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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You can expect to

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Speaker 1: see a familiar name, or at least a familiar set

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Speaker 1: of initials in your news feed this week. SBF, Sam

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Speaker 1: Bankman freed, will be back in a New York City

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Speaker 1: courtroom where he'll be sentenced. In November, a jury found

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Speaker 1: the disgraced cryptomogul, the former head of the cryptocurrency exchange FTX,

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Speaker 1: guilty of orchestrating one of the largest financial frauds in history.

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Speaker 1: A jury here in New York has reached a verdict

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Speaker 1: in the Sam one long trial, and the verdict coming

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Speaker 1: out after lessons five hours of delivery.

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Speaker 2: SBF faces decades in prison after swift guilty verdict.

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Speaker 1: I covered that month long trial and it was a spectacle.

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Speaker 1: Reporters would line up every day hours before sunrise, hoping

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Speaker 1: to score one of just a few dozen seats in

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Speaker 1: the courtroom. Do you think that people will camp out again?

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Speaker 3: Yes, and I actually, I mean, I've been wrong before,

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Speaker 3: but I think it'll be worse.

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Speaker 1: That's Zeke Fox, an investigative reporter here at Bloomberg and

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Speaker 1: someone I bumped into a few times in that pre

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Speaker 1: dawn darkness.

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Speaker 3: Everyone's rested and there's only one day, and yeah, I

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Speaker 3: don't think it's going to be like a show up

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Speaker 3: at six and you're you get in day.

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Speaker 1: I made that misjudgment once. Zeke and Max Chafkin, who's

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Speaker 1: a senior reporter at Bloomberg BusinessWeek, have been digging into

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Speaker 1: what was uncovered during the trial and the history of FTX,

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Speaker 1: and their latest story out today up ends a lot

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Speaker 1: of what we think we know about SBF's downfall and

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Speaker 1: how his crypto empire collapsed. Today on the show, the

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Speaker 1: sentencing of Sam Bankman Freed. His defenders argue he was

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Speaker 1: a brilliant entrepreneur who got in over his head into

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Speaker 1: a few wrong turns. But our reporters uncovered a very

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Speaker 1: different story that financial recklessness and a blatant disregard for

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Speaker 1: the rules may have been the key to bank and

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Speaker 1: Freed's success from the start. I'm David Gerrat, and this

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Speaker 1: is the big take from Bloomberg News. Sam Bankman Freed

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Speaker 1: was once the golden boy of crypto, and with a

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Speaker 1: few friends, he built FTX into a company that was

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Speaker 1: at one time valued at forty billion dollars. SBF also

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Speaker 1: presided over its implosion he's now thirty two years old,

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Speaker 1: and Thursday he'll learn how much of his life he'll

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Speaker 1: spend behind bars once again. He'll face Judge Lewis Kaplan

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Speaker 1: in a federal courthouse in Lower Manhattan.

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Speaker 2: The setting, I mean, one thing that is sort of

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Speaker 2: different from what you might see on television is incredibly

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Speaker 2: quiet right there. Like there's not a lot of movement.

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Speaker 2: No one's with a few exceptions are they're not reacting

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Speaker 2: to things. It's almost it's deliberately shorn of emotion and

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Speaker 2: all of the kind of pomp and circumstance that somebody

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Speaker 2: like SBF kind of relied on for a lot of

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Speaker 2: his you know, sort of rise like he was this

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Speaker 2: media darling. He's like often playing to crowds in various

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Speaker 2: ways or playing to Twitter.

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Speaker 1: Max Chafkins says it's one reason why Sam Bankman Freed's

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Speaker 1: decision to take the stand in his own defense backfired

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Speaker 1: so spectacularly.

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Speaker 2: And I think one it was sort of staggering watching

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Speaker 2: him when he testified. He kind of gave the same

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Speaker 2: testimony that he had been doing on like podcasts and interviews,

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Speaker 2: like sort of kind of just like talk and talk

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Speaker 2: and talk talk about all the nuances and complexities.

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Speaker 1: There were no cameras or recorders allowed in the courtroom,

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Speaker 1: but by the time SBF testified, he'd talked to reporters

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Speaker 1: hundreds and hundreds of times.

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Speaker 2: So it's a thrill to have him here and get

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Speaker 2: his perspective.

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Speaker 3: Sam, thank you so much for joining us.

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Speaker 1: Yeah, thanks for having me as always.

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Speaker 3: So today you're running ft action.

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Speaker 2: What does it actually do. It's a back end you know,

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Speaker 2: match engine, risk engine, custody system, say, front end, mobile app, website,

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Speaker 2: API and everything in between.

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Speaker 3: So that before I feel like you would hear that

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Speaker 3: and you would think, wow, this must be the quirky

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Speaker 3: kind of thinking that's turned him into the richest person

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Speaker 3: under thirty in history.

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Speaker 1: Someone who seemed so at ease in front of TV

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Speaker 1: cameras and congressional committees was out of his element in court.

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Speaker 3: And now he's up there accused of fraud and you're like,

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Speaker 3: oh no, this is like a kind of made up

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Speaker 3: story that doesn't even hang together very well.

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Speaker 1: But for a long time it did. Bankman Freed was

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Speaker 1: this almost mythical figure with a compelling story. He was

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Speaker 1: seen as a genius, one of the youngest self made billionaires,

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Speaker 1: ever and a man on a mission to save the

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Speaker 1: world by getting rich.

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Speaker 2: So Sam Bangmnfreed, before he got into cryptocurrency, was a trader,

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Speaker 2: very smart, mit educated trader. He worked for Jane Street

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Speaker 2: and was also closely involved with the effect of Altruism movement,

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Speaker 2: which is a charitable sort of extremely online kind of

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Speaker 2: hip with the Kid's charitable thing where it's about trying

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Speaker 2: to essentially trying to give your money in the most

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Speaker 2: effective way, in a way that benefits people. Sam Mgmunfree

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Speaker 2: brought into like a very specific version of that, which

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Speaker 2: was that earning to give it's called and it's where

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Speaker 2: you try to earn as much money and then give

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Speaker 2: it away.

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Speaker 1: Max has written the definitive piece on SBF's mom and dad,

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Speaker 1: who are on the faculty at Stanford Law School.

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Speaker 2: His parents are both famous in different ways. His father

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Speaker 2: is a tax lawyer who's friendly with a lot of

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Speaker 2: business people in Silicon Valley. His mother is an ethicist,

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Speaker 2: a pretty well respected ethicist. And I think that second thing,

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Speaker 2: his mother's identity, really gave some credibility to his whole thing.

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Speaker 2: With effective altruism. It was like there were pieces written,

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Speaker 2: you know, serious pieces that essentially said, you got to

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Speaker 2: believe this guy because of who his parents are, which

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Speaker 2: now when you say it in retrospect, seems kind of crazy,

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Speaker 2: but I mean it's kind of like an example of

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Speaker 2: the way that privilege protects people. I mean, he was

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Speaker 2: a very, very privileged guy and he used it to

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Speaker 2: his advantage.

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Speaker 1: SBF basically grew up on the Stanford campus, very familiar

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Speaker 1: with the unique culture of Silicon Valley, and he looked

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Speaker 1: the part like he.

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Speaker 2: Had this kind of crazy curly hair, he wore T

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Speaker 2: shirts and these like really like baggy saggy shorts, and

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Speaker 2: these like old running shoes, and like it was all

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Speaker 2: a part of this presentation which suggested, I think to

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Speaker 2: a lot of people, especially a lot of very sophisticated investors,

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Speaker 2: who in one way or another have internalized a lot

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Speaker 2: of stereotypes from Silicon Valley about like what a brilliant

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Speaker 2: guy looks like that this was another Mark Zuckerberg.

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Speaker 3: He seemed above it all, you know, and that really

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Speaker 3: impressed the venture capitalists who backed FTX at this big valuation.

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Speaker 3: I mean, famously, he would play video games during interviews

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Speaker 3: or important pitches, and when people noticed this, they were

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Speaker 3: only more impressed They're like, Wow, this is a guy

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Speaker 3: who he really doesn't need our money. He's playing League

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Speaker 3: of Legends. Well, he pitches us on investing out a

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Speaker 3: forty billion dollar valuation, Let's give him an even bigger check.

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Speaker 1: SBF presented himself as someone who wasn't concerned with appearances

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Speaker 1: or with impressing people.

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Speaker 3: He had this image that he was kind of the

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Speaker 3: responsible one in crypto, the one who was advocating for

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Speaker 3: sensible regulations that would tame the market and make it

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Speaker 3: safe for investors. And he became like the face of crypto.

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Speaker 1: And FTX became one of crypto's flagship companies in exchange

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Speaker 1: where anybody could buy and sell bitcoin and other cryptocurrencies.

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Speaker 3: So, I mean, if you think of FTX, like E trade,

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Speaker 3: customer might send in one thousand dollars, they buy a

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Speaker 3: share of Apple the opener E trade app, they see

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Speaker 3: that they have one share of Apple. It's just something

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Speaker 3: that you don't really question. There's the same with FTX

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Speaker 3: and you the customers sent in money by bitcoin or whatever,

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Speaker 3: and they'd see it when it opened the app.

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Speaker 1: FTX promised it would keep customers money safe, but Bankman

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Speaker 1: Freed and his colleagues were taking that money unbeknownst to customers,

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Speaker 1: and they were using it to buy luxury real estate

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Speaker 1: and to make big speculative investments. And when that came

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Speaker 1: to light, there was basically a bank run. FTX. Customers

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Speaker 1: tried to take out what they had on the site.

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Speaker 3: There was a rush of customers wanted to withdraw their money,

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Speaker 3: and what they found was it wasn't there. There was

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Speaker 3: an eight billion dollar hole.

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Speaker 1: Investors panicked, crypto prices collapsed, FTX went bankrupt, and then

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Speaker 1: bankman Freed was arrested. He was convicted less than a

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Speaker 1: year later, and right after the verdict was delivered, US

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Speaker 1: Attorney Damian Williams stood outside the courthouse and told reporters

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Speaker 1: the case was designed to send a message. It's a

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Speaker 1: warning this case to every single fraudster out.

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Speaker 4: There who thinks that they're untouchable, or that their crimes

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Speaker 4: are too complex for us to catch, whether they're too

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Speaker 4: powerful for us to prosecute, or that they could try

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Speaker 4: to talk their way out of it. When they get caught,

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Speaker 4: those folks should think again and cut it out. And

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Speaker 4: if they don't, I promise we'll have enough handcuffs for

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Speaker 4: all of them.

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Speaker 1: Sam Bankman freed could spend the rest of his life

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Speaker 1: in prison, and his fate rests in the hands of

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Speaker 1: Judge Lewis Kaplan, who will decide on a sentence based

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Speaker 1: on his understanding of the events that led to ftx's collapse.

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Speaker 1: After the break, what Max and Zeke have discovered, and

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Speaker 1: the real story behind SBF's downfall. Ever since Sam bankman

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Speaker 1: Fried was found guilty, a narrative has emerged that SBF

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Speaker 1: was a bad apple, that his decision it's tanked a

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Speaker 1: multi billion dollar company.

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Speaker 3: Naturally, people are comparing Sam BigMan Fried to other famous

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Speaker 3: fraudsters like Elizabeth Holmes or Bernie Madoff, and they're saying, hey,

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Speaker 3: look at FTX. I mean, the app worked, it was

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Speaker 3: kind of popular. Therefore, this isn't like a fake blood

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Speaker 3: testing machine. There was something real there.

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Speaker 1: Which is what journalist Michael Lewis said. He believes he

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Speaker 1: wrote a biography of SBF, and it's a conclusion. You

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Speaker 1: can hear him emphasizing in response to a question on

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Speaker 1: CBS News's Sixty Minutes, what's your response to someone who

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Speaker 1: hears us and says it's a.

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Speaker 4: Fun story and it's crypto.

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Speaker 3: In the Bahamas.

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Speaker 4: But this is the oldest architecture.

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Speaker 2: Of a financial collapse that's been going on for centuries.

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Speaker 5: This isn't a Ponzi scheme. Like when you think of

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Speaker 5: a Ponzi scheme, I don't know, Bernie Madoff. The problem

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Speaker 5: is there's no real business there. The dollar coming in

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Speaker 5: is being used to pay the dollar going out. And

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Speaker 5: in this case, they actually had a great real business.

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Speaker 5: If no one had ever cast a spurs on the business,

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Speaker 5: if there hadn't been a run on customer deposits, they

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Speaker 5: still be sitting there making tons of money.

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Speaker 1: Max and Zeke say that's just not true. After pouring

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Speaker 1: over thousands of pages of court documents and interviewing insiders,

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Speaker 1: they say the narrative of a good business gone bad

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Speaker 1: doesn't square with what they uncovered.

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Speaker 3: I think what the record shows is that, in fact,

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Speaker 3: this app would not have ever gotten to this level

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Speaker 3: without the fraud from the start. It was bolstered by

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Speaker 3: this misuse of the customer funds and by his willingness

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Speaker 3: to lie to banks, to venture capitalists, to customers, to congress.

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Speaker 2: The thing that's funny about this is he's supposed to

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Speaker 2: be this like ridiculously rich guy and he's splashing money.

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Speaker 2: But when you kind of scratch below that he had money,

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Speaker 2: he had cash flow of problems, like almost from before

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Speaker 2: the beginning, right. The only way he was able to

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Speaker 2: get this money to invest. He had a lot of

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Speaker 2: friends on Wall Street, but the money didn't come from them.

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Speaker 2: Mostly it came from effective out Twist and they charged him,

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Speaker 2: you know, insanely high interest rates page yeah, forty three percent.

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Speaker 2: Like he's he's having to pay these like yousurius? Is

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Speaker 2: that a word? You surius?

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Speaker 3: Uh?

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Speaker 2: You know interest rates? You know, this is not like

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Speaker 2: nothing about this screams good business. And I think one

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Speaker 2: of the reasons, not just because Michael Lewis is a

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Speaker 2: famous journalist and a great writer that this has taken on,

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Speaker 2: but also because the crypto industry, which is a you know,

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Speaker 2: multi billion dollar industry. There are lots of other people

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Speaker 2: who are very invested in this, in not not an FTX,

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Speaker 2: but in the idea that this is a good business.

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Speaker 2: Very much wants to believe that. Very much wants to

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Speaker 2: believe the story that Sam Bankman Freed was telling on

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Speaker 2: the way to committing this massive front.

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Speaker 3: Like there was nothing fundamentally wrong with FTX, there's nothing

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Speaker 3: fundamentally wrong with this idea that a crypto hedge fund

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Speaker 3: could make billions of dollars, Like, actually, Sam was this

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Speaker 3: bad apple who kind of inexplicably torpedoed the whole thing

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Speaker 3: by stealing the customer money. But I think the truth

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Speaker 3: is really that if he wasn't cheating from the beginning,

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Speaker 3: he never would have gotten there.

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Speaker 1: Zeke and Max say Bankman Freed used FTX as a piggybank.

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Speaker 1: In twenty twenty one, FTX faced a one billion dollar

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Speaker 1: loss after a trader exploited a bug in its software.

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Speaker 1: A loss of that size could have been devastating to FTX,

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Speaker 1: but Bankman Freed used his hedge fund to make it disappear.

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Speaker 1: This chapter of SBF's life could end in one of

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Speaker 1: a few ways. The judge could side with Bankman Fried's

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Speaker 1: lawyers and give him a pretty short prison sentence that

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Speaker 1: you could go with what the prosecution suggests, that's forty

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Speaker 1: or fifty years, or Judge Kaplan could sentence SBF to

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Speaker 1: decades more.

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Speaker 2: There's a big leeway in the prosecution memo. They essentially

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Speaker 2: say that he's very young, and although we want to

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Speaker 2: make sure that he doesn't become a recidivist, doesn't like

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Speaker 2: come out of prison and start another crypto company. He

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Speaker 2: needs to be basically in prison during his working the

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Speaker 2: rest of his career, but that when he's an elderly

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Speaker 2: person he can get out. That's what the prosecution is

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Speaker 2: asking for. Yeah, his lawyers are essentially saying, he's such

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Speaker 2: a good guy, look at his charitable giving. I mentioned

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Speaker 2: the effect of altruism. You know, he's got his whole

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Speaker 2: life ahead of him. That's why you know five or

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Speaker 2: six years would be more appropriate.

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Speaker 1: It's up to Judge Lewis Caplan. He's been a federal

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Speaker 1: judge since the early nineteen nineties, and Caplin presided over

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Speaker 1: SBF's trial, during which bankmin Freed tried his patience over

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Speaker 1: and over again. Let me ask you first just about

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Speaker 1: the role that Judge Lewis Kaplan is going to play

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Speaker 1: in all of this. It's his decision. Ultimately. I think

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Speaker 1: you as eyewitnessed over the course if yes, the trial,

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Speaker 1: but the pre trial proceedings a frosty dre I say,

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Speaker 1: skeptical outlook that the judge had toward Sam bagmanfree. There

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Speaker 1: were all of these missteps that made throughout the course

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Speaker 1: of this.

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Speaker 3: I mean even before the trial began, he had Sam

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Speaker 3: sent to prison. Sam had been on house arrested his

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Speaker 3: parents house, and then just kept violating the rules of

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Speaker 3: this house arrest. Among other things, he used a VPN

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Speaker 3: to watch the Super Bowl, and that's what he said.

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Speaker 1: Yes, Judge very skeptical of this. That's argument. Yeah, the

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Speaker 1: defense is holding out hope the judge will be sympathetic

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Speaker 1: to a new argument tied to a pretty significant development,

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Speaker 1: something unexpected that's come up in ftx's bankruptcy proceedings. It

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Speaker 1: turns out many FTX customers may get their money back,

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Speaker 1: and that's because bankruptcy lawyers have been very successful clawing

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Speaker 1: back assets and also some of the investments SBF made

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Speaker 1: have done pretty well.

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Speaker 3: And Sam's lawyers are arguing, well, in that case, this

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Speaker 3: guy should not be sentenced like he was the architect

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Speaker 3: of an eight billion dollar fraud, and they're asking for

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Speaker 3: a six and a half year sentence.

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Speaker 1: The defense is arguing, if customers are likely to get

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Speaker 1: their money back, who did SBF's actions really hurt. They're

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Speaker 1: making the case that a harsh sentence isn't justified.

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Speaker 3: And this question of how much money was lost really

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Speaker 3: is critical because the sentence and guidelines depend on the

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Speaker 3: amount of the fraud, and the prosecution cited a number

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Speaker 3: of other fraudsters and the sentences they got and noted

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Speaker 3: how much money was lost in those frauds to say, well,

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Speaker 3: in this case, we think even longer sentence would be appropriate.

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Speaker 1: But what Zeke and Max's reporting concludes and what prosecutors

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Speaker 1: have argued in court is that's just not how this works.

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Speaker 3: The weird thing is that just because the money has

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Speaker 3: been found now, it doesn't mean that the fraud didn't happen.

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Speaker 3: And the defense had actually tried to introduce this argument

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Speaker 3: during the trial, and the judge had ruled before the

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Speaker 3: trial he didn't think that that was relevant, and he

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Speaker 3: actually had sort of a biting put down of this argument,

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Speaker 3: and he told sam slawyers trying to say that the

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Speaker 3: money has now been found, it would be like if

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Speaker 3: you robbed Fort Knox, you went and bought a lot

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Speaker 3: of lottery tickets, you hit the lotto, and then you

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Speaker 3: said it meant that you shouldn't be found guilty of,

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Speaker 3: you know, breaking into the fort and stealing the gold bars.

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Speaker 3: So now they're trying that argument again maybe it's a

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Speaker 3: maybe the judge will find it more relevant at sentencing,

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Speaker 3: but he seemed pretty skeptical of it before.

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Speaker 1: There were people then who thought that the collapse of

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Speaker 1: FTX and Sam Bankman Freed's conviction could spell the end

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Speaker 1: of crypto, But today the world of bitcoin is booming again.

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Speaker 2: I honestly don't think it makes any difference to what's

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Speaker 2: happening in crypto, because what is going on in the

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Speaker 2: in the crypto industry, it is good times are happening,

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Speaker 2: you know, And it's not just that the prices are

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Speaker 2: going up. You have industry players, you know, going on

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Speaker 2: TV and writing huge checks to you, members of Congress

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Speaker 2: and political candidates, all trying to essentially make this industry

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Speaker 2: less regulated than the one that allowed for you know, crimes.

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Speaker 2: It's kind of wild how successful the industry has been

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Speaker 2: at sort of cutting itself off from from the bad actors.

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Speaker 2: And that's their argument, right, Their argument is that, hey,

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Speaker 2: we've gotten the bad actors out. This is you know,

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Speaker 2: now we're ready to build strength on strength or whatever,

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Speaker 2: and it's clean and like giddy up.

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Speaker 1: Prosecutors said they wanted this case to send a message.

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Speaker 1: The length of the sentence the judge imposes will determine

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Speaker 1: how powerful it'll be. But as Max said, many in

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Speaker 1: the crypto industry have moved on Bitcoin is back trading

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Speaker 1: your record highs, and it's unclear how much that message

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Speaker 1: will resonate. What is clear is that the three of us, Max, Zeke,

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Speaker 1: and I have an early bedtime before we go back

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Speaker 1: to the courthouse one more time. This is the Big

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Speaker 1: Take from Bloomberg News. I'm David Gera. This episode was

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Speaker 1: produced by David Fox. It was edited by Stacy Vanick

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Speaker 1: Smith and Mark Million. It was mixed by Ben O'Brien.

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Speaker 1: It was fact checked by Naomi oung. Our senior producers

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Speaker 1: are Naomi Shaven and Elizabeth Ponso. Nicole Beamster Gore is

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Speaker 1: our executive producer. Sage Bauman is our head of Podcasts.

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Speaker 1: Thanks for listening. Please follow and review The Big Take

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Speaker 1: wherever you listen to podcasts. It helps new listeners find

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Speaker 1: the show. We'll be back tomorrow.