Speaker 1: Pushkin. At roughly four in the morning of November the eleventh,
Speaker 1: twenty twenty two, Sam Bankman Freed signed the papers that
Speaker 1: would put his cryptocurrency exchange FTX into bankruptcy. Within hours,
Speaker 1: he was trying to walk it all back, calling the
Speaker 1: Chapter eleven filing my single biggest fuck up, but it
Speaker 1: was too late. Control of FTX had been handed over
Speaker 1: to John Ray, a lawyer who specializes in sprawling and
Speaker 1: messy bankruptcy proceedings. Here's what Ray testified to Congress less
Speaker 1: than a month after taking control of FTX. The FTX
Speaker 1: group's collapse appears to stem from absolute concentration of control
Speaker 1: in the hands of a small group of grossly inexperienced,
Speaker 1: unsophisticated individuals who failed to implement virtually any of the
Speaker 1: systems or controls that are necessary for a company and
Speaker 1: trusted with other people's money year assets. Raise the guy
Speaker 1: who oversaw the liquidation of big companies such as Enron
Speaker 1: and Nortel. The shady throws on Sam Bankman Freed is
Speaker 1: like a cloud of ash from Mount Vesuvius. Bankruptcies can
Speaker 1: be placed in the same legal category as divorces. They
Speaker 1: let the world know that something has gone really wrong,
Speaker 1: and the proceedings rarely leave anyone happy, except maybe for
Speaker 1: the lawyers who get paid no matter what. Also, it
Speaker 1: can be hard to figure out what actually went wrong.
Speaker 1: Everyone has a different version of events when it comes
Speaker 1: to the bankruptcy of FTX and bankruptcy in general. There's
Speaker 1: a lot I need to learn, So welcome to on
Speaker 1: background from Against the Rules. I'm Michael Lewis. I've had
Speaker 1: a front row seat to the meltdown at FTX, and
Speaker 1: my next book will be all about that. In this series,
Speaker 1: I get to take you along as I interview scholars
Speaker 1: and other journalists for background context I need. Today we're
Speaker 1: going deep into the bankruptcy system in the United States.
Speaker 1: How did it come about, how does it work now?
Speaker 1: Who's harmed really when a company declares bankruptcy and who benefits?
Speaker 1: And why are people now calling for changes to the system.
Speaker 1: To answer these questions, I turned to David Skale. He's
Speaker 1: a corporate law professor at the University of Pennsylvania and
Speaker 1: an expert on bankruptcy law in the United States. The
Speaker 1: first thing I wanted to know was why and when
Speaker 1: did he get so interested in bankruptcy. I went to
Speaker 1: law school, thinking about literature, never dreaming I would have
Speaker 1: an interest in business law at all. But I've fallen
Speaker 1: in love with it. And there were two reasons that
Speaker 1: I fell in love with it. One was I had
Speaker 1: never realized just how important bankruptcy is to American history.
Speaker 1: If you look back over the nineteenth century and ask
Speaker 1: the question, what were the most important shoes in American
Speaker 1: life in the nineteenth century, not just for a few years,
Speaker 1: but for the whole century. Obviously you would say slavery
Speaker 1: was number one, but bankruptcy might have been number two.
Speaker 1: Defend that there was a pitched battle over whether to
Speaker 1: have a federal bankruptcy law for a century, and pretty
Speaker 1: much every major figure in American politics came out on
Speaker 1: one side or the other side of the pro or
Speaker 1: anti bankruptcy divide. So, starting in the beginning, Alexander Hamilton
Speaker 1: was the leading pro bankruptcy person. His view was, if
Speaker 1: America was to be a commercial nation, we needed a
Speaker 1: bankruptcy system to make sure that creditors got treated fairly
Speaker 1: if debtors defaulted. Thomas Jefferson was vehemently anti bankruptcy. His
Speaker 1: view was bankruptcy would just be away for Northeastern creditors
Speaker 1: to take advantage of a bad farm year or a
Speaker 1: blip that caused somebody to go into debt and kick
Speaker 1: them off their farm or off off their homestead, and
Speaker 1: so all through the nineteenth century there was this fierce
Speaker 1: battle about whether to have a federal bankruptcy law or not,
Speaker 1: and it wasn't until the end of this century that
Speaker 1: we got a permanent law. Back up A second, for me,
Speaker 1: in Jefferson's mind, what would happen in place of bankruptcy,
Speaker 1: Like if I was effectively bankruptcy, if I was, you know,
Speaker 1: had no money in lots of debts, what did he
Speaker 1: think should happen? Then? Well, there were there were state procedures,
Speaker 1: but they were quite limited, so a state procedure would
Speaker 1: not have effect across state lines. But I think the
Speaker 1: thinking would have been that if a debt or defaults,
Speaker 1: it'll be a messier process. There is room to take
Speaker 1: care of people locally, even if that's at the expense
Speaker 1: of northeastern creditors. One of the big complaints about the
Speaker 1: absence of a federal bankruptcy law throughout the nineteenth century
Speaker 1: is there was a kind of home court advantage that
Speaker 1: the debtor and people close to the debtor had and
Speaker 1: so it'd be a little bit more likely that your
Speaker 1: brother got repaid than a department store in the northeast.
Speaker 1: And the and the Hamilton argument is with a bankruptcy
Speaker 1: law in place, credit might flow actually more freely. Oh,
Speaker 1: no question, Distant creditors would know that they were protected
Speaker 1: by the law. That's exactly right. And there were two
Speaker 1: kinds of concerns that creditors had. One is that they
Speaker 1: wouldn't be protected, and that local credit creditors would be
Speaker 1: protected more. And there were people in the legislative debates
Speaker 1: in the nineteenth century who defended that. They said, as
Speaker 1: a moral matter, you should repay your your brother or
Speaker 1: your neighbor before you you repay some out of town creditors.
Speaker 1: So there was a concern about even handedness. There also
Speaker 1: was a concern that debtors would just abscond, that if
Speaker 1: you're a debtor here in Pennsylvania you run into financial trouble,
Speaker 1: that you'll go west. And in fact, if you look
Speaker 1: at the court records in the nineteenth century, you will
Speaker 1: sometimes see in a Northeastern state like Pennsylvania or a
Speaker 1: Delaware on a file, you'll see the letters g T T,
Speaker 1: which stands for Gone to Texas. And one of the
Speaker 1: virtues of a federal bankruptcy law is it can reach
Speaker 1: people nationwide, so it's not people cannot escape by moving
Speaker 1: to another state. So creditors wanted there to be a
Speaker 1: fair distribution of the debtor's assets. They wanted to limit
Speaker 1: debtor's abilities to abscond when they defaulted, and they thought
Speaker 1: a bankruptcy system was the way to do it. So
Speaker 1: you become enamored of bankruptcy law because you see bankruptcy
Speaker 1: laws sits right in the middle of American history. That
Speaker 1: was the first reason. And then the other reason I
Speaker 1: became enamored of it is it's about meat individuals and
Speaker 1: institutions in a period of distress, and if this system
Speaker 1: works well, they can end up in a better place.
Speaker 1: And I found that cool forty years ago, thirty five
Speaker 1: years ago. I still find it cool today. It's about
Speaker 1: people whose lives and institutions better in a shambles and
Speaker 1: trying to put them in a better place. And I've
Speaker 1: got a big defender of the American bankruptcy system. Maybe
Speaker 1: too much of a defender, but I really think it's
Speaker 1: a great system. So theres a controversy argument through the
Speaker 1: thirties that leads to changes in the bankruptcy laws. They
Speaker 1: kind of echo something that I'm dealing with now, and
Speaker 1: I want you to talk about that a little bit,
Speaker 1: like what are the tensions that build up in the
Speaker 1: system that lead to it having to change. What really
Speaker 1: drove the populist side of the nineteen thirties was the
Speaker 1: large scale corporate side of things, the big corporations, and
Speaker 1: so that was evolving on a separate track. So I've
Speaker 1: been talking about the federal bankruptcy law didn't or wasn't
Speaker 1: used by large corporations. With large corporations, the way things
Speaker 1: evolved was the first large corporations were railroads. Railroads were
Speaker 1: privately run in this country, as you know, unlike in
Speaker 1: many countries. There was a gold rush to control important
Speaker 1: railroad lines, a lot of mergers and cobbling things together,
Speaker 1: sort of like the telecom boom of the early two
Speaker 1: thousands and before then. And whenever we had an economic crisis,
Speaker 1: a lot of the railroads would fail. And when they failed,
Speaker 1: it created a very odd dilemma, which is everybody thought
Speaker 1: that we needed the railroads. They needed to be reorganized.
Speaker 1: They needed to be kept in place on the one hand,
Speaker 1: but it wasn't clear that there was a legal basis
Speaker 1: for doing that. It wasn't clear Congress could step in
Speaker 1: and put a railroad reorganization statute in place. And the
Speaker 1: reason for this was there was bankruptcy clause in the Constitution,
Speaker 1: but in the nineteenth century a lot of people didn't
Speaker 1: think that applied to corporations. They thought corporations are governed
Speaker 1: by the states. They're not governed by Congress. Bankruptcy clause
Speaker 1: must not have corporations in mind. That argument eventually lost,
Speaker 1: but it was a very serious argument for a long time.
Speaker 1: What ended up happening was Wall Street lawyers and Wall
Speaker 1: Street bankers cobbled up this incredibly ingenious use of ordinary
Speaker 1: foreclosure law and turned it into a way to restructure
Speaker 1: large corporations. And what they did was when a railroad defaulted,
Speaker 1: some of the bondholders would ask the court to foreclose
Speaker 1: on their bonds, which had mortgages on railroad property. They
Speaker 1: were secured by mortgages, so the bond holders would ask
Speaker 1: the court to start a foreclosure proceeding. But they would say,
Speaker 1: but court don't have the sale now we'll tell you
Speaker 1: when we're ready for the sale. And then the Wall
Speaker 1: Street bankers would form committees of the bonds of the
Speaker 1: stocks that they had underwritten. They would negotiate with one
Speaker 1: another and with the debtor. They would work out the
Speaker 1: terms of the reorganization. They would then form one big
Speaker 1: committee called the reorganization Committee. Then they'd go back to
Speaker 1: the court and they'd say Court, we're ready for our
Speaker 1: foreclosure sale now. And there would be exactly one bidder
Speaker 1: at the foreclosure sale, which would be the reorganization committee,
Speaker 1: and it would bid all of the old stock, all
Speaker 1: of the old bonds, plus a little bit of cash
Speaker 1: to pay off the people who couldn't be persuaded to
Speaker 1: go along. So it was this incredibly ingenious distortion of
Speaker 1: ordinary foreclosure law that was turned into a reorganization framework.
Speaker 1: So it was this kind of informal reorganized strategy which
Speaker 1: was called railroad receivership or equity receivership, and it was
Speaker 1: used for decades with no statute at all until the
Speaker 1: nineteen thirties, and then it finally got codified in the
Speaker 1: nineteen thirties. In the early nineteen thirties and about the
Speaker 1: time it was getting codified. The New Deal reformers said,
Speaker 1: wait a second, this is outrageous. These Wall Street banks
Speaker 1: and lawyers are ripping everybody off. And that's what led
Speaker 1: to the big overhaul in nineteen thirty eight. And what
Speaker 1: happens in that they essentially destroy the Wall Street practice.
Speaker 1: So what the nineteen thirty eight law did was called
Speaker 1: the Chandler Act of nineteen thirty eight. Is it said,
Speaker 1: if you are a bank or if you are a
Speaker 1: law firm that represented the debtor before they filed for bankruptcy,
Speaker 1: you can't have anything to do with them in bankruptcy.
Speaker 1: Which makes the old railroad receivership process impossible because it
Speaker 1: was based on the original bankers who'd underwritten the stock
Speaker 1: were bonds in the Wall Street lawyers being the same
Speaker 1: people who would work things out after default. But they
Speaker 1: were kicked out of the process. And then finally in
Speaker 1: nineteen seventy eight, Congress overhauled the bankruptcy laws again and
Speaker 1: we essentially went back to the old practice where the
Speaker 1: managers of the company are not kicked out when it
Speaker 1: files for bankruptcy. They continue running the company. The fact
Speaker 1: that you were a banker or a lawyer for the
Speaker 1: company before bankruptcy does not preclude you from representing it. Interestingly,
Speaker 1: there's a little FTX angle there. There was a bit
Speaker 1: of a firestorm about let's let's wait on that. Let's
Speaker 1: wait on that. We'll be right back. I'm back with
Speaker 1: bankruptcy expert David Skale. So I want to turn you
Speaker 1: to my purposes now. I want to talk about it now.
Speaker 1: I want to talk about FTX, and I want to
Speaker 1: walk you through just like some specific questions I have
Speaker 1: as I've watched, because i've I've watched kind of watched
Speaker 1: it unfold. I was there the day that Sam Bankman
Speaker 1: Freed signed the bankruptcy papers, and he was He says it,
Speaker 1: you know, he said this publicly that he's the worst
Speaker 1: thing he ever did and he shouldn't have done it,
Speaker 1: and he only did it because the internal council was
Speaker 1: yelling at him. Everybody's yelling at him. He so he
Speaker 1: signs these things at four in the morning and five
Speaker 1: minutes later changes his mind and says he wished he
Speaker 1: wants it back, and they say it's too late, you
Speaker 1: can't You've already signed them. So first question is, so
Speaker 1: you basically understand, you have a sense of what FTX
Speaker 1: was as a business, It was a it was a
Speaker 1: cryptocurrency exchange. They were a hundred and something different entities
Speaker 1: that had you know, exchange in Japan and exchange in Turkey.
Speaker 1: It had an exchange in the United States, but the
Speaker 1: bulk of the business was in the Bahamas. And he's
Speaker 1: in the Bahamas and most of the important employees are
Speaker 1: in the Bahamas. What would happen if he doesn't sign it,
Speaker 1: Like he's being asked to declare bankruptcy in the United States,
Speaker 1: even though the vast majority of what he's doing is
Speaker 1: outside of the United States, and the vast majority of
Speaker 1: what he's doing is even illegal for Americans to participate in.
Speaker 1: If he doesn't sign, what would have happened? Probably what
Speaker 1: happens is FDx gets thrown into bankruptcy in the US,
Speaker 1: not in the Bahamas. Well though it's there's got to
Speaker 1: be a proceeding in the Bahamas as well. I believe
Speaker 1: the Bahamas liquidators initiated that themselves. That's true. That's true,
Speaker 1: So that probably why what would how would it have
Speaker 1: gotten thrown into bankruptcy in the United States? As a
Speaker 1: as a technical matter, it is very easy to put
Speaker 1: a company into bankruptcy. All it takes is you have
Speaker 1: to have three creditors that sign the petition, and they
Speaker 1: have to have roughly nineteen thousand dollars in general obligations
Speaker 1: general unsecured claim so you could take three customers. The
Speaker 1: American creditors were such a trivial part of the business,
Speaker 1: they could easily have just paid them off. Presumbly, these
Speaker 1: would have to have been American creditors in the United States. No,
Speaker 1: not necessarily. What they need is an American presence, and
Speaker 1: FTX did have an American presence, so they would not
Speaker 1: need to be American creditors. He couldn't pay off enough
Speaker 1: people to stop it, I don't think, I mean it is.
Speaker 1: It's a little trickier with something like FTX because they
Speaker 1: don't have a lot of the ordinary creditors, you know,
Speaker 1: the big bank lenders who are sophisticated working together and
Speaker 1: would plot something like this out. I mean, there might
Speaker 1: have been that there were not three creditors who were
Speaker 1: ready to file a petition right away, but there would
Speaker 1: have been a petition almost certainly filed in the US
Speaker 1: because typically, if you have a choice, you probably want
Speaker 1: to have a US proceeding because people like the US
Speaker 1: bankruptcy system. He didn't have the power to control where
Speaker 1: he went bankrupt. He could have conditioned his willingness to
Speaker 1: sign on it being filed in a particular play, so
Speaker 1: he would have had power in that sense within the
Speaker 1: United States. But he couldn't have said, I'm bankrupt in
Speaker 1: the Bahamas, and the Bahamas is going to deal with
Speaker 1: my case, and the assets are here and everybody else.
Speaker 1: You can screw yourself. He can say that, but the
Speaker 1: world doesn't have to listen to him. I think there
Speaker 1: was a concern that I've heard about that he was
Speaker 1: moving assets away and the longer it took to get
Speaker 1: into bankruptcy, the more risk there was that assets would
Speaker 1: be gone by the time they got into bankruptcy. Or
Speaker 1: so let me let me let me ask you this, then,
Speaker 1: what are the checks on the insiders who are now
Speaker 1: controlling the bankruptcy process from just bleeding the firm for
Speaker 1: fees rather than getting the assets back to the owners.
Speaker 1: Are there are a handful of checks of varying degrees
Speaker 1: of effectiveness. So there is a watchdog. There's an entity
Speaker 1: called the US trustee. Ah, Okay, who is that person?
Speaker 1: Like where did that role come from and what powers
Speaker 1: do they have. It's an arm of the Justice Department,
Speaker 1: and they were put in places as a watchdog. They
Speaker 1: were created in nineteen seventy eight when the when the
Speaker 1: current bankruptcy laws went into plays kind of as a
Speaker 1: replacement for the Securities and Exchange Commission. Before nineteen seventy eight,
Speaker 1: the Security is an exchange Commission played a major role
Speaker 1: in large bankruptcies. They were kind of kicked out in
Speaker 1: nineteen seventy eight. In the US Trustee is to some
Speaker 1: extent their replacement. So they're a government entity. They're a watchdog.
Speaker 1: One of the things they do look at is fees
Speaker 1: and conflicts of interest in things of that sort. One
Speaker 1: of the problems in one of the reasons why the
Speaker 1: US Trustees is needed is the most obvious check on
Speaker 1: attorneys or financial advisors churning, you know, wasting money, would
Speaker 1: be other attorneys and financial advisors, because they can see it,
Speaker 1: they understand it. But because all of these folks are
Speaker 1: repeat players and they're all part of the same inside
Speaker 1: group of attorneys and financial advisors, they don't have an
Speaker 1: incentive to be a check on each other. So it
Speaker 1: does require somebody else. And so the US Trustee is
Speaker 1: one check. Let me stop you in one second. There
Speaker 1: does the Department of Justice have any recourse? They really don't.
Speaker 1: They really don't, don't. All right, There isn't a real check.
Speaker 1: There's a person who can kind of do journalism, and
Speaker 1: the judge can read the journalism and decide whether he's
Speaker 1: going to believe it or not. Those are your word's
Speaker 1: not mine. But but there are limits to the check.
Speaker 1: And I will, kind of consistent with what you're saying,
Speaker 1: say that the US Trustee is often seen as a
Speaker 1: gad fly, you know, kind of a past that that
Speaker 1: we insiders need to have to put up with. Not always,
Speaker 1: It really depends on who the US Trustee is. But
Speaker 1: it's not a complete check. And the other check that's
Speaker 1: emerged in recent years is in a lot of cases
Speaker 1: there are fee examiners, So there is somebody who's brought
Speaker 1: in to look at the fees and to raise questions
Speaker 1: about the fees and to challenge the fees where they're problematic.
Speaker 1: I don't know if there's a fee examiner and FTX.
Speaker 1: I would think there probably will be one if there's
Speaker 1: if there's not, but that that's another check. But you
Speaker 1: know your follow up question will be at the end
Speaker 1: of the day, how much of a check is this?
Speaker 1: And you know my answer would be it's not a
Speaker 1: huge check. You know there there is a potential issue
Speaker 1: issue there. I I think by and large, the professionals
Speaker 1: do a good job and they don't tend to just
Speaker 1: drag out a case to drag it out, but there
Speaker 1: there is opportunity to run up fees. There's there's no
Speaker 1: denying that. What kind of person becomes a bankruptcy judge,
Speaker 1: it's usually a bankruptcy lawyer that becomes a bankruptcy judge.
Speaker 1: So it's someone who's pretty sympathetic to the fees that
Speaker 1: bankruptcy lawyers get paid. It's somebody who tends to be
Speaker 1: pretty sympathetic to the system. If I'm gonna have you
Speaker 1: moneyball bankruptcy judges, all right, and and and figure out
Speaker 1: who the good wines are, who the bad ones are,
Speaker 1: what trade? What would you look for? One thing I
Speaker 1: would look for is thick skin. Some some bankruptcy judges
Speaker 1: take things a little bit too personally in my views,
Speaker 1: So thick skin is a nice quality. Another good quality
Speaker 1: is not being in a rush to pass judgment on
Speaker 1: whatever the issue is. A lot of bankruptcy judges put
Speaker 1: a premium on encouraging the parties to settle, you know,
Speaker 1: I think sometimes there can be a little too much
Speaker 1: of that. The judge is at an informational disadvantage. There's
Speaker 1: a huge amount of information floating around, but the judge
Speaker 1: doesn't know as much as the insiders do about what's
Speaker 1: going on in a case, and so they really have
Speaker 1: to have kind of a sixth sense or a nose
Speaker 1: for problems because most of bankruptcy judge is power is
Speaker 1: veto power or power to say no. The bankruptcy judge
Speaker 1: doesn't make the deal. The bankruptcy judge doesn't decide what
Speaker 1: the terms of the restructuring are. The bankruptcy judge either
Speaker 1: approves it or doesn't approve it. So they have to
Speaker 1: really know when to call bs essentially, and that's hard
Speaker 1: because it's a it's a system that's run by insiders.
Speaker 1: They're incredibly sophisticated, they're incredibly smart, and they are very
Speaker 1: good at putting the judge in a position where the
Speaker 1: judge feels like they don't have any choice. Companies come
Speaker 1: to bankruptcy, they're out of cash. Their lender says, you've
Speaker 1: got to sell the assets to this buyer right now,
Speaker 1: or the company is going to go up in smokes.
Speaker 1: And the judge has to make a decision do I
Speaker 1: call their bluff or do I just say okay? And
Speaker 1: it's really hard because if you call their bluff and
Speaker 1: it turns out it's not just a bluff, there can
Speaker 1: be you know, a lot of a lot of value
Speaker 1: destroyed and a lot of lives made worse, and so
Speaker 1: it's very tough. After a quick break, David Skeel and
Speaker 1: I get into what may turn out to be one
Speaker 1: of the harriest hair balls in the FTX bankruptcy proceedings,
Speaker 1: all those generous donations that Sam Bankman Freed made the charity.
Speaker 1: I'm back with David Skeel on background. There's one other
Speaker 1: big subject I'm really curious about now. I'm sure it's
Speaker 1: going to change, and I want to bother you again later,
Speaker 1: but clawbacks so FTX is not just in bankruptcy, but
Speaker 1: it's in bankruptcy, and the people who ran being charged
Speaker 1: with fraud, and anybody who received money from this place, employees,
Speaker 1: people who did sponsorship deals with them, people who receive
Speaker 1: philanthropic dollars from them. People who got investment returns from
Speaker 1: them are now facing the possibility they're gonna have to
Speaker 1: give the money back into the bankruptcy. And some of
Speaker 1: these amounts are quite astonishing. Like Sam Bankmanfrey wrote a
Speaker 1: check for a couple of billion dollars to buy out
Speaker 1: his rival and competitor eighteen months ago, And the question
Speaker 1: is what right does the bankruptcy have to claw money
Speaker 1: back that went out? Like is there a lot of
Speaker 1: pressing it for this? Sam Bankmanfrey gave me a million
Speaker 1: dollars a year ago or six months ago to cure cancer.
Speaker 1: And I'm just I'm just a cancer researcher. And now
Speaker 1: they come knock on my door and they say they
Speaker 1: want the million dollars back. What's the likeli to I
Speaker 1: have to give it back? It's it's really high. It's
Speaker 1: the likely is it really? I didn't know that it
Speaker 1: is the claws? But if I spent it on cancer research,
Speaker 1: then you've got a problem. Assuming that we can link
Speaker 1: it to FTX, then the clawback stuff goes into motion.
Speaker 1: If somehow he gave money that was truly his money,
Speaker 1: that wasn't FTX money, then he's not in bankruptcy at
Speaker 1: this point at least, and so the clawb X wouldn't apply.
Speaker 1: But to the extent it's commingled and it's it's FTX money,
Speaker 1: there is a very high risk that this has to
Speaker 1: come back, and the way it comes back is as
Speaker 1: what's called a fraudulent conveyance. And there there are two
Speaker 1: ways that transfer can be a of fraudulent conveyance. One
Speaker 1: is if Sam bankman fried and FTX was was trying
Speaker 1: to stiff creditors, you know, wanted to give it to
Speaker 1: the cancer researcher because he just really didn't like his creditors,
Speaker 1: thought there were a bunch of jerks. That would be
Speaker 1: actual fraud. The other form of fraudulent conveyance is what's
Speaker 1: called constructive fraud or constructive fraudulent conveyance, and you have
Speaker 1: to show two things. One is that the dator FTX
Speaker 1: was insolvent at the time or nearly insolvent at the time,
Speaker 1: and the second is that the transfer was made for
Speaker 1: less than reasonably equivalent value. So if you're transferring money
Speaker 1: to a cancer research or you're not getting anything for it,
Speaker 1: so there's there's no value being received, but if I
Speaker 1: came in as a plumber and fixed your plumbing. That
Speaker 1: would be different if you were paying me for some
Speaker 1: service that I provided, right, you know, assuming that that
Speaker 1: I paid you the dat are paid the reasonable value
Speaker 1: for the service, not five times what the service is. What. Yes,
Speaker 1: that would be fine. You can do new transactions. What
Speaker 1: you can't do is sell assets for less than their
Speaker 1: worth within two years before bankruptcy or give assets away.
Speaker 1: And charitable contributions look like giving assets away. And what
Speaker 1: a lot of folks seem to have done, or at
Speaker 1: least some folks seem to have done with Sam Bankman
Speaker 1: freed contributions has treated them like hot potatoes. You know,
Speaker 1: when there were problems, they thought, oh my, they might
Speaker 1: come after me, and some people, like politicians I think,
Speaker 1: turned around and gave the money to some other charity.
Speaker 1: But that doesn't solve their problem. It doesn't solve the
Speaker 1: problem at all, and it makes it worse in a
Speaker 1: way because you don't have the money and you still
Speaker 1: have to give it back. Right, Sam bankmfree was handing
Speaker 1: out money left and right. To believe, the most open
Speaker 1: handed person in our hemisphere, and everybody on the receiving
Speaker 1: end was so grateful, and they were so happy they
Speaker 1: were getting all this money, and now they've got the
Speaker 1: biggest headache of their lives. Oh, it's really true. And
Speaker 1: one of the big legal ethical dilemmas of the case
Speaker 1: I think is gonna be do you go after everybody
Speaker 1: you know? Do you go after the little people? The
Speaker 1: people that you know? Somebody they got twenty five thousand dollars,
Speaker 1: that's that's a lot of money for them, but not
Speaker 1: much money for the customers and other creditors of FTX.
Speaker 1: They're gonna be some real difficult decisions I think about
Speaker 1: who to go after and who not to go after.
Speaker 1: But the norm is that you go after everybody. If
Speaker 1: just hypothetically, if he had paid me to write his biography,
Speaker 1: and like say, he paid me a fortune to write
Speaker 1: his biography and I was still writing the biography, would
Speaker 1: they come after me or would they wait to see
Speaker 1: if the biography was worth it? I mean, they might
Speaker 1: go after you even if if the biography is going
Speaker 1: to make millions of dollars. I am so glad this
Speaker 1: isn't an authorized biography. I mean, it's just what a
Speaker 1: terrible I mean, he's he's affected precisely all the things
Speaker 1: he cares about most because that's where the money went.
Speaker 1: I think that's right. I mean, everybody that he was
Speaker 1: kind of trying to help and do good things, as
Speaker 1: you said, they now have a very big problem. He
Speaker 1: said something earlier that was interesting to me that you
Speaker 1: have to show not only that you didn't get value
Speaker 1: for it or equivalent value, but you have to show
Speaker 1: that when the money changed hands, the enterprise was insolvent.
Speaker 1: So you need to identify the moment of insolvency. That's
Speaker 1: the big sticking point with fraudulent conveyance actions. There are
Speaker 1: two or three different things that you can show, each
Speaker 1: of which is related to insolvency, and it can be
Speaker 1: very very difficult to show. So that will be a
Speaker 1: big issue. That's going to be that's going to be
Speaker 1: where the arguments happen. So I have one more twist
Speaker 1: for you on the fraudulent conveyance stuff, which I don't
Speaker 1: think is going to change that answer. But the one
Speaker 1: more interesting quirk of fraudulent conveyance is if you are
Speaker 1: running a Ponzi scheme, you know, like the made Off
Speaker 1: Ponzi scheme, there is a presumption that any money you
Speaker 1: transferred was actual fraud. Now pretty unfathomable that a court
Speaker 1: would conclude FTX was a Ponzi scheme. You know, it's
Speaker 1: not a true Ponzi scheme. But if somehow they did,
Speaker 1: all of these transfers might be actual fraud rather than
Speaker 1: constructive frauds, so that you wouldn't even have to show
Speaker 1: the insolvency. It won't happen, I don't think but yeah don't. Yeah,
Speaker 1: I don't. I don't think so either, because it was
Speaker 1: actually a legitimate, profitable business on its own. All right,
Speaker 1: this was really interesting, David, Thank you so much. You
Speaker 1: are quite welcome, Take care, take care of by bye.
Speaker 1: Let's end to day by answering our question from one
Speaker 1: of our listeners, or maybe more than one, Caleb. Caleb asks, Hi, Michael,
Speaker 1: can you let us know what podcast you're listening to
Speaker 1: right now and the best books you read in two
Speaker 1: thousand twenty two? Thank you, Cale, Thanks for being so polite.
Speaker 1: You know, I'm right now in a funny creative place.
Speaker 1: I've just handed in a screenplay for a TV show,
Speaker 1: a pilot for a TV show, and I've just, at
Speaker 1: the same time I started writing a book, and I'm writing, writing, writing,
Speaker 1: and when I really start writing, I tend not to
Speaker 1: read or listen to anything, and it's just like I'm
Speaker 1: bored with everything. But what I'm working on board's wrong
Speaker 1: word that I'm annoyed by it. I don't want to
Speaker 1: be distracted by it. So I'm not really listening to
Speaker 1: any podcasts right now. The solve I'm gonna change your
Speaker 1: question a little bit. What's the last podcast that just
Speaker 1: absolutely riveted me? And I was a little late to it,
Speaker 1: but there was a podcast called The Just Enough Family
Speaker 1: by Ariel Levy or Levy, I don't know how you
Speaker 1: pronounce her last name, but it's a nineteen eighties story
Speaker 1: about Saul Steinberg, the tycoon, the takeover person, and essentially
Speaker 1: the aftershocks of both his rise and his fall. It's
Speaker 1: told through members of his family, and it's the most
Speaker 1: extraordinary act of reportage because what Aeron Levy does, she
Speaker 1: essentially gets the characters in this family to talk to
Speaker 1: you about their experiences and about each other. You can
Speaker 1: barely imagine them talking about themselves and each other to
Speaker 1: their therapists. I mean, you're just like in the middle
Speaker 1: of the mess, and you know, the whole thing about
Speaker 1: all happy families are the same, and every unhappy family
Speaker 1: is different in its own way. This unhappy family has
Speaker 1: just an extraordinary way of being unhappy. And I just thought,
Speaker 1: you know. Brava A Brava. All Right. On Background is
Speaker 1: hosted by Me Michael Lewis and produced by Catherine Gerardo
Speaker 1: and Lydia Jane Cotton. Our editor is Julia Martin. Our
Speaker 1: engineer is Sarah Brugaire. Thanks to our SVP of production
Speaker 1: Greta Cone, our show is recorded by Tofa Ruth at
Speaker 1: Berkeley Advanced Media Studios. Our music was composed by Matthias
Speaker 1: Bossy and John Evans a Stellwagon symphonette. My old friend
Speaker 1: Nick Brettel composed our theme song. On Background is a
Speaker 1: production of Pushkin Industries. Don't forget that we have a
Speaker 1: website atr podcast dot com in case you want to
Speaker 1: send me a question or a complaint or anything at all.
Speaker 1: I'll read the questions, I won't read the complaints. That's
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