Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You can expect to
Speaker 1: see a familiar name, or at least a familiar set
Speaker 1: of initials in your news feed this week. SBF, Sam
Speaker 1: Bankman freed, will be back in a New York City
Speaker 1: courtroom where he'll be sentenced. In November, a jury found
Speaker 1: the disgraced cryptomogul, the former head of the cryptocurrency exchange FTX,
Speaker 1: guilty of orchestrating one of the largest financial frauds in history.
Speaker 1: A jury here in New York has reached a verdict
Speaker 1: in the Sam one long trial, and the verdict coming
Speaker 1: out after lessons five hours of delivery.
Speaker 2: SBF faces decades in prison after swift guilty verdict.
Speaker 1: I covered that month long trial and it was a spectacle.
Speaker 1: Reporters would line up every day hours before sunrise, hoping
Speaker 1: to score one of just a few dozen seats in
Speaker 1: the courtroom. Do you think that people will camp out again?
Speaker 3: Yes, and I actually, I mean, I've been wrong before,
Speaker 3: but I think it'll be worse.
Speaker 1: That's Zeke Fox, an investigative reporter here at Bloomberg and
Speaker 1: someone I bumped into a few times in that pre
Speaker 1: dawn darkness.
Speaker 3: Everyone's rested and there's only one day, and yeah, I
Speaker 3: don't think it's going to be like a show up
Speaker 3: at six and you're you get in day.
Speaker 1: I made that misjudgment once. Zeke and Max Chafkin, who's
Speaker 1: a senior reporter at Bloomberg BusinessWeek, have been digging into
Speaker 1: what was uncovered during the trial and the history of FTX,
Speaker 1: and their latest story out today up ends a lot
Speaker 1: of what we think we know about SBF's downfall and
Speaker 1: how his crypto empire collapsed. Today on the show, the
Speaker 1: sentencing of Sam Bankman Freed. His defenders argue he was
Speaker 1: a brilliant entrepreneur who got in over his head into
Speaker 1: a few wrong turns. But our reporters uncovered a very
Speaker 1: different story that financial recklessness and a blatant disregard for
Speaker 1: the rules may have been the key to bank and
Speaker 1: Freed's success from the start. I'm David Gerrat, and this
Speaker 1: is the big take from Bloomberg News. Sam Bankman Freed
Speaker 1: was once the golden boy of crypto, and with a
Speaker 1: few friends, he built FTX into a company that was
Speaker 1: at one time valued at forty billion dollars. SBF also
Speaker 1: presided over its implosion he's now thirty two years old,
Speaker 1: and Thursday he'll learn how much of his life he'll
Speaker 1: spend behind bars once again. He'll face Judge Lewis Kaplan
Speaker 1: in a federal courthouse in Lower Manhattan.
Speaker 2: The setting, I mean, one thing that is sort of
Speaker 2: different from what you might see on television is incredibly
Speaker 2: quiet right there. Like there's not a lot of movement.
Speaker 2: No one's with a few exceptions are they're not reacting
Speaker 2: to things. It's almost it's deliberately shorn of emotion and
Speaker 2: all of the kind of pomp and circumstance that somebody
Speaker 2: like SBF kind of relied on for a lot of
Speaker 2: his you know, sort of rise like he was this
Speaker 2: media darling. He's like often playing to crowds in various
Speaker 2: ways or playing to Twitter.
Speaker 1: Max Chafkins says it's one reason why Sam Bankman Freed's
Speaker 1: decision to take the stand in his own defense backfired
Speaker 1: so spectacularly.
Speaker 2: And I think one it was sort of staggering watching
Speaker 2: him when he testified. He kind of gave the same
Speaker 2: testimony that he had been doing on like podcasts and interviews,
Speaker 2: like sort of kind of just like talk and talk
Speaker 2: and talk talk about all the nuances and complexities.
Speaker 1: There were no cameras or recorders allowed in the courtroom,
Speaker 1: but by the time SBF testified, he'd talked to reporters
Speaker 1: hundreds and hundreds of times.
Speaker 2: So it's a thrill to have him here and get
Speaker 2: his perspective.
Speaker 3: Sam, thank you so much for joining us.
Speaker 1: Yeah, thanks for having me as always.
Speaker 3: So today you're running ft action.
Speaker 2: What does it actually do. It's a back end you know,
Speaker 2: match engine, risk engine, custody system, say, front end, mobile app, website,
Speaker 2: API and everything in between.
Speaker 3: So that before I feel like you would hear that
Speaker 3: and you would think, wow, this must be the quirky
Speaker 3: kind of thinking that's turned him into the richest person
Speaker 3: under thirty in history.
Speaker 1: Someone who seemed so at ease in front of TV
Speaker 1: cameras and congressional committees was out of his element in court.
Speaker 3: And now he's up there accused of fraud and you're like,
Speaker 3: oh no, this is like a kind of made up
Speaker 3: story that doesn't even hang together very well.
Speaker 1: But for a long time it did. Bankman Freed was
Speaker 1: this almost mythical figure with a compelling story. He was
Speaker 1: seen as a genius, one of the youngest self made billionaires,
Speaker 1: ever and a man on a mission to save the
Speaker 1: world by getting rich.
Speaker 2: So Sam Bangmnfreed, before he got into cryptocurrency, was a trader,
Speaker 2: very smart, mit educated trader. He worked for Jane Street
Speaker 2: and was also closely involved with the effect of Altruism movement,
Speaker 2: which is a charitable sort of extremely online kind of
Speaker 2: hip with the Kid's charitable thing where it's about trying
Speaker 2: to essentially trying to give your money in the most
Speaker 2: effective way, in a way that benefits people. Sam Mgmunfree
Speaker 2: brought into like a very specific version of that, which
Speaker 2: was that earning to give it's called and it's where
Speaker 2: you try to earn as much money and then give
Speaker 2: it away.
Speaker 1: Max has written the definitive piece on SBF's mom and dad,
Speaker 1: who are on the faculty at Stanford Law School.
Speaker 2: His parents are both famous in different ways. His father
Speaker 2: is a tax lawyer who's friendly with a lot of
Speaker 2: business people in Silicon Valley. His mother is an ethicist,
Speaker 2: a pretty well respected ethicist. And I think that second thing,
Speaker 2: his mother's identity, really gave some credibility to his whole thing.
Speaker 2: With effective altruism. It was like there were pieces written,
Speaker 2: you know, serious pieces that essentially said, you got to
Speaker 2: believe this guy because of who his parents are, which
Speaker 2: now when you say it in retrospect, seems kind of crazy,
Speaker 2: but I mean it's kind of like an example of
Speaker 2: the way that privilege protects people. I mean, he was
Speaker 2: a very, very privileged guy and he used it to
Speaker 2: his advantage.
Speaker 1: SBF basically grew up on the Stanford campus, very familiar
Speaker 1: with the unique culture of Silicon Valley, and he looked
Speaker 1: the part like he.
Speaker 2: Had this kind of crazy curly hair, he wore T
Speaker 2: shirts and these like really like baggy saggy shorts, and
Speaker 2: these like old running shoes, and like it was all
Speaker 2: a part of this presentation which suggested, I think to
Speaker 2: a lot of people, especially a lot of very sophisticated investors,
Speaker 2: who in one way or another have internalized a lot
Speaker 2: of stereotypes from Silicon Valley about like what a brilliant
Speaker 2: guy looks like that this was another Mark Zuckerberg.
Speaker 3: He seemed above it all, you know, and that really
Speaker 3: impressed the venture capitalists who backed FTX at this big valuation.
Speaker 3: I mean, famously, he would play video games during interviews
Speaker 3: or important pitches, and when people noticed this, they were
Speaker 3: only more impressed They're like, Wow, this is a guy
Speaker 3: who he really doesn't need our money. He's playing League
Speaker 3: of Legends. Well, he pitches us on investing out a
Speaker 3: forty billion dollar valuation, Let's give him an even bigger check.
Speaker 1: SBF presented himself as someone who wasn't concerned with appearances
Speaker 1: or with impressing people.
Speaker 3: He had this image that he was kind of the
Speaker 3: responsible one in crypto, the one who was advocating for
Speaker 3: sensible regulations that would tame the market and make it
Speaker 3: safe for investors. And he became like the face of crypto.
Speaker 1: And FTX became one of crypto's flagship companies in exchange
Speaker 1: where anybody could buy and sell bitcoin and other cryptocurrencies.
Speaker 3: So, I mean, if you think of FTX, like E trade,
Speaker 3: customer might send in one thousand dollars, they buy a
Speaker 3: share of Apple the opener E trade app, they see
Speaker 3: that they have one share of Apple. It's just something
Speaker 3: that you don't really question. There's the same with FTX
Speaker 3: and you the customers sent in money by bitcoin or whatever,
Speaker 3: and they'd see it when it opened the app.
Speaker 1: FTX promised it would keep customers money safe, but Bankman
Speaker 1: Freed and his colleagues were taking that money unbeknownst to customers,
Speaker 1: and they were using it to buy luxury real estate
Speaker 1: and to make big speculative investments. And when that came
Speaker 1: to light, there was basically a bank run. FTX. Customers
Speaker 1: tried to take out what they had on the site.
Speaker 3: There was a rush of customers wanted to withdraw their money,
Speaker 3: and what they found was it wasn't there. There was
Speaker 3: an eight billion dollar hole.
Speaker 1: Investors panicked, crypto prices collapsed, FTX went bankrupt, and then
Speaker 1: bankman Freed was arrested. He was convicted less than a
Speaker 1: year later, and right after the verdict was delivered, US
Speaker 1: Attorney Damian Williams stood outside the courthouse and told reporters
Speaker 1: the case was designed to send a message. It's a
Speaker 1: warning this case to every single fraudster out.
Speaker 4: There who thinks that they're untouchable, or that their crimes
Speaker 4: are too complex for us to catch, whether they're too
Speaker 4: powerful for us to prosecute, or that they could try
Speaker 4: to talk their way out of it. When they get caught,
Speaker 4: those folks should think again and cut it out. And
Speaker 4: if they don't, I promise we'll have enough handcuffs for
Speaker 4: all of them.
Speaker 1: Sam Bankman freed could spend the rest of his life
Speaker 1: in prison, and his fate rests in the hands of
Speaker 1: Judge Lewis Kaplan, who will decide on a sentence based
Speaker 1: on his understanding of the events that led to ftx's collapse.
Speaker 1: After the break, what Max and Zeke have discovered, and
Speaker 1: the real story behind SBF's downfall. Ever since Sam bankman
Speaker 1: Fried was found guilty, a narrative has emerged that SBF
Speaker 1: was a bad apple, that his decision it's tanked a
Speaker 1: multi billion dollar company.
Speaker 3: Naturally, people are comparing Sam BigMan Fried to other famous
Speaker 3: fraudsters like Elizabeth Holmes or Bernie Madoff, and they're saying, hey,
Speaker 3: look at FTX. I mean, the app worked, it was
Speaker 3: kind of popular. Therefore, this isn't like a fake blood
Speaker 3: testing machine. There was something real there.
Speaker 1: Which is what journalist Michael Lewis said. He believes he
Speaker 1: wrote a biography of SBF, and it's a conclusion. You
Speaker 1: can hear him emphasizing in response to a question on
Speaker 1: CBS News's Sixty Minutes, what's your response to someone who
Speaker 1: hears us and says it's a.
Speaker 4: Fun story and it's crypto.
Speaker 3: In the Bahamas.
Speaker 4: But this is the oldest architecture.
Speaker 2: Of a financial collapse that's been going on for centuries.
Speaker 5: This isn't a Ponzi scheme. Like when you think of
Speaker 5: a Ponzi scheme, I don't know, Bernie Madoff. The problem
Speaker 5: is there's no real business there. The dollar coming in
Speaker 5: is being used to pay the dollar going out. And
Speaker 5: in this case, they actually had a great real business.
Speaker 5: If no one had ever cast a spurs on the business,
Speaker 5: if there hadn't been a run on customer deposits, they
Speaker 5: still be sitting there making tons of money.
Speaker 1: Max and Zeke say that's just not true. After pouring
Speaker 1: over thousands of pages of court documents and interviewing insiders,
Speaker 1: they say the narrative of a good business gone bad
Speaker 1: doesn't square with what they uncovered.
Speaker 3: I think what the record shows is that, in fact,
Speaker 3: this app would not have ever gotten to this level
Speaker 3: without the fraud from the start. It was bolstered by
Speaker 3: this misuse of the customer funds and by his willingness
Speaker 3: to lie to banks, to venture capitalists, to customers, to congress.
Speaker 2: The thing that's funny about this is he's supposed to
Speaker 2: be this like ridiculously rich guy and he's splashing money.
Speaker 2: But when you kind of scratch below that he had money,
Speaker 2: he had cash flow of problems, like almost from before
Speaker 2: the beginning, right. The only way he was able to
Speaker 2: get this money to invest. He had a lot of
Speaker 2: friends on Wall Street, but the money didn't come from them.
Speaker 2: Mostly it came from effective out Twist and they charged him,
Speaker 2: you know, insanely high interest rates page yeah, forty three percent.
Speaker 2: Like he's he's having to pay these like yousurius? Is
Speaker 2: that a word? You surius?
Speaker 3: Uh?
Speaker 2: You know interest rates? You know, this is not like
Speaker 2: nothing about this screams good business. And I think one
Speaker 2: of the reasons, not just because Michael Lewis is a
Speaker 2: famous journalist and a great writer that this has taken on,
Speaker 2: but also because the crypto industry, which is a you know,
Speaker 2: multi billion dollar industry. There are lots of other people
Speaker 2: who are very invested in this, in not not an FTX,
Speaker 2: but in the idea that this is a good business.
Speaker 2: Very much wants to believe that. Very much wants to
Speaker 2: believe the story that Sam Bankman Freed was telling on
Speaker 2: the way to committing this massive front.
Speaker 3: Like there was nothing fundamentally wrong with FTX, there's nothing
Speaker 3: fundamentally wrong with this idea that a crypto hedge fund
Speaker 3: could make billions of dollars, Like, actually, Sam was this
Speaker 3: bad apple who kind of inexplicably torpedoed the whole thing
Speaker 3: by stealing the customer money. But I think the truth
Speaker 3: is really that if he wasn't cheating from the beginning,
Speaker 3: he never would have gotten there.
Speaker 1: Zeke and Max say Bankman Freed used FTX as a piggybank.
Speaker 1: In twenty twenty one, FTX faced a one billion dollar
Speaker 1: loss after a trader exploited a bug in its software.
Speaker 1: A loss of that size could have been devastating to FTX,
Speaker 1: but Bankman Freed used his hedge fund to make it disappear.
Speaker 1: This chapter of SBF's life could end in one of
Speaker 1: a few ways. The judge could side with Bankman Fried's
Speaker 1: lawyers and give him a pretty short prison sentence that
Speaker 1: you could go with what the prosecution suggests, that's forty
Speaker 1: or fifty years, or Judge Kaplan could sentence SBF to
Speaker 1: decades more.
Speaker 2: There's a big leeway in the prosecution memo. They essentially
Speaker 2: say that he's very young, and although we want to
Speaker 2: make sure that he doesn't become a recidivist, doesn't like
Speaker 2: come out of prison and start another crypto company. He
Speaker 2: needs to be basically in prison during his working the
Speaker 2: rest of his career, but that when he's an elderly
Speaker 2: person he can get out. That's what the prosecution is
Speaker 2: asking for. Yeah, his lawyers are essentially saying, he's such
Speaker 2: a good guy, look at his charitable giving. I mentioned
Speaker 2: the effect of altruism. You know, he's got his whole
Speaker 2: life ahead of him. That's why you know five or
Speaker 2: six years would be more appropriate.
Speaker 1: It's up to Judge Lewis Caplan. He's been a federal
Speaker 1: judge since the early nineteen nineties, and Caplin presided over
Speaker 1: SBF's trial, during which bankmin Freed tried his patience over
Speaker 1: and over again. Let me ask you first just about
Speaker 1: the role that Judge Lewis Kaplan is going to play
Speaker 1: in all of this. It's his decision. Ultimately. I think
Speaker 1: you as eyewitnessed over the course if yes, the trial,
Speaker 1: but the pre trial proceedings a frosty dre I say,
Speaker 1: skeptical outlook that the judge had toward Sam bagmanfree. There
Speaker 1: were all of these missteps that made throughout the course
Speaker 1: of this.
Speaker 3: I mean even before the trial began, he had Sam
Speaker 3: sent to prison. Sam had been on house arrested his
Speaker 3: parents house, and then just kept violating the rules of
Speaker 3: this house arrest. Among other things, he used a VPN
Speaker 3: to watch the Super Bowl, and that's what he said.
Speaker 1: Yes, Judge very skeptical of this. That's argument. Yeah, the
Speaker 1: defense is holding out hope the judge will be sympathetic
Speaker 1: to a new argument tied to a pretty significant development,
Speaker 1: something unexpected that's come up in ftx's bankruptcy proceedings. It
Speaker 1: turns out many FTX customers may get their money back,
Speaker 1: and that's because bankruptcy lawyers have been very successful clawing
Speaker 1: back assets and also some of the investments SBF made
Speaker 1: have done pretty well.
Speaker 3: And Sam's lawyers are arguing, well, in that case, this
Speaker 3: guy should not be sentenced like he was the architect
Speaker 3: of an eight billion dollar fraud, and they're asking for
Speaker 3: a six and a half year sentence.
Speaker 1: The defense is arguing, if customers are likely to get
Speaker 1: their money back, who did SBF's actions really hurt. They're
Speaker 1: making the case that a harsh sentence isn't justified.
Speaker 3: And this question of how much money was lost really
Speaker 3: is critical because the sentence and guidelines depend on the
Speaker 3: amount of the fraud, and the prosecution cited a number
Speaker 3: of other fraudsters and the sentences they got and noted
Speaker 3: how much money was lost in those frauds to say, well,
Speaker 3: in this case, we think even longer sentence would be appropriate.
Speaker 1: But what Zeke and Max's reporting concludes and what prosecutors
Speaker 1: have argued in court is that's just not how this works.
Speaker 3: The weird thing is that just because the money has
Speaker 3: been found now, it doesn't mean that the fraud didn't happen.
Speaker 3: And the defense had actually tried to introduce this argument
Speaker 3: during the trial, and the judge had ruled before the
Speaker 3: trial he didn't think that that was relevant, and he
Speaker 3: actually had sort of a biting put down of this argument,
Speaker 3: and he told sam slawyers trying to say that the
Speaker 3: money has now been found, it would be like if
Speaker 3: you robbed Fort Knox, you went and bought a lot
Speaker 3: of lottery tickets, you hit the lotto, and then you
Speaker 3: said it meant that you shouldn't be found guilty of,
Speaker 3: you know, breaking into the fort and stealing the gold bars.
Speaker 3: So now they're trying that argument again maybe it's a
Speaker 3: maybe the judge will find it more relevant at sentencing,
Speaker 3: but he seemed pretty skeptical of it before.
Speaker 1: There were people then who thought that the collapse of
Speaker 1: FTX and Sam Bankman Freed's conviction could spell the end
Speaker 1: of crypto, But today the world of bitcoin is booming again.
Speaker 2: I honestly don't think it makes any difference to what's
Speaker 2: happening in crypto, because what is going on in the
Speaker 2: in the crypto industry, it is good times are happening,
Speaker 2: you know, And it's not just that the prices are
Speaker 2: going up. You have industry players, you know, going on
Speaker 2: TV and writing huge checks to you, members of Congress
Speaker 2: and political candidates, all trying to essentially make this industry
Speaker 2: less regulated than the one that allowed for you know, crimes.
Speaker 2: It's kind of wild how successful the industry has been
Speaker 2: at sort of cutting itself off from from the bad actors.
Speaker 2: And that's their argument, right, Their argument is that, hey,
Speaker 2: we've gotten the bad actors out. This is you know,
Speaker 2: now we're ready to build strength on strength or whatever,
Speaker 2: and it's clean and like giddy up.
Speaker 1: Prosecutors said they wanted this case to send a message.
Speaker 1: The length of the sentence the judge imposes will determine
Speaker 1: how powerful it'll be. But as Max said, many in
Speaker 1: the crypto industry have moved on Bitcoin is back trading
Speaker 1: your record highs, and it's unclear how much that message
Speaker 1: will resonate. What is clear is that the three of us, Max, Zeke,
Speaker 1: and I have an early bedtime before we go back
Speaker 1: to the courthouse one more time. This is the Big
Speaker 1: Take from Bloomberg News. I'm David Gera. This episode was
Speaker 1: produced by David Fox. It was edited by Stacy Vanick
Speaker 1: Smith and Mark Million. It was mixed by Ben O'Brien.
Speaker 1: It was fact checked by Naomi oung. Our senior producers
Speaker 1: are Naomi Shaven and Elizabeth Ponso. Nicole Beamster Gore is
Speaker 1: our executive producer. Sage Bauman is our head of Podcasts.
Speaker 1: Thanks for listening. Please follow and review The Big Take
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