that were being started at that time would explicitly say
Speaker 2: that they were adopting ponzi ish structures. And we're talking
Speaker 2: about like DeFi apps. So these were like new crypto apps.
Speaker 2: And what do we boil down to is that if
Speaker 2: you start to doing whatever this thing was, they would
Speaker 2: pay you in a new coin. And you might think, well,
Speaker 2: why do I want rit Hole's coin And they'd say, well,
Speaker 2: you need rit holts coin to use the rid Holt's app.
Speaker 2: And it'd be like, well why do I want to
Speaker 2: use the rit Holt's app And it's like, well, that's
Speaker 2: how you earn more rit holes coin. Yes, it was
Speaker 2: very circular, but it seemed like every couple of weeks
Speaker 2: somebody was starting one of these things and it was
Speaker 2: really taking off. And there was one that was got
Speaker 2: very popular called step in and it's like a health
Speaker 2: app on your phone. And to use the app, you
Speaker 2: have to buy a virtual shoe for some reason, only
Speaker 2: one shoe, I don't know, Yeah, only one. You just
Speaker 2: buy one shoe. But yeah, so if you bought the
Speaker 2: shoe and it costs like a thousand bucks equivalent, then
Speaker 2: you could earn green Satoshi tokens. So the once you'd
Speaker 2: spent your thousand bucks on the shoe, you'd better keep
Speaker 2: walking every day or you're just throwing away your chance
Speaker 2: to earn these valuable green satoshi tokens.
Speaker 1: So it sounds like almost a legitimate business plan. We're
Speaker 1: going to give you a financial incentive to exercise, and
Speaker 1: it'll all take place in crypto on the blockchain, and
Speaker 1: so not only are you going to get healthy, you're
Speaker 1: also going to get rich. What could go wrong?
Speaker 3: Right?
Speaker 2: I mean, honestly, a lot of these pitches, if you
Speaker 2: just heard them for a couple of minutes, they sounded
Speaker 2: pretty good, not bad. Yeah, But the reality was was
Speaker 2: people were that were like teams of bots planned step
Speaker 2: in and it just boiled down to a pyramid and
Speaker 2: they're trying to bring everyone who did step in was
Speaker 2: dependent on new people wanting to do step in and
Speaker 2: wanting to buy these shoes because otherwise there was no
Speaker 2: use for these green satoshi tokens. And inevitably every other
Speaker 2: game like this, the price crashed and shoe prices are
Speaker 2: way down.
Speaker 3: Yeah.
Speaker 1: By the way, I found the book to be infuriated
Speaker 1: and hilarious, very informative, very fun, but also serious. Lots
Speaker 1: of really serious things were in it, and despite that,
Speaker 1: some of the pros just really was laugh out loud.
Speaker 1: What I want to do is read a couple of
Speaker 1: quotes to you and get your reaction as to what's
Speaker 1: going on here, and just give us a little color.
Speaker 1: Starting with quote, I couldn't believe that everyday people sent
Speaker 1: millions of perfectly good US dollars to the inspector gadget
Speaker 1: creators Bahamian Bank in exchange for digital tokens conjured by
Speaker 1: the Mighty Ducks guy and run by executives who were
Speaker 1: targets of a US criminal investigation.
Speaker 2: Explain, we're talking about Tether. There's a lot to unpack there,
Speaker 2: and it was the first crypto company that I really
Speaker 2: set out to investigate. In the regular financial world, if
Speaker 2: you're investigating hedge fond of fintech company, basically, a lot
Speaker 2: of times even the investigation that brings down the company,
Speaker 2: the reporter just points out one red flag, like they'll
Speaker 2: be like, hey, Enron, maybe what's with this off balance
Speaker 2: sheet stuff. Maybe it's a bit fishy, and like that's
Speaker 2: what brings down Enron right now. Tether, this is a
Speaker 2: company that was like the central bank of crypto, and
Speaker 2: when I started looking into it, it's it's a stable coin.
Speaker 2: So they say that every Tether token is worth one dollar.
Speaker 1: And there's a dollar in reserve somewhere.
Speaker 2: Yeah, they're keeping a dollar in the bank for you. You
Speaker 2: can always chade your token in for a real dollar.
Speaker 2: So when I started looking into it, they had fifty
Speaker 2: billion tether tokens. It gotten huge, and that meant they
Speaker 2: were supposed to have fifty billion dollars in the bank somewhere.
Speaker 1: How hard is it to show those ordited returns. It's
Speaker 1: not even return on investment. Here's our fifty billion dollars.
Speaker 2: Right, So they weren't saying where red flag number one,
Speaker 2: Red Flag number two. One of the coin's inventors was
Speaker 2: Rock Pierce, who is a child actor from The Mighty Ducks.
Speaker 1: Emilio Estevez's younger self.
Speaker 2: Yes, and he's in the flashback he misses this crucial
Speaker 2: penalty shot that haunts coach scored in Bombay later in life.
Speaker 2: This guy had had this crazy career in the dot
Speaker 2: com bubble in World of Warcraft item trading, and then
Speaker 2: he thought up this this Tether coin. Now he'd passed
Speaker 2: on ownership to a new team, and I found that
Speaker 2: the de facto boss of Tether was a former plastic
Speaker 2: surgeon from Milan who had this crazy online diary where
Speaker 2: he posted about his admiration, it seemed for Bernie Madoff.
Speaker 1: And how does it Inspector Gadget get into this?
Speaker 2: Oh yeah, we need to bring in all my favorite media.
Speaker 2: So I'm looking for this fifty billion dollars. That's like
Speaker 2: what gets me into crypto. I'm like, I'm the guy
Speaker 2: who's gonna see if they have this fifty billion. I'm
Speaker 2: going to track it down. And when I go, look,
Speaker 2: the only bank that I can find that will say
Speaker 2: we have any of this money is del Tech Bank
Speaker 2: in the Bahamas and its chairman is Jean Schalapin. And
Speaker 2: he's a French guy who got rich by creating Inspector Gadget.
Speaker 1: Like really like the cartoon that kids.
Speaker 2: Yes, And he's not just like the finance guy behind it,
Speaker 2: Like he's the creator. Like I don't think he drew
Speaker 2: the cartoons, but like he came up with the idea.
Speaker 3: He was on the team.
Speaker 2: This is what made him rich is that he created
Speaker 2: an Inspector Gadget and then this whole cartoon company around it.
Speaker 2: And he's honestly, he's like a character from James Bond movie.
Speaker 2: He bought a castle with the Inspector Gadget money, right,
Speaker 2: and he also bought a mansion in the Bahamas, a
Speaker 2: pink colonial mansion on the beach that you can actually
Speaker 2: see in a James Bond movie. In the movie, it's
Speaker 2: the villain's house. He flew his own jet. He piloted it.
Speaker 2: Very charming guy. And so he says, I am holding
Speaker 2: some of Teather's money, and I say, okay, I'll see
Speaker 2: you tomorrow in the Bahamas. So I fly down there.
Speaker 2: We get to his office and when I walk in,
Speaker 2: he pulls his book off the shelf. I think it's
Speaker 2: called Misplaced Trust and it's about like financial schemes, and
Speaker 2: he starts like sort of flipping through it and says, ah,
Speaker 2: the strange things people do for money. And I'm just like, Jean,
Speaker 2: are you Are you playing a character in this in
Speaker 2: like a new episode of Inspector Gadget right now?
Speaker 3: Like what is going on?
Speaker 1: It was all foreshadowing.
Speaker 3: Oh yeah.
Speaker 2: But the weird thing about Tether was that they're all
Speaker 2: these red flags and we didn't even mention they'd been
Speaker 2: sued for fraud by the New York Attorney General, who
Speaker 2: had shown that they'd lied about the reserves in the past.
Speaker 2: That even John would say, I didn't know where all
Speaker 2: the money was, I could only account for a portion
Speaker 2: of it. So they are all these red flags enough
Speaker 2: that in the traditional finance world investors would be scared off.
Speaker 2: But in the crypto world, people kept trusting tether and
Speaker 2: the coins still traded for a dollar, and like I
Speaker 2: wrote there, people just kept sending in their real money
Speaker 2: to get these tokens, and every day it's the most
Speaker 2: traded crypto coin.
Speaker 1: Let's go to the next quote that cracked me up.
Speaker 1: You actually reference a tweet quote. Imagine if keeping your
Speaker 1: car idling twenty four to seven produced solved seducos, you
Speaker 1: could trade for heroin.
Speaker 3: Explain love this tweet.
Speaker 2: It's a great explanation of bitcoin, which in the bitcoin
Speaker 2: mining process very power hungry. Yes, I mean, by some estimates,
Speaker 2: bitcoin mining uses more energy than the whole country of Argentina.
Speaker 2: And it's just like warehouses of these computers running around
Speaker 2: the clock. And I was surprised to learn that there's
Speaker 2: not really they're not really doing anything that's crucial to
Speaker 2: the bitcoin network. They're just playing sort of this guessing
Speaker 2: game that makes it difficult for anyone to hack bitcoin
Speaker 2: and steal all the bitcoins. But it just uses this
Speaker 2: insane amount of energy.
Speaker 1: H here's one of my favorites, quote all my Apes Gone.
Speaker 1: Tell us a little bit about your experience purchasing a
Speaker 1: mutant ape n f T.
Speaker 2: I got a lot of criticism from crypto guys as
Speaker 2: I was researching this book, and they would say, how
Speaker 2: are you writing about crypto if you don't have any
Speaker 2: crypto And I would tell them, well, listen, first of all,
Speaker 2: as a reporter, I'm not supposed to invest in anything.
Speaker 1: I was told to ask you how much money have
Speaker 1: you made shorting bitcoin? And the answer is, yeah, nothing.
Speaker 1: You're not allowed to, right, yeah.
Speaker 2: And the big the crypto people would say, actually, even
Speaker 2: that policy introduces some bias because you're invested in standard
Speaker 2: stock market funds and so you're sort of against crypto,
Speaker 2: and how you don't know, you don't know about this.
Speaker 3: You got to try it out.
Speaker 2: And so eventually they kind of got to me and
Speaker 2: I was like, you know what, I tried out step in.
Speaker 2: I got a shoe. It had it was in the
Speaker 2: middle of collapse by the time I bought a shoe,
Speaker 2: but that that didn't do much for me.
Speaker 1: So your poor wife, so you spend a couple hundred
Speaker 1: bucks on a shoe. You spend twenty thousand dollars on
Speaker 1: a mutant ape that fortunately you sold for almost all
Speaker 1: your money back.
Speaker 2: Yeah, I decided to try it out, and I was like,
Speaker 2: I'm going straight for the top. I want to join
Speaker 2: the board Ape yacht Club. Right, that's the crypto thing
Speaker 2: that the celebrities are doing.
Speaker 1: But those are hundreds of thousands of dollars.
Speaker 2: Yeah, this is like a cartoon of a monkey, is
Speaker 2: a very ugly cartoon. They were going for like five
Speaker 2: hundred grand, and they were having a party in New
Speaker 2: York called Apefest. You had to have one to go,
Speaker 2: and I found out you could still get in if
Speaker 2: you got a mutant ape, which is still it's like
Speaker 2: the ugly cousin of the board Ap.
Speaker 1: And a much more reasonable twenty thousand dollars.
Speaker 2: Yes, So when I asked my wife and she very
Speaker 2: nicely said, yes, they're actually going for forty.
Speaker 1: When I asked her, right, and good news, honey, it's collapsing.
Speaker 1: It'll only cost us twenty.
Speaker 2: I was happy that I hitd a collapse, but I
Speaker 2: was also like, wait, so if it went from forty
Speaker 2: to twenty and like two, is it gonna go to ten,
Speaker 2: and I was like, please do not go to ten.
Speaker 2: But even more than it going to ten, my fear
Speaker 2: was does all my apes gone?
Speaker 3: Thing?
Speaker 2: Because it actually I learned a lot from buying the
Speaker 2: board ape. Because if a lot of people who even
Speaker 2: if you are sort of into crypto, maybe you have
Speaker 2: some bitcoin, you have some ethereum, you probably just do
Speaker 2: it on coinbase or robinhood or whatever. You're not actually
Speaker 2: like using the blockchain, right, Like.
Speaker 1: But to get the NFTs you have to go through
Speaker 1: the blockchain, and it's a horrific arduous process.
Speaker 2: Yes, I mean i'd heard it would be bad. You know,
Speaker 2: my expectations were low, but then I went to go
Speaker 2: do it and I was like, oh my god, Like
Speaker 2: no one normal will do this. I'll get like just
Speaker 2: it boils down to your money lives. Like you know,
Speaker 2: where you put the URL in your web browser. You
Speaker 2: might type in Google and then maybe you have like
Speaker 2: a little red stop sign if you have ad block.
Speaker 2: Now maybe next to it, how would you like to
Speaker 2: add a picture of a foxhead? And that's where your money's.
Speaker 1: You're on a Chrome extent, yes, And like before.
Speaker 2: You install it, they make you watch this video and
Speaker 2: it says, welcome to the wonderful world of crypto. Now,
Speaker 2: please engrave your twelve word password on a piece of
Speaker 2: metal and bury it in your backyard. And which I
Speaker 2: did not do, but I just the process of getting
Speaker 2: my twenty thousand dollars into this fox head so that
Speaker 2: I could waste it on this mute ape was so
Speaker 2: horrible that I was just like, this is a huge
Speaker 2: obstacle the crypto ever taking off. No one normal is
Speaker 2: gonna do this unless they think they're gonna get rich.
Speaker 1: And tell us who said all my apes gone?
Speaker 2: So once you got the apes, you gotta watch out
Speaker 2: because you're gonna get hacked. They might get stolen. And
Speaker 2: there was a art dealer who actually got hacked and
Speaker 2: two million dollars of NFTs was stolen from him, right,
Speaker 2: and he tweeted mid hack all my apes Gone, the
Speaker 2: status tweet in all of crypto.
Speaker 1: The saddest tweet in all of crypto. So let's talk
Speaker 1: a little bit about Axie Infinity is a massive multiplayer
Speaker 1: online game, and this quote is just bonkers. Crypto Bros.
Speaker 1: And Silicon Valley vcs gave Filipinos false hope by promoting
Speaker 1: an unstable bubble based on a Pokemon knockoff as the
Speaker 1: quote future of work unquote, making matters worse, North Korean
Speaker 1: hackers broke into the crypto exchange affiliated with the game
Speaker 1: made off with six hundred million dollars worth of stable
Speaker 1: coins and ether. The heist helped Kim Jehan un pay
Speaker 1: for test launches of ballistic missiles. Instead of providing a
Speaker 1: new way for poor people to earn cash, Axie Infinity
Speaker 1: funneled their savings to a dictator's weapons program. I mean,
Speaker 1: that is just a beautiful paragraph. So first off, I
Speaker 1: love the pros, but second, what a horrible story.
Speaker 2: Yes, and like I'm not making that up. Like the
Speaker 2: US government has said, North Korea's nuclear program is partly
Speaker 2: funded from hacking this Pokemon knockoff game.
Speaker 3: And this was game AXI.
Speaker 2: The crypto guys when it was going well, they love
Speaker 2: to talk about it. This was their number one example
Speaker 2: of Web three. You had to buy a team of monsters.
Speaker 2: It was a game you played on your phone. You
Speaker 2: had to buy the monsters before you could play, and
Speaker 2: then you when you battled, you earned smooth love potions.
Speaker 2: And it had the same circular logic where you needed
Speaker 2: the potions to get more monsters. Why do you want
Speaker 2: monsters well to get the potions? Why do you want
Speaker 2: the potions to get monsters?
Speaker 3: You know? But it was going.
Speaker 2: Great for a while, and more than a million people
Speaker 2: in the Philippines started playing. I went there to check
Speaker 2: it out. I mean, even my driver had taken out
Speaker 2: a loan for something like a thousand bucks to buy
Speaker 2: a team of monsters, and it had lost it. For
Speaker 2: these people who took out loans to get in on it,
Speaker 2: it had been a real setback in their life. You know,
Speaker 2: this was no joke to them. It's not like just
Speaker 2: their pocket.
Speaker 1: Money, serious serious damage. Here's could be my favorite Sam
Speaker 1: Bankman Freed quote quote. It's like the narrative would be
Speaker 1: sexier if it was like, holy, this is the world's
Speaker 1: biggest Ponzi scheme, right.
Speaker 3: Yeah.
Speaker 2: So I spent a lot of time with Sam Bankman
Speaker 2: Freed in reporting this book because it was clear he
Speaker 2: was a major player in crypto, and it was actually
Speaker 2: very fun. When I went to go write the book,
Speaker 2: FTX had collapsed, and some of his quotes like that
Speaker 2: one took on some new meaning and I'm like, was
Speaker 2: this guy just toying with me? While he was giving
Speaker 2: this interview.
Speaker 1: That's hilarious. And then on the FTX bankruptcy, this could
Speaker 1: be my favorite quote in the whole book. The shocking
Speaker 1: reversal was the biggest news crypto had ever seen. It
Speaker 1: was as if Sutoshi Nakamoto's identity was finally revealed and
Speaker 1: it was Janet Yellen, the central banker hated by bitcoiners.
Speaker 1: That's just a hilarious sentence. I mean, it's so great.
Speaker 1: Everybody thought FTX was the most legitimate entity in all crypto,
Speaker 1: turns out not so much.
Speaker 2: Yeah, and I will admit I also thought I was
Speaker 2: skeptical of crypto, but I thought I thought, hey, FTX
Speaker 2: is a casino for cryptocurrencies. They're encouraging people to gamble there.
Speaker 2: People will probably lose their money. I did not suspect
Speaker 2: that Sam Bankman Freed was stealing all the money out
Speaker 2: of the back of the casino.
Speaker 1: So let's talk about some of the things that happened
Speaker 1: after FTX collapsed. Here's a quote. The past two years
Speaker 1: have felt like this perpetual gaslighting of anyone who expresses caution.
Speaker 1: Now it's all unraveling very quickly. That's from Twitter. Someone
Speaker 1: called bitfinext tell us a little bit about him and
Speaker 1: what his role was.
Speaker 2: So bitfin next has been tweeting about his skepticism of
Speaker 2: crypto and especially tether for years and years now, a.
Speaker 1: Long like seven eight years yea since it was formed.
Speaker 2: Yeah, dozens of times a day. And he seemed to
Speaker 2: have some pretty like sometimes he tweet photos or things.
Speaker 2: It seemed like he was an insider. And I arranged
Speaker 2: to meet him, and what I realized when I met
Speaker 2: him was, oh, no, this is like a dude who
Speaker 2: lives in his mom's basement.
Speaker 1: But turns out to be pretty insightful as to what's
Speaker 1: going on.
Speaker 3: You know, his like me.
Speaker 2: We both started out looking at tether, and it's turned
Speaker 2: out that Tether has held up pretty well. Has actually
Speaker 2: only grown since I started investigating it. It's up to
Speaker 2: eighty four billion now.
Speaker 1: It really is crazy. Let me run through a few
Speaker 1: a few more quotes that just cracked me up. First,
Speaker 1: did Peter Teel really col Warren Buffett a sociopathic grandpa
Speaker 1: for doubting Bitcoin?
Speaker 3: Yes?
Speaker 2: That was at Bitcoin twenty twenty two in Miami. He
Speaker 2: played the like Max Kaiser, role of the guy who
Speaker 2: yelled the craziest stuff on stage.
Speaker 1: Right, But at the same time you revealed that he
Speaker 1: was secretly dumping all his crypto or not so secretly,
Speaker 1: because you could track all this on the blockchain.
Speaker 2: Yeah, his fund had had sold crypto and it only
Speaker 2: came out after that speech, right.
Speaker 1: A little misleading. There were a couple of other people
Speaker 1: that you reference that I too, in particular. I just
Speaker 1: have to ask about first Michael Sailor at micro Strategy.
Speaker 1: My memory of micro Strategy when I was on a
Speaker 1: trading desk was somebody had released what was a false,
Speaker 1: a fake press release when micro Strategy was like, I
Speaker 1: don't know, a buck fifty some crazy price, and it
Speaker 1: plummets on this news it's halted, and then the company
Speaker 1: comes out and says this isn't a real news release.
Speaker 1: Somebody who's a former employee and reopens and it climbs
Speaker 1: like two thirds of the way back. But a crazy,
Speaker 1: crazy history. Michael Sailor, recently CEO of the company, becomes
Speaker 1: a bitcoin maximalist and says, quote, I just hope I
Speaker 1: don't get up one day and have to look at
Speaker 1: myself in the mirror and say you had fifteen billion
Speaker 1: dollars and you blew it all there's the guy who
Speaker 1: flushed fifteen billion dollars down the toilet. Soon after he
Speaker 1: loses thirteen and a half billion dollars. What was that about?
Speaker 2: Sailor said that to The New Yorker in an amazing
Speaker 2: profile about his dot com riches. He's the biggest loser
Speaker 2: of the dot com bubble. But micro Strategy plugs along, and.
Speaker 1: They had some real technology, some software.
Speaker 3: Right.
Speaker 2: It was like a real company that was making a
Speaker 2: decent amount of money. And in recent years he's changed
Speaker 2: the company to be all about bitcoin. He sunk all
Speaker 2: the profits into bitcoin. He's levered up in orrowed money
Speaker 2: and bought bitcoin. So now if you want to invest
Speaker 2: in micro Strategy stock, it's just a bet on bitcoin.
Speaker 2: And he's also become like the craziest bitcoin maximalist out there.
Speaker 2: Who these are the guys who are like the priests
Speaker 2: of the Bitcoin church, And he says things like bitcoin
Speaker 2: is a flock of cyber hornets stinging the financial system
Speaker 2: to death. Honestly, the real quote is crazier than that.
Speaker 2: But it's people like him that are really They actually
Speaker 2: are key to bringing in new people into this bitcoin world.
Speaker 2: And it's actually why I would hesitate to bet against
Speaker 2: bitcoin because it's become this cult and the people who
Speaker 2: love it just love it so so so much.
Speaker 1: Right, It's definitely has cult like aspects. You also take
Speaker 1: a swing at the mooch at Anthony Scaramucci. Scaramucci fifty eight,
Speaker 1: looking tanned and botox smooth, wearing a well fitted suit,
Speaker 1: his pompadour freshly die jet black. Now I know the Mooch.
Speaker 1: He's a good guy, good enough guy, botox and and
Speaker 1: hair dye. Is that true?
Speaker 2: So the book was thoroughly fact checked and not only
Speaker 2: did the Mooch confirm that, I believe that that was
Speaker 2: if I remember correctly, he announced this at this event.
Speaker 1: Oh he did.
Speaker 3: Oh, he was like, check out my hair. I got
Speaker 3: a name.
Speaker 1: He likes to say, this is a BRIONI shoot, these
Speaker 1: are Ferragamos on my feet. Like he definitely drops brand
Speaker 1: names on a regular.
Speaker 2: We were at Crypto Bahama's, the big conference to celebrate
Speaker 2: the success of Sam Bankman Freed. He had just made
Speaker 2: this partnership with FTX, and the Mooch loves a press conference. Sure,
Speaker 2: so he called. There were a lot of reporters there
Speaker 2: at the conference, and he had this sort of press
Speaker 2: conference at the beginning, but it seemed like, I mean,
Speaker 2: the only thing he wanted to talk is he just
Speaker 2: kept talking about how good he looked and how bad
Speaker 2: Sam Bankman Freed looked. I was like, the point of
Speaker 2: the press conference, I.
Speaker 1: Forgot where I read that before the book. But all
Speaker 1: he talked about is that. Maybe that's where the Brioni
Speaker 1: suit came up.
Speaker 2: Yeah, I mean that was sort of Sam Bankman's Freed thing.
Speaker 2: It was this thing is I don't dress up for anybody.
Speaker 2: Congress he would, uh, he put on a suit, although
Speaker 2: he didn't tie his shoes famously, but at this conference,
Speaker 2: the mooch look I mean, he looked great. Bankman Freed
Speaker 2: was wearing you know, khaki shorts and a T shirt,
Speaker 2: his hair all messed up, even when he was on
Speaker 2: stage with Bill Clinton, Tony Blair, Tom Brady.
Speaker 3: Yeah.
Speaker 1: By the way, there's a famous photo. You have it
Speaker 1: in the book of Sam Bakman Fried and Gizelle, and
Speaker 1: you look at him and go, these aren't representatives of
Speaker 1: the same species. These are two completely different life forms.
Speaker 2: I love that photo because it must have been taken
Speaker 2: backstage before they went out to speak at this conference,
Speaker 2: and Sam just looks like a deer in the headlights,
Speaker 2: like the flash has caught him off guard, and Gazelle like,
Speaker 2: you're never gonna catch her off.
Speaker 3: She's great, and also he's a.
Speaker 2: Professional's absolutely, but they posed for an ad campaign together
Speaker 2: that ran in like classy magazines like The New Yorker.
Speaker 1: He didn't look much better in those acts either, Right,
Speaker 1: It's it's the same sort of disheveled. I mean, I
Speaker 1: guess that was part of the whole Mit Genius rap.
Speaker 2: I will say this, it kind of worked on me.
Speaker 2: It was like, I'm authentic, I don't care. I'm being myself.
Speaker 2: I'm not gonna pretend. He didn't come off like this
Speaker 2: slick salesman. He was like, I'm just the guy who
Speaker 2: you know, spends all my time thinking about how to
Speaker 2: make money trading crypto. I went down to shadow him
Speaker 2: at his office when things were going great, and I
Speaker 2: was just like, I'm not leaving untill he falls asleep
Speaker 2: on that bean bag. I want to see him nap
Speaker 2: on the bean bag. And he did, and he he
Speaker 2: slept there for a couple hours, and he at one
Speaker 2: point he woke up a little bit opened a package
Speaker 2: of Nutter butters, ate them and kind of made a
Speaker 2: mess on the beedback and then went back to sleep
Speaker 2: because I had like one last question for him, and
Speaker 2: I was like, I'm not gonna disturb his nap. So
Speaker 2: he got those nutter butters. I was like, now's my chance.
Speaker 2: Oh nope, back to sleep.
Speaker 1: By the way, I see where the unior in the
Speaker 1: book comes from. It's basically how you see the world.
Speaker 1: It's really very funny. You start with the Tether web
Speaker 1: site and you go through the various disclosures, including the
Speaker 1: list of risks. The company could go bankrupt, bank holdings
Speaker 1: could lose money, the government could confiscate its assets, and
Speaker 1: then you notice what seems like a risk disclosure red flag,
Speaker 1: or we could abscond with the reserve funds. What is
Speaker 1: the thinking there, Hey, if we ever get prosecuted for
Speaker 1: stealing money, we could always say, oh no, that was
Speaker 1: a risk we disclosed upfront.
Speaker 2: I mean, look at Sam beigman Fried. He's trying to
Speaker 2: use the terms of service of FTX as a defense
Speaker 2: now and basically trying to argue that they allowed him
Speaker 2: to lend all the customer money to his hedge fund.
Speaker 2: So you know, you never know what maybe it could
Speaker 2: come in handy one day.
Speaker 1: So early on you actually asked SBF about tether. FTX
Speaker 1: has wired lots of money through three different jurisdictions and
Speaker 1: intermediary banks to move US dollars to tether. What ftx's
Speaker 1: relationship to the stable coin.
Speaker 2: I met SBF because I wanted to ask him about tether.
Speaker 2: They were one of the biggest users of tether. Something
Speaker 2: like thirty five billion of tether passed through wow them. Now,
Speaker 2: what I've learned more recently is that a lot of
Speaker 2: that came because there was actually in the during the
Speaker 2: crypto boom, there was demand for There was so much
Speaker 2: demand for tether that on exchanges like FTX it often
Speaker 2: traded slightly above a dollar. And so Alameda, his hedge fund,
Speaker 2: could buy tethers. They had a relationship with Tether, the company.
Speaker 2: They could buy tethers for a dollar and then go
Speaker 2: sell them for a little bit more. The profits are
Speaker 2: very small, but Alameda's cost of capital was very low since.
Speaker 1: They were borrowing all the customer money. Right, So a
Speaker 1: zero cost to capital one percent a day is real money.
Speaker 1: It adds up.
Speaker 2: Yeah, even if it was like a tenth of a percent,
Speaker 2: they could do it, So I think that accounts for
Speaker 2: why they were using so much Tether. He did not
Speaker 2: disclose that at the time. If you think of all
Speaker 2: the crypto exchanges, like different casinos, Tether is basically like
Speaker 2: the cashier, and it's like in the early years of crypto,
Speaker 2: these casinos had trouble receiving dollars, like banks did not
Speaker 2: want to open bank accounts for crypto companies. So instead
Speaker 2: the crypto companies would say, hey, customers, go to Tether,
Speaker 2: send them some real money, get some Tether tokens. Then
Speaker 2: you can bring them over here and gamble with them.
Speaker 1: So what was supposed to be disintermediation became additional media.
Speaker 1: You need to had another middleman in the way.
Speaker 2: Right, Crypto is always sold as trustless, and in reality
Speaker 2: it turns out you keep having to trust these people
Speaker 2: who prove themselves to be totally untrustworthy.
Speaker 1: So tell us a little bit about the leadership of Tether.
Speaker 1: Who was the founder and who was the CEO.
Speaker 2: One of the co founders was this the Mighty duckskuy
Speaker 2: Brock Pierce, and I had a lot of fun meeting
Speaker 2: him on his mega yacht off the coast of the Bahamas.
Speaker 2: He sent a speedboat to pick me up. So you know,
Speaker 2: I don't know how often that's gonna happen in my
Speaker 2: journalistic career.
Speaker 3: But in the.
Speaker 2: CEO was this guy, Jean Louis Vanderveld, and we also
Speaker 2: met in the Bahamas. The meeting was broken by Jean Chalapin,
Speaker 2: the inspector gadget guy. So I'd gotten to the Bahamas
Speaker 2: hoping that I would meet one of these Tether guys,
Speaker 2: and I didn't see any of them there, even though
Speaker 2: it was a big crypto conference. I thought they'd come.
Speaker 2: But then finally Charalapin is like, get over here. JL
Speaker 2: is he Vandervelt's here, and I see this tall Dutch
Speaker 2: guy with silver hair, kind of a funny scar on
Speaker 2: his nose. And Jean introduces me and he's like, Zeke,
Speaker 2: if you screw this up, I'll kill you, really with
Speaker 2: a smile like he's not killing me, but a good line.
Speaker 3: I appreciated it.
Speaker 2: So this guy JL, he's the CEO of one of
Speaker 2: the biggest company and crypto. Most people in crypto love
Speaker 2: to promote themselves. The skeptics like this guy bit the
Speaker 2: next would say that there was so little out there
Speaker 2: about JL. They were like, we don't even think he's
Speaker 2: a real person. So I go to shake jl Vanderveld,
Speaker 2: the CEO of Teather's hand, and I'm like, nice to meet,
Speaker 2: and then he says the man who doesn't exist.
Speaker 3: I'm like, wow, I just love these guys.
Speaker 1: These guys, they're full bond villains. They're playing right into
Speaker 1: the carriage.
Speaker 3: Yeah, and we had we had a lot.
Speaker 2: We spent hours talking in the casino, me and Jail
Speaker 2: and had a conversation another conversation. I was very funny
Speaker 2: in hindsight. I was telling him. I was like, listen, man,
Speaker 2: I just spent a couple of days at Sam bankman
Speaker 2: Fried's office. That guy doesn't have anything to hide. He
Speaker 2: just let me see walk around the whole office and
Speaker 2: see everything. Yeah, how come you're being so secret? And
Speaker 2: then he wasn't like he totally bought into it. And
Speaker 2: he was like, well, it's easy for Sam bankman Freed.
Speaker 2: You know, he started his company more recently. You know, Tether,
Speaker 2: we had a sketchy passed.
Speaker 3: Yeah.
Speaker 2: I mean He's basically like, there's stuff in our past
Speaker 2: that we can't reveal for the record.
Speaker 1: As we're recording this, Tether's trading at still a dollar.
Speaker 1: The point it's a dollar and here you reference this
Speaker 1: in the book. But their business model, now, with FED
Speaker 1: funds over five percent, you could get riskless treasuries just
Speaker 1: about five percent. Their business model is collect eighty five
Speaker 1: billion dollars, put it in riskless treasuries. Hey, you're gonna
Speaker 1: get a billion dollars a quarter for doing almost nothing.
Speaker 1: That's not a bad business model.
Speaker 2: So when I started looking into Tether, interest rates were zero,
Speaker 2: and so Tyther was sitting on this huge pile of
Speaker 2: money and they had incentive to put it at risk
Speaker 2: because they needed to earn interest something. So that was
Speaker 2: another reason to be suspicious of them. I found evidence
Speaker 2: they'd invested in Chinese commercial paper, They'd been making loans
Speaker 2: to other crypto companies. It seemed like not riskless, but now, yeah,
Speaker 2: you just put it in treasuries earned five percent. They're
Speaker 2: if you believe their numbers, they're one of the most
Speaker 2: profitable companies in the world. It's a shoe string operation.
Speaker 1: Assuming they have all eighty four billion dollars or eighty
Speaker 1: five billion dollars accounted for free money to them. Now
Speaker 1: that you're getting a yield, they really don't have to
Speaker 1: do anything other than not get hacked.
Speaker 2: Yes, I mean, which, to be fair, they have. They
Speaker 2: were the victims of one of the biggest tacks ever,
Speaker 2: so I don't know if they're that trustworthy on that front.
Speaker 2: But yeah, even if let's say, just hypothetically, let's say
Speaker 2: they had been a billion dollars in the hole, they
Speaker 2: could easily earn their way out of it now the interest.
Speaker 1: Rates are higher, right, very easily. Let's talk about some
Speaker 1: of the other players in both crypto and stable coins.
Speaker 1: Binance founder Chang Peng Zau, better known as cz is
Speaker 1: he now the richest man in crypto.
Speaker 3: He's got to be.
Speaker 2: It's down to him and Justin Sun from the tron blockchain.
Speaker 2: Both of them show a notable reluctance to enter us
Speaker 2: soil g Yeah. Sun's been sued by the SEC and financed,
Speaker 2: has a number of cases. These guys do still have
Speaker 2: a ton of money. And when I went down to
Speaker 2: the Bahamas after FTX failed and I was with Sam
Speaker 2: Bankman freed. When he just before he got arrested, he
Speaker 2: was still.
Speaker 1: Thinking, how do I get myself here?
Speaker 2: Yeah, I gotta bail myself out. I need to find
Speaker 2: someone to give me five ten billion dollars so I
Speaker 2: can get FTX going again.
Speaker 1: Pocket change walking around cast so.
Speaker 2: But it was interesting to me was I was like, so,
Speaker 2: who's got five ten billion dollars? He'd already tried CZ.
Speaker 1: That didn't worry And from the book it's pretty clear
Speaker 1: CZ is the one who's stuck the knife in.
Speaker 2: Oh yeah, you can't really blame CZ because I mean,
Speaker 2: fraud is a fraud, you know if he but he's
Speaker 2: the one who made a tweet that got people started
Speaker 2: starting to pull their money out of FTX, which revealed
Speaker 2: the hole at the sun of the exchange. But the
Speaker 2: other people bankman Fried said had five ten billion dollars
Speaker 2: were tether. They said, no, we're not bailing you out.
Speaker 2: And this guy, Justin's son who has this coin tron
Speaker 2: and is like a crazy character in himself. Missing chapter
Speaker 2: from the book.
Speaker 1: Let's talk about Celsius and is it Alex Mishinski another
Speaker 1: stable coin, right, he.
Speaker 2: Had a kind of Celsius was like a crypto bank,
Speaker 2: and he was saying, send me your stable coins.
Speaker 3: I'll pay you interest on them.
Speaker 2: We met at Bitcoin twenty twenty one, my first crypto conference,
Speaker 2: and I was there I wanted to gather info on Tether.
Speaker 2: Celsius had done business with Tether, so I set up
Speaker 2: a meeting with this guy, Mishinsky. He was a big hustler.
Speaker 2: He was at every conference. He was the one giving
Speaker 2: all the speeches. He always wore this t shirt that
Speaker 2: said banks are not your friends. We sit down, he
Speaker 2: told me his I asked. I'm polite, so before i
Speaker 2: get to like the the investigative questions, I'm like, so,
Speaker 2: what's your company do? And he's like, well, it's sort
Speaker 2: of like a bank. Give us your coins, we'll pay
Speaker 2: you up to eighteen percent interest, but if you want
Speaker 2: a loan, we'll give that to you for free, like
Speaker 2: we don't charge interest or a very low rate.
Speaker 1: Of all the frauds in the world of crypto, when
Speaker 1: you detail many of them, when interest rates are zero
Speaker 1: and they're going to pay you eighteen percent on your coins,
Speaker 1: it sounds like we're going to keep eighty two percent
Speaker 1: of your coins and the eighteen percent is a scam. Well,
Speaker 1: it just seems like, how can you pay when the
Speaker 1: ten years yielding one and a half percent, How could
Speaker 1: you legitimately pay eighteen percent other than number go up? Yeah,
Speaker 1: is that all it is.
Speaker 2: Maybe he bought a lot of those shoes and he
Speaker 2: had a whole army of people walking in circles.
Speaker 3: But he told me.
Speaker 2: He told me at the I had the same reaction,
Speaker 2: even when things were going great. This seemed very fishy.
Speaker 2: And I was shocked when he told me he had
Speaker 2: twenty billion dollars. But he told me, the banks are
Speaker 2: the scammers. They're taking your deposits and they're earning huge
Speaker 2: propit and they're lying to you, and they're saying they
Speaker 2: can't pay you any interest.
Speaker 1: By the way, they don't lie to you. They released
Speaker 1: their profits every quarter. Hey, here's how much money we've
Speaker 1: made on your demendon. It's all public. It's not like
Speaker 1: it's hidden.
Speaker 2: Yes, And I hated to find myself. I spent I
Speaker 2: was over at Mashinski's apartment on the Upper East Side,
Speaker 2: and I found myself like defending Wall Street being like,
Speaker 2: listen to JP Morgan is very safe even in the
Speaker 2: financial crisis. People didn't lose their deposits, right, But he's like,
Speaker 2: somebody's lying. Either JP Morgan is lying or Celsius is lying.
Speaker 2: And even in the moment, I was like, this is
Speaker 2: a great line it's definitely Alex.
Speaker 3: That's lying.
Speaker 1: I'm gonna take Jamie Diamond over Alex Mashinsky just because
Speaker 1: I'm fifty one to forty nine. I'm leaning Diamond's way.
Speaker 2: Celsius did collapse in the end, and actually a month
Speaker 2: or two ago, Mashinski got arrested and charged with fraud.
Speaker 1: Unbelievable. So one of my favorite stories from this era
Speaker 1: was the Terra Luna stable coin situation and a pretty
Speaker 1: well regarded HEDGEPHND manager Mike Novograts. He got a howling
Speaker 1: wolf Luna tattoo on his upper arm. Tell us a
Speaker 1: little bit about Tara and Luna and Novograts.
Speaker 2: So Novograts back a few years ago he gave an
Speaker 2: interview to our colleague Eric Shatsker where he said something
Speaker 2: that I thought was very honest and that I really
Speaker 2: liked this quote. And he said, listen, this crypto thing
Speaker 2: is the biggest bubble of our lifetime. There's great fortunes
Speaker 2: to be made on the way up, and like, I'm
Speaker 2: gonna get mine, And he.
Speaker 1: Did for the most part. Let's give him credit. He
Speaker 1: bought when things were low, he saw I'm not gonna
Speaker 1: suggest he top ticked it, but he definitely cashed a
Speaker 1: decent amount out right before the most recent collapse.
Speaker 2: Yeah, I mean, I think his profits overall are high.
Speaker 2: He was definitely wrong though on this Tara Luna one.
Speaker 1: Well, the whole tattoo thing was just yeah, you know,
Speaker 1: talk about talk about the wrong thing to etch on
Speaker 1: your body.
Speaker 3: Oh my god.
Speaker 2: So it was run by this guy, this South Korean
Speaker 2: guy named Do Kwan, who was very mean on Twitter.
Speaker 2: He'd always just be insulting people if you ever questioned
Speaker 2: tether But it pitch was a lot like Celsius. You
Speaker 2: could earn eighteen percent. I think it actually was also
Speaker 2: eighteen or nineteen percent.
Speaker 1: That seems to be the magic number.
Speaker 2: Yeah, that you could earn if you deposited your Terra
Speaker 2: coins into the anchor protocol. And now, unlike Teather, which
Speaker 2: is backed by real dollars in the bank or so
Speaker 2: they say, the Terra coins were backed by lunar coins
Speaker 2: and you could always trade your Terra coins for one
Speaker 2: dollar worth of lunar coins. Now you might ask, why
Speaker 2: do I want any lunar coins.
Speaker 3: The answer is they don't ask about that.
Speaker 1: They're back like Terra coins.
Speaker 2: No, the lunar coins were there actually there was no
Speaker 2: story from why you should buy the Lunar coins, and
Speaker 2: a lot of people in crypto even when this was
Speaker 2: going on, we're like, Zeke, you might want to take
Speaker 2: a look at this uh Terra Luna one.
Speaker 1: So even the crypto bros were skeptical of this.
Speaker 2: Yes, but Nova Grats was a big investor in it,
Speaker 2: and he got the Luna logo tattooed on his shoulder.
Speaker 2: And I don't want to like totally let him off
Speaker 2: the hook because what he said in his quote and
Speaker 2: also by like tweeting about this, tweeting.
Speaker 3: His tattoo, he was promoting.
Speaker 2: He's promoting it, and he's bringing in people who because
Speaker 2: the way to really make money on crypto is to
Speaker 2: get in early.
Speaker 1: Right, find greater fools to sell it to.
Speaker 2: Yeah, and a lot of these insiders I'm not saying
Speaker 2: him with Luna, I don't remember the details, but they
Speaker 2: get special deals and they get the tokens at like
Speaker 2: for a penny it can rise and fall and they're
Speaker 2: still sitting pretty. And so these guys, by promoting these bubbles,
Speaker 2: are bringing in new people who are going to lose
Speaker 2: real money.
Speaker 1: Speaking of losing real money, let's talk about the initial
Speaker 1: point offerings. I was. I always thought they were sketchy.
Speaker 1: I was shocked to read in the book eighty percent
Speaker 1: of icos are fraudulent, explained.
Speaker 2: Yeah, so this was the last bubble. It's important with
Speaker 2: crypto you need to keep coming up with like a
Speaker 2: new twist on the story.
Speaker 1: So is that where NFTs come from and icos come from.
Speaker 2: Yeah, I would say that. I mean people in the
Speaker 2: new in the most recent bubble, people talked about coins right,
Speaker 2: and even in sort of like a loving way. They'd
Speaker 2: be like, oh, I'm buying the latest like coin It's
Speaker 2: going to the moon.
Speaker 1: And that literally, by the way, was the cover of
Speaker 1: a BusinessWeek edition rhymes with bitcoin.
Speaker 3: Oh yeah.
Speaker 2: Even people who like NFTs will tell you they're basically
Speaker 2: coins with pictures on them. And so icos are like
Speaker 2: the previous iteration of this technology. Back in twenty seventeen,
Speaker 2: you could just say, Hey, I'm gonna put dentistry on
Speaker 2: the blockchain. I got denti coin. That's like a real one.
Speaker 3: Actually, I think one of the more legit ones.
Speaker 1: But they got like a man, how is that more
Speaker 1: legit than others?
Speaker 2: I like there was some real effort to like get
Speaker 2: dentists to update their tooth databases or something.
Speaker 1: So the most legit thing I read had to do
Speaker 1: with ethereum and smart contracts. And you can imagine a
Speaker 1: use case where if Taylor Swift were to put her
Speaker 1: tickets up for sale, she could build into it. Hey, no,
Speaker 1: nobody can can go out and sell these these for
Speaker 1: fifty times what fans want to pay. If you resell them,
Speaker 1: I get half of the proceeds, and that that would
Speaker 1: keep the scalpurn to a minimum. Like that is a
Speaker 1: use case that makes sense. None of these other things
Speaker 1: seem to have a real use case.
Speaker 2: Yeah, and even I mean even that use case. I
Speaker 2: was frankly surprised is continually surprised to the downside in
Speaker 2: this crypto world. With Apefest, you would think that this
Speaker 2: is like the premiere NFT event. There's all this talk
Speaker 2: about how NFTs will be good, the blockchain will be
Speaker 2: good for ticketing. It turns out they do not use
Speaker 2: the NFTs for ticketing, right. There's this whole other, like
Speaker 2: complicated system set up to figure out how you get
Speaker 2: in there. And I think a lot of this stuff
Speaker 2: sounds good in theory, But wait till my mom buys
Speaker 2: her Taylor Swift tickets for two thousand dollars. She tries
Speaker 2: to send it to the Foxhead and then she can't
Speaker 2: remember where she buried the password in her backyard. Like,
Speaker 2: nobody's gonna like that. People like customer service, They like,
Speaker 2: you know, to use their credit card, they get a
Speaker 2: refund if they get scammed, you know. So I'm not
Speaker 2: even sure that the idea that there really is demand
Speaker 2: to have concert tickets be controlled in some decentralized database,
Speaker 2: you know. I think there's a reason why for all
Speaker 2: that we complain about Ticketmaster, there's a reason why, like
Speaker 2: a central authority has grown to dominate this market.
Speaker 1: And you use the example that bitcoin has been around
Speaker 1: for as long as it took us to go from
Speaker 1: the first website to the iPhone, longer than Airbnb and
Speaker 1: Uber have been around, and those have become real businesses.
Speaker 1: What is the problem that bitcoin is trying to solve.
Speaker 2: I don't deny if we had a bitcoin, if we
Speaker 2: had Michael Saylor here, he could probably talk quite convincingly
Speaker 2: about how great bitcoin is in theory, and I would
Speaker 2: just say, look at what's happened in practice. Nobody's using
Speaker 2: it for anything. Even in El Salvador, where it was
Speaker 2: really promoted as this great success story, where we see
Speaker 2: bitcoin in the real world. Nobody likes it, nobody's using it.
Speaker 2: And if this crypto stuff was so great it would
Speaker 2: sell itself, you wouldn't need to be pushing it on people.
Speaker 2: The technology is that people like just spread virally.
Speaker 1: Huh really amusing. I want to talk about some of
Speaker 1: the damage from crypto, but before we get to that,
Speaker 1: you've been going to the Sam Bankman Freed trial about
Speaker 1: ftx's collapse. It seems from this book there's a lot
Speaker 1: of blame to people like Carolyn Ellison who ran Alami
Speaker 1: to research, Gary Wang, who was their technologist and wrote
Speaker 1: all the code, and Nichad Sing. Is it just that
Speaker 1: they played the prisoner's dilemma better than Sam Bankman Freed,
Speaker 1: like everybody was so quick to throw him under the bus.
Speaker 1: Looks like there's a lot of culpability on the rest
Speaker 1: of that crew. They were all adults running a business
Speaker 1: that had lots of fraudulent activity going on.
Speaker 2: What the trial has been so far is Sam sitting
Speaker 2: there and there's been a parade of his best friends,
Speaker 2: his colleagues, and they've each been saying, I'm really sorry,
Speaker 2: I committed fraud. I did it with that guy over there,
Speaker 2: and like the jury has been falling asleep for some
Speaker 2: of the details.
Speaker 1: Does the defense get up and say so, tell us
Speaker 1: about the fraud. You were an adult, right, you didn't
Speaker 1: do this when you were fourteen. Tell us about the
Speaker 1: fraud you committed when you were running this hedge funds
Speaker 1: or when you were writing the code. It's kinda that
Speaker 1: kind of laid back, aren't they.
Speaker 2: The problem is that if the more they hammer in
Speaker 2: that these witnesses committed fraud, that would show that these
Speaker 2: people know a lot about the fraud. And they're all
Speaker 2: saying that they did it with Sam. A lot of times.
Speaker 2: They have a lot of details about which fraud they
Speaker 2: worked on and how they did it. They pulled out
Speaker 2: like Google docs that show them doing the fraud. Some
Speaker 2: of them even have comments from Sam on the Google doc.
Speaker 2: And it's not like you get a free ride just
Speaker 2: because you plead guilty. They're probably all going to jail
Speaker 2: for a couple of years at least.
Speaker 1: But not twenty or thirty years. No.
Speaker 2: Caroline, the head of Alameda, Sam's ex girlfriend. She cried
Speaker 2: on the stand when she was talking about how bad
Speaker 2: she felt about participating in this fraud. I don't think
Speaker 2: they're trying to minimize their own involvement. They're just saying
Speaker 2: this guy was the boss, and like we did it
Speaker 2: with him fair enough.
Speaker 1: So let's talk a little bit about In the book,
Speaker 1: you talk a lot about some of the damage crypto
Speaker 1: and tether has caused. Probably the most harrowing section was
Speaker 1: on human trafficking. You go to Cambodia to look at
Speaker 1: some of these sleeve or prisons. How else do you
Speaker 1: describe these?
Speaker 2: It's pretty accurate. I mean it's really crazy. You know,
Speaker 2: we all get these spam text messages right like they're
Speaker 2: like Sam, did you pick up the milk on your
Speaker 2: way home for the dog? They're not like that great
Speaker 2: at English that don't always make sense these messages I learned.
Speaker 2: They will try and make friends with you, and they'll
Speaker 2: eventually try to get you to trade crypto with them
Speaker 2: to try out some new hot crypto app, and they
Speaker 2: always use tether. They'll say, hey, I got this great
Speaker 2: trade idea for you. Just go buy some tether on
Speaker 2: coinbase or some regular app and send it to my
Speaker 2: special app, or we'll make lots of money.
Speaker 1: You got a spam text from Vicky who sent you
Speaker 1: pictures clearly not from New York, which is what she
Speaker 1: told you, and you sent her one hundred dollars worth
Speaker 1: of tether and you were able to track it. Yeah,
Speaker 1: which is kind of surprising because we've always been told
Speaker 1: all this crypto stuff is anonymous. Turns out not to
Speaker 1: be very anonymous either.
Speaker 2: It's kind of weird that way. I mean, it's pseudonymous.
Speaker 2: So everybody's wallet has an address that's not associated with
Speaker 2: their name. It's just like a string of random numbers,
Speaker 2: and you can see all the transaction. If I know, like, hey,
Speaker 2: this string of random numbers is Barrie's address, I might
Speaker 2: even be able to go see like what exchanges you
Speaker 2: used or where you sent your money. But if I
Speaker 2: don't have that first clue that says this is Barry's address,
Speaker 2: then it might as well be anonymous. So these messages
Speaker 2: are coming from Cambodia or elsewhere in Southeast Asia, and
Speaker 2: I learned that the people sending them are often victims themselves.
Speaker 2: I mean I spoke with one guy. He's a young
Speaker 2: guy from Vietnam. He'd been lurned to Cambodia, thinking that
Speaker 2: he was going to be doing something else. When he
Speaker 2: gets there, they're like, no, you're gonna scam twenty four
Speaker 2: hours a day. You're not leaving this building unless you
Speaker 2: pay us thousands of dollars. If you don't scam enough,
Speaker 2: we're gonna beat you. We're gonna shock you with these
Speaker 2: electric batons. And there's actually entire office parks in the book.
Speaker 2: I go to one called Chinatown in western Cambo Tototos.
Speaker 1: They're horrifying.
Speaker 2: Yeah, it's like dozens of towers, each of them filled
Speaker 2: with people, thousands of people who are sending these spam
Speaker 2: messages who can't escape. Obviously it doesn't prove anything, but
Speaker 2: what really seemed quite telling to me. I get to Chinatown,
Speaker 2: the most famous of this scam compound site where this
Speaker 2: Vietnamese guy interviewed had escaped from where people were tortured,
Speaker 2: people were killed. What do I see right at the
Speaker 2: entrance to this compound a closed shop that was a
Speaker 2: currency exchange and it says right on the on the
Speaker 2: big sign out front USDT like we will trade your
Speaker 2: tether four dollars right here.
Speaker 1: So if you want to pay ransom to get someone freed,
Speaker 1: you can do it then and there.
Speaker 2: So the crypto guys would say, Hey, the scams existed
Speaker 2: before crypto, This isn't really crypto stuff, But I think
Speaker 2: that crypto made all this a lot easier, made it
Speaker 2: possible on a bigger scale. I spoke to a veteran
Speaker 2: human trafficking investigator from Taiwan who'd been to Cambodia to
Speaker 2: rant some young women who'd been tricked into going there
Speaker 2: from Taiwan. He told me, used to be these human
Speaker 2: traffickers use banks, and like maybe they'd set up give
Speaker 2: fake names or whatever when they open their bank accounts,
Speaker 2: but those were clues.
Speaker 3: Now they use tether. What am I supposed to do?
Speaker 2: I can't try, you know, he was like, this is
Speaker 2: making my job of investigating human trafficking a lot harder.
Speaker 1: I'm genuinely shocked the United Nations hasn't stepped into this
Speaker 1: because this is really horrific.
Speaker 2: You know, it is actually risen to their attention now,
Speaker 2: and they actually put out a report where they estimate
Speaker 2: that as many as two hundred thousand people work in
Speaker 2: these scam compounds.
Speaker 1: Skill Yes, that's horrible.
Speaker 2: The Chinese government has cracked down and there's been a
Speaker 2: number of busts, a lot of the worst compounds that
Speaker 2: have moved to me and mar where they're essentially like
Speaker 2: outside of the reach of law enforcement. They're in these
Speaker 2: like border regions where even like the police don't go.
Speaker 2: I went to one in a national park in Cambodia
Speaker 2: behind like a big, big hotel.
Speaker 1: You know, it's really unbelievable. Another statistic from the book
Speaker 1: that blew my mind. FTX had donated money to one
Speaker 1: in three members of Congress. How is that possible?
Speaker 2: Yeah, So, Sam, he had this idea that you know,
Speaker 2: a lot of people say there's too much money in politics.
Speaker 2: He said, there's not enough money in politics. Just think
Speaker 2: about how And his logic kind of made sense.
Speaker 1: No, it definitely does.
Speaker 2: The Congress controls these huge pots of money. And if
Speaker 2: you can influence Congress to spend on your preferred causes,
Speaker 2: even if it costs you, you know, one hundred million
Speaker 2: dollars to buy influence, that could actually be very small
Speaker 2: in comparison to how much money you get Congress to spend.
Speaker 2: So he basically funneled as much money as he could
Speaker 2: to everybody in Congress, and he took this really cynical
Speaker 2: and illegal approach to it, where he was like, I
Speaker 2: can't just give to everybody, because then the Publicans won't
Speaker 2: like me because they know that I give to a
Speaker 2: lot of Democrats. The Democrats won't like me if they
Speaker 2: see that I'm not on their team. So he picked
Speaker 2: two of his lieutenants and he was like, all right,
Speaker 2: you're the Democrat and you're the Republican. We're going to
Speaker 2: funnel our donations through you.
Speaker 1: It was mostly two Democrats, but a lot once Republican.
Speaker 3: Yeah.
Speaker 2: So he was one of the biggest donors to the
Speaker 2: Biden campaign. Gave something like five million dollars. And these
Speaker 2: were not like you know, cash and bags. These were
Speaker 2: like donations that like other corporations give. And I think
Speaker 2: it was like pretty much two thirds to Democrats but
Speaker 2: still a third to Republicans.
Speaker 1: He used to work at a hedge fund. He knows
Speaker 1: how to hedge his bets, right.
Speaker 2: Yeah, And and he had a lot of things, a
Speaker 2: lot of priorities. But one of the things he wanted
Speaker 2: was for the CFTC to regulate crypto. It seemed to me,
Speaker 2: even when things were going well, he was basically trying
Speaker 2: to get his preferred crypto legislation passed that would effectively
Speaker 2: cement FTX as like the go to crypto exchange that
Speaker 2: followed all the rules and box out some of his
Speaker 2: competitors like Binance, that were not run by Americans, didn't
Speaker 2: have the same political influence and wouldn't be able to comply.
Speaker 2: I think that was part of his plan to grow
Speaker 2: and grow and grow and get out of this hole
Speaker 2: of borrow money that he was in.
Speaker 1: Huh. So you also mentioned in the book two of
Speaker 1: my favorite authors, the first being Carl Hiassen, who I
Speaker 1: just love everything he ever writes, just the best Beach
Speaker 1: reads about the endless corruption in Florida. He's an amazingly
Speaker 1: entertaining writer. But also Michael Lewis, who has a book
Speaker 1: out Going Infinite that came out just around the same
Speaker 1: time you guys did. What are your thoughts on Lewis's
Speaker 1: portrayal of SBF What did he get wrong?
Speaker 2: I was writing this book, I became aware that pretty
Speaker 2: early on that Lewis might be working on crypto book too.
Speaker 2: And this is my first book. You know, he's like
Speaker 2: the goat like.
Speaker 1: Poet laureate of financial rights, right right.
Speaker 2: So that was pretty that was pretty scary to me.
Speaker 2: But then I was at Crypto Bahamas where I saw
Speaker 2: the Mooch. I saw Michael Lewis interviewing Sam Bankman feed
Speaker 2: on stage. I was looking forward to hearing what he
Speaker 2: had to say. At this point, I'd learned about the shoes,
Speaker 2: I learned about the Pokemon game. I mean, I came
Speaker 2: in pretty skeptical of Crypto and all I was seeing
Speaker 2: was like a bunch of scams. And then I see
Speaker 2: Michael Lewis on stage interviewing Sam, and he's just like
Speaker 2: fawning all over him. He's saying great things about him,
Speaker 2: and it goes beyond just being polite. He says, listen,
Speaker 2: look at the traditional financial world, look at the crypto world.
Speaker 3: Crypto's better.
Speaker 2: And I'm like, Michael Lewis, like, I grew up reading books.
Speaker 2: I learned a lot about finance from you. But I
Speaker 2: really think I can't believe you would say that. So
Speaker 2: at that point I actually wondered, maybe he's not writing
Speaker 2: a book, maybe he's just here giving speeches, or maybe
Speaker 2: he's working on a documentary or something. It turned out
Speaker 2: he said he was not paid and he did.
Speaker 3: Write a book. He was there to write a book.
Speaker 1: So he wrote a book which turned out to be
Speaker 1: a best seller, and he sold the movie rights to
Speaker 1: Apple TV for a decent amount of money.
Speaker 3: Yeah.
Speaker 2: Now, he said something in what I assume was a
Speaker 2: paid speech. He spoke at Bitcoin twenty twenty three in Miami.
Speaker 2: He was on stage with Arthur Hayes, the head of bitmes,
Speaker 2: and Michael Lewis said he got asked about He was like,
Speaker 2: you know, all you guys here want to know do
Speaker 2: I believe in crypto? And he's like, you, you remind
Speaker 2: me of the born again Christians that I met when
Speaker 2: I was writing The blind Side. You everyone wanted to
Speaker 2: know if I believed And he's like, listen, it doesn't
Speaker 2: matter what I think about crypto. My book isn't about
Speaker 2: what I think about crypto. My book's about Sam bang Minfreed,
Speaker 2: and it only matters what he thinks about crypto. And
Speaker 2: I think this is a mistake. I think that crypto
Speaker 2: it's like the biggest financial mania in modern times, and
Speaker 2: there's no way to write about that accurately without having
Speaker 2: an opinion about crypto. By just like saying, oh, I'm neutral,
Speaker 2: I think you're missing out on explaining what's happened over
Speaker 2: the last few years.
Speaker 1: So if you read the end of Going Infinite, Michael
Speaker 1: Lewis suggests that the bankruptcy trustee who said FTX was
Speaker 1: a bigger mess than Enron, which was a giant mess
Speaker 1: in and of itself. He implied that by the time
Speaker 1: this is all said and done, by the time they
Speaker 1: liquidate the venture investments and everything else, the missing eight
Speaker 1: billion dollars is going to be found. Is that still
Speaker 1: the case today, or has that gap marrowed has gotten wider?
Speaker 1: What's going on with that rec of the missing funds?
Speaker 2: It's still a bit mysterious. Now bankruptcy claims traders are
Speaker 2: not paying, you know, ninety cents on the dollars for
Speaker 2: FTX claims. They're going for like forty cents, all.
Speaker 1: Right, so a little above average, but not a whole
Speaker 1: lot above that.
Speaker 2: So, I mean what that suggests is that they think
Speaker 2: there's going to be a pretty good recovery, but not.
Speaker 1: The whole something like that.
Speaker 2: Yeah, Now, Sam Bankman Fried's lawyers, this is the defense
Speaker 2: of Sam Bankman Freed. But like, hey, the money isn't
Speaker 2: actually gone, right.
Speaker 1: It's just misplaced. Like literally other places are saying, hey,
Speaker 1: is this your three hundred million dollars in bitcoin we're
Speaker 1: holding now.
Speaker 2: First of all, it's come out at trial. Everyone at
Speaker 2: all the witnesses have said, we committed fraud, We took
Speaker 2: the customer's money, we knew it was wrong. And Sam
Speaker 2: bankman Fried's lawyers have brought this up and they're like, hey,
Speaker 2: how about we bring up as a defense that like
Speaker 2: some of these bets worked out and maybe the money's
Speaker 2: not gone. And the judge addressed this and he said
Speaker 2: the argument that you're making, and that Michael Lewis is
Speaker 2: semi making in the book, He's like, that would be
Speaker 2: like I robbed the Federal Reserve and then I went
Speaker 2: and bought a million Powerball tickets. Then I won, and
Speaker 2: I've returned the million dollars. It doesn't matter. You still
Speaker 2: rob the Federal Reserve, You're still going to jail.
Speaker 1: So, to be fair, Lewis says, it wasn't that the
Speaker 1: bets were going to pay off. It's that all the
Speaker 1: money wasn't accounted for properly, and if that happens, maybe
Speaker 1: that money you'll be missing. Since then, we've learned a
Speaker 1: lot of that money has been speculated with or gambled with.
Speaker 2: If Lewis was saying that the money was simply misplaced,
Speaker 2: like that has been proven to be wrong. The money
Speaker 2: was definitely not just misplaced, and they found it like
Speaker 2: it was bat on a lot of things. And for example,
Speaker 2: it came out at the trial that customers give money
Speaker 2: to the exchange, they're counting on the exchange holding it
Speaker 2: and giving it back when they want to withdraw, just
Speaker 2: like you'd count on e trade to have your money
Speaker 2: when you want to take it out. And what he
Speaker 2: had done in one instance was give f five hundred
Speaker 2: million dollars to his hedge fund to invest in some
Speaker 2: AI company, and that turned out to be it looks
Speaker 2: like it was a pretty.
Speaker 1: Good bet, giant winner.
Speaker 2: Yeah, but it doesn't mean it was okay. The customers
Speaker 2: never agreed that he could gamble with their money. They
Speaker 2: thought that they were gambling with their money on dogecoin
Speaker 2: or whatever.
Speaker 1: Right this is, you know. Part of the description was
Speaker 1: Alameda had broader parameters for going over the limits, the
Speaker 1: lending limits, because they were helping to facilitate making a market.
Speaker 1: But that would have been a little over not billions
Speaker 1: of dollars, over tens of billions of dollars over.
Speaker 2: Yeah, And what the witnesses have testified to is that
Speaker 2: from actually very early on, Alameda was allowed to treat
Speaker 2: like the customer money like a piggy bank and use
Speaker 2: it to gamble on whatever. And actually, one of the
Speaker 2: things that Michael Lewis has said that has also been
Speaker 2: shown to not be true at the trial, he said, FTX,
Speaker 2: if you set aside the fraud, it was a good business, right.
Speaker 1: Well, the argument is, hey, we're gonna do a bajillion
Speaker 1: crypto trades and take a tiny little piece of each
Speaker 1: and it's a couple of billion dollars a year.
Speaker 2: So the problem is that FTX, the way the exchange
Speaker 2: was set up, they claimed they had this great risk
Speaker 2: management system, this amazing liquidation engine, but it turned out
Speaker 2: that they didn't, and the exchange over the years actually
Speaker 2: took big hits at different times, and that they covered
Speaker 2: those up by shunting the losses to Alameda.
Speaker 1: So not just hacks, but actually trading losses.
Speaker 2: Yes, so the exchange lost almost a billion dollars because
Speaker 2: of a failure of the liquidation engine on something called
Speaker 2: mobile coin. And if they had disclosed this first of all,
Speaker 2: that would have erased all the exchange's profits, right, so
Speaker 2: like no more venture capital, you know, thirty two billion valuation.
Speaker 2: So instead they had Alameda take the hit. And Alameda
Speaker 2: could take the hit because they had a limited access
Speaker 2: to the customer money, right, and there.
Speaker 1: Were no outside real owners because it was all mostly
Speaker 1: sam bankman Freed.
Speaker 2: So that is not a good business. And it's looking
Speaker 2: like the truth is much closer to this was a
Speaker 2: fraud from the start. Then this was a good business
Speaker 2: that was that got out of control because Sam bankmcfreed
Speaker 2: wasn't paying attention.
Speaker 1: So the summation that I came away from with your book,
Speaker 1: as opposed to lots of of the other things I've
Speaker 1: read on crypto, is there's no regulation, there's no disclosure requirements,
Speaker 1: there's no transparency. When there's a billion dollar loss, nobody
Speaker 1: says anything. It's all covered up. And on top of
Speaker 1: all of that, there's no federal Reserve or federal government
Speaker 1: as a backstop. As much as the libertarian crypto bros,
Speaker 1: the FDIC and the government. Hey, no matter what happened
Speaker 1: during the financial crisis or during even during the pandemic,
Speaker 1: my ATM card still worked.
Speaker 2: I don't talk about the SEC that much in the book,
Speaker 2: and I actually would blame the SEC for not being
Speaker 2: a little quicker to crack down on some of this
Speaker 2: crypto stuff. But I think the book is, if anything, like,
Speaker 2: an argument for financial regulation and saying that some of
Speaker 2: these age old rules make sense. There's a reason why
Speaker 2: companies have to disclose stuff, and it's to prevent exactly
Speaker 2: things like this FTX collapse.
Speaker 1: Really really interesting stuff. So you guys have sniped at
Speaker 1: each other a little bit in public, You've traded barbs.
Speaker 1: What's it like when an author whose books you've loved
Speaker 1: is taken a swing at you.
Speaker 2: Yeah, he said some pretty nasty things to The New
Speaker 2: York Times about me.
Speaker 1: Oh really, what did he say?
Speaker 3: He called me?
Speaker 2: He said that I was skeevier than Sam Bankman Freed.
Speaker 1: Come on, really, Uh that's not right.
Speaker 2: Yeah, So look, I didn't like that, And I think
Speaker 2: it's been pretty cool. A lot of the reviews have
Speaker 2: compared our books, and I really didn't imagine that people
Speaker 2: would prefer my book to Michael Lewis's, and I've been
Speaker 2: amazed to see that it's gotten such good reviews.
Speaker 1: This is the book to read on crypto, is what
Speaker 1: wired said, read the other SBF book.
Speaker 2: What I realized when I finished the book is that
Speaker 2: before all this, I was just like, you know what,
Speaker 2: this was an amazing adventure. I've always wanted to write
Speaker 2: a book like this. I'm really proud of how it
Speaker 2: came out. I'm sure Michael Lewis's book is going to
Speaker 2: be a hit, but like whatever, I don't care about
Speaker 2: his book. I think people should read this, and it's
Speaker 2: going to be and it's a lot of fun. I
Speaker 2: actually just don't know where I'm going to get another
Speaker 2: story like this, Like this is like the story I've
Speaker 2: been waiting for my whole life.
Speaker 1: Well, you're a relatively young guy. I'm sure there's another
Speaker 1: book that will come along. This is really a deeply
Speaker 1: researched work of investigative journalism. Number go up. And if
Speaker 1: you were skeptical or even just crypto curious beforehand, it's
Speaker 1: hard to read this and not come away with the
Speaker 1: thought that this is a massive bubble that will end
Speaker 1: badly for everybody involved.
Speaker 3: You know what.
Speaker 2: I've been particularly pleased. I've gotten some comments from crypto
Speaker 2: people and they've said that they actually really liked the book,
Speaker 2: and one guy said, please stay in crypto. We need
Speaker 2: you to make fun of us.
Speaker 1: So when I put something out on Twitter yesterday saying hey,
Speaker 1: I got Zeke Fox tomorrow, what should I ask him?
Speaker 1: There were a handful of kund of goofy questions. Ask
Speaker 1: him if he's shorted bitcoin was one of them. Someone said, hey,
Speaker 1: you know, would you and Michael Lewis ever this Someone
Speaker 1: slipped into a DM and said, hey, would you and
Speaker 1: Michael Lewis ever sit down on a stage together and
Speaker 1: have a debate about Sam bankmin Freed, FTX and crypto.
Speaker 2: I would love to do it, Michael Lewis, if you're listening,
Speaker 2: let's do it.
Speaker 3: You know we can.
Speaker 2: You're a big draw, we can sell tickets, we can
Speaker 2: give money to one of the charities that SBF stiffed.
Speaker 1: And to be fair, I really enjoyed both books, but
Speaker 1: they're two very different types of books. The one other
Speaker 1: question I wanted to ask you before we get to
Speaker 1: our favorite questions. You were part of the team that
Speaker 1: wrote this interesting BusinessWeek series on how local New York
Speaker 1: state courts had been weaponized by debt collectors. Signed here
Speaker 1: to Lose Everything. You want a lob award for that?
Speaker 1: Tell us a little bit about that bit of investigative journalism.
Speaker 2: One of the best threads that I pulled in my
Speaker 2: whole career has been this world of brokers who sell
Speaker 2: small business loans. It's called merchant cash advance. And basically
Speaker 2: the guys who were like worked for Jordan belfourt like
Speaker 2: back in the nineties. That whole business of cold calling
Speaker 2: people and selling stocks has dried up and if you're
Speaker 2: still but if you still want to cold call people
Speaker 2: and earned commission, a lot of those guys now sell
Speaker 2: merchant cash advance to small businesses. It's like calling up
Speaker 2: a boudet and being like, hey, do you need ten grand.
Speaker 2: I'll get it to tomorrow. But if you sign up,
Speaker 2: you're going to have to pay back like fifteen and
Speaker 2: two months or something like that. Crazy rates way higher
Speaker 2: than loan sharks.
Speaker 1: Sounds usurious and should be illegal.
Speaker 2: Yeah, but they've got all these loopholes, and the series
Speaker 2: was about this one amazing loophole that they came up with.
Speaker 2: These guys are super creative, and it was like, this is.
Speaker 1: The confession of judgment that's been around for a long time,
Speaker 1: but it wasn't really used.
Speaker 2: Yeah, so these guys they would if if you were
Speaker 2: the bodega, you would have to before you got the loan,
Speaker 2: you'd have to sign a paper that said I have
Speaker 2: defaulted on this loan and if judge when you see
Speaker 2: this document, please rule against me and seize my assets.
Speaker 2: So the lender would be holding that document and if
Speaker 2: they ever.
Speaker 1: Dated or undated, because if you're getting the loan on
Speaker 1: October first and the confession of judgment is dated October first,
Speaker 1: seems a little sketchy.
Speaker 2: They had all that cover. The wording was not exactly
Speaker 2: how I just said it. It was it all. It
Speaker 2: would all get stamped. It would be the point of
Speaker 2: the series is this was legal. You could do this.
Speaker 2: You could take it to court. So what would happen
Speaker 2: is the bodega misses a payment and yeah, the lender
Speaker 2: goes to court with this document no warning. They get
Speaker 2: it stamped because you already signed it. And then, amazingly,
Speaker 2: the lender could take this document to New York City Marshall,
Speaker 2: who was like a sheriff sheriff, and that sheriff would
Speaker 2: then fact something to the bank where the bodega has
Speaker 2: a bank account and get the whole fifteen thousand right there.
Speaker 2: So instead of waiting two months to get your you
Speaker 2: serious return, you get it in like a week or
Speaker 2: two if the bodega missed a payment, or even if
Speaker 2: you just claim they did, because there's no chance for
Speaker 2: them to contest it.
Speaker 1: Wow.
Speaker 2: So me and my colleague Zach Miterer did a series
Speaker 2: about this. We wrote about a bunch of crazy characters
Speaker 2: who were exploiting this loophole, and New York State passed
Speaker 2: the law closing this loophole. After that, they moved to
Speaker 2: Connecticut and started doing it there. We exposed that loophole,
Speaker 2: Connecticut passed the law closing the loophole. I'm sure they
Speaker 2: found a new state.
Speaker 1: So how did you talk about a thread to pull?
Speaker 1: How did you find this?
Speaker 2: I was writing about these crooked brokers and I was
Speaker 2: doing I did a kind of fun story about how
Speaker 2: it was around the time The Wolf of Wall Street
Speaker 2: came out, and it was the point of the story
Speaker 2: was sort of like these guys are down on their
Speaker 2: luck and like the cold calling business is no good anymore.
Speaker 2: And a lot of these guys so I was spent
Speaker 2: a long time taking them out for you know, stakes
Speaker 2: at Harry's or whatever downtown, and they a lot of
Speaker 2: them told me they'd gotten into this cash advanced business. Finally,
Speaker 2: I was like, what is this cash advanced business that
Speaker 2: you're all doing?
Speaker 3: Now? This might be kind of interesting.
Speaker 2: And one of the first guys I met in it,
Speaker 2: this is back in like twenty fourteen. I went to
Speaker 2: this guy's office. So the Financial district like it's like
Speaker 2: the it's got the low office rents in New York.
Speaker 2: These offices are like dumps. I go to this guy.
Speaker 1: It's a Wall Street address, right.
Speaker 2: So I go to this guy's office who runs this
Speaker 2: thing called Pearl Capital. I meet this guy named Abe
Speaker 2: runs Pearl Capital, and it's one of these cash advands
Speaker 2: outfits that charge like five hundred percent interest. And it's
Speaker 2: like this dumpy office with like cases of red bulls
Speaker 2: stacked up.
Speaker 1: They're not wasting money on marble and walnut.
Speaker 3: No, no, no.
Speaker 2: And I meet one of his his minions, who is
Speaker 2: like eighteen years old. He had this He has his
Speaker 2: minion give me a ride home. The guy's driving like
Speaker 2: a V twelve Mercedes. He has this like high school
Speaker 2: dropout who can with this thick Brooklyn accent. And as
Speaker 2: he drives me home in his one hundred thousand dollars car.
Speaker 2: He's calling these bodega owners and being like, you're laid
Speaker 2: on your payment, and I'm just like, what is with
Speaker 2: these guys? And so Abe told me, you see my
Speaker 2: empire here with like the staying I'm going to sell
Speaker 2: this company to like a hedge fund. We're making so
Speaker 2: much money. I'm going to make a hundred million dollars.
Speaker 2: I'm gonna be rich.
Speaker 1: Just just don't tell any of that to an investigative
Speaker 1: reporter from Business Week, and you might have something left
Speaker 1: to sell.
Speaker 3: Well.
Speaker 2: So he did tell me that, and then I was like,
Speaker 2: I was newer at this, so I wasn't quite sure
Speaker 2: how to do the story. But then one day I
Speaker 2: obtained a letter and it said, dear Abe, we would
Speaker 2: like to buy your company for a hundred million dollars, sincerely,
Speaker 2: Goldman Sachs.
Speaker 1: Get out yes, and did he sell?
Speaker 2: He did sell. He didn't get quite a hundred million.
Speaker 2: He sold to a different company, and he had actually
Speaker 2: he moved. He did the Puerto Rico tax thing, right.
Speaker 1: But you talked about in the book, By the way,
Speaker 1: what is it about Puerto Rico, Miami, Bahamas? All these
Speaker 1: fraudsters they like warm weather. What's that about.
Speaker 2: You can actually, you can get out of all your
Speaker 2: taxes by moving her company and yourself to.
Speaker 1: Puerto Rico for Puerto Rican tax rate. That's all you are.
Speaker 2: Yeah, no federal tax, capital Dames tax. Yeah, but you
Speaker 2: have to live in Puerto Rico for more than half
Speaker 2: the year.
Speaker 1: So if you don't want to pay New York state tax,
Speaker 1: New York doesn't care where you live as long as
Speaker 1: you're not in New York for more than half the year.
Speaker 1: Puerto Rico is saying, no, you have to be here,
Speaker 1: rainy season, hots it whatever. Yeah, half a year and
Speaker 1: a day.
Speaker 2: And so it takes like a certain kind of person
Speaker 2: who's so concerned about maximizing their money that they're willing
Speaker 2: to do that.
Speaker 1: Why would you want to live someplace if you could
Speaker 1: afford not to.
Speaker 2: Well, this this ave guy, he had a funny he
Speaker 2: was a great character. At one point, James Franco was
Speaker 2: talking to him about playing him in the movie. That
Speaker 2: didn't help really, but he said he so he grew
Speaker 2: up poor in Brooklyn. He was from this big family
Speaker 2: and he said that, you know, like riding the subway
Speaker 2: was a treat because the parents weren't going to pay
Speaker 2: like twenty bucks to swipe everybody in, right, And he
Speaker 2: was like, when I was younger, when I was poor,
Speaker 2: if you asked me, I would have said, what's the
Speaker 2: difference between ten million dollars and one hundred million dollars?
Speaker 2: And he's like, now that I got it, I know
Speaker 2: there's a difference, and like he really wanted to get
Speaker 2: to that next level.
Speaker 1: That's really interesting. All right, So I only have you
Speaker 1: for a few more minutes. Let me jump to my
Speaker 1: favorite questions. We'll kind of make this a speed round,
Speaker 1: starting with what have you been streaming? Tell us some
Speaker 1: of your favorite Netflix, Amazon Prime, or even podcasts you
Speaker 1: listen to.
Speaker 2: So my recommendation is a series of Korean action movies.
Speaker 2: I love action movies.
Speaker 1: Oh really, It's.
Speaker 2: Called The one that I like the best is called
Speaker 2: The Roundup. That's entry number two in the Crime City series,
Speaker 2: and it stars this guy down Lee, and he plays
Speaker 2: he's like the prototypical cop from like an eighties nineties
Speaker 2: action movie, where like he doesn't follow the rules, but
Speaker 2: he always gets his guy right. You know, he's always
Speaker 2: like beating up the suspect instead of you know, asking
Speaker 2: him the questions, like the other cops do. And it's
Speaker 2: got it's funny, it's got great action scenes.
Speaker 3: I love it.
Speaker 1: Yes title or you watch it dubbed.
Speaker 2: You gotta get subtitles. And I'm waiting there's the roundup.
Speaker 2: Three is out. It came out in theaters, but you
Speaker 2: can't stream it yet, so I'm waiting for for number three.
Speaker 1: All right, so let's talk about your early mentors who
Speaker 1: helped shape your career.
Speaker 2: My first job as a reporter was at a paper
Speaker 2: called the Brooklyn Paper. It was like a free weekly
Speaker 2: you got at the supermarket. I was an unpaid intern.
Speaker 2: My boss was Gersh Kuntsman, and he was like a
Speaker 2: tabloid guy he'd worked at the Post. He was an
Speaker 2: amazing mentor because he was he was a very tough editor,
Speaker 2: and he insisted that each of the stories be interesting,
Speaker 2: like we couldn't, we wouldn't. There was no like meandering.
Speaker 2: The story had to have a point right before when
Speaker 2: you pitch the story, had to think of like what
Speaker 2: the headline would be and why anybody would care about this?
Speaker 2: He even if you came back. I was working for
Speaker 2: him when Obama won and he was like, all right,
Speaker 2: go find some people who are happy. About this interview
Speaker 2: him come back with some quotes, and I think it
Speaker 2: was rainy, so I spent like a couple hours out
Speaker 2: in the rain, stopping people on their way home from
Speaker 2: work and being like, what do you think about this?
Speaker 2: You know, not like the most fun assignment. I came
Speaker 2: back with what I thought were some pretty good quotes,
Speaker 2: and he was like, those quotes are boring. Get back
Speaker 2: out there, and like. I didn't like it at the time,
Speaker 2: especially because I was not getting paid, but I think
Speaker 2: that that's a It's true. You got to put in
Speaker 2: the time in this crypto world. I spent day after
Speaker 2: day talking to these guys.
Speaker 1: You you must have been twenty countries in the book.
Speaker 1: I mean, you traveled all around the world.
Speaker 2: I really thought, all right, it's my first book.
Speaker 3: I don't know.
Speaker 2: I don't want to disappoint anybody. I want the reader
Speaker 2: to feel like I did my best. I went to
Speaker 2: look at everything I could think of, and like, any
Speaker 2: questions you had, I really did my best to go
Speaker 2: to Cambodia to answer them, or to El Salvador to
Speaker 2: see if, like this bitcoin experiment it was real. So
Speaker 2: maybe some part of that came from Gersh telling me
Speaker 2: quotes are boring. Get back out there to the subway station,
Speaker 2: ask people about the election.
Speaker 1: So let's talk about some other books. What are you
Speaker 1: reading and what are some of your favorites.
Speaker 2: My picks are there's a pretty mainstream because the kind
Speaker 2: of book that I wrote is the kind of book
Speaker 2: that I love. Like when I was a teenager, I
Speaker 2: always I loved these crazy nonfiction adventures. So that was
Speaker 2: like Into thin Air by John Krakauer or The Perfect Storm,
Speaker 2: or I loved Bringing Down the House by Ben Mezrich
Speaker 2: about the Mit Blackjack Kids. And I still love that
Speaker 2: kind of book, like David gran The Last City of
Speaker 2: z or Patrick Rading Keith. I just I love these
Speaker 2: like true stories that are too crazy to believe.
Speaker 1: Have you ever read Endurance the Shackleford story. No, that
Speaker 1: put that at the top of your list. The book
Speaker 1: has to be true because if it was fiction, people
Speaker 1: would throw it away and say, this is just too
Speaker 1: not believable. If you like Into thin Air, oh this
Speaker 1: is the book that started that genre. It's insane.
Speaker 3: Oh nice, I will check it out.
Speaker 1: So that's a good I have a more often.
Speaker 2: One that you might you might want to check out
Speaker 2: is called The Tiger by John Valiant, and it's about
Speaker 2: like a killer tiger in Siberia.
Speaker 3: Huh.
Speaker 2: And the guys who like they're guys who are like
Speaker 2: tiger detectives who have to go find the killer tiger
Speaker 2: are all true, right, I mean, one of the best
Speaker 2: of nonfiction books of this genre. Right now, I'm reading
Speaker 2: a lot of Diary of a Wimpy Kid to my children.
Speaker 2: I have twins who are six, right, and my son
Speaker 2: loves this serious Diary of the Wimpy Kid. Actually very boring.
Speaker 2: I don't like it. I actually like children's books a
Speaker 2: lot of the time, but these Wimpy Kid books, it's
Speaker 2: the number one children's book.
Speaker 3: They're super regular.
Speaker 2: They're just like it's a it's a kid's diary, you know,
Speaker 2: it's it's a little repetitive. There's like twenty of them,
Speaker 2: almost to the end. But then they eli said, we're
Speaker 2: going to start back at the beginning.
Speaker 1: No good. So let's get to our last two questions.
Speaker 1: What sort of advice would you give to a recent
Speaker 1: college grad who was interested in a career in journalism,
Speaker 1: investigative reporting, finance, or crypto. What would you suggest to them.
Speaker 2: If you get into financial journalism, one thing I didn't
Speaker 2: really understand is that finance guys, a lot of them
Speaker 2: are on their on the phone all day. They're just
Speaker 2: gossiping with their buddies, and you can like get in
Speaker 2: the mix. And if you just act like you belong,
Speaker 2: you can call these guys up and be like, hey,
Speaker 2: did you hear about Jill at Goldman Sachs, Like I
Speaker 2: heard she took a big loss last week, And they'll
Speaker 2: talk about it with Happy to Dish. You know, they're
Speaker 2: talking with their friends about the same stuff. If you
Speaker 2: don't act super official and you just feel like you're
Speaker 2: part of the mix, people will talk to you about
Speaker 2: what's going on at work.
Speaker 1: Because now you let them in on the secret method.
Speaker 3: Yeah, go for it.
Speaker 1: That's amazing. And finally, what do you know about the
Speaker 1: world of again investigative journalism, reporting, or finance today? You
Speaker 1: wish you knew? I don't know, when did you begin
Speaker 1: your career, like fifteen twenty years ago?
Speaker 3: That's about right.
Speaker 2: Yeah, There's one thing about the world of crypto that
Speaker 2: I wish I knew when I started this book, which
Speaker 2: is that number goes up, numbergo I actually wish I
Speaker 2: knew that. Alameda Research Sam bank, mcfred's head fund was
Speaker 2: secretly borrowing all the customer money from FTX cause I'm
Speaker 2: still kicking myself that I didn't catch this guy. That
Speaker 2: could have been like my claim to fame.
Speaker 1: Really interesting stuff. Thanks Zeke for being so generous with
Speaker 1: your time. We have been speaking with Zeke Fox, author
Speaker 1: of Number Go Up, Inside Crypto's Wild Ride and Staggering Fall.
Speaker 1: If you enjoy this conversation, check out on any of
Speaker 1: the previous five hundred or so discussions we've had over
Speaker 1: the past nine years. You can find those at iTunes, Spotify, YouTube,
Speaker 1: wherever you find your favorite podcast. Sign up for my
Speaker 1: daily reading list at rid Helts dot com. Follow me
Speaker 1: on Twitter at Ridholts. Follow all of the Bloomberg Family
Speaker 1: of podcasts on Twitter at podcast. I would be remiss
Speaker 1: if I did not thank the crack team who puts
Speaker 1: these conversations together each week. Rich Subnani is my audio
Speaker 1: engineer at Tika of Albrond is my project manager. Anna
Speaker 1: Luke is my producer. Sean Russo is my researcher. I'm
Speaker 1: Barry Ridholts. You've been listening to Masters in Business on
Speaker 1: Bloomberg Radio.