Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Wednesday, December twenty one. Um Sam Bankin
Speaker 1: Freed might not have expected that his time in the
Speaker 1: Bahamas would include the inside of a jail cell. BANKMN
Speaker 1: Freed and his inner circle at FTX and Alameda Research
Speaker 1: relocated operations to the Bahamas from Hong Kong in late
Speaker 1: The Bahamas based employees and executives seemed to enjoy what
Speaker 1: looked like a lavish island lifestyle, think yachts and penthouses
Speaker 1: with ocean views. But how much of that lifestyle was
Speaker 1: funded improperly? Is that the center of allegations and charges
Speaker 1: filed by everyone from the U s Department of Justice
Speaker 1: to the Securities and Exchange Commission to the CFTC. The
Speaker 1: Department of Justice alleges that, among other things, SPF misappropriated
Speaker 1: customer deposits, and there's a brewing fights between officials in
Speaker 1: the US and local regulators and the Bahamas over just
Speaker 1: who is in charge of what. For more on how
Speaker 1: things shook out in the Bahamas in this unfolding story
Speaker 1: were joined by Bloomberg Reports. Zeke Fox. You know, when
Speaker 1: this company was worth thirty billion dollars overnight, it was like,
Speaker 1: all right, so he wants to have Larry David in
Speaker 1: the ad. I guess you can afford it. But now
Speaker 1: it all looks very different. When this is like customer money,
Speaker 1: that was like allegedly, you know, wasted and Carli Wanna.
Speaker 1: I did talk to a few people who worked in
Speaker 1: the crypto scenes, you know, some who were not from Bahamas,
Speaker 1: some who were from Bahamas, and across the board it
Speaker 1: sounded like people were saying, this does set us back
Speaker 1: and also sets us back with regards to Bahamas as
Speaker 1: a crypto hub. Hello to both of you, and thank
Speaker 1: you so much for taking the time. Thanks a lot.
Speaker 1: Thank you, Zeke. Why don't I start with you. You
Speaker 1: have one of the I think more interesting gigs at Bloomberg.
Speaker 1: What is it that you do. I am mostly writing
Speaker 1: stories for our magazines, Bloomberg Business Week, in Bloomberg Markets,
Speaker 1: and I try and write about crazy things happening in
Speaker 1: the world of finance, whatever they are. There's been a
Speaker 1: lot of that, and we'll talk about one in particular,
Speaker 1: very shortly. Now zeke as a person who gets to
Speaker 1: write about those things, you know, you sort of get
Speaker 1: to look and be like, oh, that seems wild. I'm
Speaker 1: going to check that out. What prompted you to write
Speaker 1: one of the first major profiles of Sam Bankman Freed. Yeah,
Speaker 1: I had sort of stopped paying attention to crypto for
Speaker 1: a while until I went to UH conference last year
Speaker 1: where I met Bankman Freed. He had just announced that
Speaker 1: he was renaming he was paying for the name rights
Speaker 1: to the Miami Heats Arena, and he was at this
Speaker 1: conference in Miami to celebrate, and it was almost like
Speaker 1: it was kind of like too crazy to be true.
Speaker 1: There was like this twenty eight twenty nine year old
Speaker 1: guy who seemingly came out of nowhere and credit to Forbes,
Speaker 1: which had put them on their Billionaire's list, and written
Speaker 1: a story about him and said that he was worth
Speaker 1: more than twenty billion dollars, and apparently he was like
Speaker 1: this great trader who had had a crypto hedge fund
Speaker 1: and then he started in exchange, which became really popular overnight.
Speaker 1: And the part that like really struck me was he
Speaker 1: said that when he was a teenager he had decided
Speaker 1: I really want to do good for the world. What's
Speaker 1: the best way? And he had fallen in with this
Speaker 1: group called effective altruists, who had convinced him that for
Speaker 1: someone with his math skills, volunteering for like an animal
Speaker 1: rights charity, something he'd done in the past, was actually
Speaker 1: not a good use of his time, and that the
Speaker 1: better thing to do would be to make a lot
Speaker 1: of money and give it away. And so, like when
Speaker 1: he was in college, he was like, all right, my
Speaker 1: plane is I'm gonna make a lot of money and
Speaker 1: give it away. And then here he was, like, less
Speaker 1: than ten years later, apparently worth twenty billion dollars. So
Speaker 1: I just thought this was like a crazy story, almost
Speaker 1: like didn't believe it. I wanted to see it for myself,
Speaker 1: and yeah, that's what got me interested. And so you
Speaker 1: do this profile about this dude who had, at the
Speaker 1: time of writing not actually given away a lot of money.
Speaker 1: Is that correct? I mean depends how you define it.
Speaker 1: But I went down to the Bahamas this February and
Speaker 1: at the time he told me, and I actually think
Speaker 1: this still checks out that he had given away something
Speaker 1: like a hundred or two hundred million dollars, which you know,
Speaker 1: a lot for a nine year old, but less than
Speaker 1: he had spent on marketing for ft X by that point,
Speaker 1: just even stuff that I knew about. There was like
Speaker 1: the stadium naming rights, there was a Super Bowl commercial.
Speaker 1: But I went down there. I spent two days hanging
Speaker 1: out at their offices in the Bahamas, and I wrote
Speaker 1: a profile that you know, did not say, hey, look
Speaker 1: out for f t X. This place is sketchy. It
Speaker 1: was mainly about, Okay, this guy's making a lot of
Speaker 1: money on crypto. You may think that's kind of sketchy
Speaker 1: in itself. Is he really going to give it away?
Speaker 1: So of course, now I'm kicking myself that I didn't
Speaker 1: see a lot of red flags that like should have
Speaker 1: been obvious at the time. So February you go, you're
Speaker 1: in the Bahamas, you write this profile. November December, you're
Speaker 1: back in the Bahamas for a very different kind of story.
Speaker 1: In November at all, like in one week, the whole
Speaker 1: thing blew up. What do you make of the spectacular collapse?
Speaker 1: Sam Bank and freeds f TS authorities and regulators are
Speaker 1: investigating whether f TX has mishandled custom were funds, and
Speaker 1: we heard about some of those stolen funds at the hearing,
Speaker 1: FDx groups collapse system from absolute concentration of control in
Speaker 1: the hands of the group. Lots of investigations going on
Speaker 1: both here and in the Bahamas. F t X is
Speaker 1: one of these absolute travesties in the history of financial
Speaker 1: and like now Sam's been arrested. We've seen the criminal charges.
Speaker 1: But in early November it looked pretty clear that like
Speaker 1: he had taken the exchanges customers money and gambled it
Speaker 1: away using his hedge fund. But no charges have been filed. Yeah,
Speaker 1: no charges have been filed. So I decided to go
Speaker 1: back and talk with Sam. He kind of answers questions
Speaker 1: if you asked them, so I thought that by talking
Speaker 1: to him, I might learn something about what had happened
Speaker 1: at ft X. After some texting, he invited me to
Speaker 1: his apartment in this crazy resort called Albany on the
Speaker 1: island of New Providence, which had not been part of
Speaker 1: the tour the first time. And as soon as I
Speaker 1: walked in, I could totally see why, because he liked
Speaker 1: to have this image that he really didn't care about money,
Speaker 1: like he talked about. He drove a Toyota Corolla. He
Speaker 1: always wore the same kind of ratty clothes. He didn't
Speaker 1: do his hair. One time he testified before Congress and
Speaker 1: his shoes were laced into like a big knock because
Speaker 1: he just bought him at payless or something like that.
Speaker 1: So he was really going for this image that like
Speaker 1: money wasn't important to him. But this resort of Albany,
Speaker 1: I mean, I've never been anywhere like it. Like it's
Speaker 1: these eight apartment towers around this mega yacht marina and
Speaker 1: there's like billionaires. There's a fracking billionaires like giant yacht
Speaker 1: out front. He definitely wouldn't have fit in there with
Speaker 1: his look. And then his apartment at this place cost
Speaker 1: thirty million dollars. At this point, there was a lot
Speaker 1: of like crazy rumors going around the tabloids that this
Speaker 1: is where he had lived with the other top executives
Speaker 1: and they had been Yeah, yeah, I don't think that's true.
Speaker 1: It was almost being painted as like a Wolf of
Speaker 1: Wall Street type situation and really the opposite of the
Speaker 1: image she had been projecting. And he wrote that it
Speaker 1: was like an abandoned frat house. Yes, Like when I
Speaker 1: came in there, the first thing, the elevator opens into
Speaker 1: the apartment. The first thing I noticed was like there
Speaker 1: were all these shoes because all these like FTX employees
Speaker 1: had been living or staying in this apartment and they
Speaker 1: had just fled, like when ft X was collapsing, they
Speaker 1: all left, and a lot of them hadn't taken their things.
Speaker 1: And in the bathroom there was it seemed like the maids,
Speaker 1: like the maid service had stopped. Like the bathroom there
Speaker 1: were like towels that needed to be done, dishes in
Speaker 1: the kitchen. Sam led me to a small bedroom which
Speaker 1: seemed like it was probably one of the more modest
Speaker 1: rooms in the apartment, and that's where we we mainly talked.
Speaker 1: And at this point he hadn't done like eight million interviews,
Speaker 1: so it was it was more novel for me to
Speaker 1: hear some of his explanations about what happened. What was
Speaker 1: your immediate takeaway coming out of that conversation? Was this
Speaker 1: someone who seemed contrite? Was this someone who seemed confused?
Speaker 1: Like what what was the vibe? So I really had
Speaker 1: no idea what to expect. I was struck by how
Speaker 1: similar he seemed. So the first time I met him,
Speaker 1: the way that he talked to his mood seemed like
Speaker 1: he was kind of chipper. He seemed kind of happy
Speaker 1: to talk about all this stuff. It was hard to
Speaker 1: sort of interpret why he was like that. But I
Speaker 1: would ask anything, and he'd just give these really long answers.
Speaker 1: He liked to get into like technical stuff about the
Speaker 1: value of the different like weird tokens that were on
Speaker 1: Alambida's balance sheet or f tx's accounting system. But as
Speaker 1: I was thinking over like what he was saying, it
Speaker 1: was just a lot of it was not was not
Speaker 1: very plausible, Like it would take huge leaps of faith
Speaker 1: to believe some of this stuff. And it didn't seem
Speaker 1: like given that the exchange had just collapsed and people
Speaker 1: are reporting that it was like probably a massive fraud,
Speaker 1: it didn't seem still likely. His story just seemed incredibly unlikely. Carly.
Speaker 1: You also went to the Palmas, and I should say
Speaker 1: I sent you to the Pomas and email and he
Speaker 1: was like, hey, can you get on a plane immediately
Speaker 1: after Thanksgiving? Thank you very much. And when you went there,
Speaker 1: you also encountered some of those incredibly fit older people
Speaker 1: in Linen, at the compound and on the island. What
Speaker 1: were your experiences. I didn't get up to the penthouse
Speaker 1: I did, however, walk around the grounds, I would say similarly.
Speaker 1: I mean it was insane. There were like multi tiered
Speaker 1: yachts in the marina, really quiet, like weirdly quiet, and
Speaker 1: the beach was I luckily happened to get there like
Speaker 1: right before sunset, and I just kind of watched it.
Speaker 1: And that is the nicest suns that most beautiful beach
Speaker 1: I've ever seen. And it really was just incredibly pristine,
Speaker 1: despite the fact that I believe there was a golf
Speaker 1: tournament or classic going on that weekend. No, no traces
Speaker 1: of that where I was. You also went to the
Speaker 1: Margarita Ville, Yes, why? So? Interestingly, the unsecured creditors raft
Speaker 1: X are still private. That's yet to be released in
Speaker 1: court documents. However, the unsecured creditors for Alameda have been released,
Speaker 1: and it's outside of insiders, and one of the biggest
Speaker 1: ones is the Margharita Ville in the Bahamas. They owe
Speaker 1: them over fifty dollars. So that was the question of, Wow,
Speaker 1: what happened there? How do you spend Margaritaville? Right right? Yeah?
Speaker 1: And why why the Margharita Ville? What was it? I
Speaker 1: love the Margarita Ville, but still super weird. And is
Speaker 1: it a bar. That restaurant is a receipt, Yeah, I forget.
Speaker 1: Not everybody is familiar with margaryfl Margharita Ville. I mean
Speaker 1: it has a restaurant. You can go to various restaurants.
Speaker 1: There is a restaurant in Bahamas. But there is also
Speaker 1: a resort, the resort, as I learned when I called
Speaker 1: the restaurant and they said that I needed to call
Speaker 1: the resort. The restaurant is not affiliated with the resort.
Speaker 1: They're separate. So it was in fact that Alameda owed
Speaker 1: the money to the resort. So went to the resort.
Speaker 1: Managers declined to comment. The staff, however, who worked there,
Speaker 1: were very forthcoming it. You know, they had interacted with
Speaker 1: and seen the f t X people, and they said
Speaker 1: that people affiliated with f t X had been staying
Speaker 1: at the Margharita Ville for several months. It was different people.
Speaker 1: They would filter in an outstaying for weeks or months
Speaker 1: at a time, depending on who you were. Um they
Speaker 1: had about twenty rooms. There's the Margarita Ville resort, but
Speaker 1: there's all across the road there's a nicer resort that
Speaker 1: if you know Jimmy Buffett, which this is a Jimmy
Speaker 1: Buffett themed resort. It's a pun. It's called One Particular Harbor. Yeah,
Speaker 1: so the people affiliated with fd X, we're staying there
Speaker 1: and every day, on on work days, a shuttle would
Speaker 1: come pick them up in the morning and then drop
Speaker 1: them back off at the end of the day, you know,
Speaker 1: late afternoon, early evening. UM staff said that they were
Speaker 1: they were kind, they were friendly that you know, they
Speaker 1: would hang around the pool and the restaurants. Up next,
Speaker 1: more on Sam bank Win Freed and what he left
Speaker 1: behind in the Bahamas with my colleagues Zeke Fox and
Speaker 1: Carl Wanna, what was it like for the bohemians, Like,
Speaker 1: did you talk to when you were there, any of
Speaker 1: the other folks in the Bahamas crypto scene, any folks
Speaker 1: from you know, the government, the regulators who are now
Speaker 1: being confronted with questions about how they let all this
Speaker 1: go down allegedly on their watch. I had an interesting
Speaker 1: conversation with a employee of ft X who was hired
Speaker 1: locally and he had been in charge. He was sort
Speaker 1: of like a gopher and a driver for them. So
Speaker 1: we've been around these people all the time. And he
Speaker 1: told me, like listen, these reports that these people were
Speaker 1: like going crazy are not true. He has said something
Speaker 1: to the effect of, like, bro, these were a bunch
Speaker 1: of nerds, Like come on. And I asked Sham about
Speaker 1: some of his spending back on my first interview in February.
Speaker 1: Maybe it's too charitable to still believe this, but it
Speaker 1: seemed like what he was saying was like, listen, we're
Speaker 1: gonna make so many billions that like, this little amount
Speaker 1: of spending on like naming rights or say, putting employees
Speaker 1: up in a hotel when you could have found a
Speaker 1: cheaper one is like a rounding error. And you know, frankly,
Speaker 1: I almost sort of believed it at first. You know,
Speaker 1: when this company was worth thirty billion dollars overnight, it
Speaker 1: was like, all right, so he wants to have Larry
Speaker 1: David in the AD. I guess you can afford it.
Speaker 1: But now it all looks very different. When this is
Speaker 1: like customer money that was like allegedly you know, wasted. Yeah,
Speaker 1: and I'll throw it out there too. That before going
Speaker 1: to Bahamas, I was in Miami and it was interesting
Speaker 1: because those were you know, their crypto hubs, but the
Speaker 1: vibe was very different. I mean Miami is a really,
Speaker 1: really really big city, and it seemed like, well, fd X,
Speaker 1: how do u s headquarters that you know, was supposed
Speaker 1: to be moving there from Chicago, The footprint on that
Speaker 1: city wasn't as big among people who were in the
Speaker 1: crypto community. And while there are other crypto companies that
Speaker 1: have set their sights or their eyes on Bahamas or
Speaker 1: have at least some people there, I mean, talking to
Speaker 1: people was just very different. Fd X really touted itself as,
Speaker 1: for one reason or another, a Bahamian company, and like
Speaker 1: Zeke said, they hired people who were on the island
Speaker 1: not only to work with local businesses, but also to
Speaker 1: hire people to do work with the crypto exchange itself.
Speaker 1: And so I did talk to a few people who
Speaker 1: worked in the crypto scenes, you know, some who were
Speaker 1: not from Bahamas, some who were from Bahamas, and across
Speaker 1: the board, it sounded like people were saying, this does
Speaker 1: set us back. It also sets us back with regards
Speaker 1: to Bahamas as a crypto hub. Can I defend the
Speaker 1: Bahamas for a minute, Yeah no, look clearly like their
Speaker 1: oversight was lacking, But like the US just filed all
Speaker 1: these charges right once it collapsed, they found all the
Speaker 1: enough evidence to charge BigMan Freed with all this illegal activity,
Speaker 1: Like there was nothing stopping them from finding this stuff
Speaker 1: out earlier, and they didn't either. So I don't think
Speaker 1: the blame is entirely on the Bahamas for failing to
Speaker 1: regulate this exchange. Well, I think one of the things
Speaker 1: that stuff really happening is a heroic amount of finger
Speaker 1: pointing right now, Like reading some of these filings and
Speaker 1: the statements from various regulators is I wouldn't say it's
Speaker 1: quite the level of drama as a soap opera, unless
Speaker 1: you are perhaps a person who works at Bloomberg and
Speaker 1: thinks about things this way. But you know, you have
Speaker 1: these very feisty statements coming out from you know, the
Speaker 1: Bahamas Securities and Exchange Commission essentially saying John J. Area
Speaker 1: the third is ignoring our emails and misrepresenting everything that
Speaker 1: we're saying. And then you have, you know, in court
Speaker 1: filings from various other folks people being like, we would
Speaker 1: like to assert that we have all the rights over
Speaker 1: this thing, and we're not sure why and how the
Speaker 1: Bahamas feels like they need to get involved, you know.
Speaker 1: So it's it's this sort of sovereign face off as
Speaker 1: it were. And I think one one piece of context
Speaker 1: here is this is not the first time that something
Speaker 1: like this has happened, like multiple different Caribbean jurisdictions BA, Bahamas, Bermuda,
Speaker 1: Antigua that have at various points presented themselves. As you know,
Speaker 1: offshore financial centers have often had to reckon with wreckage
Speaker 1: when things go wrong, and I think we're seeing a
Speaker 1: version of this playing out in crypto. See as a
Speaker 1: person who's chronicled lots of financial weirdness over time. Where
Speaker 1: do you think this is going to go from here? Oh,
Speaker 1: they were quick to file the charges because it was
Speaker 1: such a high profile case, but these things take like
Speaker 1: years to play out. So I mean the authorities have
Speaker 1: basically said they're looking at other people. There will be
Speaker 1: more more people charged, But I think we're only only
Speaker 1: just now was the Theorist case results, and like when
Speaker 1: did that break? So I think we're gonna be hearing
Speaker 1: about this um for years And I doubt this is
Speaker 1: the last company to blow up in crypto, although like
Speaker 1: how many companies are left? More on that on future
Speaker 1: episodes of the podcast. Thank you Carly and thank you
Speaker 1: Ze for joining us today, thanks a lot. Thank you.
Speaker 1: You can find more of their reporting on the Bloomberg
Speaker 1: Terminal and on Bloomberg dot com, and be sure to
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Speaker 1: Original music by Leo Sidrn. I'm Stacy Marie Schmal. We'll
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