Speaker 1: This is Bloomberg Crypto, a daily Bloomberg IHOD podcast, and
Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.
Speaker 1: It's Friday, December sixte what's a week it's been breaking
Speaker 1: news overnight? Fd X founder sand Bankman free to rest
Speaker 1: it in the Bahamas, set to face the judge this
Speaker 1: morning after US prosecures found criminal charges in connection with
Speaker 1: a multibillion dollar collapse of his crypto company, Sam Bankman.
Speaker 1: Freed is now in a correctional facility in the Bahamas
Speaker 1: after his request for bail was denied by a judge.
Speaker 1: We said in that episode just a few days ago
Speaker 1: that the last couple of weeks have felt like thirty years.
Speaker 1: This one week has felt like a hundred. Here to
Speaker 1: recap some of the major events, including and most of portently,
Speaker 1: of course, what happened when Sam bang when Freed was
Speaker 1: arrested in the Bahamas. Are my colleagues, Anna arera Less
Speaker 1: than two months ago, SPF was hailed as the next
Speaker 1: JP Morgan and you wouldn't think anything would go wrong
Speaker 1: and Miss re Lenna a gulf of polo. Part of
Speaker 1: the reason why he was denied bail was because people
Speaker 1: were scared that he would flee Anna. Mr re Lena,
Speaker 1: thank you for joining me on what has been a
Speaker 1: week of no sleep for me at least for me
Speaker 1: at least, Mr Lenna, I'm gonna start with you. Tell
Speaker 1: our folks who you are, what you're up to, and
Speaker 1: why you haven't been sleeping this week. My name is
Speaker 1: Mr Lena and gulf of Ulu. I am the team
Speaker 1: leader for the legal news team at Bloomberg. I have
Speaker 1: been covering crypto for a while now, and this week
Speaker 1: I have not been sleeping because it appears to be
Speaker 1: the week where we essentially god perhaps when like the
Speaker 1: most important arrests in like crypto history play out after
Speaker 1: experiencing the most dramatic collapse of one of the biggest
Speaker 1: crypto companies over the past months. So this week really
Speaker 1: sort of brought everything we've been seeing the past month
Speaker 1: like front and center. You. I'm tired just listening to
Speaker 1: you say that Sam bankmun Freed went from appearing on
Speaker 1: stages at conferences including the Bloomberg Crypto Summit, and you know,
Speaker 1: being fetted by various lawmakers in the US and in
Speaker 1: the Bahamas to being literally under arrest Mr Lena, How
Speaker 1: did we get here? I mean, the bankruptcy of f
Speaker 1: TX occur exactly a month ago before this week, And
Speaker 1: I want to start by what we were experiencing last week,
Speaker 1: which I think is very indicative of how we got
Speaker 1: to where we are today. Last week we saw several
Speaker 1: meetings play out in the Manhattan Prosecutor's office where people
Speaker 1: from FTX bankruptcy teams, including the newly appointed CEO, lawyers
Speaker 1: for the company, as well as Manhattan prosecutors, were meeting
Speaker 1: inside the court. We didn't know why, but we knew
Speaker 1: they were meeting. Later, we found out around Friday that
Speaker 1: those meetings were really to discuss possible charges and look
Speaker 1: into what the possible charges they could bring against same
Speaker 1: bankman freed for the collapse might be. We thought this
Speaker 1: was going to take a while to figure out, years, years.
Speaker 1: I mean really, the Monday's arrest and the following indictment
Speaker 1: on Tuesday was just brought in spectacular speed for the
Speaker 1: d o J. I mean, I have some examples of
Speaker 1: how long it took to prosecute older cases. Let's talk
Speaker 1: about Enron, which happened back in two thousand one. It
Speaker 1: took two years for the prosecutors to build a is
Speaker 1: against the CEO, even most recently our cages Bill Hoong,
Speaker 1: that took over a year to build a case. Again,
Speaker 1: so when you think about the fact that it took
Speaker 1: a month for these prosecutors to pull a case together
Speaker 1: against Sa Makman Freed and indict him on eight charges,
Speaker 1: I mean that was out of nowhere. But like at
Speaker 1: the same time, the speed at which these happened kind
Speaker 1: of makes sense if you think about the fact that
Speaker 1: same bankman Free is currently in another country that has
Speaker 1: an extradition treaty with the United States, the Bahamas, in
Speaker 1: order to get him to the United States. It's a
Speaker 1: complicated process, and the first step to that process is
Speaker 1: US officials need to present an official indictment to behaving authorities.
Speaker 1: That is what gets the extradition process started, which could
Speaker 1: take up to years to complete. And so really here
Speaker 1: I think the speed was partially done so that they
Speaker 1: can start that process immediately, really just bring charges against
Speaker 1: him that we're basic in their nature. The sdn Y
Speaker 1: press conference that we saw happened this week was clear
Speaker 1: and that the investigation is still ongoing. So if we
Speaker 1: were to expect more charges against Bankman Freed, that wouldn't
Speaker 1: be out of the question, and so really speed here
Speaker 1: was to get extradition process started. We expect more charges
Speaker 1: to potentially come about later as prosecutors dig deeper. They
Speaker 1: really truly were very clear about the fact that they
Speaker 1: are not done. I mean, there's two things that are
Speaker 1: playing out here. First of all, Damon Williams, who is
Speaker 1: essentially the new U S District Attorney in New York City,
Speaker 1: has clearly said since he started that crypto is a
Speaker 1: priority for him in his office, and so of course
Speaker 1: it makes sense for them to basically jump in and
Speaker 1: capitalize on a case that's created so much online cry.
Speaker 1: I mean, the fact that so many people were questioning
Speaker 1: how Sam Bankman Freed was still free after this collapse
Speaker 1: and so many allegations that came against him. Really, I
Speaker 1: think most prosecutors to speed up the process so that
Speaker 1: online cry sort of capitalizing on that sentiment, I mean,
Speaker 1: I think helps the st N wise message be louder,
Speaker 1: and I think they want that right now. I know
Speaker 1: one of the things that we've both had to cover
Speaker 1: over the past month or so, is bank when Freed's
Speaker 1: media tour, is it the done thing? For someone whose
Speaker 1: company has just you know, filed for bankruptcy to be
Speaker 1: on a like a self flagellation slash apology slash. I
Speaker 1: don't have any recollection tour, No, absolutely not. It's not common.
Speaker 1: It is common for crypto to have very senior people
Speaker 1: just lead their own comms on Twitter essentially, but it
Speaker 1: is not common for someone who's been accused of so
Speaker 1: many different things to go and say sorry, right yeah, um,
Speaker 1: I mean, I'm deeply sorry about what happened. Part of
Speaker 1: it is if you say sorry, then someone could ask
Speaker 1: you what are you saying sorry for if you didn't
Speaker 1: do anything wrong, right, Like, if you have to defend yourself,
Speaker 1: then it doesn't excuse Saying sorry doesn't doesn't really help.
Speaker 1: And when with any kind of scandal that has a
Speaker 1: legal component, you don't really see the main person going
Speaker 1: on the TV and doing interviews right right straight after,
Speaker 1: like even before they even appear in any court. Right.
Speaker 1: It was a sort of unusual tactic, and he admitted
Speaker 1: himself at several points that his lawyers would have advised
Speaker 1: against it, so it was quite surprising. And then after
Speaker 1: a while, I guess it became a bit tired to
Speaker 1: like because he was just saying sorry many times. Whatever happened,
Speaker 1: why ever happened. I had a duty, clearly I do
Speaker 1: a good job of that. Really I made a lot
Speaker 1: of mistakes. Are things I would give anything to be
Speaker 1: able to do over again. Um I didn't. And you know,
Speaker 1: it's it was hard to see what the point was.
Speaker 1: I don't know whether you know it was kind of
Speaker 1: to portray himself in a certain way like I obviously
Speaker 1: I don't want to expect it because who knows. But
Speaker 1: it's definitely not not common for someone if you think
Speaker 1: of all the biggest financial scandals you know, think of
Speaker 1: like Librar recently. He didn't see the people there, the
Speaker 1: CEOs of the companies, or even if a company a
Speaker 1: big bank gets you know, a big fine for money laundering,
Speaker 1: you don't have the ceo go and do an interview thing.
Speaker 1: You know, this is what we did. I'm really sorry
Speaker 1: we we left up. That was kind of surprising for sure,
Speaker 1: And just to not coin a phrase, but to quote
Speaker 1: one I censored. Left up was going to be the
Speaker 1: first line of the testimony that bank when Freed was
Speaker 1: due to deliver on Tuesday before he was arrested Monday, nights.
Speaker 1: But Mr Lena, I want to go back to something
Speaker 1: that you said about like the speed of this and
Speaker 1: that it feels like it's happening in Internet time, which
Speaker 1: is you know, accelerated in ways that are probably bad
Speaker 1: for all of us. The whole thing about not just crypto,
Speaker 1: but the ascent of FTX has really felt incredibly fast.
Speaker 1: Right that they go from here's a bunch of folks
Speaker 1: who left Jane Streets and are taking interesting risks and
Speaker 1: doing stuff with you know, japan based arbitrage to this
Speaker 1: is showing up on Capitol Hill trying to inform the
Speaker 1: future direction of massive markets. Two, there's a bankruptcy. To
Speaker 1: the rate at which that bankruptcy is filed has you
Speaker 1: know John J Ray the third who Enron connection was
Speaker 1: the liquidator for Enron, saying things like he's never seen
Speaker 1: something more disorganized in his entire life. Like there's something
Speaker 1: about this that just feels like we've speed run through
Speaker 1: a crisis that would ordinarily take years. If this we're
Speaker 1: playing out at a slightly slower pace or in a
Speaker 1: slightly more like normal fashion, what would have been the
Speaker 1: next things to happen? Right, So, we've now had all
Speaker 1: of these indictments. We've had all of these charges in
Speaker 1: record time. What would normally happen next, What prosecutors need
Speaker 1: right now is to get san Baateman freed back into
Speaker 1: the United States. Um, there's a hearing scheduled on his
Speaker 1: extradition in February. That is the priority. Ordinarily that would
Speaker 1: take a very long time. There is an extradition treaty
Speaker 1: between the US and the Bahamas, as I mentioned. But
Speaker 1: you know, anyone in that position has rights, and they
Speaker 1: have the right to essentially reject extradition. And we have
Speaker 1: examples in the past of people who have been able
Speaker 1: to successfully fight for that right and have stayed in
Speaker 1: the Bahamas. Like this is something the US has had
Speaker 1: to deal with before. In this case, though, you know,
Speaker 1: there's just several factors that are in play. I mean,
Speaker 1: one big factor is, like SBF was denied bail. He's
Speaker 1: going to have to go to prison in the Bahamas.
Speaker 1: Their reports out that explained that the conditions in the
Speaker 1: Bahamas are not ideal. I mean, how long can SBF potentially,
Speaker 1: you know, put up with those conditions. And part of
Speaker 1: the reason why he was denied bail was because people
Speaker 1: were scared that he would flee if he were to
Speaker 1: be in the United States, you know, bail could come
Speaker 1: back on the table because maybe you know, authorities and
Speaker 1: prosecutors in the US wouldn't be as scared that he
Speaker 1: was going to flee the country as they are with
Speaker 1: him being in the Amas. So I guess the question
Speaker 1: now is, you know, do the circumstances and conditions that
Speaker 1: surround same bankman freed in the Bahamas discourage him from
Speaker 1: fighting extradition. And you know, there's still a question here,
Speaker 1: I think, on the table on whether he will cooperate
Speaker 1: with the government and whether that's going to offer something
Speaker 1: for him, because I think, you know, when you talk
Speaker 1: about the fact that so many charges could still possibly come,
Speaker 1: we're still very early in this story. If you were
Speaker 1: to cooperate, is that even an option on the table
Speaker 1: for for authorities and and what would that mean, like
Speaker 1: we could see that play out now. To your point
Speaker 1: about cooperation, one of the things that folks have been
Speaker 1: speculating on is, you know, of the charges that he's facing,
Speaker 1: and we haven't specified what they were, but they're largely
Speaker 1: in the area of like fraud, misappropriation of customer funds, misrepresentation,
Speaker 1: of like what it is that you are up to
Speaker 1: and why you wanted money and what you're going to
Speaker 1: do with up money. But if you were to kind
Speaker 1: of do some very like legal arithmetic and just like
Speaker 1: add up the maximum potential sentences for each of these,
Speaker 1: he if found guilty on any or all of these,
Speaker 1: could be facing a significant amount of time in prison.
Speaker 1: Is it normal in cases of financial crime for people
Speaker 1: to actually go to jail? I would compare this more
Speaker 1: to like a thora nos kind of collapse. I think
Speaker 1: that's what we would be seeing here. I mean, the
Speaker 1: charges are not identical, they're similar, the effects are not identical,
Speaker 1: but they're similar. Lenders teated out and customers teated out.
Speaker 1: I mean that is what we're talking about here. Elizabeth
Speaker 1: Holmes got sentenced to prison time last months. I mean,
Speaker 1: this is how I see this playing out for for
Speaker 1: same bankman freed if he's found guilty. If he's found guilty,
Speaker 1: And I think another thing about cooperation is also you know,
Speaker 1: and these charges that were brought against him is in
Speaker 1: all of the suits that we saw, whether it was
Speaker 1: from the d O J SEC or CFTC, he was
Speaker 1: the only defendant mentioned in those suits and we know
Speaker 1: that he definitely didn't run FTX alone. There are other
Speaker 1: individuals that are involved, including Caroline Ellison, Gary Wang or
Speaker 1: the director of engineering saying who are still m I
Speaker 1: A and and we don't know whether this means that
Speaker 1: they're cooperating with the government on their end, and what
Speaker 1: it means about how guilty or not guilty they will
Speaker 1: be found. These are all things that we are looking
Speaker 1: at moving forward, right, And you know, to your point,
Speaker 1: it's not clear if or when they will even be
Speaker 1: charged with anything, especially because of the rates of which
Speaker 1: this is unfolding. Right. It's not that folks have taken
Speaker 1: two years to build a case and say these are
Speaker 1: the charges against the whole bunch of people. They've taken
Speaker 1: like a month and built a case against one person
Speaker 1: so far, exactly. And I think that if you go
Speaker 1: through these suits, you'll realize that a lot of like
Speaker 1: perhaps like the mislabeling of where money was going in
Speaker 1: the balance sheet within f t X, wasn't just Sam
Speaker 1: BigMan free. There were other individuals that were perpetrating that mislabeling.
Speaker 1: That hasn't been a reason for prosecutors so far to
Speaker 1: bring any charges against them. And so that to me
Speaker 1: raises a question of what's going on right. So to
Speaker 1: your point, the big thing that's going to continue to
Speaker 1: keep us awak for the foreseeable future is just that
Speaker 1: it seems like there's more to come here reassuring. So
Speaker 1: but but please don't call me at like six am again,
Speaker 1: say may because I I had like a panic attack
Speaker 1: when I woke up and I saw three miscalls from you.
Speaker 1: I was like, oh my god, this is what happened.
Speaker 1: I did. I did call Mr Leam and be like, hey,
Speaker 1: news such as the life of a crypto editor. We'll
Speaker 1: be right back with more of the week's top crypto stories,
Speaker 1: featuring Anna Errera, senior editor at Bloomberg and Misfilena, a
Speaker 1: Gulf FA polo. We spent a lot of time talking
Speaker 1: about SPF and f t X, as we should, but
Speaker 1: there's been another pretty big crypto story this week. Can
Speaker 1: you just give us in, you know, like as non
Speaker 1: technically as possible, what's been happening with finance. So finance
Speaker 1: has been facing massive amounts of withdrawals essentially, so people
Speaker 1: who are worried, are you know, you understandably if you
Speaker 1: had money on ft X and as you said before.
Speaker 1: You know, it's like a less than two months ago,
Speaker 1: SPF was hailed as the next JP Morgan, and you
Speaker 1: wouldn't think anything would go wrong. Then in a week
Speaker 1: you've lost all your money on the platform. Then you
Speaker 1: might start getting a bit wary about having money on
Speaker 1: any centralized crypto exchange, and Finance is now by far
Speaker 1: the biggest. It's like a gigantic compared to anyone else.
Speaker 1: And so you know, people are getting worried and they're
Speaker 1: pulling out their money from from Finance. So the situation
Speaker 1: has stabilized a bit from earlier in the week, but
Speaker 1: that in a Nutchell is what is going on. And
Speaker 1: obviously I guess it's kind of like a vicious cycle.
Speaker 1: If people get worried, then they keep withdrawing more and
Speaker 1: then it keeps spreading. It's the next one to watch.
Speaker 1: And you know they've they've tried to reassure customers before
Speaker 1: that they had all the money and that they're they're
Speaker 1: obviously not f t X, and they have if you
Speaker 1: want to withdraw your funds, your funds will be there.
Speaker 1: But you know they've they've fallen short of I guess
Speaker 1: what people would want, which is a full audit. They've
Speaker 1: not given that, and so people are still worried, basically,
Speaker 1: and it's one to watch because they're so big. It's
Speaker 1: one watch because they're the biggest, right like they they
Speaker 1: are by far the largest crypto exchange by pick a metric,
Speaker 1: and increasingly, in with the decline of FTX, they're absorbing
Speaker 1: in theory at least even more customers who are looking
Speaker 1: for a new place to put their money. But as
Speaker 1: you say, you know, the folks of Bindance, including the CEO,
Speaker 1: have tried repeatedly to reassure folks that anything that they
Speaker 1: might be hearing out there is you know, to use
Speaker 1: crypto's favorite word, fud, the unhelped full spreading of fair
Speaker 1: uncertainty and debt. And just as a closing question for you,
Speaker 1: what exactly do you think the prospects are for crypto
Speaker 1: companies like finance and others to really embrace audited financials.
Speaker 1: Not in the here's a quick snap shals in time
Speaker 1: of what's going on, but here's an actual audit of
Speaker 1: everything that's happening. I mean, you know, crypto hasn't been
Speaker 1: regulated as much as other sectors, so it's hard to
Speaker 1: have to do something that's tough as a firm if
Speaker 1: you're not forced to write. Lots of companies preferre prefer
Speaker 1: to stay private for longer because being a public company
Speaker 1: comes with, you know, disclosures that you don't really want
Speaker 1: to make, and so that's obviously for crypto. You could
Speaker 1: argue that, you know, some would prefer not to get
Speaker 1: audited because that requires a different level of disclosure and
Speaker 1: you need to have your house in order, and maybe
Speaker 1: you have not running your company as you should have
Speaker 1: in any like it might not be anything massive like
Speaker 1: obviously now we have the FDx example, which is I
Speaker 1: would hope pretty extreme. But you know, if you've not
Speaker 1: had any rules, then what rules where you're gould have
Speaker 1: fall other than I guess ethics. But if more institutions
Speaker 1: come in and more mainstream firms come in, and even
Speaker 1: also now just regular customers, if you've been burned by FTX,
Speaker 1: you might want to say and tell you the exchange
Speaker 1: you're going to, Yes, I will put my money on
Speaker 1: your platform. Yes I will trade there if you do
Speaker 1: an audit, and maybe they will be pushed by customers
Speaker 1: rather than regulation. But tends to be the case that
Speaker 1: regulators and you know, not men with guns, but sort
Speaker 1: of have more sway than just like I'm doing it
Speaker 1: because I love the world and I want to you know,
Speaker 1: behave well, you know, a soup. It's just cryptos. I
Speaker 1: guess the way the world is unless you have repercussions
Speaker 1: for doing things well. This has certainly been a week
Speaker 1: of consequences. Um, Mr Lenna, Anna, thank you both for
Speaker 1: joining me. Thank you. You can find more of Anna
Speaker 1: and Mr Willias reporting on the Bloomberg Terminal and on
Speaker 1: Bloomberg dot com, and be sure to check out our
Speaker 1: twice weekly newsletter, Bloomberg Crypto. This is Bloomberg Crypto, a
Speaker 1: daily podcast from Bomberg and I Heart Radio. For more
Speaker 1: shows from I Heart Radio, visit the I Heart Radio app,
Speaker 1: Apple Podcasts, or wherever you get your podcasts. Send us
Speaker 1: your comments, questions or suggestions for the show to Crypto
Speaker 1: at Bloomberg dot net. The supervising producer of Bloomberg Crypto
Speaker 1: is Vicky Verglina. Our senior producer is Janet Babin. Our
Speaker 1: producers are Mohammed Farouk and Sharon Barriro. Our associate producers
Speaker 1: are Ty Butler and Moses on Them. Desta wonder At
Speaker 1: is our engineer, original music by Leo Sidron. I'm Stacy,
Speaker 1: Marie Ishmael. Have a great weekend.