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Speaker 1: This is Bloomberg Crypto, a daily Bloomberg IHOD podcast, and

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Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.

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Speaker 1: It's Friday, December sixte what's a week it's been breaking

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Speaker 1: news overnight? Fd X founder sand Bankman free to rest

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Speaker 1: it in the Bahamas, set to face the judge this

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Speaker 1: morning after US prosecures found criminal charges in connection with

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Speaker 1: a multibillion dollar collapse of his crypto company, Sam Bankman.

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Speaker 1: Freed is now in a correctional facility in the Bahamas

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Speaker 1: after his request for bail was denied by a judge.

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Speaker 1: We said in that episode just a few days ago

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Speaker 1: that the last couple of weeks have felt like thirty years.

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Speaker 1: This one week has felt like a hundred. Here to

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Speaker 1: recap some of the major events, including and most of portently,

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Speaker 1: of course, what happened when Sam bang when Freed was

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Speaker 1: arrested in the Bahamas. Are my colleagues, Anna arera Less

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Speaker 1: than two months ago, SPF was hailed as the next

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Speaker 1: JP Morgan and you wouldn't think anything would go wrong

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Speaker 1: and Miss re Lenna a gulf of polo. Part of

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Speaker 1: the reason why he was denied bail was because people

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Speaker 1: were scared that he would flee Anna. Mr re Lena,

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Speaker 1: thank you for joining me on what has been a

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Speaker 1: week of no sleep for me at least for me

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Speaker 1: at least, Mr Lenna, I'm gonna start with you. Tell

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Speaker 1: our folks who you are, what you're up to, and

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Speaker 1: why you haven't been sleeping this week. My name is

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Speaker 1: Mr Lena and gulf of Ulu. I am the team

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Speaker 1: leader for the legal news team at Bloomberg. I have

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Speaker 1: been covering crypto for a while now, and this week

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Speaker 1: I have not been sleeping because it appears to be

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Speaker 1: the week where we essentially god perhaps when like the

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Speaker 1: most important arrests in like crypto history play out after

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Speaker 1: experiencing the most dramatic collapse of one of the biggest

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Speaker 1: crypto companies over the past months. So this week really

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Speaker 1: sort of brought everything we've been seeing the past month

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Speaker 1: like front and center. You. I'm tired just listening to

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Speaker 1: you say that Sam bankmun Freed went from appearing on

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Speaker 1: stages at conferences including the Bloomberg Crypto Summit, and you know,

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Speaker 1: being fetted by various lawmakers in the US and in

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Speaker 1: the Bahamas to being literally under arrest Mr Lena, How

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Speaker 1: did we get here? I mean, the bankruptcy of f

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Speaker 1: TX occur exactly a month ago before this week, And

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Speaker 1: I want to start by what we were experiencing last week,

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Speaker 1: which I think is very indicative of how we got

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Speaker 1: to where we are today. Last week we saw several

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Speaker 1: meetings play out in the Manhattan Prosecutor's office where people

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Speaker 1: from FTX bankruptcy teams, including the newly appointed CEO, lawyers

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Speaker 1: for the company, as well as Manhattan prosecutors, were meeting

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Speaker 1: inside the court. We didn't know why, but we knew

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Speaker 1: they were meeting. Later, we found out around Friday that

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Speaker 1: those meetings were really to discuss possible charges and look

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Speaker 1: into what the possible charges they could bring against same

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Speaker 1: bankman freed for the collapse might be. We thought this

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Speaker 1: was going to take a while to figure out, years, years.

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Speaker 1: I mean really, the Monday's arrest and the following indictment

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Speaker 1: on Tuesday was just brought in spectacular speed for the

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Speaker 1: d o J. I mean, I have some examples of

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Speaker 1: how long it took to prosecute older cases. Let's talk

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Speaker 1: about Enron, which happened back in two thousand one. It

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Speaker 1: took two years for the prosecutors to build a is

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Speaker 1: against the CEO, even most recently our cages Bill Hoong,

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Speaker 1: that took over a year to build a case. Again,

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Speaker 1: so when you think about the fact that it took

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Speaker 1: a month for these prosecutors to pull a case together

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Speaker 1: against Sa Makman Freed and indict him on eight charges,

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Speaker 1: I mean that was out of nowhere. But like at

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Speaker 1: the same time, the speed at which these happened kind

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Speaker 1: of makes sense if you think about the fact that

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Speaker 1: same bankman Free is currently in another country that has

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Speaker 1: an extradition treaty with the United States, the Bahamas, in

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Speaker 1: order to get him to the United States. It's a

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Speaker 1: complicated process, and the first step to that process is

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Speaker 1: US officials need to present an official indictment to behaving authorities.

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Speaker 1: That is what gets the extradition process started, which could

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Speaker 1: take up to years to complete. And so really here

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Speaker 1: I think the speed was partially done so that they

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Speaker 1: can start that process immediately, really just bring charges against

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Speaker 1: him that we're basic in their nature. The sdn Y

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Speaker 1: press conference that we saw happened this week was clear

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Speaker 1: and that the investigation is still ongoing. So if we

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Speaker 1: were to expect more charges against Bankman Freed, that wouldn't

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Speaker 1: be out of the question, and so really speed here

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Speaker 1: was to get extradition process started. We expect more charges

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Speaker 1: to potentially come about later as prosecutors dig deeper. They

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Speaker 1: really truly were very clear about the fact that they

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Speaker 1: are not done. I mean, there's two things that are

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Speaker 1: playing out here. First of all, Damon Williams, who is

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Speaker 1: essentially the new U S District Attorney in New York City,

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Speaker 1: has clearly said since he started that crypto is a

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Speaker 1: priority for him in his office, and so of course

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Speaker 1: it makes sense for them to basically jump in and

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Speaker 1: capitalize on a case that's created so much online cry.

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Speaker 1: I mean, the fact that so many people were questioning

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Speaker 1: how Sam Bankman Freed was still free after this collapse

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Speaker 1: and so many allegations that came against him. Really, I

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Speaker 1: think most prosecutors to speed up the process so that

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Speaker 1: online cry sort of capitalizing on that sentiment, I mean,

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Speaker 1: I think helps the st N wise message be louder,

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Speaker 1: and I think they want that right now. I know

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Speaker 1: one of the things that we've both had to cover

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Speaker 1: over the past month or so, is bank when Freed's

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Speaker 1: media tour, is it the done thing? For someone whose

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Speaker 1: company has just you know, filed for bankruptcy to be

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Speaker 1: on a like a self flagellation slash apology slash. I

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Speaker 1: don't have any recollection tour, No, absolutely not. It's not common.

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Speaker 1: It is common for crypto to have very senior people

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Speaker 1: just lead their own comms on Twitter essentially, but it

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Speaker 1: is not common for someone who's been accused of so

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Speaker 1: many different things to go and say sorry, right yeah, um,

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Speaker 1: I mean, I'm deeply sorry about what happened. Part of

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Speaker 1: it is if you say sorry, then someone could ask

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Speaker 1: you what are you saying sorry for if you didn't

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Speaker 1: do anything wrong, right, Like, if you have to defend yourself,

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Speaker 1: then it doesn't excuse Saying sorry doesn't doesn't really help.

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Speaker 1: And when with any kind of scandal that has a

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Speaker 1: legal component, you don't really see the main person going

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Speaker 1: on the TV and doing interviews right right straight after,

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Speaker 1: like even before they even appear in any court. Right.

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Speaker 1: It was a sort of unusual tactic, and he admitted

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Speaker 1: himself at several points that his lawyers would have advised

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Speaker 1: against it, so it was quite surprising. And then after

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Speaker 1: a while, I guess it became a bit tired to

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Speaker 1: like because he was just saying sorry many times. Whatever happened,

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Speaker 1: why ever happened. I had a duty, clearly I do

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Speaker 1: a good job of that. Really I made a lot

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Speaker 1: of mistakes. Are things I would give anything to be

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Speaker 1: able to do over again. Um I didn't. And you know,

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Speaker 1: it's it was hard to see what the point was.

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Speaker 1: I don't know whether you know it was kind of

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Speaker 1: to portray himself in a certain way like I obviously

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Speaker 1: I don't want to expect it because who knows. But

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Speaker 1: it's definitely not not common for someone if you think

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Speaker 1: of all the biggest financial scandals you know, think of

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Speaker 1: like Librar recently. He didn't see the people there, the

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Speaker 1: CEOs of the companies, or even if a company a

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Speaker 1: big bank gets you know, a big fine for money laundering,

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Speaker 1: you don't have the ceo go and do an interview thing.

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Speaker 1: You know, this is what we did. I'm really sorry

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Speaker 1: we we left up. That was kind of surprising for sure,

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Speaker 1: And just to not coin a phrase, but to quote

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Speaker 1: one I censored. Left up was going to be the

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Speaker 1: first line of the testimony that bank when Freed was

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Speaker 1: due to deliver on Tuesday before he was arrested Monday, nights.

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Speaker 1: But Mr Lena, I want to go back to something

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Speaker 1: that you said about like the speed of this and

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Speaker 1: that it feels like it's happening in Internet time, which

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Speaker 1: is you know, accelerated in ways that are probably bad

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Speaker 1: for all of us. The whole thing about not just crypto,

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Speaker 1: but the ascent of FTX has really felt incredibly fast.

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Speaker 1: Right that they go from here's a bunch of folks

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Speaker 1: who left Jane Streets and are taking interesting risks and

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Speaker 1: doing stuff with you know, japan based arbitrage to this

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Speaker 1: is showing up on Capitol Hill trying to inform the

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Speaker 1: future direction of massive markets. Two, there's a bankruptcy. To

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Speaker 1: the rate at which that bankruptcy is filed has you

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Speaker 1: know John J Ray the third who Enron connection was

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Speaker 1: the liquidator for Enron, saying things like he's never seen

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Speaker 1: something more disorganized in his entire life. Like there's something

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Speaker 1: about this that just feels like we've speed run through

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Speaker 1: a crisis that would ordinarily take years. If this we're

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Speaker 1: playing out at a slightly slower pace or in a

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Speaker 1: slightly more like normal fashion, what would have been the

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Speaker 1: next things to happen? Right, So, we've now had all

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Speaker 1: of these indictments. We've had all of these charges in

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Speaker 1: record time. What would normally happen next, What prosecutors need

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Speaker 1: right now is to get san Baateman freed back into

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Speaker 1: the United States. Um, there's a hearing scheduled on his

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Speaker 1: extradition in February. That is the priority. Ordinarily that would

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Speaker 1: take a very long time. There is an extradition treaty

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Speaker 1: between the US and the Bahamas, as I mentioned. But

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Speaker 1: you know, anyone in that position has rights, and they

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Speaker 1: have the right to essentially reject extradition. And we have

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Speaker 1: examples in the past of people who have been able

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Speaker 1: to successfully fight for that right and have stayed in

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Speaker 1: the Bahamas. Like this is something the US has had

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Speaker 1: to deal with before. In this case, though, you know,

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Speaker 1: there's just several factors that are in play. I mean,

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Speaker 1: one big factor is, like SBF was denied bail. He's

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Speaker 1: going to have to go to prison in the Bahamas.

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Speaker 1: Their reports out that explained that the conditions in the

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Speaker 1: Bahamas are not ideal. I mean, how long can SBF potentially,

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Speaker 1: you know, put up with those conditions. And part of

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Speaker 1: the reason why he was denied bail was because people

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Speaker 1: were scared that he would flee if he were to

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Speaker 1: be in the United States, you know, bail could come

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Speaker 1: back on the table because maybe you know, authorities and

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Speaker 1: prosecutors in the US wouldn't be as scared that he

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Speaker 1: was going to flee the country as they are with

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Speaker 1: him being in the Amas. So I guess the question

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Speaker 1: now is, you know, do the circumstances and conditions that

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Speaker 1: surround same bankman freed in the Bahamas discourage him from

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Speaker 1: fighting extradition. And you know, there's still a question here,

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Speaker 1: I think, on the table on whether he will cooperate

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Speaker 1: with the government and whether that's going to offer something

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Speaker 1: for him, because I think, you know, when you talk

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Speaker 1: about the fact that so many charges could still possibly come,

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Speaker 1: we're still very early in this story. If you were

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Speaker 1: to cooperate, is that even an option on the table

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Speaker 1: for for authorities and and what would that mean, like

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Speaker 1: we could see that play out now. To your point

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Speaker 1: about cooperation, one of the things that folks have been

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Speaker 1: speculating on is, you know, of the charges that he's facing,

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Speaker 1: and we haven't specified what they were, but they're largely

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Speaker 1: in the area of like fraud, misappropriation of customer funds, misrepresentation,

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Speaker 1: of like what it is that you are up to

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Speaker 1: and why you wanted money and what you're going to

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Speaker 1: do with up money. But if you were to kind

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Speaker 1: of do some very like legal arithmetic and just like

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Speaker 1: add up the maximum potential sentences for each of these,

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Speaker 1: he if found guilty on any or all of these,

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Speaker 1: could be facing a significant amount of time in prison.

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Speaker 1: Is it normal in cases of financial crime for people

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Speaker 1: to actually go to jail? I would compare this more

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Speaker 1: to like a thora nos kind of collapse. I think

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Speaker 1: that's what we would be seeing here. I mean, the

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Speaker 1: charges are not identical, they're similar, the effects are not identical,

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Speaker 1: but they're similar. Lenders teated out and customers teated out.

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Speaker 1: I mean that is what we're talking about here. Elizabeth

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Speaker 1: Holmes got sentenced to prison time last months. I mean,

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Speaker 1: this is how I see this playing out for for

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Speaker 1: same bankman freed if he's found guilty. If he's found guilty,

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Speaker 1: And I think another thing about cooperation is also you know,

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Speaker 1: and these charges that were brought against him is in

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Speaker 1: all of the suits that we saw, whether it was

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Speaker 1: from the d O J SEC or CFTC, he was

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Speaker 1: the only defendant mentioned in those suits and we know

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Speaker 1: that he definitely didn't run FTX alone. There are other

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Speaker 1: individuals that are involved, including Caroline Ellison, Gary Wang or

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Speaker 1: the director of engineering saying who are still m I

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Speaker 1: A and and we don't know whether this means that

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Speaker 1: they're cooperating with the government on their end, and what

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Speaker 1: it means about how guilty or not guilty they will

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Speaker 1: be found. These are all things that we are looking

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Speaker 1: at moving forward, right, And you know, to your point,

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Speaker 1: it's not clear if or when they will even be

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Speaker 1: charged with anything, especially because of the rates of which

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Speaker 1: this is unfolding. Right. It's not that folks have taken

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Speaker 1: two years to build a case and say these are

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Speaker 1: the charges against the whole bunch of people. They've taken

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Speaker 1: like a month and built a case against one person

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Speaker 1: so far, exactly. And I think that if you go

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Speaker 1: through these suits, you'll realize that a lot of like

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Speaker 1: perhaps like the mislabeling of where money was going in

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Speaker 1: the balance sheet within f t X, wasn't just Sam

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Speaker 1: BigMan free. There were other individuals that were perpetrating that mislabeling.

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Speaker 1: That hasn't been a reason for prosecutors so far to

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Speaker 1: bring any charges against them. And so that to me

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Speaker 1: raises a question of what's going on right. So to

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Speaker 1: your point, the big thing that's going to continue to

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Speaker 1: keep us awak for the foreseeable future is just that

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Speaker 1: it seems like there's more to come here reassuring. So

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Speaker 1: but but please don't call me at like six am again,

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Speaker 1: say may because I I had like a panic attack

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Speaker 1: when I woke up and I saw three miscalls from you.

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Speaker 1: I was like, oh my god, this is what happened.

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Speaker 1: I did. I did call Mr Leam and be like, hey,

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Speaker 1: news such as the life of a crypto editor. We'll

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Speaker 1: be right back with more of the week's top crypto stories,

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Speaker 1: featuring Anna Errera, senior editor at Bloomberg and Misfilena, a

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Speaker 1: Gulf FA polo. We spent a lot of time talking

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Speaker 1: about SPF and f t X, as we should, but

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Speaker 1: there's been another pretty big crypto story this week. Can

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Speaker 1: you just give us in, you know, like as non

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Speaker 1: technically as possible, what's been happening with finance. So finance

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Speaker 1: has been facing massive amounts of withdrawals essentially, so people

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Speaker 1: who are worried, are you know, you understandably if you

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Speaker 1: had money on ft X and as you said before.

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Speaker 1: You know, it's like a less than two months ago,

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Speaker 1: SPF was hailed as the next JP Morgan, and you

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Speaker 1: wouldn't think anything would go wrong. Then in a week

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Speaker 1: you've lost all your money on the platform. Then you

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Speaker 1: might start getting a bit wary about having money on

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Speaker 1: any centralized crypto exchange, and Finance is now by far

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Speaker 1: the biggest. It's like a gigantic compared to anyone else.

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Speaker 1: And so you know, people are getting worried and they're

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Speaker 1: pulling out their money from from Finance. So the situation

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Speaker 1: has stabilized a bit from earlier in the week, but

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Speaker 1: that in a Nutchell is what is going on. And

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Speaker 1: obviously I guess it's kind of like a vicious cycle.

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Speaker 1: If people get worried, then they keep withdrawing more and

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Speaker 1: then it keeps spreading. It's the next one to watch.

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Speaker 1: And you know they've they've tried to reassure customers before

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Speaker 1: that they had all the money and that they're they're

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Speaker 1: obviously not f t X, and they have if you

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Speaker 1: want to withdraw your funds, your funds will be there.

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Speaker 1: But you know they've they've fallen short of I guess

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Speaker 1: what people would want, which is a full audit. They've

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Speaker 1: not given that, and so people are still worried, basically,

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Speaker 1: and it's one to watch because they're so big. It's

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Speaker 1: one watch because they're the biggest, right like they they

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Speaker 1: are by far the largest crypto exchange by pick a metric,

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Speaker 1: and increasingly, in with the decline of FTX, they're absorbing

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Speaker 1: in theory at least even more customers who are looking

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Speaker 1: for a new place to put their money. But as

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Speaker 1: you say, you know, the folks of Bindance, including the CEO,

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Speaker 1: have tried repeatedly to reassure folks that anything that they

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Speaker 1: might be hearing out there is you know, to use

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Speaker 1: crypto's favorite word, fud, the unhelped full spreading of fair

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Speaker 1: uncertainty and debt. And just as a closing question for you,

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Speaker 1: what exactly do you think the prospects are for crypto

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Speaker 1: companies like finance and others to really embrace audited financials.

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Speaker 1: Not in the here's a quick snap shals in time

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Speaker 1: of what's going on, but here's an actual audit of

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Speaker 1: everything that's happening. I mean, you know, crypto hasn't been

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Speaker 1: regulated as much as other sectors, so it's hard to

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Speaker 1: have to do something that's tough as a firm if

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Speaker 1: you're not forced to write. Lots of companies preferre prefer

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Speaker 1: to stay private for longer because being a public company

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Speaker 1: comes with, you know, disclosures that you don't really want

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Speaker 1: to make, and so that's obviously for crypto. You could

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Speaker 1: argue that, you know, some would prefer not to get

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Speaker 1: audited because that requires a different level of disclosure and

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Speaker 1: you need to have your house in order, and maybe

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Speaker 1: you have not running your company as you should have

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Speaker 1: in any like it might not be anything massive like

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Speaker 1: obviously now we have the FDx example, which is I

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Speaker 1: would hope pretty extreme. But you know, if you've not

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Speaker 1: had any rules, then what rules where you're gould have

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Speaker 1: fall other than I guess ethics. But if more institutions

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Speaker 1: come in and more mainstream firms come in, and even

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Speaker 1: also now just regular customers, if you've been burned by FTX,

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Speaker 1: you might want to say and tell you the exchange

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Speaker 1: you're going to, Yes, I will put my money on

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Speaker 1: your platform. Yes I will trade there if you do

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Speaker 1: an audit, and maybe they will be pushed by customers

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Speaker 1: rather than regulation. But tends to be the case that

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Speaker 1: regulators and you know, not men with guns, but sort

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Speaker 1: of have more sway than just like I'm doing it

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Speaker 1: because I love the world and I want to you know,

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Speaker 1: behave well, you know, a soup. It's just cryptos. I

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Speaker 1: guess the way the world is unless you have repercussions

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Speaker 1: for doing things well. This has certainly been a week

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Speaker 1: of consequences. Um, Mr Lenna, Anna, thank you both for

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Speaker 1: joining me. Thank you. You can find more of Anna

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Speaker 1: and Mr Willias reporting on the Bloomberg Terminal and on

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Speaker 1: Bloomberg dot com, and be sure to check out our

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Speaker 1: twice weekly newsletter, Bloomberg Crypto. This is Bloomberg Crypto, a

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Speaker 1: shows from I Heart Radio, visit the I Heart Radio app,

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Speaker 1: your comments, questions or suggestions for the show to Crypto

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Speaker 1: at Bloomberg dot net. The supervising producer of Bloomberg Crypto

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Speaker 1: is Vicky Verglina. Our senior producer is Janet Babin. Our

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Speaker 1: producers are Mohammed Farouk and Sharon Barriro. Our associate producers

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Speaker 1: Marie Ishmael. Have a great weekend.